Who would Buffet hire?

When Warren Buffet first got into investment business, he started as a student and knew nobody. All his achievement, at least from the start, was his single handed outcome. At age of 82, people are talking about who would succeed him to lead Bershire. Many books have exposed Buffet's long time managers but Bershire had not hired investing managers for long even application volume is huge. In the past two years, Buffet hired Todd Comb and Ted Weschler in 2010 and 2011, respectively.

Mr. Comb, compared to Buffet's biograph, would probably become the next Warren Buffet. Here is what people talked about Mr. Comb:

• "He is smart, and he can adapt. When he got into this business, he didn't know anyone"
• He graduated from Florida State in 1993. His first job was state financial analyst. Then he moved on to auto insurer Progressive on risk analysis. He found his network from Progressive that lead to his hedge fund start.
• He does his own research and spends significant time reading newspapers and reports.
• He also enrolled in Columbia Business School's Value Investing Program in 2000, like Buffet. The instructor who taught this class said of Mr. Comb, genuinely want to make money and greatest desire to win.
• When he meets his clients, there is little chitchat. His former boss said it's tough to find someone that passionate and thoughtful. 
• His early investment as fund manager was identify financial firms had large illiquid assets and bearish on financial companies in 2006 such as Fannie Mae and Freddie Mac. 
• He doesn't like sharing ideas with others. 
• He rarely wares a tie and jacket but khaki pants and button down shirt. He works on Sundays too. 

Among these short characteristics, can you see a Buffet 50 years ago?

A Tweet bomb

On Feb 8 2011, Google's vice president, Vic Gundotra, posted a tweet on Tweeter, that Nokia's CEO Elop called a tweet bomb, "Two turkeys do not make an Eagle". This was at a time Nokia was talking with both Microsoft and Google on where its new phone software was heading to. All conversation was supposed to be confidential. But Google's Vic probably had sensed that Nokia won't go with them. The deal probably didn't matter to Google but Microsoft saw it as a big boost to their mobile computing ambition. Microsoft seemed deserved the deal too as Ballmer himself flew to Helsinki to cut the deal. His private plane was disturbed by snow storm and had to get there by commercial plane, which was risky in personal safety and commercial information sense. But he did that and the deal was strike. Microsoft would pay Nokia billions of dollars of multi-year agreement to help Nokia market and develop Windows Phone equipment.

On Feb 11 2011, Nokia announced alliance with Microsoft. Since then, Nokia didn't fare well, it announced 10,000 layoff because of higher costs. Was this alliance sentenced death since Day One? Far from it.

Nokia's new Windows phone released not long ago. Market reception wasn't as warm as it expected. Users wait to see how the new phone integrates with new software. Another problem is Nokia's higher phone costs, which is harder to resolve without heavy software involvement. The marriage between Microsoft and Nokia actually provide all ammo to Nokia's return.

One way to lower handset cost is use cloud computing techniques. This is actually where Apple is doing. Moving memory and processing load to the cloud and out of the app would make headset cheaper to build. Microsoft has release their cloud platform in April on PC. The new Window Phone 8 will be released soon. Microsoft has many cards to play with the new Phone 8, either from app development or cloud stand point. The speed from Phone 7 to Phone 8 can tell how serious Microsoft is. Competition may help Microsoft/Nokia this time, even most time competition was wasteful in mobile computing. Microsoft Surface tablet and Skype are two important ingredients too.

Nokia, the designer of GSM that uniformly adopted in Europe, is a 150-year company that was envied in 1990s by American phone companies. While too many wireless companies in the U.S. wasting money to develop various standards, Nokia focused on the GSM flagship and quickly conquered the world. But wealth eroded their mind so that they were so slow when smart phone market were opened by RIMM and iPhone (maybe Palm should be mentioned too). Google and Apple came from nowhere in wireless world to seize most of the value. Now, household cell phone maker names are Android, iPhone, Samsung, and HTC. Low cost Chinese companies like Huawei and ZTE also set their sights on smartphones.

I believe the duopoly in the marketplace where Google, Apple, and Microsoft/Nokia is taking shape quickly. This was Nokia intended to do in 2011 and now it is realized, unlike Nokia demise from criticisms. Once the new phone product line is formed, the ecosystem is there. Given Nokia's phone base, there is still advantage in the global market. Google claimed that they activate 300,000 Android powered devices a day with 170 devices on the market and 169 carriers. If this is true (always question Google's claim such as their pay-for-rank-ads), there is much to do for Microsoft and Nokia.

So the phone is far from end. It just starts.

Sharing in investing world is not welcome

Hedge fund managers started to accumulating MasterCard since 2010 as a common popular investment. Since then, MA has been doubled. These hedge funds crowded into the same investment attracted regulators' attention and higher volatility worries. Such synchronous trades would magnify market swings that would trap into smaller from distorted prices.

Reasons that funds have same trades include many of them use similar economic models to formulae trades and lagging managers switch their holdings to leading rivals. In addition to trading philosophy, fund managers get trading idea for "idea dinners" when they share their ideas. The latter can be treated as market manipulation by regulators. Studies by Andrew Lo, the MIT professor and fund manager, showed that hedge funds are moving up and down with much higher correlation. This is not fair to their investors who pay hefty fees to managers who just mimic their rival's portfolio. No one wants to pay their dinner just to see they are working together.

However, fund managers have good reasons to share ideas that justify their own thinking from criticism. It sounds ambiguous though that caused the Justice Department conducted a two-year investigation on whether hedge funds banded together for market manipulation. But the investigation went nowhere. Daniel Loeb, the fund manager who drove out Yahoo's CEO last month, was the one been investigated. After the investigation dropped, Loeb announced that he would stop sharing ideas with other managers.

The main challenge to confirm market manipulation is prove fraudulent intent, which is almost impossible to prove. But in any cases, sharing ideas is still not welcome in the investing world.

How to interprete European crisis

McDonald reported that same-store sales fell 1.7 percent in Asia Pacific, the Middle East and Africa in May, the biggest decline since at least 2004. From this number, the second-quarter earnings, scheduled on July 23, analysts expect net income excluding some items is projected to increase less than 1 percent, according to the average of analysts’ estimates compiled by Bloomberg. That would be the weakest quarterly earnings growth in three years. China's slower growth was attributed to MCD's slowdown. It is somehow surprised because MCD had 40% sales in Europe in 2011. But the Asian region contributed more in the drop from May's number.

Let's take a look at a set of data from the WSJ to see how vulnerable companies brace for European debt crisis.

Company                       Total sales in 2011 (B)                  Sales from Europe, %
McDonald's                             $27                                        40%
Carnival                                    15.8                                     38
Goodrich                                   8.1                                       34
Celgene                                     4.8                                       32
Mylan                                        6.1                                       29

The earnings on July 23 will be a clear indicator how the debt crisis affects company earnings. If MCD had 40% sales from Europe but had not suffered the worst from that region, there is enough reason to think the debt crisis had been over-exaggerated by speculators, particularly in the food section, where MCD belongs to.

On the other hand, other companies do plan for the worst in Europe. Common strategies are cash reservation and shrinking exposure. For example, GE had cut cost of $2 billion in that region instead of expansion. In 2012, GE has about 20% revenue from Europe compared to 45% 5 years ago. There are 85,000 workers in Europe, a third of its total work force. GlaxoSmithKline had pulled excessive cash to other regions.

An opposite example is Foot Locker, who has more than two-thirds of its stores in Europe. Fewer customers there are shopping in the athletic store chain. The risk of having more setback from the European crisis is apparent, despite a 30% hike in stock price this year. But the chain store will stick with Europe.

An update today (Sunday, 6/10/2012) of Spain bailout funding may change big economic picture in Europe. ECB had been refused to go qualitative easing method in the past. Once Spain opened an example, others may follow. However, slower growth is undeniable. The above companies are easy targets in terms of revenue in growth perspective.

The most investment and its trend

The most investment in everyone's life is health. Healthy life style and reasonable workout plans keep us in good shape. However, sooner or later, we would need to go to hospitals. Visiting hospitals has become more and more expensive. One crucial trend that is worth noticing more companies are shifting to HDHP, high deductible health plan. Experts said that this trend will last into the next decade before any sign of reverse.

HDHP refers to deductible more than $2000 for family $1000 for individual. That means expenses paid by employees and families each year is the deductible amount before their medical insurance kicks in. It has another vaguely defined name too: consumer-driven health plan. The name may be from the intention to make employees more cost sensitive. These plans are shifting to many large companies like GE. Many aren't very familiar with such plans. One indicator is that surveys show family costs indeed lowered but under the condition they don't know preventive care usually aren't included in the deductible. So it is important to understand these plans.

• For both companies and workers, premiums are substantially lower than for traditional coverage. Employers often use money saved on premiums to fund tax-free health savings accounts and similar arrangements to help workers pay for deductibles. Don't miss those HSA. 
• HDHP typically cover 100 percent of the cost of physicals and screenings
• Look for companies that can set up tax-free savings pools for patients to cover out-of-pocket costs, if it is feasible.
• HDHP families don't need to cut back on preventive care because members don’t realize the deductible didn’t apply to such visits.
•  For chronic conditions, these plans offer true catastrophic coverage on the back end. This can be a balanced point to the critics. 
• We will see more and more such plans in the future.
• You need to take care of yourself better. This is one of intents of such plans.

What happened in the job market?

The big news about far short job number created in May rattled the markets. Far less than expected people were employed and many unemployed people are on the verge of losing benefit. On the other hand, tech firms scour colleges, particular top rank colleges for talents. They pay college students hundreds of thousands dollars to lure them out of school or before going to schools.

Is the argument that we aren't lack of jobs but lack of qualified workers true? Or is the true that employers have become used to employer's market for too long?

On surface, talented workers are always in tight supply and high demand. Under all economic conditions, an MIT graduate wouldn't worry about employment as much as normal graduate. It is like the tip of the pyramid. But the reality is that top schools can't provide all work force the market needs. When there are demands, of course, they would be met by high quality supplies. This is particular true for those aren't ready to switch from traditional training to Android programming, iPad app development type of jobs. But these new fields are so profitable that tech firms can't miss to invest heavily. So the gap is physically existing. In other words, we are in a situation that we are lack of qualified workers in new fields that not shy of investment.

In other positions, the story is different. After years of employer's market, hiring managers have been used to finding the best they can find and pay less at the same time. In addition, high pile of applications to human resource department in previous sluggish job market made alternative tools thrive. Tales like human resource software is the main filter instead of real human being to sift out applications. When applicants don't know the skill of using keywords to bypass the software goalkeeper, they won't get in the first stage. So there are no sufficient qualified workers in the market.

It has to come into understanding that there are jobs need people but also need new training to fill those jobs. On the other hand, only when the job cycle reaches to a point that lets hiring companies realize they have to do more to get people, the job creation can be in real sense of recovering.

Who is in the game?

Markets started free drop after job report last Friday. It was indeed disappointing. But immediately, some experts pointed out that political importance is much more weighted than economic importance because 8.2% and 8.1% aren't statistically significant. Regardless of kinds interpretation, the job report, which had been stewed before its release, some said 140,000 and other predicted 170,000, fueled the drop and worst May performance in the past 3 years. Such speculation actually reflects how market participants anxiety and nervousness.

On one side, media coverage broadcasts that the economy isn't recovering fast enough and jobs aren't creating quick enough. On the other hand, economists are long term optimistic about the economy. The rift, many believe, is caused the presidential election. No doubt that job creation is one of the epicenters in the campaign. If job recovery had had strong momentum, the campaign might shift to other topics. But it will become the main battle field. After the election and the uncertainty fades, we will be on track again. So it is a buy-in-dip case.

Opposing views aren't so optimistic because, don't forget, there is Europe. Yes, let's see who is playing that.

Besides the job report, a longer topic is the European debt crisis. European stocks have been hammered down a lot. On the other hand, many fund managers are increasing their European face time now to have better understanding on the situation and seeking bargains, according to the WSJ. One managing fund CEO observed that in one conference there were two times more journalists than protesters. He concluded that the situation may be over-hyped and it is a good time to buy. Also, these professionals noticed that Europe is a bit different than the U.S. You do need face time to talk with officials, investors, and companies to obtain useful information. Therefore, the more the market drops, the higher the frequency they fly to Europe. We can see that while fund managers sell the others find excellent time to buy into it.

Market participants also seem not afraid of the exit of QE2 in June. Treasurys are still going up. Fund influx appeared to have a first time negative after a row of 19 increases. Fed officials, except Bernanke, expressed no need of QE3 in various occasions. But the markets still try to test the water. Headlines like "How about another QE?" sprouted after Friday's rout. Nice try and nice buy. These cry-for-candy tactics may not work.

In all, economy is moving in long term speaking. So ignore short term ripples and don't panic. Wait for bloods on the street and be brave.