Using Charts (NVGS)

So if charts have NO FORECASTING ability or, in my humble opinion, no investor/trader can use chart formations like rising wedges, cup and handles, head and shoulders, etc to PREDICT where the market will go IN THE FUTURE.  Charts might work for Hindsight Capital, but I have yet to see any research showing the efficacy of chart reading.  Despite that vicious attack on chartists, I do use charts.   Take for example, Navigator’s Holdings (NVGS).   Let’s zero in a bit more:

Note the time period from August 2016 to December 2016.  As the price accelerated downward on larger than normal volume–note in the second week of August the plunge in price from $9.50 t0 $8.10 in one day or about 15%, OUCH!  The price decline occurred on the anouncement of second quarter earnings:

Navigator Holdings misses by $0.04, misses on revenue Aug. 8, 2016

So you have a plunging/falling knife on an “earnings miss” or worse than “expected” news.  Now look at the opposite of the trade. Since I was fundamentally bullish, who was on the other side selling?  First from the holdings, you can see that 41% of the 53 million shares outstanding is held by a private equity firm, Invesco run by Wilbur Ross–a deep value investor. Invesco bought at $9 a share back in 2012, then sold some shares at $20 a year and a half later.  Over 50% of the shares seem to be held by long-term investors.   The NVGS share price had been declining for over two years from $32 per share while it bought more ships, then LPG freight rates declined sharply and the arbitrage shrunk for some of NVGS’s products.  In short, the sudden high volume rapid decline indicated MOTIVATED sellers who were either distressed or late momentum sellers.  Some of the sellers are selling AFTER a long price decline and bad news being announed.  I consider those emotional/weak sellers. Now there is no guarantee that the news won’t worsen and the price won’t keep declining.

I feel confident saying that because NVGS’ balance sheet was not overburdened with debt. See September-2016-Update for NVGS.

INVESCO PRIVATE CAPITAL, INC. 21,863,874 $ 157,201,000 41.05% 53.08% 1 NaN%
PARAGON ASSOCIATES & PARAGON ASSOCIATES II JOINT VENTURE 1,050,000 $ 7,550,000 8.73% 10.85% 4 86,516 NaN%
EMANCIPATION MANAGEMENT LLC 683,422 $ 4,913,000 7.57% 6.95% 3 187,961 NaN%
HOLLOW BROOK WEALTH MANAGEMENT LLC 855,072 $ 6,148,000 3.63% 2.91% 10 489,875 NaN%

Then prices CONTINUED to decline as negative news and research reports came out reporting the known bad news of declining freight rates, over-supply of ships, economic uncertainty, etc.

Let’s set aside that on a normalized basis, I have a value for NVGS above $20, how do I know the price won’t go to $8 or $5 or $2? I don’t!   But I do have context to see if the price is “OVER” discounting the news/fundamentals.

http://seekingalpha.com/research/839737-j-mintzmyer/4912014-exclusive-research-navigator-holdings-cheap-underfollowed-deservedly is an example of several negative research reports that implied, “Yes, the stock is cheap with solid management and the company is profitable, BUT supply will increase next year.” Stay away.

Then for the next two months, September and October, the price chart showed a change in trend from rapidly down to sideways. Why was the price going sideways with negative reports and negative news constantly coming out each day?  Perhaps the chart was showing that prices had ALREADY discounted the known NEGATIVE news and extrapolating a long period of negative news.   Unless the news became much worse–despite frieght rates at 30 year lows–all you needed was slightly less bad news.

Sure enough, the announcement of earnings Nov. 4th 2016 showed that the company could still generate profits in an extremely negative operating environment. The price rallied confirming the prior discounting.  Now I could really start to add to my position.  The chart had helped me “eliminate” one side of the market–the downside.

The combination of fundamentals, the action of majority shareholders (holding firm), extreme negative news coupled with NON-DECLINING prices, gave me a signal that the market had ALREADY discounted negative news.    This is more of an art or combination of fundamentals, sentiment, and human incentives than just looking at chart patterns.

Hope that helps.

Investing Narratives (Robert Schiller)

Abstract

This address considers the epidemiology of narratives relevant to economic fluctuations.  The human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact. The 1920-21 Depression, the Great Depression of the 1930s, the so-called “Great Recession” of 2007-9 and the contentious political-economic situation of today, are considered in view of the popular narratives of their respective times. Though these narratives are deeply human phenomena that are difficult to study in a scientific manner, quantitative analysis may help us gain a better understanding of these epidemics in the future.

NarrativeEconomics_preview

  1. Expert opinionHoward Marks
  2. Easy gamesMichael Mauboussin
  3. Echoes from AfricaBill Gross
  4. Trends in real estateRoschelle et al.
  5. Pabrai interview – Pysh and Brodersen
  6. Dalio interview – Henry Blodget
  7. Apple TV anniversary – Ben Thompson
  8. Two types of knowledge – Ben Carlson
  9. The art of seeding talentJames Williams
  10. An expert called Lindy – Nassim Taleb
  11. iPhone product study – Max Olson

https://youtu.be/3yOeeZIplV8 A trader DESTROYS a false guru.  A lesson in chart reading/technical analysis and ignorant hope.   Funny in parts!

A Speculator Laments–a brutal, honest introspection.

 

HAVE A GREAT WEEKEND!

The World of Inefficient Stock Markets

“Let us not, in the pride of our superior knowledge, turn with contempt from the follies of our predecessors. The study of errors into which great minds have fallen in the pursuit of truth can never be uninstructive… Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one… Truth, when discovered, comes upon most of us like an intruder, and meets the intruder’s welcome… Nations, like individuals, cannot become desperate gamblers with impunity. Punishment is sure to overtake them sooner or later.”

Charles MacKay, Extraordinary Popular Delusions and The Madness of Crowds, 1841

My prior post on Charts and Technical Analysis is here: http://csinvesting.org/2017/01/04/chartists-and-technical-analysis/

The point is to realize that charts are a tool but using them to predict is a fools’ game.   You can try to find disconfirming evidence,but make sure the sample size is a large one.   More on market inefficiency from Bob Haugen.

Chartists and Technical Analysis

Why Value Investing?  (from the Brooklyn Investor)

I don’t intend to tell you here which investment approach is correct. And here, I don’t distinguish between growth and value investing. This just describes my own evolution as a trader/investor over time, moving from charts to fundamentals-based investing. You may have observed different things and may have come to a different conclusion. That’s cool. And yes, there are credible people who swear by charts, and I’ve known some of those people too. This is just how I evolved.

Technical Years

When I first started out in the business, I was in a department that managed portfolios and set investment strategy. I read a lot of investment books and I really got into technical analysis (even though Intelligent Investor was one of early books I read). The idea was appealing to me; that all information is already reflected in stock prices so all we need to do is to study price action. No need to go digging into financial filings and read annual reports; everything is already reflected in the stock price!

The idea that you can draw lines on a chart with a ruler and predict what will happen was highly appealing to me as a young analyst starting out. I also did a lot of quantitative work too, but mostly screening and ranking stocks according to standard deviations off of this or that average, creating multi-factor valuation models for the whole market etc. I went around visiting the largest institutional investors making presentations based on technical analysis, saying things like, “if this sector breaks this trendline, it’s all over…” etc. It was incredibly fun to do. When I say “technical analysis” here, I mean things like trend lines, moving averages, RSI and other oscillators, formations like head-and-shoulder tops, descending triangles and things like that.

I also worked at one of the large hedge funds that was heavily into technical analysis. I was still big into charts at the time as were most people there. While I was there, I got to read just about every newletter that was published, many of them technical analysis related. It was interesting that nobody was ever really right often enough to be useful. Some of the prominent newsletter writers started their own funds; most of them blew up relatively quickly. Of all of the prominent technicans, nobody that I know of had a real, audited track record of actually making any money with what they preach. This was the beginning of my doubt about technical analysis. There is an old adage that on Wall Street, you never meet rich technical analysts. Or that the rich ones have made most of their money from selling books and/or newsletters.

Superinvestors of Edwards-and-Mageeville?

When you go to the bookstore and look at all the books about technical analysis, you will notice that none of them are written by people who have successful, long-term track records. The bible of technical analysis, for example, is Technical Analysis of Stock Trends by Edwards and Magee. Who are these guys? Do they have a track record of performing over a long period of time? Check out the value investing equivalent: Securities Analysis by Benjamin Graham. Benjamin Graham has a long term track record of high performance, and he has disciples that have continued to perform well using his ideas.

Other more recent books are Margin of Safety by Seth Klarman and of course, You Can Be a Stock Market Geniusby Joel Greenblatt. They both have impressive long term track records. Where are the equivalent people in the world of technical analysis? Borrowing Warren Buffett’s concept, “Where is the Edwards-and-Mageeville of technical analysis?” (Warren Buffett wrote an essay about the Superinvestors saying that they all come from the same village, the village of Graham-and-Doddsville, meaning that they all share the same investment concept as taught in the Graham and Dodd Securities Analysis book).

The more I thought about this, the more I observed, and the more I read, the iffier technical analysis got. As I watched professional traders, it seemed to me that the ones that relied a lot on technical analysis actually didn’t make money. I have never been an FX or bond trader, so I don’t know about them, but most people I observed trading off of charts didn’t seem to make money. The big boss trader who loved charts, though, did make money. But he seemed to make decisions based on a lot more than just charts. He would call 10 or 20 different people every day, get their input in the morning, see how people are positioned etc. So he had a lot more information to make decisions than just lines on a chart. If you locked him in a room by himself and made him trade just off the charts with no other information or input, I doubt he would have made the returns that he had.

Also, at the time, people who had impressive long term returns were funds like Tiger, Steinhardt, Soros etc. Those were the funds that put up big figures for decades. Technical-based CTA’s existed too, but they seemed to come and go; there really was no equivalent of Soros or Steinhardt in that area. Soros is a macro trader, but he is very fundamentals based; not really a technician.

Superinvestors of Graham-and-Doddsville

Of course, then there is Warren Buffett and his “Superinvestors of Graham-and-Doddsville”. If you’ve never read this essay before, please read it. It’s free; just click the link. It may be the most important essay ever written in the world of investing. Again, where are the superinvestors of Edwards-and-Mageeville?

But the Fundamental Guys are Wrong Too!

And all of this inevitably leads to the argument that the fundamentals based investors are frequently wrong too. Most mutual funds underperform. Economists are often wrong. Wall Street analyst estimates are no better than random. Well, yes, this is all true. First let me just give some excuses. Most mutual funds underperform, I think, because most mutual funds are asset gatherers, not asset managers. There is more money to be made by gathering assets and getting too large to outperform than by staying small enough to outperform. Having said that, asset managers in aggregate, can’t all outperform. This is not Lake Wobegan. We can’t all be above average. All investors are the market, and less fees, they will underperform.

Wall Street Analysts are Often Wrong!

This is also true, I suppose. I have seen studies that show how worthless analysts estimates are. The problem here, though, is that Wall Street has to always have an opinion on all stocks at all times. If you are a stock analyst, you have to have a buy, hold or sell recommendation. You can’t say, “I don’t know”. Investors have the luxury of saying, “I have no idea” and can move on to the next idea. Too, analysts have to come up with earnings estimates on a quarterly basis, and they are evaluated on their accuracy. Again, most long-term investors don’t really care about earnings on a quarter-to-quarter basis, which can be really noisy and random. But Wall Street analysts must have an estimate no matter how random it is.

Think of it this way. Let’s say you are a baseball analyst in charge of predicting batters’ performances. Your job is, every time a batter steps up to the plate, to guess if he will hit a single, double, triple, walk or strikeout (or whatever). What are the chances that you will guess these things correctly over time? That is like the Wall Street analyst’s job of predicting earnings every quarter. All a long term investor needs to do is to figure out what the current batter’s average will be over the next few seasons. Will this 0.300 hitter be a 0.300 hitter next year and the year after that? That is much easier to predict than what a batter will do on each at bat.

So Anyway

I know people who swear by charts, especially people in FX, bonds and commodities. Locals/floor traders and day traders too often seem to love charts. For people who make money off of chart reading, that’s great (Steve Cohen of SAC/Point72 was known to be a ‘tape reader’ in the early days and probably still does a lot of technical stuff). But for me, I just haven’t really seen any good evidence of the usefulness of technical analysis. I spent many hours trying to find it. And keep in mind that I used to love charts and was an active, professional chartist/technician working for a major investment bank early in my career. This is just how my thinking has evolved over the years.

From http://brklninvestor.com/notes/whyValue.html

http://www.followingthetrend.com/2014/05/why-technical-analysis-is-shunned-by-professionals/

The Folly of Expert Predictions

LESSON: IGNORE “EXPERT” PREDICTIONS

Bo Polny

A relatively new guy on the PM analysts scene, Bo Polny was, to my knowledge, first mentioned by Jim Sinclair (Yes, Mr. Gold of the “Gold will never go below $1500” – fame) as his chartist. He used that notoriety to open a website (2020 Gold Forecast), establish a following and charge exorbitantly for a newsletter – which I believe is now has a less-detailed, more reasonable price structure option. He is characterized as passionate, animated, can speak technical-analysis double-speak using chartist-lingo and numerology, is occasionally religious (Shemitah) and has made ambitious, dated, calls – some of which we will include that have not been resolutely judged correct or not. He’s been around less than 3-years but has some wildly poor predications. Let’s see:

May 7, 2013 – Bo Polny: Silver Extremely Vulnerable to a Break of $22 Bottom in this Polny stated that silver’s final bottom of $22 was ‘in’ but vulnerable [?!?] kind of riding the fence (it was $14.93 last I looked April 4th, 2016 – almost 3 years later – so, yeah – $22 was indeed ‘vulnerable’)

May 31, 2013 – Bo Polny: Gold Has Bottomed at $1321, to Rise into June 5th Turn Datethe following month after he stated this it went to $1190.

June 18, 2014 – Bo Polny: Gold- Up in June, Down into Summer & a Moon Shot to $2000 before Year END!Gold closed that year at around $1205.

June 27, 2014 – Bo Polny: Gold Cycle Top June 27, Next a Summer Low Buy-Of-A-Lifetime Before $2000 Gold in 2014!Actually, Gold never went above $1400 in 2014 and finished the year at $1205.

July 15, 2014 – A Final Summer Low Still Ahead as Gold’s Sabbatical Rest Comes to an End & Gold Heads to $10,000+!a continuation of his more exaggerative predictions…

August 11, 2014 – BO POLNY: A 3-Year Gold ‘BEAR’ Market Ends & a 7-Year Gold ‘BULL’ Market Beginsno, Bo…

September 9, 2014 – BO POLNY: $2000 Gold, Next Stop! 7-Year Gold Cycle Targets $5,000 & $333 Silverabsurd but it tends to peak the interests of the gold and silverbugs who immediately start mentally converting their stacks into mega-dollars imagining their new wealth and what it can buy them… silly really.

October 9, 2014 – BO POLNY: Triple Bottom a Prelude to Runaway Gold & Silver Bull Marketsnot surprisingly, nothing happened except a minor spike in the beginning of 2016 – over a year after he said it. More PM version of ‘Hopium’… which is how most of these charlatans extend their livelihood.

December 22, 2014 – BO POLNY: 2015, The Year of Devastationit wasn’t… it was another year of Bo Polny’s incorrect predictions. I think he later claimed he was a year early because of some numerology faux-pas – what-ever.

January 12, 2015 – BO POLNY: Gold and Silver, a Parabolic Rise in 2015‘Parabolic’ refers to something in the shape of a Parabola (‘U’) – analysts love this term as a fancy way of saying things will turn-around from lows back to highs. I’m sure you are aware – it didn’t transpire in his 2015 time-frame.

January 20, 2015 – Bo Polny – Are Precious Metals Getting Ready To Go Parabolic?there’s that ‘parabolic’ word again. In retrospect, Bo – I can answer: “Ummm… No – not ready yet”.

March 27, 2015 – Bo Polny: BREATHTAKING Crash in USD Before Summer?if ‘crash’ involves a lack of confidence – then the crash was in Bo Polny’s credibility.

May 18, 2015 – Bo Polny – It’s All Down from Here, Except Gold and SilverBo was calling for a major sell-off on the dollar and treasuries…. and being complimentary – he is, at best, premature.

June 4, 2015 – Bo Polny – Silver Short Squeeze Imminent!‘imminent’ is one of those less-fluid words that indicates immediacy – in fact Bo said in this articleIn June 2015 the shorts will run to cover as Gold and Silver spike!” – Ohh Bo…sigh

June 14, 2015 – Majestic Gold & Silver Breakout, June 2015- Bo Polny“Majestic”; possessing majesty; of lofty dignity or imposing aspect; stately; grand; not a word associated with Bo Polny.

‘June 18, 2015 – Three Digit Silver In 2016!’ – Bo Polnyof course, the year is not over but it seems less and less likely as each day goes by… the term ‘Three Digit” gets the Silverites brains congratulating themselves that they can mentally calculate that it means a minimum of $100. Bravo! Actually, at this point, the general consensus was that Bo was full of it…

August 4, 2015 – Bo Polny: $9000+ Gold & $1000 Silver if $1072 Holds!$1072 held – Bo’s prediction didn’t. 

August 13, 2015 – Bo Polny – Fasten Your Seat-Belt, Gold’s Next Cycle Targets $8000 – $10,000it must have been a slow-subscriber week for Bo… he did the equivalent of putting caffeine in the water cooler. “We love you Bo! tell us more about our millionaire status future!”

August 24, 2015 – Shemitah 2015, the Year of Jubilee and 3-Digit Silver…Putting it All Together!3-Digits again! Your Eagle coins are going to make you rich, guys and gals!

August 26, 2015 – $2000 Gold & $50 Silver this year! | Bo PolnyBo goes out on a limb… of desperation. I think the tactic backfired as he was proven VERY wrong in only a few months… tsk, tsk. Silver never even got to 1/2 his called prediction.

September 23, 2015 – Bo Polny: September 23, 2015 – THE SHIFT BEGINS! out of ‘Bo following’

October 27, 2015 – All Hell Could Break Loose in Gold/Silver Prices, $100+ Silver 2016the best predictor of future behavior is past behavior and Mr. Polny has had too many of these absurd predictions.

January 17, 2016 – What Follows Will Be The BREAKOUT OF THE CENTURY FOR SILVER! – Bo Polnyokay, Bo… we will wait and see but your call is documented. But I think even the most hardcore Silverbug has lost faith in you…

February 16, 2016 – Gold to DOUBLE in 2016 – Bo Polny or Bo’s credibility takes its final plunge, agreed? 

March 1, 2016  – Polny Sticks His Neck Out: “Gold to Double, Silver to TRIPLE in 2016!”only triple for Silver?  Bo’s really toned down from those triple-digit days – perhaps Bo doesn’t realize Silver is only $14+ change right now.

http://www.dvdbeaver.com/Gary/gold/bo_polny_failed_calls.htm

For laughs: https://www.gold2020forecast.com/

Take a look at other precious metals “analysts”

Stewart Thomson writes the Graceland Updates.

I’m not a fan of Stewart Thomson – I find him arrogant, and a wholly inaccurate PM analyst – I consider him one of the worst. Let’s allow his wayward predictions speak for themselves:

“In late 2013, I predicted the Fed would taper all the way to zero in 2014, and suggested that taper would turn the Dow into a “wet noodle”, while creating a rally in gold prices. That’s the opposite of what most analysts thought would happen in 2014, and it’s exactly what has transpired!” -Stewart Thomson Oct 2014

“Gold Set to Surge, Silver Looks Even Better! I think gold could charge beyond $1325, and on towards the $1347 and $1390 area highs. Silver, which is perhaps better referred to as “gold on steroids”, looks even better.” -Stewart Thomson August 2014

“…any gold-negative news is not likely to move the price of gold lower than $1275. The upside numbers of importance are $1325, $1347, and $1392.” -Stewart Thomson July 2014

“Gold: “Let the Good Times Roll!” During the first six months of 2014, there have been quite a number of events that are positive for the gold market, and there was a big one yesterday. Gold staged a nice breakout from a small bullish wedge pattern last night, and the entire chart has a very bullish look. Why is that? Well, the month of August can see Indian citizens buy enormous amounts of gold, as they begin preparations for the wedding season and Diwali. Expectations of those liquidity flows into gold are likely why the gold chart looks so bullish now.” -Stewart Thomson July 2014

“Gold: The Worst Is Over, What’s Next? The time to be heavily invested in the precious metals sector is not later. It’s now.” -Stewart Thomson June 2014

“While the short and intermediate trends for gold are greatly influenced by Fed policy, events in China and India are now the key drivers of gold’s primary trend…. and sends gold surging towards my target of $1432.” -Stewart Thomson July 2014

“A persuasive argument can be made that gold staged an upside breakout last night. The range of $1305 – $1326 was decisively penetrated to the upside, and gold traded as high as $1335. Monday’s close was critical, because it was not just the end of the month, but the end of the quarter. Junior gold stocks staged a spectacular ending to the first half of the year, on massive volume. The chart suggests the second half of 2014 will be even better!” -Stewart Thomson July 2014

“Gold Stock ETFs: Outrageously Bullish! If I’m correct, the “bare minimum” arithmetic target is: $2663. I think my target price is absolutely justified by the global fundamental and geopolitical price drivers.” -Stewart Thomson June 2014

“Technically, all sectors of the gold market look bullish. Regardless of whether a daily chart, weekly chart, or a monthly chart is used, all technical lights are green. The weekly charts suggest that investors who are waiting for gold to bottom in July are at risk of missing an enormous rally that appears to already be underway.” -Stewart Thomson June 2014

“I’ve outlined a rough scenario for summer rally enthusiasts on the daily silver chart below. I’ve suggested silver could move up to about $22. Much higher prices are possible.” -Stewart Thomson June 2014

“Gold now seems to be forming an inverse head and shoulders bottom pattern, and that’s good news for bullish investors.” -Stewart Thomson April 2014

“Indian National Election is the Most Bullish Event for Gold in Past 100 Years!” -Stewart Thomson April 2014

“Gold market technicians should be open to the possibility that in the bigger picture, this rally has only just started.
Many of PM investors are likely to sell on a rally back to the $1500 area, to cut the huge losses they sustained in 2013.” -Stewart Thomson February 2014

More Negative News; Hunter S. Thomson

Negative gold articles are piling up:https://mishtalk.com/2016/12/27/financial-times-barrons-tout-death-of-gold/

but note the sentiment extremems: http://www.acting-man.com/?p=48247

Hunter S. Thompson’s Letter on Finding Your Purpose and Living a Meaningful Life

Hunter S Thompson

In April of 1958, Hunter S. Thompson was 22 years old when he wrote this letter to his friend Hume Logan in response to a request for life advice.

Thompson’s letter, found in Letters of Note, offers some of the most thoughtful and profound advice I’ve ever come across.

April 22, 1958
57 Perry Street
New York City

Dear Hume,

You ask advice: ah, what a very human and very dangerous thing to do! For to give advice to a man who asks what to do with his life implies something very close to egomania. To presume to point a man to the right and ultimate goal— to point with a trembling finger in the RIGHT direction is something only a fool would take upon himself.

I am not a fool, but I respect your sincerity in asking my advice. I ask you though, in listening to what I say, to remember that all advice can only be a product of the man who gives it. What is truth to one may be disaster to another. I do not see life through your eyes, nor you through mine. If I were to attempt to give you specific advice, it would be too much like the blind leading the blind.

“To be, or not to be: that is the question: Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles … ” (Shakespeare)

And indeed, that IS the question: whether to float with the tide, or to swim for a goal. It is a choice we must all make consciously or unconsciously at one time in our lives. So few people understand this! Think of any decision you’ve ever made which had a bearing on your future: I may be wrong, but I don’t see how it could have been anything but a choice however indirect— between the two things I’ve mentioned: the floating or the swimming.

But why not float if you have no goal? That is another question. It is unquestionably better to enjoy the floating than to swim in uncertainty. So how does a man find a goal? Not a castle in the stars, but a real and tangible thing. How can a man be sure he’s not after the “big rock candy mountain,” the enticing sugar-candy goal that has little taste and no substance?

The answer— and, in a sense, the tragedy of life— is that we seek to understand the goal and not the man. We set up a goal which demands of us certain things: and we do these things. We adjust to the demands of a concept which CANNOT be valid. When you were young, let us say that you wanted to be a fireman. I feel reasonably safe in saying that you no longer want to be a fireman. Why? Because your perspective has changed. It’s not the fireman who has changed, but you. Every man is the sum total of his reactions to experience. As your experiences differ and multiply, you become a different man, and hence your perspective changes. This goes on and on. Every reaction is a learning process; every significant experience alters your perspective.

So it would seem foolish, would it not, to adjust our lives to the demands of a goal we see from a different angle every day? How could we ever hope to accomplish anything other than galloping neurosis?

The answer, then, must not deal with goals at all, or not with tangible goals, anyway. It would take reams of paper to develop this subject to fulfillment. God only knows how many books have been written on “the meaning of man” and that sort of thing, and god only knows how many people have pondered the subject. (I use the term “god only knows” purely as an expression.) There’s very little sense in my trying to give it up to you in the proverbial nutshell, because I’m the first to admit my absolute lack of qualifications for reducing the meaning of life to one or two paragraphs.

I’m going to steer clear of the word “existentialism,” but you might keep it in mind as a key of sorts. You might also try something called Being and Nothingness by Jean-Paul Sartre, and another little thing called Existentialism: From Dostoyevsky to Sartre. These are merely suggestions. If you’re genuinely satisfied with what you are and what you’re doing, then give those books a wide berth. (Let sleeping dogs lie.) But back to the answer. As I said, to put our faith in tangible goals would seem to be, at best, unwise. So we do not strive to be firemen, we do not strive to be bankers, nor policemen, nor doctors. WE STRIVE TO BE OURSELVES.

But don’t misunderstand me. I don’t mean that we can’t BE firemen, bankers, or doctors— but that we must make the goal conform to the individual, rather than make the individual conform to the goal. In every man, heredity and environment have combined to produce a creature of certain abilities and desires— including a deeply ingrained need to function in such a way that his life will be MEANINGFUL. A man has to BE something; he has to matter.

As I see it then, the formula runs something like this: a man must choose a path which will let his ABILITIES function at maximum efficiency toward the gratification of his DESIRES. In doing this, he is fulfilling a need (giving himself identity by functioning in a set pattern toward a set goal), he avoids frustrating his potential (choosing a path which puts no limit on his self-development), and he avoids the terror of seeing his goal wilt or lose its charm as he draws closer to it (rather than bending himself to meet the demands of that which he seeks, he has bent his goal to conform to his own abilities and desires).

In short, he has not dedicated his life to reaching a pre-defined goal, but he has rather chosen a way of life he KNOWS he will enjoy. The goal is absolutely secondary: it is the functioning toward the goal which is important. And it seems almost ridiculous to say that a man MUST function in a pattern of his own choosing; for to let another man define your own goals is to give up one of the most meaningful aspects of life— the definitive act of will which makes a man an individual.

Let’s assume that you think you have a choice of eight paths to follow (all pre-defined paths, of course). And let’s assume that you can’t see any real purpose in any of the eight. THEN— and here is the essence of all I’ve said— you MUST FIND A NINTH PATH.

Naturally, it isn’t as easy as it sounds. You’ve lived a relatively narrow life, a vertical rather than a horizontal existence. So it isn’t any too difficult to understand why you seem to feel the way you do. But a man who procrastinates in his CHOOSING will inevitably have his choice made for him by circumstance.

So if you now number yourself among the disenchanted, then you have no choice but to accept things as they are, or to seriously seek something else. But beware of looking for goals: look for a way of life. Decide how you want to live and then see what you can do to make a living WITHIN that way of life. But you say, “I don’t know where to look; I don’t know what to look for.”

And there’s the crux. Is it worth giving up what I have to look for something better? I don’t know— is it? Who can make that decision but you? But even by DECIDING TO LOOK, you go a long way toward making the choice.

If I don’t call this to a halt, I’m going to find myself writing a book. I hope it’s not as confusing as it looks at first glance. Keep in mind, of course, that this is MY WAY of looking at things. I happen to think that it’s pretty generally applicable, but you may not. Each of us has to create our own credo— this merely happens to be mine.

If any part of it doesn’t seem to make sense, by all means call it to my attention. I’m not trying to send you out “on the road” in search of Valhalla, but merely pointing out that it is not necessary to accept the choices handed down to you by life as you know it. There is more to it than that— no one HAS to do something he doesn’t want to do for the rest of his life. But then again, if that’s what you wind up doing, by all means convince yourself that you HAD to do it. You’ll have lots of company.

And that’s it for now. Until I hear from you again, I remain,

your friend,
Hunter

Read more: https://www.farnamstreetblog.com/

Once you have found your purpose you MUST read this:

2016-Year-In-Review-PeakProsperity

For those who like to follow  Pabrai–from a recent missive:

While there are no guarantees, our portfolio (Pabrai Funds) is trading at one of the widest discounts to underlying intrinsic value. It is probably a good time to join. I enjoyed my recent chat with Barron’s Magazine:

http://www.barrons.com/articles/why-mohnish-pabrai-likes-gm-fiat-and-southwest-air

You might also enjoy viewing a talk I recently gave to the students at Peking University: https://www.youtube.com/watch?v=Jo1XgDJCkh4

Personally, I think he is way over-rated as an investor-YOU can do better following YOUR own method.

“In a state where corruption abounds, laws must be very numerous.” ~Tacitus

Poster Board on Sentiment; A Contrarian Investor

I like to have a reference to refer back to a year or five years from now capturing certain points in time.   The market seems to be placing peak confidence in financial assets (stocks) vs. gold.

This post continues from a prior post: http://csinvesting.org/2016/11/17/when-no-one-wants-em-search-strategy/

The Bearish Gold Articles keep on coming:  http://www.businessinsider.com/heres-why-you-should-never-buy-and-hold-gold-2016-12

http://seekingalpha.com/article/4032167-gold-miners-perfect-bear-case

http://bloom.bg/2hWukKn Running out of metal.

Even bullish mining investors expect “waterfall declines” and gold going below $1,100. Momentum creates the news:  http://www.kitco.com/news/video/show/Gold–Silver-Outlook-2017/1456/2016-12-22/Mining-Stocks-Could-See-Waterfall-Declines—David-Erfle   To be fair, he is long-term bullish, but note the “certainty, inevitability” of gold falling in USD below $1,100 or even to $1,000.  Since he is probably considered strong hands (better capitalized with more experience in precious metals miners) his view indicates VERY bearish near-term (1 day to two/three months sentiment). As I interprete this news.

Financial risk is increasing on US company balance sheets, but then who cares while confidence is high?

As an investor, you want to monitor the amount of capital (especially in a capital intensive business!) going into and out of a business.   An industry starved of capital augurs well for future returns!

‘Anonymous Billionaire’ in the Spotlight After 1,000% Rally

  • Alaska fund is No.2 fund focused on Brazilian equities
  • Barros’s fund is now buying up Fibria, Marcopolo, Vale

Luiz Alves Paes de Barros is something of an enigma in Sao Paulo’s financial circles. At 69, he’s known around town as the “anonymous billionaire” for quietly amassing a fortune by wagering on stocks almost no one else seemed to want.

In Magazine Luiza SA, Barros may have made one of his best bets yet.

Starting in late 2015, Barros’s Alaska Investimentos Ltda. made the battered retailer one of its biggest holdings, a brazen move in a nation stuck in the middle of its worst recession in a century. It paid off. Magazine Luiza has surged more than 1,000 percent since reaching a record low about a year ago, making it the top stock in one of the world’s top-performing markets. That turned Alaska’s Black Master, which Barros co-manages with Henrique Bredda and Ney Miyamoto, into the No. 2 fund among 569 peers focused on Brazilian equities, according to data compiled by Bloomberg.

Barros’s latest success only adds to the intrigue surrounding one of Brazil’s most storied, but media-shy, individual investors. Early in his career, he traded commodities and was a partner of star fund manager Luis Stuhlberger at what is now Credit Suisse Hedging-Griffo. Barros then spent the next half century investing only his own cash, almost exclusively in Brazilian stocks, and regulatory filings show he personally holds 1.2 billion reais in equities.

When it comes to managing other people’s money, Barros is a rookie, having co-founded Alaska in July 2015. But his investing method remains the same. He only holds a handful of stocks, favors companies with bottom-of-the-barrel valuations and usually jumps in as everyone else is bailing.

“Perfecting patience is all I’ve done over the past 50 years,” Barros says. “I love when things get bad. When it’s bad, I buy.”

During two interviews, first in Alaska’s shoebox office in the heart of Sao Paulo’s financial district and then at his personal office on the city’s oldest business thoroughfare, the silver-haired asset manager explained what drew him to Magazine Luiza and went over the stocks he likes now: Fibria Celulose SA, Braskem SA, Marcopolo SA and Vale SA.

“The market has forgotten these stocks,” he says.

Alaska started building a stake in petrochemicals maker Braskem about four months ago (the stock has surged 48 percent since mid-August after tumbling 20 percent this year before then) and pulpmaker Fibria a few months later. Barros likes both companies because they’re fundamentally sound — and valuations are low. Braskem’s price-to-earnings ratio is 8.3, less than half the level three years ago. Fibria’s valuation is less than half the average of the past two years.Marcopolo, a maker of trucks and buses, is a play on Brazil’s rebound from recession, while miner Vale will benefit as global investors start seeking value again over safety. There’s no economic expansion in Brazil without infrastructure investments, he says.

“Vale won’t be a disaster for anyone. When iron-ore prices rise again, Vale will fly,” he said.

If those stocks return just a fraction of what Magazine Luiza did, they’d count as stellar investments. In all, Alaska acquired almost 40 percent of Magazine Luiza’s free-floating shares, regulatory filings show. In 2016’s third quarter, Alaska unloaded half its stake. What’s left of Alaska’s holdings in Magazine Luiza is now worth about 111 million reais ($33 million).

Asked how he knew Magazine Luiza would do as well as it did, he says he didn’t. “I just knew it was cheap.” The fact that the retailer of appliances and electronics had a market value of 180 million reais even though a bank had offered to pay 300 million reais for the right to offer extended guarantees on Magazine Luiza products made that clear.

“Either the bank was crazy or there was value there,” Barros says.

Alaska’s Black Master fund has returned 143 percent in 2016, compared with a 33 percent gain for Brazil’s benchmark Ibovespa stock index. The gains were also driven by a stake in Cia. de Saneamento do Parana, the water utility known as Sanepar that’s almost tripled this year.

Alaska is still a relatively small player in Brazil’s 2.38 trillion-real stock market. The asset manager employs 11 people (“That includes the lady who serves the coffee,” Barros says). While Alaska oversees about 1.6 billion reais, three-quarters of that is Barros’s own cash. But the fund is actively seeking new clients.

Why now, after 50 years of going it alone?

“Because I’m positive that the market is going to rise,” he says.

OVERCONFIDENCE

UBS trading floor above in 2008 and now in 2016

OVERCONFIDENCE

The Capital Cycle: Junior Mining

Goethe, the poet-philosopher, wrote: “I find more and more that it is well to be on the side of the minority, since it is always the motre intelligent.

The urge that first sent me on a quest that ended in the Theory of Contrary Opinion was the disappointments and disillusionment that come to everyone who seeks a method “to beat the stock market.”

Take many chart-reading ideas, as an example. One can interpret charts almost any way he wishes. He can read into their “formations” just about any probable result he hopes for. Which is to say, that if one is bullish at heart his chart reading is liely to be interpreted optimistically; if bearishly inclined, charts accommodatingly will “say” that the market is going down.

So it was that I soon learned (the hard way) that not only were individual opions frequently wrong but that my own judgement was often unprofitably faulty.

Accordingly, I turned to a study of mass psychology in the hope of finding the answer to the riddle of “why the public is so often wrong.” (and that meant why I was so often wrong).

If individual opinions are unreliable, why not go opposite to crowd opinion—that is, contrary t0o general opinions which are so often wrong?

That said and with severe pessimism coming back into miners and gold circa end 2015/early 2016, take another look.  I suggest reading reports several years back so you can see how managements react to the cycle.

http://seekingalpha.com/article/4030639-deleveraging-tightens-metals-supply-supports-prices-part-1

Also, you need to be:

Performance Panic; WHO are YOU?

Year-End Performance Panic

higher

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An unbiased appreciation of uncertainty is a conerstone of rationality–but it is not what people and organizations want. Extreme uncertainty is paralyzing under dangerous circumstances, and the admission that one is merely guessing is especially unacceptable when the stakes are high. Acting on pretended knowledge is often the preferred solution.”   –Daniel Kahneman

But no guarantee of a sell-off, just an indication of extreme momentum. Be fearful when others are greedy.

hussman

ev-to-ebitda-spy

russell-ev-to-ebitdaspy-vs-bonds

hy-bonds-pricing-in-perfection

insider-selling-at-banks

hy-valuation-to-cf

Not predicting a crash, but note how little risk is priced into many stocks!   Meanwhile, I am SELLING! to buy more gold and bonds.

WHO ARE YOU?

http://www.selfauthoring.com/purchase.html

If you don’t know who you are, this is an expensive place to find out. –Adam Smith in The Money Game