Tom Brown recently posted a rebuttal to Jason Zweig’s Wall Street Journal column. Geoff Gannon also wrote a great follow-up article with more on Benjamin Graham. I suggest reading all three articles.

In this post, I wanted to comment on a few aspects of Tom Brown’s argument, some of which I have been thinking about lately. The following is a quote from Tom’s post:

True value investors, by contrast, tend not to worry what might happen in the interim. Instead, they come up with their best estimate of a financial company’s intrinsic value by estimating the magnitude of likely losses along with its “normalized” earnings level two or three years out. They then compare that estimate of intrinsic value with the stock’s price today. Zweig says such estimates are impossible. I disagree.

I have always enjoyed Tom’s posts, but I can see a few problems with the above statement. (As a disclaimer, I know relatively little about financial companies, as they are out of my circle of competence. I hold no interest in any financial beside Berkshire Hathaway.)

First observation:
With highly leveraged financial companies, what happens in the “interim” can not only hurt you, it can kill you. Compare a bank to a retailer. Let’s say that you find a cheap retailer, where you estimate normalized earnings a few years out to derive its value. Assuming your estimate is correct, you should be able to ride out any short-term volatility to obtain the long-term value of the company. Like Tom says, that is the foundation of value investing.

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The following three videos from TED are not necessarily related to business or investing. But you should watch them anyway.

Benjamin Zander: Classical music with shining eyes

Benjamin Zander has two infectious passions: classical music, and helping us all realize our untapped love for it — and by extension, our untapped love for all new possibilities, new experiences, new connections. [See Zander’s book “The Art of Possibility“].

Chris Abani tells stories of people: People standing up to soldiers. People being compassionate. People being human and reclaiming their humanity. It’s “ubuntu,” he says: the only way for me to be human is for you to reflect my humanity back at me. [See his first TED speech here].

Sir Ken Robinson makes an entertaining and profoundly moving case for creating an education system that nurtures (rather than undermines) creativity. [This is an old talk, but if you’ve never seen it, stop everything you’re doing and watch it now.]

Christmas comes but once a year.

This year, it comes three months early for those in the world of value investing. The following two books will be released at the end of September:

September 26 — Security Analysis: Sixth Edition

After a 20 year hiatus, McGraw-Hill is releasing the latest updated edition of Ben Graham’s original Security Analysis. The update includes: a forward by Warren Buffett; a chapter by James Grant; introductions by Howard Marks, Bruce Berkowitz, and Bruce Greenwald; and commentary from Seth Klarman, Roger Lowenstein, and Glenn Greenberg. An impressive lineup. New subjects will include international investing, hedge funds, absolute return strategies, and the efficient market hypothesis.

September 30 — The Snowball: Warren Buffett and the Business of Life

The definitive, nearly 1,000 page biography on Warren Buffett. Written by Alice Schroeder, the insurance analyst who caught Buffett’s eye after her report on Berkshire Hathaway. Much has been written about Buffett’s life, but never from his perspective. My guess is that many details will emerge about Buffett’s personality and the mindset that makes him the greatest investor of all time.