Best investment adviser Richard Losch's blog

Leucadia National Corporation

Leucadia National Corporation and Jefferies Group, Inc. announced last month that the companies have approved an all stock merger agreement under which Jefferies’ shareholders will receive 0.81 of a share of Leucadia common stock for each share of Jefferies common stock they hold. The merger is expected to close during the first quarter of 2013.

This Time it is Different

Clearly, there is a strong relationship between free markets and the number of banking crises. But, if we admit this relationship, then are we not faced with the conclusion that the price of reducing these crises would be much slower growth in GDP per capita and living standards?

The Chemistry of Risk

The market may be efficient but it is certainly not rational, and it is efficient only in so far as attempts to measure Wall Street’s current mania. Whatever the market is measuring, it is certainly not the intrinsic value of the stocks being traded.

St. Joe Company

The St. Joe Company Inc. has a long history in Florida. It was started by Alfred Irenee Dupont and his bother-in-law Ed Ball in the early 1930’s to benefit from the havoc created by the great depression. Together they purchased many distressed assets, including an interest in Florida National Bank, a number of corrugated cardboard box plants, a sugar company, a controlling interest in the Florida East Coast Railway Company, and an enormous amount of land. In a single purchase in 1933 he purchased 240,000 acres in northwest Florida, several phone companies, two railroads, a port terminal, a sawmill, and almost the entire gulf town of Port St. Joe.

Kahneman and Long Cycles

Kahneman calls the human brain "a machine for jumping to conclusions". The problem is that intuitive thinking, except with few significant exceptions, tends to be wrong. The thing that makes "System 1" popular is that tends to present quick, easy answers to difficult questions, and makes us sound smart even though our answer may not be correct. System 1 is particularly useful when the question is difficult.

Learning from Pain

Each economic cycle begins with the positive results. The market participants respond to these positive rewards by trying to repeat the behavior that created the reward. Like the chicken in the science experiment, we kept pushing the same button until there is no longer a reward. This eventually encourages the formation of speculative bubbles, and the bubble keeps expanding until it explodes.

Long Cycles - Part II

While it is apparent that the long cycles identified in last month’s letter certainly bring into question the efficiency and rationality of publicly traded asset prices, since there is no long term relationship between those cycles and corporate profits. Financial markets may not be efficient at measuring long term value, but they are very good at measuring the current investor psychosis.

Long Cycles

As investment manager, I have written before about secular (long cycle) bear and bull markets in stock prices. These long market cycles are not caused by celestial phenomenon, Kondratieff Waves, or other mysteries, but are the result of cumulative impact of emotion on investor behavior, the decay of investor memory, and the power of mass hysteria.

Nasty Month for Market

For the nasty month of August, the S&P 500 average was down 5.7%, and the NASDAQ was down 6.4%. Losch Management Company biggest position Berkshire Hathaway, managed to reverse its trend for the first half and beat the S&P by 4.1% (-1.6% compared to -5.7%). Let’s hope this is an omen and portends a better 2nd half for our portfolios. Losch Investment Management Company Best position for nasty August was St. Joe Company, which managed a gain of 4.4%.

More than One Way to Make a Buck with Fortescue

Yet, Jeremy Grantham says that commodities have entered a “new normal” and if he is correct, any successful investment program will need an effective way to hedge the rise in commodity prices. With Fortescue Metals, it seems that Leucadia does indeed own a successful commodity hedge.


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