Category Archives: Investing Gurus

King Dollar or Listening to Pundits

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The dollar “breaks-out” and

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Sentiment and consensus rally–a new KING DOLLAR for many years to come.

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Gold, of course, sells off on King Dollar, stronger US economy, and less inflation fears.

This post illustrates the HUGE swings in sentiment from the DEATH of THE DOLLAR in 2011 when this was occuring:

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Back to today (Oct. 2014)

Dollar

King Dollar, with the obvious understanding that it’s dominance has only just begun (Dennis Gartman at minute 2 proclaims a bull run for the US dollar-click on this link). My have we come a long way from the new moon of the dollar cycle low in late April of 2011, where many of the same players and pundits openly declared the dollar crisis in full swing and just getting started. Back then, the mood in the markets was decisively dimmer, from both the usual suspects – to the ominous warnings from leaders in the private sector that the US consumer would soon face “serious” inflation in the months ahead.

Lesson: The same pundit, Dennis Gartman, who was proclaiming the Death of the Dollar in 2011 near the absolute low is now, four years later, trumpeting that the Dollar is King. No one knows the path of the dollar or gold. We can make our own probabilities but to be CERTAIN is the sin.  I gave up watching CNBC then years ago. 

from: http://www.marketanthropology.com/

And what do the pundits say about this on CNBC?

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I hear crickets…………..

The Education of a Value Investor Part III: The “Ugly”

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Everyone has a plan ’till they get punched in the mouth. –Mike Tyson

The author describes in Chapter 7: The Financial Crisis, Into the Void, his trauma. He learned not to be leveraged and to turn off the Bloomberg to avoid the daily carnage.  But I wonder why—if the experience was so searing—he didn’t reflect deeply on the causes for what had happened. Like after seeing the dead and wounded in your safari camp after an elephant stampede and then wondering if changing the color of your tents would stave off disaster.  Perhaps studying elephant migratory patterns would help. Value investors like Seth Klarman and Jim Grant were howling about rapidly burgeoning mortgage debt and centrally-planned interest rates.  Mr. Spier should dust off his Mises and Rothbard texts on the Austrian theory of the business cycle.

On page 80, he believes that people’s human excesses and moral compromises helped cause the financial crisis. Poppycock!  And even if true, then what lessons could be learned? People are always and everywhere greedy, kind, cruel, amoral, and just plain human. Forget the inner scorecards, Robert Cialdini, author of the book Influence, would be saying, “look at incentives.”  The U.S. banking system is inherently flawed.  Since 1840 the US has had 12 major banking crises, while Canada has had none—not even during the Great Depression. See Fragile by Design by Charles W. Calomiris and Stephen Haber. I don’t believe Canadians are less prone to humanness than Americans? Ever been to a hockey game?  The author makes an assertion without theory, evidence or fact. That’s ugly.

The author seems to lack curiosity as to what happened to him.  However, he did listen to Michael Burry’s warnings about the mortgage crisis, but he didn’t share what he thought happened. He bet that policymakers would use every available tool to avert disaster.  But why should the politburo at the Federal Reserve intervene to pile more debt upon debt? To what effects and consequences? What about the crisis of 1920? The Fed did nothing and the result was the fastest and strongest recovery in US history. View: http://youtu.be/czcUmnsprQI.

Now the US labors under high private debt, too-big-too-fail banks, absurd Dodd Frank bank regulations (10,000 pages and counting of rules), and a $4 trillion dollar Fed balance sheet.   Imagine if the Fed did the right thing and shut down.   The panic of 2008 was a global banking crisis. Wealth would have been unaffected, however titles to that wealth would change from the profligate to the prudent.  Now, in 2014, bubbles and moral hazards abound.

My questions are not only asked of Mr. Spier but also of Mohnish Pabrai and Bill Miller.  Mr. Miller once mentioned how cheap housing stocks were at 6 times earnings during 2006 http://www.bloomberg.com. Yet homebuilder company earnings were at 200-year peaks.  Mr. Miller may have lacked understanding of how much mal-investment occurred along with a host of other reasons (community reinvestment act that forced banks to lend to poor credit risks so they could be rechartered). Mr. Pabrai can clutch a check-list but that won’t help in a credit crisis if he owns a subprime lender.

Ironically, Mr. Spier mentions sub-prime auto dealer/lender, Carmax (KMX), as a risk.  Now with massive Fed intervention with QE, QE2, QE3, and QE Forever, why be a value investor? Move over Graham and Buffett, own the most leveraged, subprime lenders you can find like: KMX

But be sure to sell in time:

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Balance sheets matter when bubbles pop. Right now–for now–bubbles abound.

May Mr. Spier enjoy his nirvana, but I can’t recommend this book for anybody who is forging their own way.  You are better off to read Buffett and Graham’s writings while thinking of your own strengths and weaknesses. Follow Mr. Spier’s example and keep a diary of your progress. It’s YOUR journey.

I won’t be doing other book reviews unless I am 100% behind recommending the book to you. I would like to next look at DEEP VALUE by Toby Carlisle. Ten thumbs up.

Tutorial on Gold and the Mining Business from the Denver Mining Show

Very good overviews of gold and mining

Updating the Bullish and Bearish Cases For Gold http://bit.ly/1B6LHte 

Gold Bullion and the Need for Systematic Insurance. http://bit.ly/ZLb0pc  An excellent review of market risk.

How Not to Blow it Next Time http://bit.ly/1tYZYYI 

The Education of a Value Investor: Part II, The “Bad”

 

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We do not see things as they are. We see them as we are.  – The Talmud

Part II: The “Bad”

To be fair, the author delivered exactly on his promise in the first paragraph of his book:

My goal in writing this book is to share some of what I’ve learned on my path as an investor. It is about the education of this investor, not any other investor. This story is not an investment how-to. It’s not a road map. Rather, it is she story of my journey and of what I’ve learned along the way. With my own flaws and foibles and idiosyncratic abilities—and despite my considerable blind spots.

I titled this part of the review, “Bad” because I was hoping for so much more from the author. Much of his description of his investment process is cursory and his analysis seemed a mile wide and a half-inch thick.  Examples will be discussed in part III.   He never promised that in his opening paragraph, but more experienced investors will then have little to learn from this book.

If you want to learn about the psychology of investing and trading then start with the classic, Reminiscences of a Stock Operator by Edwin Lefevre.  Tudor Jones calls it a textbook for speculation.

Another relatively unknown classic, Why You Win or Lose by Fred Kelly (1930) See a synopsis here:WHY_YOU_WIN_or_LOSE_Fred_Kelly (1)

Investing is something you do. Like sex, reading about another’s activities will only take you so far in understanding it. You must apply yourself, actually invest, and review your results.

Two excellent books on having an investment process and managing emotions:

Trader Vic-Methods of a Wall Street Master and Trader Vic II-Principles of Professional Speculation by Victor Sperandeo.

Back to a hardcore value investor. Read, There’s Always Something To Do, The Peter Cundill Investment Approach.   Cundill was a Canadian Graham and Dodder.

An interesting romp through the investing world, The Money Game by Adam Smith.

Simple But Not Easy by Richard Oldfield is another interesting overview by an old pro.

Then if you want to understand why you must fit investment to YOUR OWN approach, read about all the different ways there are to trade and invest by reading the Market Wizard books by Jack Schwager or Free Capital by Guy Thomas.

Of course, go to the original sources and read all the investment letters from Buffett, Munger, Klarman, Tweedy Browne. Type in their names in the csinvesting.org search box and see where the links lead you.

In Part III, the “Ugly” I take off the gloves and point out the author’s fuzzy thinking regarding the financial crisis.

Li Lu’s Lecture; Value Investing Videos

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JUN 24, 2010

Li Lu’s 2010 Lecture at Columbia

Many of you enjoyed my previous transcript of a talk Li Lu gave at Columbia University. Thanks to Joe Koster, you can now view a more recent lecture he gave to Bruce Greenwald’s value investing class in April of 2010. Seen here: http://www7.gsb.columbia.edu/video/v/node/1365?page=26 Based on Berkshire’s investment in BYD, the fact that Lu manages Charlie Munger’s money, and that even Buffett would give money to Lu if he ever retired (according to Greenwald) makes me think Li Lu is an investor worth watching.

With that in mind, I believe it is insightful to study whatever you can find about him and his approach. I think this lecture from 2010 is great. The recording has some audio issues making it difficult to hear and I thought that some of you might enjoy reading notes from the talk. This is not a true transcript, but an approximation of what was said. I think it comes pretty close, having listened to the lecture a few times. I think you will find it helpful and Lu’s talk rewarding.

Bruce Greenwald: Warren Buffett says that when he retires, there are three people he would like to manage his money. First is Seth Klarman of the Baupost Group, who you will hear from later in the course. Next is Greg Alexander of the Sequoia Fund. Third is Li Lu. He happens to manage all of Charlie Munger’s money. I have a small investment with him and in four years it is up 400%.

http://streetcapitalist.com/2010/06/24/li-lus-2010-lecture-at-columbia/

http://www.bengrahaminvesting.ca/Resources/videos.htm#2006_Guest_Speakers

Letters to a young analyst (Great blog for books): 

http://www.readingthemarkets.blogspot.com/2014/09/brakke-letters-to-young-analyst.html

Scottish Vote on Independence: https://www.youtube.com/watch?v=PD5Imb7vWSc

 

A Bear and a Value Investor Throw in the Towel

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Bull could run 5 more years, carry S&P 500 close to 3,000 only seemed interesting because the forecast sounded a bit extreme. We quickly scanned the headline, thinking that whoever was making this assertion surely hadn’t breathed a word about this when the SPX traded at just below 670 points in March of 2009. Such wildly bullish forecasts are strictly a function of SPX 2000 in our opinion, on a par with the “Dow 36,000” forecast, which gained some notoriety in the late 90s. One of the reasons behind the SPX 3000 forecast mentioned in the article did amuse us greatly though, namely the following:

They cite extensive deleveraging in the U.S. as well as the uneven global recovery among other reasons why “this could prove to be the longest U.S. expansion – ever.”

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and

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http://www.acting-man.com/?p=32732#more-32732

An emerging market value investor’s plea:

“This Is A Circus Market Rigged By HFT And Other Algo Traders”

Andrew Cunagin, the founder of Rinehart Capital Partners LLC, a hedge fund backed by hedge-fund veteran Lee Ainslie and specialized in emerging-markets stock-picking, and who as the Wall Street Journal reported earlier, is closing. The closure is not news: what Cunagin blames the closure on, however, is.

From the WSJ:

“This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors,” Mr. Cunagin wrote, referring to the high-speed traders who have attracted wide attention this year for the alleged advantages they hold over more traditional investors.

Mr. Cunagin, 43, said in an interview from Cape Town, South Africa, where he was scouting potential future investments, that there was “clear evidence of penetration” by high-frequency traders in the stock markets of South Korea and Mexico, among other areas.

You can see the evidence of dark pool trading…you’ll see half the day’s trading volume occur in the last seconds of trading,” he said. “There’s just evidence that this is not a level playing field.”

In his late-August letter, Mr. Cunagin criticized the “dash for trash” among other traders, including exchange-traded funds, that “puts to shame even the most speculative excesses of the dot.com era.” He said those factors, along with the impact of high-frequency trading, contributed to his fund’s recent poor performance.

Rinehart launched in August 2007, just two months before many emerging markets hit their precrisis peaks. The fund lost 12% in 2008, outperforming most funds during a dramatic pullback for emerging markets world-wide, and made money in the subsequent three years. More recently, however, it struggled, posting losses of 7% in 2012, 15% in 2013 and 4% through midyear this year.

So is this just sour grapes as yet another trader “fought the Fed”, and lost due to two minor disadvantages: a limited balance sheet, and being forced to stay liquid longer than the central planners can stay irrational?

Perhaps, he does however, make a point: “The frustrating thing is that this is precisely the time when you shouldn’t be giving up,” Mr. Rinehart said in the interview. “Anyone who shorted the ‘dot coms’ in the 90s had bad performance, and those ended up being the trades of the decade.

The flipside is that everyone else who went long the dot coms felt richer and richer, if only on paper, and invest more and more cash into the clear bubble until they too lost everything in the end. But such is the poetic justice of the, rigged or otherwise, market: first it wipes out all the shorts, then it drags everyone on the long side, and then it goes bidless and wipes out the longs.

Rinse, repeat.

* * *

Some other excerpts from Cunagin’s letter, courtesy of the WSJ’s Money Beat blog:

The dislocation of returns from traditional vehicles of wealth creation and protection has created a violent rip tide of fund flows from conservative segments of the risk spectrum to the most speculative, giving rise to another, more dangerous bubble. With yields ZIRPed and alpha dead, beta and the ethereal pursuit of “market-” and theme-driven (social media, bio-tech, Chinese internet) returns have become the only game in town, with central banks as the arbiter. Post-2008 monetary policies have rewarded the beta investor who’s gone “all in” on market risk and themes, while punishing harshly the market-neutral, alpha investor who discounts allocations on the basis of value. New paradigms have emerged as a result, defined by binary outcomes of risk-on/risk-off, taper-on/taper-off, win big/lose big. With new innovations of beta-engineering—instruments such as E-minis, QQQ, dollar-yen carry trade—investors are pursuing en masse too little reward in exchange for too much risk. As one commentator put it recently, “the market has become a roulette table, with dimes on black and dynamite on red.”

Just as in previous boom-bust cycles, the seeds of destruction are sewn in the illusion of trend masquerading as truth, with momentum seeming to validate a widening gap between perception and economic reality. And just as in past cycles, the manager who doesn’t subscribe to the new rules, who goes against the grain of convention is viewed as out of touch or left behind.

If there’s an expression that’s come to capture the zeitgeist of the QE era, it is the notion of what is or is not “working” across the asset allocation spectrum. I’ve read reports from equity strategists advising clients to stick with growth themes since “value isn’t working.” Technical analysts assure us that, despite what you’ve been brought up to believe, a strategy of buying high (especially on dips) while selling low is what “works” in this market. I’ve heard from prominent allocators frustrated that “nothing seems to work in emerging markets.” And, most dishearteningly, I’ve heard from Rinehart investors who have rightly observed that, despite steady performance in the past, our strategy is “just not working now.”

The assumption, of course, is that if it’s not working then it’s wrong and if it is working, it’s right. That’s fair enough. As a service provider, we serve at the pleasure of clients, and no manager is ever owed an explanation for being hired or fired. But it’s worth asking, what is it that investors seek? That is, just what is working?

Since the beginning of our fund’s drawdown in early 2012, a Bloomberg index of the “Worst Balance Sheet” companies of the S&P500 has returned to-date over +30% on an annualized basis. An MSCI index of the “Most-Shorted” companies of the Russell 3000—a proxy for the visibility of bad valuations, bad managements, and bad fundamentals—has also returned over +30% annualized. These perversions are even more pronounced within EMs, exacerbated by record fund outflows in the first half of 2014, exceeding even those of the 2008 crisis. This dash for trash puts to shame even the speculative excesses of the dot.com era. This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors. They only serve to further undermine the integrity of public markets, which will ultimately bring about their rationalization. Nonetheless, it’s an internal dynamic to which we are uniquely levered, by design, as an alpha strategy. One thing is certain, managers whose strategies are working may be bright and well-informed with advanced metrics on which they make investment decisions, but a reasonable assessment of value is not among them. Do previous cycles not bear asking, what other measure is there?

Sequoia Transcript Sequoia 2014 Transcript

Update on Sept. 11, 2014: Another bear throws in the towel for not being BULISH enough

HAVE A HAPPY WEEKEND!

Deep Value

 

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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.

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Seth Klarman

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…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

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Klarman_on_running_a_fund_interview

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Klarman 2013 Letter Excerpts

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

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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