Category Archives: History

CFA Seminar on Financial History; Bubble Studies; Advanced Study in Human Action

Seminar of Financial History

In an age when an algorithm is the main competitor for many fund managers, what can we know that they don’t? Algos understand the data trail of history, but this trail provides only limited insight into the key lessons of financial history for investors. In this talk, first provided at the 62nd Annual CFA Institute Financial Analysts Seminar, Russell Napier discusses those 21 most important lessons from financial history that allow human beings to profit at the expense of the machines.    1 Hour on-line seminar Feb. 1, 2018. Register ( I believe it is free:

Regardless of whether you can attend, read relentlessly about financial, economic, and common history.   Note what Jim Grant of Grant’s Interest Rate Observer says:

But our main goal is to tell you the next important event in the markets. And sometimes we succeed.

– As with the tech bubble in 1999
– The 2008 mortgage crash
– The 2009 recovery in financials
– And the 2012-13 rise in house prices

How have we been so prescient over the years?
We don’t have fancy, financial computer models or a team of MBAs and Ph.D.’s to help us make these predictions. And we don’t have access to any kind of special information.

But we have been immersed in the markets for over 30 years. And we’ve studied the financial history of the past 200 years. None of which guarantees clairvoyance—nothing does. What we do claim is the capacity to see the present in the context of the helpful lessons of the past.

Like when we warned about the mortgage debt bubble in September 2006.

From the Sept. 8, 2006 Grant’s:
“Overvalued,” we, in fact, judge trillions of dollars of asset-backed securities and collateralized debt obligations to be, and we are bearish on them. Housing-related stocks may or may not be prospectively cheap; they at least look historically cheap. But housing-related debt is cheap by no standard of value. For institutional investors equipped to deal in credit default swaps, there’s an opportunity to lay down a low-cost bearish bet.

Bubble Studies

368353935-GMOMeltUp   J. Grantham says that the current market does not YET show the characteristics of a bubble despite being highly valued.

Referenced study in the article: Bubbles for Fama 2017 and gmo-quarterly-letter

and more of interest: faang-schmaang-don-t-blame-the-over-valuation-of-the-s-p-solely-on-information-technology


Update (1/10/2018) Runaway Train – Dec 2018

Advanced Seminar in Human Action

12/06/2017  Mises Institute
Arguably one of the greatest thinkers of the twentieth century, Ludwig von Mises created a framework for all of economic science beginning with the simple axiom that individuals act. In his magnum opus, Human Action, he described economics as a branch of the theory of human action and stressed how broadly it spans, far beyond a discussion of mere money and prices. Mises said, “Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence.” For Mises, it was imperative that everyone learns economics, calling it “the main and proper study of every citizen.”

Human Action is a challenging read. With over 800 pages of dense material, study tools are very helpful. The course, Advanced Seminar in Human Action, is a useful addition to other materials like the Human Action Study Guide.
In this course, leading Austrian economists walk the student through Human Action a chapter at a time.

If you’ve ever wanted a push to help you get through the book or if you’ve wondered about your own reading of the material, here is your opportunity to study Human Action with David Gordon, Joe Salerno, Jeffery Herbener, Peter Klein, Guido Hülsmann, and Mark Thornton.

Human Action by Ludwig von Mises is available for free on and for purchase as a paperback and hardcover in the Mises Bookstore.


The teachers are excellent and Human Action is the Magnum Opus of Ludwig von Mises.  The book is a DIFFICULT read but there is a study guide, lecture videos, and lecture slides for all the chapters of the book.  You will have a strong grounding in economics and improve your reading and critical thinking skills, but if you are a beginner, I would opt for

The Experts Are Wrong Again

Bloomberg December 2015: But Societe Generale predicts gold will be a casualty of the rate hike, falling below $US1000 an ounce, to $US955 by the end of next year.

Head of global asset allocation Alain Bokobza says looking at the 2016 panorama, in which US interest rates tighten and the economy fares reasonably well, “that does not argue for a higher gold price.”

“Gold will be a casualty.”

CSInvesting: The purpose of this post is to remind you of ignoring expert advice and to do your own analysis.  The above comment by Bokobza is meaningless blather.   He is simply spouting the consensus view that rising rates mean a declining gold price since gold has no yield.    Beware of simple narratives.

The assumption “Fed rate hikes equal a falling gold price” is not supported by a shred of empirical evidence. On the contrary, all that is revealed by the empirical record in this context is that there seems to be absolutely no discernible correlation between gold and FF rate. If anything, gold and the FF rate exhibit a positive correlation rather more frequently than a negative one!    Source:

And today:

More here: Gold and the Federal Funds Rate and Gold and gold stocks Dec 26 2017

UPDATE: Interesting Read

  1. Update: David Collum’s 2017-Year-In-Review-PeakProsperity-final
  2. david_collum-30_years_investing
  3. 2016-Year-In-Review-PeakProsperity

Interview of David Collum:



A WWII Soldier Writes Home 1944

Happy Veterans Day

Two letters from a WWII veteran who won the Silver Star (disturbing descriptions of war) Letter 5 Silver Star Letter Feb 24th 1944

February 1, 1944 Letter rpc to Dash and Mother Flame Thrower

Facing Death

Charts: Every Picture Tells a Story Don’t It? –Rolling Stones

Above is a chart of the Barrons Gold Mining Index, the oldest mining index available.

Above are chart analogs of past bear markets in gold-mining stocks. Rather than using charts to PREDICT the next “Head and Shoulders Bottom” or the next ROUNDING BOTTOM (How about I show you MY bottom?) what can charts tell you about this PARTICULAR industry?   How is that information useful? Or is it?

Note the hedged comments of the publisher of the above charts.

Charts have never shown (based on my research) to have any statistical predictive value because of the subjective nature of interpretation–there are always two sides to a chart. Buffett stopped charting when he could flip the chart over and get the same answer.   Note this article

Now onto the bull market analogs.

Bull Market Analogs Article

Notice the difference with these charts of housing and banks.

What might account for the difference in the chart patterns?  What do the charts tell you about the mining industry?  IF–god forbid–you did wish to invest in precious metals miners, how might you adapt your strategy?  What explains (mostly) the shape of the above charts?  It is perfectly rational to avoid the industry but what do the charts tell you about the structure of the industry? Whip out your competitive analysis books or and post your thoughts.


A Review: The Bre-X Scandal

The Peak
It was touted by media and banks as the “richest gold deposit ever”
In December 1996, Lehman Brothers Inc. strongly recommended a buy on “the gold discovery of the century.”

Bre-X’s salted samples were never checked by a third party, people wanted to believe so they never questioned the rising price of the stock. Do not ignore the warning signs.

Patience is paying off in

Case Study on Natural Gas/Shale Industry; Buffett Reads

Shale gas is not a revolution. It’s just another play with a somewhat higher cost structure but larger resource base than conventional gas.

The marginal cost of shale gas production is $4/mmBtu despite popular but incorrect narratives that it is lower. The average spot price of  gas has been $3.77 since shale gas became the sustaining factor in U.S. supply (2009-2017). Medium-term prices should logically average about $4/mmBtu.

A crucial consideration going forward, however, will be the availability of capital. Credit markets have been willing to support unprofitable shale gas drilling since the 2008 Financial Collapse.  If that support continues, medium-term prices for gas may be lower, perhaps in the $3.25/mmBtu range. The average spot price for the last 7 months has been $3.13.

Gas supply models over the last 50 years have been consistently wrong. Over that period, experts all agreed that existing conditions of abundance or scarcity would define the foreseeable future. That led to billions of dollars of wasted investment on LNG import facilities.

Today, most experts assume that gas abundance and low price will define the next several decades because of shale gas. This had led to massive investment in LNG export facilities.

(CSInvesting: You should read Mr. Berman’s full report at the link below.  He uses history to debunk long-term prediction models and shows the common sense of looking at markets through the long lens of history.  The assumption of abundant natural gas could be wrong–many “experts” are not even thinking of vastly different outcomes to their models.)

Excellent interview:


Excellent investment letters from Moran Creek

Are these sustainable competitive advantages ?

A great read on investing:

The World is Cyclical; Valuation in a World of Zero Interest Rates

Cyclical Markets











The NASDAQ bubble showed the highest P/E ratios in stock market history due to low or no earnings technology companies.

Kopernik 1Q 2017 – Conference Call – Final  Worth a read–note high and low market cap sectors of the market (see page 9)–a proxy for expensive and cheap.  A search strategy.

Time in a Bottle – Final A good discussion of valuation methods in an era of distorted interest rates.

Join  A discussion of how to understand interest rates and gold.  Note the analysis using data going back 90 years.   Do not use a small smaple size.

Also, see ETF Weapons of mass destruction FPA 1Q2017 Commentary   Recent Greenblatt talk at Google.

Cargo Cults


The first principle is that you must not fool yourself–and you are the easiest person to fool.

A Real Cargo Cult

An example of cargo cult analysis would be expecting to predict future market returns from P/E Ratios or believing you can pick money managers who can overcome a 2% and 20% hurdle vs. a low-cost index fund. See pages 21-24:Berkshire Hathaway AR 2016. Why Buffett is winning his $1 million dollar bet against fund of funds manager, Ted Seides.


The cargo cult mindset — mindlessly aping something without understanding *how* it works — is rampant. E.g. young people who “go to college” and end up unemployed or making minimum wage. They’re not much different than the islanders who made fake airplanes and control towers based on simple observations.

“So I wish to you—I have no more time, so I have just one wish for you—the good luck to be somewhere where you are free to maintain the kind of integrity I have described, and where you do not feel forced by a need to maintain your position in the organization, or financial support, or so on, to lose your integrity. May you have that freedom.”

If we look at the active management world, we see many (most?) asset managers don’t have such freedom. It’s for that reason that Jeremy Grantham believes career risk is what dominates investing. Better to be wrong collectively and focus on relative returns, right?

Fast-forwarding some years, we see Feynman having such freedom during the investigation of the cause of the Space Shuttle Challenger disaster; he was an effective investigator precisely because he wasn’t beholden to NASA and was motivated by the pursuit of truth. His “Appendix F” in the Rogers Commission Report is another must-read:

Feynman eschewed the “standard” investigative approach and instead wandered around and talked to engineers and technicians, to the consternation of Rogers and others. (Didn’t W.E. Buffett and/or one of his associates do something similar after the Salad Oil Swindle hit AMEX in the ’60s? He saw that actual AMEX customers didn’t much care, so decided to go ahead with his investment.)

In Appendix F, Feynman uses basic engineering concepts and “numbersense” to expose NASA’s defective management culture. The disparity between the engineers’ estimate of flight risk and NASA management’s is astounding. The lesson here is that you oftentimes don’t need very much to sense-check, or falsify your hypothesis — the whole being generally right instead of precisely wrong concept. Going back to the Salad Oil Swindle, the whole thing would’ve never happened if anyone involved decided to reconcile the deposit receipts (known) to the USDA report on national salad oil production (known) to see how the receipts were inflated to the point of absurdity. Looking back at various case studies of failed investments, how often were the warning signs staring us right in the face if only we thought to look?

Since this is an investing website, we might modify Feynman’s closing sentence to something like, “For a successful investment, economic reality must take precedence over public relations, for you cannot fool everyone forever.”

A Strategy for Resource Stocks; Investing Course

A Strategy for investing in highly volatile, cyclical stocks

Once again, gold, silver and their mining stocks are selling off for whatever reason: risk-on as money floods into the stock market, rising nominal yields, 95% certainty of a (meaningless) 0.25% interest rate hike, momentum–take your excuse. The main point is to know your companies (valuation) and wait for sales like you do at the grocery store.   This week we are having a sale on some miners.

As Sprott’s Rick Rule often says, “If you are not a contrarian in the resource sector, you are a victim.  The above video is provided to show a particular investing strategy when your quality miners are selling off to prices where you estimate a margin of safety.  However, it doesn’t mean you predict THE exact bottom.  If your holding period is three-to-five years, you can occasionally pick up cheaper merchandise. Use prices to your advantage, not disadvantage.  I also wouldn’t be surprised to see the miners sell-off further because of their highly volatile nature–huge operational and asset-based leverage–when gold or silver goes up or down, both the price of their product goes up or down and the value of their reserves.  Never expect exact timing–a fool’s game.  Also, miners are impacted by the cost of their inputs, so a rising gold/oil ratio is a positive, for example.

What about the gold price in my assumptions?   I am assuming gold is money (“All else is credit”–JP Morgan) and thus I can benchmark it against world currencies. Gold has been THE strongest money relative to all other currencies for the past 20 years, 30 years, 40 years, 50 years, 100 years.  Gold is THE only money and store of value that can’t be created out of electronic bits like FIAT MONEY.  The stability of available supple is what makes gold the premier money. Of course, due to LEGAL TENDER LAWS, gold is not a currency in the U.S., except that may be changing in some states like Arizona:

In fact, gold (originally silver) is the only Constitutional money allowed–!/articles/1/essays/42/coinage-clause

You can get a historical overview of gold’s‘ price history below. Notice a trend? Now view the miners in perspective.

P.S. Let me know if anyone wants to see a NPV case study on a miner.

Designing an analyst course

My goal is to organize a comprehensive analyst course using the best investors’ teachings and lectures. For example, Buffett, Munger, Graham, Fisher, Tweedy Browne, Walter Schloss, Klarman, and many others etc.  Why not use original sources of the best practitioners?  This is the course I wish I had twenty years ago.  It will be Buffett and Munger teaching not me.

The course would cover search, valuation, portfolio management, and you (how to improve decision-making).   There would be different modules continuing articles, case studies, videos from Columbia Business School and others. We would go from DEEP VALUE to FRANCHISE INVESTING.   Valuing assets to assessing franchises. Understanding reversion to the mean and slow reversion to the mean.  You need to understand that when a moat is breached-watch out! Note Nokia in cell phones.

I would have to make it a private web-site because of copy-right.   This would be more of like a private study place, library, and discussion area for learning.   There could be a in-person value class in some convenient location depending upon interest once folks have had a chance to go through the modules.

For example, putting ebitda into perspective might be a mini-module on a sub-set of cash-flow:   Now, if you scroll down to the last link, you can see that it was taken down.   With a private web-site, you would see this:

Let me know your thoughts because this would be a huge project to complete.  What focus do YOU want?   How would YOU design and make the course.

Have a great weekend!

Fidel Castro and a Glimpse of Cuba



Must Read:







a-glimpse-of-cuba   Let the Cubans tell you their stories.

Cuba in socialist context: