The Worldwide Business Search Engine

At the top of this blog, you may have noticed what appears to be a regular Google search bar with the title, “WORLDWIDE BUSINESS SEARCH ENGINE.” Since many readers have not taken advantage of this little beauty, let me take a moment to explain what it is.

The first problem with regular Google is what I call “regionalization.” Many of The Frost Report’s readers are from the United States, where Google has particular drawbacks. Specifically, if you do any kind of search from the US, the results are likely to all come from US news organizations. Sadly, most American news sources are rubbish for investors.

The US media market demands constant action, sound bites and screen movement – and the results are predictable. The typical daytime “expert interview” on CNBC lasts less than 4 minutes. And, US citizens clearly love to be told what to think. After the last presidential debates on CNN, a panel of experts was ready to explain for us what was just said, what it means, and who won (there is no point wasting brainpower when someone can think for you). Famously, US media outlets such as FOX News and MSNBC casually mix facts with commentary, not even worrying about possible misrepresentation. All of this results in exciting and highly entertaining news that is of no use to rational investors, whose strength comes from being calmer and more logical than everyone else.

A second problem with regular Google or Bing is that far more than just investing news comes out of a search. For example, if I type “African Real Estate” into Google, the result is marketing websites, real estate agency websites, property developers and more. And again, most of the sites do not even originate from Africa.

The Frost Report’s “Worldwide Business Search Engine” eliminates many of the aforementioned problems. First, it filters out the more sensational news organizations from the listings. Second, it gives precedence to local news: a search about real estate in Africa will result in African sources. Whenever possible, news comes directly from the source rather than being an interpretation by a 3rd party; thus, a search about the latest Federal Reserve speech will likely pull up the Fed’s website directly. Finally, most of the sources are proven and reliable business news agencies. I say “most” are reliable because I intentionally included some unreliable sources - such as the Russian Pravda and DPRK news sites – because they are culturally important.

Give the search engine a try…you will find the results to be far different from what you are used to, and hopefully more insightful.

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“Is there any other industry in this country which seeks to presume so completely to give the customer what he does not want?”

Rupert Murdoch, owner of The News Corporation Ltd.

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The Berkshire Soap Opera

Earlier this week, Warren Buffett’s Berkshire Hathaway issued a surprising press release: one of their longstanding top executives, David Sokol, had resigned.

Here’s the gist of the story… Warren Buffett and his partner Charlie Munger make all the major acquisition decisions for Berkshire Hathaway. Executive David Sokol recommended to Buffett a company called “Lubrizol,” mentioning at the time that he owned some shares of it himself. Buffett was not particularly impressed with the idea of acquiring Lubrizol. About a week later, David Sokol spoke with the CEO of Lubrizol, and based on that conversation spoke with Buffett again, further recommending it as a good purchase. As a result, Buffett changed his mind and purchased Lubrizol, sending its stock price soaring.


What David Sokol had neglected to point out was that when he said he owned, “some shares” of Lubrizol, he actually meant 10 million dollars’ worth (more than 96 thousand shares). In just one day after the Berkshire purchase announcement, Lubrizol stock jumped from $104.50 to $133.80, earning David Sokol a cool 2.8 million dollars.


Was what David Sokol did illegal? Probably not. Was it unethical? Somewhat. Was it honest and open? Not at all.


On July 26th, 2010, Buffett wrote a letter to all Berkshire Hathaway managers (including Sokol), saying that reputation and honesty are of paramount importance to Berkshire’s business. For example, Buffett wrote: “We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.” At the end of the letter, Buffett reminds everyone that “there’s plenty of money to be made in the center of the court. If it’s questionable whether some action is close to the line, just assume it is outside and forget it.” Clearly, Sokol didn’t think that any of this applied to him.


Does this mean that Berkshire’s internal controls are weak? Does it mean that you should sell Berkshire stock? Of course not. Berkshire’s internal controls remain amongst the best in the world.


David Sokol didn’t do anything explicitly illegal. But, he did play too close to the line – and he knows it.

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“Somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it. That’s inevitable: We now employ more than 250,000 people and the chances of that number getting through the day without any bad behavior occurring is nil.”

Warren Buffett, July 2010

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Berkshire’s press release regarding David Sokol’s resignation is available at:
David Sokol Press Release

The FDIC - Combating Stupidity Since 2011

Those who understand behavioral finance know that sometimes you have to protect people from orchestrating their own financial doom: in The Intelligent Investor’s Mind, I devote a section of every chapter to it. Financial quants and investment professionals (who should know better) are no exception. In fact, great genius is required to create a truly phenomenal financial disaster.

On March 29th, the Federal Deposit Insurance Corporation approved new rules for mortgages – essentially “anti-greed, anti-laziness” rules - that align the interests of homeowners, bankers and investors.

Under the new rules, banks will not be able to repackage and sell a mortgage (ex. Mortgage bonds, CDOs), unless the borrower puts down a 20% or greater down payment. If the borrower puts down less than 20%, the bank will be forced to keep some of the risk on its own books - known in the industry as “keeping skin in the game.”

Effectively, these new rules force banks to care about the quality of the loans they receive from mortgage brokers, and care how those loans perform. Prior to this, a mortgage broker could underwrite a loan from someone they knew couldn’t pay, sell it to a banker who didn’t care if the owner couldn’t pay, and in turn sell it to an investor who didn’t bother (or didn’t have the skill) to check to see if the owner couldn’t pay.

The National Association of Mortgage Brokers will undoubtedly hate the new rules. They are already fuming about the Federal Reserve’s new “Truth in Lending” regulations in general. Despite pushback, however, the matter will be put to vote this week and is expected to pass.

The days of dreamers with bad credit and no cash, walking into a mortgage broker's office, getting approved, then sitting on their new sofas & waiting for riches through equity appreciation are truly over - even if the market comes back.

People will always find new and ingenious ways to ruin themselves financially. Even so, it’s nice to see the old gaps being closed.

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"If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring."

George Soros
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