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 To the many people I have met on this website over the past two years:

As you can see, it has been two months since I last updated the site. I spent last fall in Dallas during a family medical crisis. My father, Ken Davey, passed away in November, and, since then, I've been attending to family matters most of the time. If I were to write about this experience, it would read more like a black comedy than The Year of Magical Thinking. My Dad had a wit and a well-honed sense of drama, and he's continued to surprise and entertain us weeks after his death. Lately, I've been sorting through the hundreds of books in his collection, and finding little notes and what seem to be coded messages inside some of them that are understandable only to my sister and myself. Creating little puzzles that would harness my detective instincts was so very like my Dad.

The experience of being away from the website also has given me a chance to reflect on the purpose of this blog. When I was a Wall Street analyst, I was rewarded for being intensely curious. I was willing to raise questions and notice financial pattern deviations even when I didn't have the answers to why they were occurring. I tried to combine the "auditor's nose" with observations about the behavioral patterns of the companies I followed and their managements. It has been a pleasure and privilege to take these same skills online. 

With some exceptions, though, this kind of writing really belongs in a different forum that allows for more deeply realized explanations without the pressure of writing in real-time. So while I will keep posting on this blog, I plan to make it briefer, less instructive and more observational, more as a way to spark dialogue than to analyze news in depth.

Partly, this also is because I'm devoting more time to writing the book about investing. This topic has been written about thousands of times before in books and periodicals. Yet the body of work that exists has yet to capture how Warren Buffett really invests. In his own words, he has done this better than anyone -- but as those of you who follow him know -- has done so by giving out broad principles without a lot of specificity. It's a pragmatic strategy -- he doesn't need a "don't try this at home" sticker to warn the bottom 80% of his audience -- but the top 20% could use more information. Moreover, most people who are interested in Buffett's investing style have limited capital. They must act the way he did at the beginning of his career, when every basis point counted and every decision had a huge opportunity cost. Lastly, never in my lifetime have we lived in an era so demanding of good investing skills. Even in the chaos of the 1970s, the world did not face such perils as the era we entered around 2001. I believe that never before in modern times has clarity of purpose and the ability to sort out what is truly important mattered as much. You can't drive from New York to Boston by looking in the rear-view mirror. 

Now, I will post a couple of things and then go write for a while. It's good to be back.

Buffett told the New York Times on October 26th that "he had three people in mind as possible candidates for the top post. He said the Berkshire board, which is scheduled to meet in the next few weeks, planned to spend at least half of that next meeting discussing succession."

How to interpret? Buffett is beginning to take back the reins. David Sokol as heir-apparent, all-but-annointed-successor is officially over.  Buffett has said for a long time that there were three candidates, but in the past year has sent unmistakable signals that the front-runner was Sokol - saying that a strong operating manager is the main criteria, for example, and never commenting to the contrary despite story after story portraying Sokol as heir apparent. Still, in characteristic fashion, he never committed to Sokol.

Buffett is beginning a graceful shift. Whether this is happening because of his displeasure at being, in effect, prematurely pushed out of the way, or because he's unhappy with the situation at NetJets, or for some other reason, is unclear. Sokol recently told the Columbus Dispatch that, contrary to what he had said earlier, he will be remaining on at NetJets as CEO past year-end. One could reasonably infer that his services are needed there.

Genworth Financial was IPO'd by General Electric during the era when it was dressing up its insurance pigs and trotting them out the door, er, that is, shedding itself of underperforming insurance operations. The stock has been a stinker ever since, and is currently trading at a little over half its IPO price. Listen, if you're in the mood to be heartily entertained, to the "epic take-down" this quarter of Genworth's management by Steve Eisman of Frontpoint, who was recently made famous in The Big Short. I used to work with Steve, and this is vintage Eisman.

This clip all by itself explains why it raised eyebrows when Genworth showed up in Todd Combs' portfolio. Genworth is a most un-Buffett-like investment. Despite its nominally cheap price, this is a lousy company that sells products Buffett doesn't care for and has avoided selling at Berkshire's insurance operations (long-term care insurance, life insurance, mortgage insurance) even though he's made some money on the life reinsurance side. Positions like this don't necessarily mean that Combs thinks Genworth is a great company; rather he's hedging the risk through his short book. So far this strategy has worked out fine, albeit with a small portfolio.

This is not the way Buffett and Simpson ran money, so there's a message in the choice that is worth contemplating. The process of choosing Combs vs. someone else seemed rushed, but Buffett and Munger obviously understand how he invests, and somebody with this style and background is what they wanted. It appears they either lack confidence in asset managers' ability to find the grand "moat" stocks that made Berkshire's fortune -- or else, lack confidence in the economy's ability to supply them.

Bill Gross of Pimco has written a couple of letters recently that really hit the economic nail on its soft little head. Well worth pondering: a few excerpts from his letter on asset returns.

"[Stan Druckenmiller’s fund closing and  Ken] Griffin’s price-cutting [of his fees] are reflective of a broader trend in the capital markets, one which saw the availability of cheap financing drive asset prices to unsustainable heights during the dotcom and housing bubble of the past decade, and then suffered the slings and arrows of a liquidity crisis in 2008 to date. Similarly, liquidity at a discount drove lots of other successful business models over the past 25 years: housing, commercial real estate, investment banking, goodness – dare I say, investment management – but for them, its destination is more likely to be a semi-permanent rest stop than a freeway. The New Normal has a new set of rules. What once pumped asset prices and favored the production of paper, as opposed to things, is now in retrograde....

Even the wildest bulls on Wall Street and worldwide bourses would be hard-pressed to manufacture 12% equity returns from nominal GDP growth of 2 to 3%. The hard cold reality … is that [“Old Normal”] prosperity and overconsumption was driven by asset inflation that in turn was leverage and interest rate correlated. With deleveraging the fashion du jour, and yields about as low as they are going to go, prosperity requires another foundation....

What the U.S. economy needs to do in order to return to the “old” normal is to recreate nominal GDP growth of 5%, the majority of which likely comes from inflation. Inflation is the classic “coin shaving” technique of government since the Roman Empire. In modern parlance, you print money faster than required, pray that the private sector will spend it to generate investment and consumption, and then worry about the consequences in a later decade....

Investors will likely not know whether the mouse has grabbed for the cheese for several years forward. In the meantime, they are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead"