Deep Value

 

41l84-m2xuL._AA160_

 

Interview-with-benzingas-deep-value-letter-author-tim-melvin-about-my-new-book-deep-value/

Another Value Investing Program (Marty Whitman)

Whitman

http://orangevaluefund.com/Welcome.html

Learn about “SAFE and “CHEAP.” 51LTsFHG74L._AA160_

Munger’s book recommendations

http://www.farnamstreetblog.com/2014/08/book-recommendations-from-billionaire-charlie-munger/

 

Munger Discusses Blue Chip Stamps

Blue Chip

A case study of Warren Buffett and Charlie Munger’s investment in and management of Blue Chip Stamps. Includes:

If you find any errors or have any other contributions, make a pull request or contact me through the Twitter handle @maxolson.

GO HERE: https://www.gitbook.io/book/maxolson/blue-chip-stamps

PS: On the road, but I haven’t forgotten about Yamana. I wouldn’t buy above $8.00.

If gold is down because the market thinks the Fed will raise rates and end QE, then those assumptions are based on fantasy. HOW can the FED EVER stop QE without the house of cards collapsing?  What does history say:  http://www.zealllc.com/2014/goldrrf.htm

 

Here is the Argentina Peso in free-fall:

Peso Monthly

HAVE A GREAT WEEKEND!

 

Jean-Marie Eveillard Lecture

Jean Marie

Jean-Marie Eveillard
Adviser, First Eagle Investment Management

March 13, 2014

Quotes

“We don’t look at gold as a commodity, but as a form of insurance against what Peter Bernstein calls extreme outcomes. In most circumstances in which worldwide equity markets would go down – and not just for a week or two – the price of gold would go up, providing a partial offset to the hits we’d take in our equity portfolio”.

“In general, there aren’t many countries in which we wouldn’t invest. But if a country is too economically or politically prevail, we pass. The main country in which we won’t invest today is Russia. There’s still too much risk for foreign (or even local) investors that you’ll think you own an asset and then Mr. Putin decides you don’t”.

“The knock on diversified funds is that they’re index-huggers, which given the geographic breadth of where we invest, is not at all the case for us. I know the argument that you should only own your best 30 or 40 ideas, but I’ve never proven over time that I actually know in advance what those are”.

“Our cash balance is purely a residual of whether or not we’re finding enough to invest in”.

“If one is wrong in judging a company to have a sustainable competitive advantage, the investment results can be disastrous”.

“Top executives from a Japanese property company and casualty insurer we’ve owned for years just in our office last month explaining the extent of the CDO exposure in their investment portfolio, which was upsetting to us. We said,”Didn’t the fact that you were buying a triple-A rated product with a yield much in excess of what you could get from Procter & Gamble sound too good to be true?”. But that kind of thing happened around the world.

References

  1. “Jean-Marie Eveillard on Toyota Motor Corp. Situation”. gurufocus.com. 23 February 2010. Retrieved 2010-03-09.
  2. a b “Jean-Marie Eveillard”. panachemag.com. Retrieved 2010-03-09.
  3. “Jean-Marie Eveillard – Profile”. gurufocus.com. Retrieved 2010-03-09.
  4. a b Birger, John (19 June 2007). Eveillard: A value maestro’s encore. FORTUNE Magazine. Retrieved 2010-03-09.
  5. “Jean-Marie Eveillard and Ralph Wanger to Receive Fund Manager Lifetime Achievement Awards at Morningstar Investment Conference”. Morningstar.com. 26 June 2003. Retrieved 2010-03-09.
  6. “Columbia Business School Directory”.

Video Lecture at Ivey School in 2014:

http://www.bengrahaminvesting.ca/Resources/Video_Presentations/Guest_Speakers/2014/Eveillard_2014.htm    Worth the time.

81Y3Ak

 

Marry Rich!

Reality show

I researched scams, frauds and penny dreadfuls (penny stocks) many moons ago, so I am on every scam list. Periodically, I will share some of the better con jobs so as to refresh ourselves with the psychology of sociopaths and cons.   

Anyone wish to marry rich (or receive 40% of $8.5 million)–here is your chance. A Cinderella story gone horribly wrong!

 FROM: joy.kipkalya@yandex.com, 

 
Re: PLEASE MY DEAREST ONE I NEEDS YOUR HELP.

 

My Dearest,

I know you will be surprise to receive this email, but Before I go further I will like you to understand that, I am writing this mail to you With due respect trust and humanity, I appeal to you to exercise a little patience and read through my letter I feel quite safe dealing with you in this important business, honestly i am writing this email to you with pains, tears and sorrow from my heart, i will really like to have a good relationship with you and i have a special reason why i decided to contact you, i decided to contact you due to the urgency of my present situation here in the refugee camp. My name is Miss. Joy Kipkalya Kones, 25yrs old female and I from Kenya here in Africa; my father was the former Kenyan road Minister. He and Assistant Minister of Home Affairs Lorna Laboso had been on board the Cessna 210, which was headed to Kericho and crashed in a remote area called Kajong’a, in western Kenya. The plane crashed on Tuesday 10th, June, 2008.

After the burial of my beloved father, my stepmother and uncle conspired and sold all my  father’s properties to an Italian Expertrate which they shared the money they sold from the properties among themselves and live nothing for me. Unfortunately to me I fined my father’s briefcase and when I opened it I found a document which my Father used to deposited amount of money in one bank here in Burkina Faso, with my name as the next of kin. I travelled to Burkina Faso here I am, to withdraw the money for a better life
so that I can take care of myself and start up a new life and also further my education, when I arrival to the bank, the Bank foreign Operation Department Director whom I meet in person told me that my father instruction to their bank is that the fund would only be release to me when I am married or present a trustee/partner who will help me and invest the fund overseas after the transfer, and the bank ask me to go and look for a foreign partner, that was why  am contacting you, which I believe that you are going to be honest and reliable person that will help me and stand as my trustee/partner, so that I can present you to the Bank for the release and transfer of the inherited fund into your bank account in your country.

I have chosen to contact you after my prayers and I believe that you will not betray my trust. But rather take me as your own wife. Though you may wonder why I am so soon revealing myself to you without knowing you, well I will say that my mind convinced me that you will be the true person to help me. Moreover, I will like to disclose much to you if you can help me to relocate to your country because my stepmothers have threatened to assinate me. The fund my Father deposited into the bank, is ($8.5 USD) Million United State Dollars, and I have confirmed from the bank here in Burkina Faso, on my arrival, You will also help me to place the fund in a good profitable business venture in your Country, However you will also help by recommending a nice University in your country so that I can further my education. It is my intention to compensate you with 40% of the total money for your services and the balance shall be my capital in your establishment. Now my dear as soon as I receive your positive response showing your interest and wiliness to help me, I will put things into action immediately. In the light of the above, I shall appreciate an urgent message indicating your ability and wilingness to help me and also handle this transaction sincerely. Awaiting your urgent and positive response. Please my dear I want you to keep this as a top secret only to your self for now until the bank will release and transfer my inherited fund to you as my appointed trustee/partner. I beg you once again not to disclose this to any body until i come over your country because I am afraid of my weeked stepmother who has threatened to kill me and have my inherited fund alone. I thank you very much and am expecting to hear from you soonest.

Yours Sincerely
Joy Kipkalya Kones.

P.S. You gotta love the mis-spellings combined with the multiple tragedies. I give a less than 0 probability of the email being even remotely true.

Learning How to Learn (Free Course)

Learning-How-to-Learn-Logo-with-text

 

 

 

 

Welcome to Learning How to Learn: Powerful mental tools to help you master tough subjects

Learning How to Learn is for you—it’s meant to give you practical insight on how to learn more deeply and with less frustration. The lessons in this course can help you in learning many different subjects and skills. Whether you love language or math, music or physics, psychology or history, you’ll have a lot of fun, and learn a LOT about how to learn!
This is a 4-week course. Learning with others is more fun, so please feel free to share this course and these ideas with your friends and family. We’ve found that learners become so excited about these ideas that they can’t help sharing them with those in their circles—and with new friends made on the discussion forums through this course. Sharing helps build your own abilities! We’ve set up a Facebook page to let people know about the MOOC. Please feel free to go to the page and share if you like it and the course, (and give us a “like”)! We also have a Twitter hashtag on the course, #LH2L1 (for “Learning How to Learn, Session 1″).

SIGN UPhttps://class.coursera.org/learning-001

CSInvesting: Wha? Learning how to learn?  Wasn’t that what school was for? I know all that! This course will help you as an analyst and investor process new readings and material more efficiently. Whenever you learn a new industry or company, these skills will come in handy.  I am taking the course. Even an old dog like me can learn. How about YOU?

An investing blog with humor: http://thefelderreport.com/ (Thanks to a reader!)

History

Bear-Markets-1871-to-date-Duration-and-Magnitude/  from Greenbackd.com

us-bear-markets-since-18711

and

us-bull-markets-since-1871

and now? ALL IN!

AAII-Cash-Allocations

http://www.acting-man.com/?p=32263

R .  I.  P.

R williams

Fed Trap; Fragile by Design

Man

 In times of change learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists–Eric Hoffer

Why the Fed is caught between its parabola of accelerating debt and money creation and debt collapse http://vimeo.com/102686694 (If short for time, start at the 18:30 minute mark).

Dan Oliver is a Director, Committee for Monetary Research and Education, one of the oldest and most respected organizations focused on our monetary system.

Some of the issues discussed were:

  1. Why has gold, when it was available, been the free-market preference for money worldwide for thousands of years?
  2. If gold is the preferred money, how come no country in the world uses it as money?
  3. Why does gold always move from spenders to savers, e.g., from the US to China?
  4. Goldsmiths/(banks) always issue more receipts for gold for which they do not have gold, sending all prices but gold higher. Reverse happens when the system collapses.
  5. Why, during a credit bubble, is gold always undervalued as compared to industrial commodities? What is the effect on gold producers?
  6. Why do politicians get corrupted by the bankers?
  7. Talk to how this plays out, especially the forcing abrogation of liberty
  8. What are the prospects for the relative valuation for gold and gold producers? What has to happen for these prospects to be realized?
  9. Where we are now: the money printed since 2008 is still mostly fallow, sitting in cash accounts.
  10. Can inflation occur in a stagnant economy or only when the economy “heats up”?

That interview of Dan Oliver of Myrmikan Capital provides a good synopsis of our (world’s) monetary crisis.  Profit from the Deluge_CMRE_Remarks_2011_05_12 and Economic-Consequences-of-Cheap-Money_Mises

Another Dan Oliver interview on Bloomberg TV: 
    https://www.youtube.com/watch?v=VVvrSPn34kY

j10177

http://vimeo.com/102086456   Interview with Charles W. Calomiris who wrote Fragile by Design, the Political Origins of Banking Crises & Scarce Credit

(Csinvesting: This is an important, well-written book to understand why another banking crisis is inevitable plus you receive a history of U.S. and foreign banking systems.

Why are banking systems unstable in so many countries–but not in others? The United States has had twelve systemic banking crises since 1840, while Canada has had none. The banking systems of Mexico and Brazil have not only been crisis prone but have provided miniscule amounts of credit to business enterprises and households. Analyzing the political and banking history of the United Kingdom, the United States, Canada, Mexico, and Brazil through several centuries,Fragile by Design demonstrates that chronic banking crises and scarce credit are not accidents due to unforeseen circumstances. Rather, these fluctuations result from the complex bargains made between politicians, bankers, bank shareholders, depositors, debtors, and taxpayers. The well-being of banking systems depends on the abilities of political institutions to balance and limit how coalitions of these various groups influence government regulations.

Fragile by Design is a revealing exploration of the ways that politics inevitably intrudes into bank regulation. Charles Calomiris and Stephen Haber combine political history and economics to examine how coalitions of politicians, bankers, and other interest groups form, why some endure while others are undermined, and how they generate policies that determine who gets to be a banker, who has access to credit, and who pays for bank bailouts and rescues.

Charles W. Calomiris is the Henry Kaufman Professor of Financial Institutions at Columbia Business School and a professor at Columbia’s School of International and Public Affairs. His many books include U.S. Bank Deregulation in Historical PerspectiveStephen H. Haber is the A. A. and Jeanne Welch Milligan Professor in the School of Humanities and Sciences and the Peter and Helen Bing Senior Fellow at the Hoover Institution at Stanford University. His many books include The Politics of Property Rights.

Seth Klarman

Seth+Klarman+Allen+Company+Annual+Meeting+7bct-wIFGiHl

…When men live by trade–with reason not force, as their final arbiter–it is the best product that wins, the best performance, the man of best judgment and high ability and the degree of a man’s productiveness is the degree of his reward.   (Atlas Shrugged)

Seth Klarman

Below are links to Seth Klarman’s investor letters and appearances.  I would try to study his philosophy, attitude, and approach to investing–see if you can integrate some of his approach to YOUR OWN methods.

New material from a reader (generous!) KLARMAN Response to Lowensteins Rational Investors found here:Graham Dodd Revisted by Lowenstein

Seth-Klarmanm-Interview-Financial-Analyst-Journal

klarman-value-investors-different

klarman-yield_pig

Klarman_on_running_a_fund_interview

Seth_Klarman-Why_Most_Investment_Managers_Have_It_Backwards

SethKlarman-TIFF_2009

Klarman 2013 Letter Excerpts

A BLOG DEVOTED TO Klarman  http://www.rbcpa.com/klarman.html

1408066-month_gold

Yamana Valuation

Upon returning from vacation, I have put off updating my valuation of Yamana. When there are fish, you must fish.   I promise to have it posted by this weekend.   I do recommend anyone who wants to hear a good management team explain their strategy for managing assets to listen to Yamana’s second quarter’s conference call:

http://www.gowebcasting.com/events/yamana-gold-inc/2014/07/31/second-quarter-financial-results/play

Yamana Gold Inc_ Q2 2014 MDA Final (SEDAR)_v001_t1ii3h

Yamana Gold Inc_Q2 2014

PresentationQ2 2014 – Conference Call Final

Asking a girl for her phone number

Another Investing Blog

Fund_Raising

economic_forecast

An interesting blog:http://alephblog.com/ The writer seems to approach investing through the different lens of actuarial risk–another approach to help you broaden your perspective on investing.

Value Investing Flavors

Classic the fundamentals of market-tops
Advice to students of investing (that’s us!)

But if I had control over what Finance students were taught, I would do the following:

1) I would reduce the math content for finance students and increase the qualitative understanding of markets.  No more MPT.

2) I would increase the level of understanding on how to relate with people, because that makes a big difference in negotiating trades.

3) I would want them to work in a simple business, like a hot-dog cart, or mowing lawns, so that they could begin to get an idea of how tough it is to earn a profit.  My best boss in my life grew up watching his parents’ delicatessen, and it shaped his view of how to make a profit.

4) I would revise the concept of the cost of capital to make it credit-centric.  All the efforts to calculate the cost of equity capital from equity market correlations are bogus.  They don’t make any economic sense.  In most cases, the cost of equity should not exceed the yield on an average CCC bond.

5)  I would tell them that changes in inflation and real GDP don’t have as large of an impact on corporate profits as is commonly thought, both positively and negatively.  I would tell them to focus on the stock, and drop the complex model.  Few in the investment business work off a complex model, and if you need one, you can buy Value Line, which I like, which tries to use a single macroeconomic model for 1700 popular stocks. 

Mostly, I would teach them to think broadly, and realize the most of the complex investment math is easy to get wrong.

The article:

What I Would & Would Not Teach College Students About Finance

My Theory of Asset Pricing

Have a Good Weekend!

Decline SPY

hy credit and SP 500

HY credit is where the fun may begin.  I would be terrified to buy the dip–unless I knew the company cold.

something-good

Whacked on W A C C (Wgt. Avg. Cost of Capital)

TyPic

Whacked on WACC

A reader asked how Prof. Bruce Greenwald determined WACC.

You can use traditional finance techniques of applying Beta (see links below) but I prefer estimating what other investors would require to risk their equity capital in the particular business because you are forced to think about business, financial and management risks.  Don’t substitute models for your own thinking. 

I will quote Prof. Greenwald’s discussion of WACC in Value Investing, pages 95-98

After we have completed the first step in arriving at an EPV (earnings power value) which is to calculate distributable earnings (Think of after-tax owner earnings using true maintenance capex instead of depreciation) for the company. Now we need to determine the appropriate cost of capital to use in the equation of EPV = Adjusted earnings x 1/R, where R = WACC.

Professional finance calls for a calculation of the weighted average cost of capital, known affectionately as the WACC.

There are three steps:

  1. Establish the appropriate ratio between debt and equity financing for this firm.
  2. Estimate the interest cost that the firm will have to pay on its debt, after taxes, by comparing it with the interest costs paid by similar firms.
  3. Estimate the cost of equity. The approved academic method for this take involves using something called the capital asset pricing model (see link below), in which the crucial variable is the volatility of the share price of the firm in question relative to the volatility of the stock market as a whole, as represented by the S&P 500 . That measure is called beta, and as much as it is beloved by finance professors, it is viewed with skepticism by the value investors. (98) Value Investing (Greenwald).

CSInvesting: Why? Because price movement is not risk! Risk always has an adjective preceding it like business-risk, management-risk, financial risk, regulatory risk, etc.

An alternative approach is to begin with the definition of the cost of equity capital: what the firm must pay per dollar per year to induce equity investors voluntarily to provide funds. This definition makes determining the cost of equity equivalent to determining the cost of any other resource. The wage cost of labor, for example, is what employers must pay to attract that labor voluntarily. There is no need to be esoteric about how to calculate the cost of equity in practice. We could survey other fund raisers to learn what they feel they must pay to attract funds. Venture capitalist in the late 1990s told us that they believed they had to offer at least 18 percent to attract funding. Venture investments are clearly more risky than those in WD-40 (wdfc); it is understandable that potential investors would demand higher returns. Alternatively, we could estimate the total returns—dividend plus projected capital gains—that investors expect to obtain from companies with characteristics similar to WD-40.  This method, the details of which we avoid here, produces a cost of equity of around 10 percent. Because long-term equity yields are about 12 percent per year, and because WD has a much more stable earning history than the average equity investment, 10 percent meets the reasonability test.

Summary

I do not like the traditional financial approach that uses Beta or CAPM.  Beta is misleading, See Beta vs Margin of Safety_Mauboussin and Beta and Risk.

I prefer the Greenwald approach because it forces you to think about the business and financial risk of the particular company. Also, the CAPM that uses the lower cost of debt financing would lead you to a lower WACC if you had 99.9999% debt financing and .0001 equity financing. Obviously the financial risk would rise dramatically for equity holders.

Glenn Greenberg of Brave Warrior Capital uses a 15% rate of return.   If he can buy at a price which he feels will return 15% per year compounded, then he will buy.  So let’s say the market reprices upward the business where the stock price infers an 8% return in the future because the stock price rose due to positive expectations, and then he might sell and redeploy his capital–no wonder he has averaged 18% returns. The market reprices his stocks before his estimated time- frame.   The point is not to double discount. If you can buy a business at a price that implies your required return of 15 (in Glenn Greenberg’s case) then you would not try to wait for a 50% discount on top of that.

Joel Greenblatt in his special situation class in discussing American Express described WACC in terms of valuation this way: If I can buy Amex here at $45 I think it will be worth $60 in two years because pension funds will need to buy it to meet their 9% hurdle.  I am paraphrasing and I may be misquoting, but that is one way he approached valuation. I guess that is where the art form comes in. How would he know pension funds would use 9%? Experience?

I always stress fundamentals. Try to sit down with a Value-Line and go back over companies’ 12-year history and see what the implied WACCs were on the businesses over time. After going through 2,000 companies month after month, you will have a good feel for when to use 8% vs. 12%. But wait for the obvious fat pitch. If the investment is too close to call at 9% or 10% then pass.

Read more:Whacked on WACC

Compare to traditional finance:

WACC_tutorial

Weighted Average Cost of Capital Article A short summary

Evaluating Debt and WACC Damoradan  More than you would ever want to know! :)

CAPM Damordaran

Choose what works for you!