Current Events

An indication of higher risk in small caps

Discussion on Short Selling

An excellent video discussing short selling and the changing nature of managing money. Listen to the first 30 minutes. About the only edge left is to be a longer-term investor.

To Find Moats Look for Monopolies and Consolidating Industries

Buffett’s greatest insight is that monopolies, duopolies, and oligopolies face little competition and little threat of new entrants. Companies that dominate their industries represent toll roads in your daily life. Every time you do anything in your daily life, you are sending part of your paycheck to monopolists.

Given that Google is the doorway through which people enter the internet, the search engine can effectively shut out competitors by demoting them or by taking their data. Google is using its dominance in one product area-universal search—to move into other markets. Economist call this “bundling: which historically has been illegal. ,

Google now controls nearly 90% of search advertising, Facebook almost 80% of mobile social traffic. The two companies captured almost 90% of the digital advertising growth last year. An astonishing 45% of Americans get their news from Facebook. When you add Google, over 70% of Americans get their news from the two companies.

Google uses universal search to dominate vertical search areas like price comparisons, and it uses its browser to further dominate the ad industry. Google is a global utility in private hands. Facebook’s Community Standards project puts the company in the position of deciding arbitrarily what speech is acceptable and what is not. Network effects effectively means monopoly.


The book can help you understand how vastly the United States economy has changed over the past twenty years. If you want to invest on the side of the powerful, you seek consolidating industries, duopolies, and monopolies. However, you will also understand why inequality will keep increasing unless competition is brought back into our economy. Capitalism without competition is not capitalism. This is an important book for both investors and citizens. The authors don’t discuss other major influences on the economy like China joining the World Trade Organization or globalism, but you have a tutorial on how our economy has become hyper-concentrated.

Are US Industries becoming More Concentrated?

Elliott Management on Ebay

Baupost purchases near $27 as well in late 2018

Dear Members of the Board:

I am writing to you on behalf of Elliott Associates, L.P. and Elliott International, L.P. (together, “Elliott” or “we”). Elliott beneficially owns over 4% of eBay Inc. (the “Company” or “eBay”), making us one of the Company’s largest investors. At approximately $1.4 billion in market value, this sizeable investment demonstrates our strong belief in the value opportunity at eBay.

The purpose of this letter is to share our perspectives as a large shareholder and provide our specific thoughts on how eBay can become a better and more valuable company. Elliott believes that by taking steps to unlock strategic value, refocus on the core Marketplace and improve execution – a plan we call “Enhancing eBay” – the Company will grow faster and deliver meaningful operational improvements. As a more focused and efficiently run business, we believe eBay can achieve a value of $55 to $63+ per share by the end of 2020, representing upside of more than 75% to 100% within the next two years.  (Prove to yourself via the 10-K)

Our letter today is organized around the following themes:

eBay as a Public Company: We review the Company’s remarkable history as well as its need for substantive change to remedy its prolonged underperformance. ‒ The Enhancing eBay Plan: We analyze the opportunities for the Company to create significant upside and detail an actionable set of initiatives to unlock trapped value, improve execution and enhance oversight. ‒ A Unique Value Opportunity: We quantify the significant value these steps will create.

Returns vs. Popularity

Investment Process

Tollymore Investment Process


Investing is hard. Big Mistakes and Moats

A Stoic would agree with this quote from the above book:

The most important thing successful investors have in common is worrying about what they can control. They don’t waste time worrying about which way the market will go or what the Federal Reserve will do or what inflation or interest rates will be next year.  They stay within their circle of competence, however narrow that might be.

Other useful quotes:

In my nearly fifty years of experience in Wall Street I have found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do; and that is a pretty vital change in attitude — Ben Graham

Investment success accrues not so much to the brilliant as to the disciplined.– William Bernstein

Investors who confine themselves to what they know, as difficult as that may be, have a considerable advantage over everyone else — Seth Klarman

Genius is a rising market — John Galbraith

In a winner’s game the outcome is determined by the correct actions of the winner.  In a loser’s game, the outcome is determined by mistakes made by the loser. — Charlie Ellis

How could economics not be behavioral? If it isn’t behavioral, what the hell is it?  — Charlie Munger

You need patience, discipline, and an ability to take losses without going crazy — Charlie Munger, 2005

You will do a great disservice to yourselves, to your clients, and to your businesses, if you view behavioral finance mainly as a window onto the world. In truth, it is also a mirror that you must hold up to yourselves. — Jason Zweig

If I could sum up the lesson of the above 175-page book at $35, it would be that IF you invest long-term in compounders or franchise companies that redeploy their capital at high rates of return, then expect to suffer through multiple 50% to 60% declines in stock price as you hold on for the long-term.  And remember that a price decline of 50% does not necessarily indicate a bargain.

You can see the 50% sell-off in Bershire’s stock in 1999/2000 while you can barely make out the multiple 50% or more declines in AMZN over the past twenty years.   Investing is HARD!

You must factor in those facts with your own psychology.

A reader asked: When do you buy gold for a portfolio?

No one has the perfect answer.  Just remember that gold is money and not an investment. Gold just sits there in the vault as a STORE of Wealth.  Here is a good article, though:

Bitcoin Billionaire? Bitcoin as now constituted can NOT be money


The Bitcoin Flaw

To understand the prospects for bitcoin and the other cryptocurrencies and tokens, it is necessary to grasp the centrality of gold.

Gold resolved both the horizontal and vertical enigmas of money.  As a universal index of value, it muted the volatile shifts and shuffles of exchange rates.   As an unchanging standard, it made interest rates a reliable guide for entrepreneurs making commitments in the darkness of time.

The gold standard thus provided maps and metrics that enabled entrepreneurs to act confidently across time and space.  they were assured that in an ever-changing and insecure world the monetary measuring sticks would not change when they brought their products in for a landing in the marketplace.

As King Midas discovered, gold (and all candidates to be real money) is not wealth itself but a metric of wealth.  While some gold advocates–including George Gilder in years past–have insisted that its slow but steady 2 percent rate of growth assures an expanding supply of money.  But under a gold standard, the money supply has virtually nothing to do with the gold supply.  In 1775, the total mount of currency in circulation (primarily gold and silver coins) was an estimated $12 million. In 1900, it was $1,954 million –an increase of 163X. During this time, the amount of gold in the world increased by about 3.4 times, due to mining production.

Since gold does not deteriorate, all the 189,000 tones of gold mined over the centuries remains available for use as money. Maintaining neutrality in time and space, gold is neither inflationary nor deflationary (KEY POINT!) It penalized neither creditors nor debtors.  It is a measuring stick and unit of account for the world’s goods and services.


Satoshi, the “founder” of Bitcoin believed that his mining algorithm was mimicking gold. Bitcoin did laboriously cancel out the advance of technology through its ten-minute mining cycles and lottery process.

George Gilder initially believed The Bitcoin Standard by Saifedean Ammous presented bitcoin as a satisfactory replacement for the gold standard. See

However, Mike Kendall, who was drilling down into the economic model of bitcoin as a possible successor to the gold standard noted that “Contrary to the most egregiously erroneous and central tenet of the state theory of money, it was not government that decreed gold as money, rather it is only by holding gold that governments could EVEN ISSUE ANY FORM OF MONEY AT ALL.”

Or an easier MUST read PDF: Bitcoin and the gold standard_Man on the margin

Nakamoto invented digital scarcity….a digital good that is scarce and cannot be reproduced infinitely….a digital good whose transfer stops it from being owned by the sender..

“The limit on the quantity we can produce of any good is never its prevalence on the planet, but the effort and time dedicated to producing it.  With its absolute scarcity, writes Ammous, “bitcoin is highly salable across time.”


The fatal flaw is the belief that the money supply can and should be determined by the supply of bitcoin or gold.  Gold (or bitcoin mimicking gold) should serve not only as a measuring stick or unit of account but as the actual medium for all exchanges.

Such monolithic money was also the ERROR of Murray Rothbard, an idiosyncratic exponent of Austrian theory who believed that any authentic gold standard must have 100 percent gold backing.  He did not even believe in fractional reserve banking, intrinsic to the role of banks, which necessarily mediates between savers seeking safety and liquidity and entrepreneurs destroying it through long-term investments. The value of liquid savings is necessarily dependent on the achievements of illiquid and long-term enterprise.  There is no way to avoid the maturity mismatch between savings and investments except by abolishing capitalism.

In the same way, bitcoin and other cryptocurrencies cannot become significant money without systems to intermediate between savers and investors.  Money cannot be simply a smart contract. It entails continual acts of intelligent discretion in the provision of loans and investments responding to changes in markets and technologies.


If the main source of Bitcoin’s volatility is volatile demand, we can expect the issue and circulation of bitcoin-redeemable liabilities to stabilize the demand for and therefore the value of Bitcoin by allowi9ng fluctuations to be borne by changes in the supply of liabilities rather than by the price level or the volume of transactions.

A currency needs oracles to channel it to the most promising entrepreneurial uses.

As Kendall explains, “While Satoshi was brilliant in creating the blockchain as the basis for bitcoin, Satoshi had no understanding of currency as a unit of account.  By limiting bitcoin’s supply to 21 million units over a 131-year period,  Satoshi designed bitcoin as a deflationary currency….Because of its deflationary design, bitcoin is used more as a volatile investment bet: than as a MEASURING STICK or UNIT  OF ACCOUNT.   In other words, bitcoin’s fixed limit is deflationary and unworkable. 

Bitcoin is the transactions medium ITSELF rather than a stable metric for the valuation of fiat moneys. For gold, transactions are incidental; for bitcoin, transactions are the key point.  Bitcoin, unlike gold, must therefore increase in either volume or value if the system is to succeed.

Bitcoin, as now constituted, CANNOT BE A CURRENCY.   Currencies create value by measuring it.  The price of bitcoin changes with demand. You could respond that the price of the dollar also changes with demand.   That has been mostly true since 1971, and such fluctuations are the Achilles heel of the dollar as a long-term currency.

“No other basic unit of measure,” says Kendall–whether it is the second, the meter, the ampere, or the kilogram-“changes in value with demand.  They are standards” based on physical constants. IF MONEY IS A MEASURING STICK, IT CANNOT RESPOND TO DEMAND.

Since bitcoin cannot fulfill its basic role as a currency. its historical fate is to provide a haven from governments and central banks and a harbor for a great innovation, the blockchain.

Source: Life After Google by George Gilder.


Lorimer Wilson January 24, 2011
$5,000 Gold Bandwagon Now Includes 85 Analysts!

More and more economists, analysts and financial writers, 125 in fact, have taken the bold step of projecting the price at which gold will achieve its parabolic peak with 5 individuals claiming that the peak price will be realized sometime in 2011. Some have adjusted their previous prognostications higher given gold’s strong advance again in 2010 while others have jumped aboard what has become a bandwagon of optimism. The majority (85) maintain that $5,000 or more for gold is possible.

These 5 Analysts Believe Gold Will Reach Parabolic Peak Sometime in 2011
1. Bob Kirtley: $10,000;
2. Patrick Kerr: $5,000 – $10,000;
3. James Dines: $3,000 – $5,000;
4. Taran Marwah: $3,000;
5. Jim Sinclair: $3,000 – $5,000 (by June 2011);
These 6 Analysts See Gold Price Going Parabolic to +$10,000
1. Mike Maloney: $15,000;
2. Ben Davies: $10,000 – $15,000;
3. Howard Katz: $14,000;
4. Dr. Jeffrey Lewis: $7,000 – $14,000;
5. Jim Rickards: $4,000 – $11,000;
6. Roland Watson: $10,800
These 46 Analysts See Gold Price Peaking Between $5,001 and $10,000
1. Bob Kirtley: $10,000 (by 2011);
2. Arnold Bock: $10,000 (by 2012);
3. Porter Stansberry: $10,000 (by 2012);
4. Peter George: $10,000 (by Dec. 2015);
5. Tom Fischer: $10,000;
6. Shayne McGuire: $10,000;
7. Eric Hommelberg: $10,000;
8. David Petch: $6,000 – $10,000;
9. Gerald Celente: $6,000 – $10,000;
10. Egon von Greyerz: $6,000 – $10,000;
11. Peter Schiff: $5,000 – $10,000 (in 5 to 10 years);
12. Patrick Kerr: $5,000 – $10,000 (by 2011);
13. Peter Millar: $5,000 – $10,000;
14. Roger Wiegand: $5,000 – $10,000;
15. Alf Field: $4,250 – $10,000;
16. Jeff Nielson: $3,000 – $10,000;
17. Dennis van Ek: $9,000 (by 2015);
18. Dominic Frisby: $8,500;
19. Paul Brodsky: $8,000;
20. James Turk: $8,000 (by 2015);
21. Joseph Russo: $7,000 – $8,000;
22. Bob Chapman: $7,000+;
23. Michael Rozeff: $2,865 – $7,151;
24. Jim Willie: $7,000;
25. Dylan Grice: $6,300;
26. Chris Mack: $6,241.64 (by 2015);
27. Chuck DiFalco: $6,214 (by 2018);
28. Jeff Clark: $6,214;
29. Aubie Baltin: $6,200 (by 2017);
30. Murray Sabrin: $6,153;
31. Samuel “Bud” Kress: $6,000 (by 2014);
32. Adam Hamilton: $6,000;
33. Robert Kientz: $6,000;
34. Harry Schultz: $6,000;
35. John Bougearel: $6,000;
36. David Tice: $5,000 – $6,000;
37. Laurence Hunt: $5,000 – $6,000 (by 2019);
38. Taran Marwah: $3,000 – $6,000+ (by Dec. 2011 and Dec. 2012, respectively);
39. Martin Hutchinson: $3,100 – $5,700;
40. Stephen Leeb: $5,500 (by 2015);
41. Louise Yamada: $5,200;
42. Jeremy Charlesworth: $5,000+;
43. Przemyslaw Radomski: $5,000+;
44. Jason Hamlin: $5,000+;
45. Greg McCoach: $5,000+ (by 2012)
46. David McAlvany: $5,000+
Cumulative sub-total: 52
These 34 Analysts Believe Gold Price Could Go As High As $5,000
1. David Rosenberg: $5,000;
2. Doug Casey: $5,000;
3. Peter Cooper: $5,000;
4. Robert McEwen: $5,000 (by 2012 -2014);
5. Martin Armstrong: $5,000 (by 2016);
6. Peter Krauth: $5,000;
7. Tim Iacono: $5,000 (by 2017);
8. Christopher Wyke: $5,000;
9. Frank Barbera: $5,000;
10. John Lee: $5,000;
11. Barry Dawes: $5,000;
12. Bob Lenzer: $5,000 (by 2015);
13. Steve Betts: $5,000;
14. Stewart Thomson: $5,000;
15. Charles Morris: $5,000 (by 2015);
16. Marvin Clark: $5,000 (by 2015?);
17. Eric Sprott: $5,000;
18. Nathan Narusis: $5,000;
19. Bud Conrad: $4,000 – $5,000;
20. Paul Mylchreest: $4,000 -$5,000;
21. Pierre Lassonde: $4,000 – $5,000;
22. Willem Middelkoop: $4,000 – $5,000;
23. Mary Anne and Pamela Aden: $3,000 – $5,000 (by February 2012);
24. James Dines: $3,000 – $5,000 (by June 2011);
25. Goldrunner: $3,000 – $5,000 (by 2012);
26. Bill Murphy: $3,000 – $5,000;
27. Bill Bonner: $3,000 – $5,000;
28. Peter Degraaf; $2,500 – $5,000;
29. Eric Janszen: $2,500 – $5,000;
30. Larry Jeddeloh: $2,300 – $5,000 (by 2013);
31. Larry Edelson: $2,300 – $5,000 (by 2015);
32. Luke Burgess: $2,000 – $5,000;
33. Jim Sinclair: $3,000-$5,000 (by June 2011);
34. Marc Faber: $1,500 – $5,000
Cumulative sub-total: 86
These 27 Analysts Believe Gold Will Achieve a Parabolic Peak Price Between $3,000 and $4,999
1. David Moenning: $4,525;
2. Larry Reaugh: $4,000+;
3. Mike Knowles: $4,000;
4. Ian Gordon/Christopher Funston: $4,000;
5. Barry Elias: $4,000; (by 2020);
6. Jay Taylor: $3,000 – $4,000;
7. Christian Barnard: $2,500 -$4,000;
8. John Paulson: $2,400 – $4,000 (by 2012);
9. Myles Zyblock : $3,800;
10. Eric Roseman: $3,500+;
11. Christopher Wood: $3,360;
12. Franklin Sanders: $3,130;
13. John Henderson: $3,000+ (by 2015-17);
14. Michael Berry: $3,000+; (by 2015)
15. Hans Goetti: $3,000;
16. Michael Yorba: $3,000;
17. David Urban: $3,000;
18. Mitchell Langbert: $3,000;
19. Brett Arends: $3,000;
20. Ambrose Evans-Pritchard: $3,000;
21. John Williams: $3,000;
22. Byron King: $3,000;
23. Ron Paul: $3,000 (by 2020);
24. Chris Weber: $3,000 (by 2020);
25. Mark Leibovit: $3,000;
26. Mark O’Byrne: $3,000;
27. Kevin Kerr: $3,000
Cumulative sub-total: 113

There seems to be one name missing from the list. All those SWAGS have missed one important element. When you are talking about the price of gold, you are talking about two commodities, gold and whatever currency you are quoting the price in.
If you can’t predict the value of the dollar in the future with accuracy, you cannot predict the price of gold either.

You should buy gold when it is cheap and unloved. You should then sell it when it is expensive and everyone loves it.


So much for “experts.”


Price is set at the margin

Bitcoin is not money. Gold IS money because its marginal utility does NOT decline. Read an excellent short article:

We have covered several times Warren Buffet’s pointed (and disingenuous) comment that gold has no utility. It just sits, and there is a cost for it to sit. And an opportunity cost.

So why do people buy something which has no utility and no return? One, which we discuss a lot, is speculation. They buy whatever’s going up, in an attempt to cash in on the rise. So let’s not dwell on this.

A second reason is fear of counterparty default. Third, is gold is a non-expiring hedge for monetary collapse and/or a currency regime change. This is a broader version of simple counterparty default.

Right now, General Electric is in the news. Its investment grade rated bonds are trading like junk bonds. This is like an echo from the past. Bear Sterns retained its investment-grade rating until just before its demise.

GE has about $115 billion in debt. If it defaults, that could put fear into a lot of investors. They will certainly buy Treasury bonds (which are defined as risk free). Will they buy gold, which is the only financial asset which is truly free of default risk? Maybe.

However, in addition to GE we know that a significant fraction of bonds out there are issued by so-called zombie corporations, whose profits are less than interest expense. Rising interest rates can only have increased the percentage, though the increased cost kicks in with a lag (as each bond matures and must roll). In addition to the problem of rising default risk from these companies, there is the risk if enough hits at once, that the credit market they depend on, goes no bid again as it did in 2008.

Of course, if their bonds are impaired then their equities are worthless. Stocks will be crashing in this scenario.

We raise the issue of price being set at the margin to make a point. In this scenario, the marginal buyer of gold will not be the speculator. It will be the mainstream investor who is desperate to protect himself from a financial system going mad again.

When will this happen? Watch for news of GE and other major debtors sinking deeper into trouble.

As to systemic default risk, i.e. monetary collapse, it’s early yet. There are some peripheral currencies like the bolivar and lira that could go away soon. But their troubles are widely known, and visible far in advance. We would not expect their demise to have much impact on the world’s monetary order (though of course it is horrific for the people who live in Venezuela and Turkey).

Other currencies are also in trouble—we have written a lot about the franc. It is impossible to predict the timing of such a thing, though our gut feeling is that it is still a ways out.

As to the de-dollarization, loss-of-reserve-status, end-of-petrodollar, gold-backed-yuan, SDR-to-replace-USD ideas, we say: rubbish. The dollar will get stronger from here, if not in terms of gold then as measured by other currencies. Panicky people in Istanbul do not think “let me buy Brazilian reals, Russian rubles, Indian rupees, and Chinese yuan” because someone coined the glib term “BRICs”. They do not think “I will buy me some Saudi riyal because, petro.”

They buy USD.

So we end on a conclusion we have reiterated many times. When gold goes to $10,000 it is not gold going up. It is the dollar going down.

It is inevitable that the dollar will go down. Keith just gave a talk at an Austrian economics conference in Madrid “There Is No Extinguisher of Debt” (paper to be published soon). The collapse of the dollar is baked into the mathematics.

People could buy gold today at an 88% discount from that price. But do yourself a favor. Watch any politician on TV. Watch a Republican promise to “grow our way out of the debt”. Or watch a Democrat promise a free university education to everyone. Watch even many libertarians promote a Universal Basic Income(!)

If you think they don’t understand, you are right. But the vast majority of voters support these politicians. The voters, too, don’t understand. And the investors too.

Buying gold is a non-expiring hedge. But only people who perceive a need to hedge, will buy the hedge. The rest may think that stocks are a bargain here, being down almost 7% from the high last month. So far in this incredible boom following the crisis, every time people who bought the dip were rewarded.

Are we getting close to the point where it won’t be? If GE is any indication, if GE will have a contagion effect (remember that word?) then the answer is likely yes.

Project Punch Card Investment Event December 7th in NYC–Hurry!

Old computer data entry punch cards.

Our goal at Project Punch Card is to foster long-term investment orientation amongst students underrepresented in the investment research and management business.

“We are delighted to announce that Alice Schroeder, the author of The Snowball: Warren Buffett and the Business of Life, the latest addition to the conference, will give a NEW keynote and share her insights on Mr. Buffett’s lesser-known investment secrets — built from thousands of hours spent with him and unique access to decades of Mr. Buffett’s archives.

Buffett_Case Study on Investment Filters Tabulating Company as an example of her work.

The Punch Card Conference has an incredible line-up of speakers and thought leaders including David Abrams (in a rare public appearance), John Rogers, Jonathan Levin, Murray Stahl and more.

We are offering a limited number of super-early-bird tickets for $145 until Nov-9 (TOMORROW-Friday), after which the price increases to $495 for early-bird tickets and $995 for full priced tickets.”

Who is it for?

We expect a blend of Portfolio Managers, Investment Advisors, Analysts and Allocators (i.e pension funds, Endowments, insurance, FOF etc). Ideally we would like people from the target communities — women, people of color, or graduates of underprivileged colleges in the investment industry. Marketing and strategic partners such as Smart Women Securities, Forte Foundation and SEO may also be a material component of the audience composition.

What is included?
Breakfast, Full Sit-down Lunch, Coffee Breaks, and Networking Opportunities.

Warren Buffett to students on the choice of a career:

When you go out in the world, look for the job you would take if you didn’t need the money. You really want to think about, what will make you feel good, when you get older, about your life, and you at least generally want to keep going in that direction. Don’t work for money . . . You’ll never be happy. You have to find the intersection of doing something you’re passionate about and at the same time something that is in the service of other people. I would argue that, if you don’t find that intersection, you’re not going to be very happy in life.

Why a punch card? Once again, the Oracle of Omaha said it best:

I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches–representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you would do so much better.

Learn more about the investment competition:

John Chew: This seems like an EXCELLENT opportunity for students and emerging money managers at a CHEAP price.  If you net out the lunch/food you are paying $100 to $120 for an incredible conference.   I don’t know the other speakers but Murray Stahl is one of the most underrated stars (in my opinion) in the business.   See for yourself: Murray Stahl The Skeptics Almanac-third-edition-volume-3

Also, Paul Isaac of Arbiter Partners, is another excellent investor who has been interviewed multiple times by Jim Grant of

This New York-based investor has value investing in his blood. His father, Irving, an arbitrageur, was instrumental in finding Max Heine his first job on the Street. Heine went on to run the legendary Mutual Shares Fund, and Irving Isaac sat on its board for three decades. And Paul Isaac’s uncle, Walter Schloss, a student of Benjamin Graham, was praised by Warren Buffett and profiled in Barron’s. At his former position leading a fund of funds, Paul Isaac produced high single-digit returns annually. That fund was sold after the 2008-2009 financial crisis. He continues to manage Arbiter, a hedge fund that has returned 21%..

I have no association with the organizers of this event.   I may be given a free ticket.  However, I may not be able to attend.  I hope to change my schedule to attend because just being able to meet Murray Stahl would be worth it for me.