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Tariq Ali writes a great post about the follies of our fellow investing clan. I disagree with a few of the specific points he brings up but think the overall message is right on.

It’s wrong to judge the quant and technical analysis firms without knowing exactly how they work. If an investor who was just starting out asked me what style I suggested, value investing would be my answer, hands down. It’s much easier to grasp, and anyone can do it—you don’t need a PhD or any extraordinary skills. But that doesn’t mean that the other forms of investing aren’t valid.

Some traders are just lucky. Some value investors are just lucky. Both styles have practitioners who are phenomenal at what they do, and who have proved it over time. Until you’ve practiced all of these forms of investing, it’s hard to judge which is more valid.

The Headcount

Using the number of employees at a firm to judge success is misleading. Again, I don’t know much about them, but many don’t just run a single fund. Citadel for example has a wide range of investment-related activities (much like investment banks like Goldman Sachs). Also, it’s hard to get an idea of exactly how many of those employees are the actual decision makers for the portfolio (what really matters).

Warren Buffett has 1.5 employees (himself plus half of a Munger) on the investing side, and manages over $100 billion. I’d say he has done just fine over the years. There are three clear advantages to having a limited headcount. One, it avoids group-think when making decisions. Two, there’s no need to worry about “one-employee disasters”, ala Amaranth and Brain Hunter. And three, more obviously, it lowers overhead for small firms.

Eddie Lampert has a few dozen employees. Mohnish Pabrai has 1.7 employees. Neither is the “correct” amount as it all depends on your investing style. From what I’ve heard, Pabrai does little to no scuttlebutt. Lampert sends his analysts out on research and fact gathering missions and is constantly analyzing mountains of data regarding his positions. Both investors have proven they are highly capable and successful.

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Some interesting reading material for the holiday week:

On incentives, biases, and lollapalooza effects / Todd Kenyon discusses Charlie Munger’s Mental Models and their application to the recent meltdown in the Financial markets.

Malone’s Playbook / Goes over a brief history of John Malone’s media companies. Also discusses his latest strategies and what he may be planing in the future. As with anything to do with John Malone, it’s an interesting read. Here’s a quote from Liberty’s CEO regarding the split up of IAC: “[the break-up] will allow us to begin a dialogue with IAC about how we are going to work together in the next phase of our relationship.”

The Evolution of an Investor / A great (and long) story on Blaine Lourd, written by Michael Lewis (author of Moneyball and Liars Poker). A good quote from the article: “As a group, professional money managers control more than 90 percent of the U.S. stock market. By definition, the money they invest yields returns equal to those of the market as a whole, minus whatever fees investors pay them for their services. This simple math, you might think, would lead investors to pay professional money managers less and less. Instead, they pay them more and more.”

Think Disruptive / Another article in Portfolio - this time by Andy Grove (former CEO of Intel). Grove talks about innovation, electric cars, and the benefits of being a big company.

On the 45th day of every quarter, fund managers and institutions must file their 13Fs. For anyone managing over $100 million in assets, this list of holdings (for the past quarter) gets published on the SEC’s website. Another great resource for monitoring the portfolio’s of super-investors is GuruFocus.

Below is a list of 5 stocks that were added in the last quarter to the portfolio’s that I watch. These are either potentially interesting investments or just companies to keep an eye on.

1. The Children’s Place Retail Stores (PLCE) — Okumus Capital, Carl Icahn, David Einhorn — Operates 1,193 children’s stores under the Children’s Place and Disney Store names. Down recently because of lower sales forecasts, an internal investigation into policy violations, and problems with their Disney license. Put itself up for sale last month, with the former CEO (who resigned in September) as a potential buyer. Children’s Place has a cheap looking EV/EBIT ratio of 5.6x.

2. CarMax (KMX) — Warren Buffett — Berkshire’s buy sent the shares up over 7% today. CarMax is a great company that’s down from its recent all-time high. Growing quickly over the past few years, CarMax looks relatively undervalued.

3. Stamps.com (STMP) — Mohnish Pabrai — An interesting company with high barriers to entry and return on invested capital. Some downside protection with the large cash balance. If you’re confident that management will continue to grow the customer base, STMP could have a lot of potential.

4. The Home Depot (HD) — Eddie Lampert — Lampert is usually very concentrated, holding no more than 5-7 stocks. So any of his major purchases are worth a look. Home Depot has been beat down lately for a number of reasons. Determining how much the housing downturn will affect earnings is one of the key aspects of this investment. HD is a good company that needs some work, but could be a very successful investment in the long-term.

5. Macy’s Inc. (M ) — Carl Icahn, Fine Capital, Okumus Capital, Snow Capital — Formerly Federated Department Stores, Macy’s has 850 stores under the Macy’s and Bloomingdale’s names. Has been running into problems ever since acquiring May Department Stores in 2005. Down 35% in the last six months. Authorized a huge $4 billion share buyback in April. Macy’s doesn’t look too cheap based on current earnings, but has potential as a turnaround.

Disclosure: I don’t own any stocks mentioned in this post.

There have been a lot of articles and blog posts recently regarding the split-up of IAC/InterActiveCorp (IACI). Basically, IAC is an internet/retail/media conglomerate that has been trading at a discount because of its complexity. Last Monday, Barry Diller announced that IAC will be splitting up into 5 separately traded public companies. I won’t go into too much detail as it has been discussed more thoroughly elsewhere. (A few good descriptions can be found here and here).

The two divisions that I’m most interested in as businesses are HSN and Ticketmaster. Below I go over HSN in more detail. Out of all five, I think that (depending on timing) HSN, Interval and LendingTree will have the most downside pressure once spun off.

I don’t know much about LendingTree. But with what’s going on in the housing and mortgage sectors right now, investors will probably dump it in favor of IAC’s more desirable properties. Namely Ticketmaster and the IAC internet properties.

Home Shopping Network

The Home Shopping Network (HSN) is the largest division of IAC in terms of sales. Out of the businesses that IAC currently owns, HSN was also the first to be acquired by Barry Diller. It sells a variety of products over the air, 24 hours a day, in over 89 million homes across the world. HSN has a 30% share of the home shopping market, with QVC(owned by John Malone/Liberty Media) and ShopNBC accounting for the other 60% and 10%, respectively.

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