The dealer is incredulous. “You’re raising tens on a lousy three flush?” she says to Robinson. Robinson never should have made that bet since he had only the slim makings of a straight flush and he was staring at McQueen’s pair of tens. You don’t often beat two pair, and certainly not a full house.
Lesson for an investor?
Hint: The market is no place for “making the wrong move at the right time.” Stick to your plan. Don’t personalize losses or success–especially success.
Sir John Templeton Quotes
“Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria.
Sixteen Rules: Sixteen Rules for Investment Success_Templeton
Where is the outlook the most miserable?
Gold and silver stocks (as well as gold/silver) certainly fit John M. Templeton’s criteria of a hated asset class. The current 2011 to 2014 bear is near the average in duration and price decline. The worst decline in gold stock history was the 1980 bear market with a 72% decline. So, one sign post is the past. (Gold index used: Barrons’ Gold Mining Index or BGMI)
But charts like the the gold index only tell you the past.
As you would expect, sentiment follows price. Note the huge decline in Rydex precious metals assets compared to all other financial asset sectors of the market–5%. Even the 2008/09 crisis period had triple the percentage. Of course, public opinion is at near all-time lows.
As price quietly stops declining (for now?)
Another sign of bearish Western investor sentiment was the draining of gold from ETFs. Also, there were discounts of up to 8% to 10% in closed end funds such as CEF and GTU that hold gold and silver bullion–an asset with no credit liability! The gold mostly went to Asia. Physical demand is high at these prices. I simply view gold as money that can’t be debased in a world of fiat currency wars. That doesn’t mean the price of gold in US dollars can’t go lower in the near term–three to eighteen months. 
Rising demand for physical gold but declining price, video:
http://news.goldseek.com/GoldSeek/1388758285.php
http://jimrickards.blogspot.com/
SEARCH STRATEGY
All of the above, is one part of a search strategy–look for the biggest price declines with the highest negative (or lowest positive) sentiment. Study the past hundred or so years of the industry (Google: Mark J. Lundeen and gold shares). If you are going to buy precious metals equities or gold/silver 5% to 20% as part of a portfolio, I suggest a high-quality mutual fund like Tocqueville Gold fund (TGLDX) or an ETF like GDX, GDXJ. You are nicked 1% or more in annual fees with a mutual fund but you get the diversification. GDX and GDXJ include companies that may be financially over leveraged or of poorer quality, but you have a lower cost and wide diversification. If gold and silver rise significantly, then highly leveraged–operationally and financially–leveraged companies will vastly outperform higher quality large cap miners like Agnico-Eagle (AEM) for example. I prefer a basket of 15 or so hand-picked gold and silver miners with 1. management with skin in the game, 2. decent balance sheets, and 3. well-defined projects with low cash and capex costs (no explorers unless a prospect generator). My goal is to hold through the beginning of the NEXT bear market–perhaps two-to-five years away?
Finding a hated asset class and then finding financially strong companies is relatively easy with some diligence. The HARD PART is holding on through the wild gyrations of price and sentiment. Stomach and character over brains.
Teaching the Young About Investing
http://sprottglobal.com/thoughts/articles/who-is-teaching-the-young-about-investing/
John Del Vecchio and Tom Jacobs, the authors of What’s Behind the Numbers?,
are giving a presentation at the New York Society of Analysts. Attendees will learn:
How companies hide poor earnings quality
Repeatable methods for uncovering what companies don’t tell you about their numbers
Reliable formulas for determining when a stock will get hit
Whether you’re a number cruncher or just curious, you’ll greatly benefit from this seminar, given by two people who combine investment chops with crowd-pleasing stories. So what are you waiting for?
Date: January 13, 2014
Time: 6:30 – 8 pm
Place: NYSSA Conference Center
1540 Broadway, Suite 1010
(entrance on 45th Street)
New York, NY 10036
Price: Nonmember $55
($10 surcharge for walk-ins)
Advance registration is encouraged in order to avoid the additional charge for walk-ins. Also, space is limited by the size of the room.
You may not be able to keep your resolutions about losing weight or going to the gym, but with a successful portfolio, no one will really care. So start the new year right by attending the above seminar.
Thank you for your interest in What’s Behind the Numbers?. Please feel free to share this with your networks!
Posted in Investor Psychology, Search Strategies, YOU
Tagged Gold, Gold Stocks, Sentiment, Silver, Templeton
Bitcoins are the product of socially naive programmers’ fantasies. They thought they could substitute algorithms for ethics, digits for legality, anonymity for custom, and dreams for responsibility. Ultimately, they thought they could substitute impersonalism for personalism. They were wrong. They merely launched a tulip mania.
If the advocates of crypotocurrency have a case for a free market social order, then they should advocate not buying Bitcoins until such an order exists. Money develops out of a social order. They have put the cart before the horse: a new monetary system before the institutional arrangements to support it. This was Mises’ argument regarding the regression theorem. A comprehensive monetary order that will replace the existing one is not going to be designed by obscure programmers. It will be the product of human action within a prevailing social and legal order.
The best article on Bitcoin–by far–from Gary North: http://www.garynorth.com/public/11866.cfm
Bitcoin is not money
Here is the problem in one sentence: a modern division of labor economy is very close to all or nothing. You cannot have a monetary system that does not apply across the board, yet still defend the concept of the division of labor through competitive pricing. You cannot have a currency that applies to illegal drugs, programming services, and almost nothing else, and expect that currency to replace the existing currency, which is a fiat money-based currency. There has to be a transition from the fiat-based currency, in which there are hundreds of billions of transactions a day worldwide, which in turn provides a comprehensive system of pricing and information feedback, in order for the present system of the division of labor to be maintained.
Any suggestion that Bitcoins can move from the modern system of integrated currencies, prices, and contracts, to get to an equally comprehensive system in which you could make a pencil, without the pricing system that is provided by the existing fiat money order, is simply utopian.
…..
Most of all, Mises argued, socialism has no means of pricing capital. There are no capital markets.
The same is true of the as-yet nonexistent Bitcoins economy. It cannot do without the pricing system provided by central banking. It cannot produce goods and services without converting Bitcoins’ digital fiat money into the banking system’s fiat money. You cannot produce real goods with virtual money.
You have no capital markets without the monetary system. Capital markets are all based on contract. Bitcoins are based on a rejection of contracts. Capital is based on responsible owbnership: public claims on assets, enforceable by law.
Bitcoins are based on a rejection of enforcement by law.
Bitcoins relate only to consumer goods, and hardly any. Yet even these cannot be delivered by sellers without selling Bitcoins and buying dollars to fulfill contracts. Sellers cannot replace sold assets unless they have bank money to buy them in the real world economy. This economy operates in terms of real money, which today is central bank money.
Bitcoins represent zero threat to the central banks. Bitcoins are used by most owners as ways to make money: to buy more dollars than they paid. It is just another investment asset — one based initially on a complete fantasy, namely, that Bitcoins will somehow remove people from central banking.
Bitcoins are valued in terms of dollars. The mania is fueled by their rising dollar-denominated price. They provide an investment medium for high-risk speculators. They are nothing more than a way to get into a tiny market, and then ride the wave up, as more people get into it. There is no payoff in terms of the economic value of autonomous Bitcoins that are held only because they will serve as an alternative currency. They are held as a way to make money by selling to the greater fools, who will pay real money — dollars — for them.
It’s tulip bulb market. It rests entirely on getting back into the dollar economy.
Bitcoins will have no impact at all on the monetary base. They will have no impact on the capita; markets.
Capital is valued in terms of central bank money. Bitcoins will not change this, for they cannot reduce the size of the monetary base. They do not pull money out of the fractional reserve banking system. The quantity of real money is in no way affected. The investors remain in the central bank economy, in which capital is priced. Capital is not priced in terms of Bitcoins.
This is why Bitcoins’ economy today cannot produce even a broken pencil. It is giving Bitcoins far too much credit to say that they can produce a broken pencil. There is almost no division of labor based on stand-alone units of Bitcoins. To move to Bitcoins’ realm of virtual money for real products, other than maybe programming services, is a fantasy.
“I, Broken Pencil”: An Economic Analysis of Bitcoins
Gary North – December 06, 2013
To understand Bitcoins, return to the basics. . . . keep reading
And I, Pencil http://www.econlib.org/library/Essays/rdPncl1.html
More articles:
Bitcoins: A Fully-Compliant Currency The Government Can Love … All of bitcoin’s benefits to the establishment revolve around its blockchain. In simple terms, a blockchain is a registry of all transactions carried out in bitcoins. Thus is resolved the problem of double-spending one particular bitcoin: It can’t be done (at least in theory) due to the blockchain. But the blockchain is in fact a register – a trail – of bitcoins. So it’s a relative cinch to piece together each and every transaction of any particular wallet in the bitcoin universe. And since exchanges need detailed personal information about a bitcoin user in order to comply with money-laundering laws before issuing a new user with a wallet, the government or other interested parties could determine what any one particular person has been doing in the bitcoin marketplace. – Blacklisted News/Gonzalo Lira
Dominant Social Theme: Are you ethical? Okay, then go live in a “green” hut and give government every cent you’ve got so the bureaucrats can reintroduce feudalism.
Free-Market Analysis: Let’s start with bitcoin. Then comes a bigger announcement … We’ve been skeptical of bitcoin for years. The smug techno-geekness of bitcoin’s backers irritated us, especially when we realized what they were supporting – a system that keeps track digitally of every single transaction ever made on the Internet.
You can see above that Gonzalo Lira has figured it out, as well. Those who blithely defend bitcoin without fully evaluating both the pros and cons of its technological stance are doing the freedom movement a, well … disservice, in our humble opinion, and apparently Lira’s, too.
That makes at least two of us against the rest of the libertarian world that is still a good deal enamored of this monetary marvel. Of course, it doesn’t hurt that bitcoin has recently hovered around US$1,000 a coin, a price that has sent people scurrying to garbage heaps to try to dig up old bitcoins now worth millions in aggregate.
One of these stories received wide attention recently. A fellow supposedly discarded an electronic cache of bitcoins years ago and then decided to search a dump to see if the coins were still there. This story – and we have our doubts about it – was all over the mainstream media, which is not a good sign.
Does anyone really believe that if bitcoin was a subversive, government-altering currency the mainstream media would be covering it so closely, or The Bernank would be issuing positive-sounding statements about it?
For all these reasons, we had reservations, which continue today, about bitcoin. Is it a system developed and placed on the Internet to anticipate the expansion of REAL alternative, digital currencies? Is it a kind of Trojan Horse, meant to provide the banking industry with a way to nullify a potential challenge – and regulate it – before something else comes along that is more challenging?
These may sound kind of hypothetical, but this iteration of The Daily Bell has certainly tried to speak to the expansion of alternative investing by setting some specific criteria. One powerful criterion would be “ethical” – as has been mentioned in past articles – and involves picking and choosing investments based on their ability to support freedom and free markets.
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Posted in History, Investor Psychology, Risk Management
Tagged bitcoin, Gary North, virtual money
Fisher on Gold
Anyone care to receive a prize? What is the fatal flaw(s) in the above presentation? Another case study in why you must IGNORE the pundits and Wall Street. What proof can you provide that the above video is nonsense?
If you don’t answer the question, then you will end up like this guy: http://youtu.be/qPGUM5PZWEw
or………….
Posted in Investor Psychology, Risk Management, Valuation Techniques
Tagged Fisher Investments, Gold, green mile, sam rockwell
Posted in Investor Psychology, Search Strategies, YOU
Tagged gold shares, Investment report, US Dollar
Borrowers want capital, but they get money–newly created credit money. More credit money has been issued by the banking system than savers have deposited (“fiduciary media”). Those participants in the economy who suffer losses due to price changes were not parties to the original credit transactions. They are participants in the economy who receive the new money late in the process, after prices have been bid up by the credit money. –Mises (so much for the harmless actions of the Fed)
What Happens When You Buy Quality: October_Quest_2013
CAPITULATION IN THE MINERS
When I use the word capitulation it implies an ending to the bear market in precious metal equities, however NOTHING is certain in markets. I know not all public gold stocks will go to zero. Eventually, the laws of supply and demand assert themselves and you can only buy assets super cheap if sentiment is SUPER bearish. I think in late June when gold hit $1,180, gold stocks made a FEAR bottom while today they are going through despair/throw in the towel selling.
People see no hope so why own. Volume is relatively low and the selling persistent–day after day.
The above chart shows the sell-off from new highs over the past 90 years in the BGMI, the Barron’s Gold Mining Index). Currently, 2013 shows about a 63% loss or in the range of the past 10 bear markets.
Read more: http://www.gold-eagle.com/article/dow-jones-and-barron%E2%80%99s-gold-mining-index-1885-2013
The low relative volume, the historical depth of the sell-off and the demarcation of price movement between high quality (RGLD, FNV, SLW) and low quality gold stocks (NEM, GLDX) as the chart above shows, leads me to believe that we are closer to the end of the decline.
From: http://www.acting-man.com/?p=26553
We continue to get one ‘do or die’ moment after another in the charts of gold and gold-related instruments. So far, the outcomes have obviously been bearish every time since the 2011 peak, but at some point that is bound to change, as the fundamental backdrop continues to be gold-friendly (note that not every aspect of the fundamental backdrop is – for instance, the declining federal deficit is probably viewed as a negative by market participants). Often it is precisely at those times when nothing seems capable of turning a market around that surprise changes in trend can and do occur.
Note that gold sentiment remains absolutely dismal. Recently Mark Hulbert’s HGNSI (gold newsletter writer sentiment index) stood at minus 20 (meaning gold timers recommended a 20% net short position on average), while the daily sentiment index among gold futures traders (DSI) stood at 9 (all time low: 5). Bearish sentiment in the sector rarely becomes as extreme as it is at the moment. Of course it has been quite negative for some time now, but the current readings are rather extreme even so.
A major reason why we continue to maintain that the fundamental backdrop remains gold-friendly even though the price action suggests a bear market is still in progress, is that we believe that mainstream analysts are quite mistaken when they assert that it is back to ‘business as usual’ in the economy. It clearly isn’t.
History is being made today!
Of course, if you believe QE will lead to sustainable growth without monetary mayhem then stay away from anything to do with gold.
SHORTING SOCIALISM
The company exists as a social transfer mechanism between Western investors and Brazilian government officials and Petrobras workers. No hope.
Posted in Investor Psychology, Search Strategies
Tagged Acting Man, Bakshi, BGMI, Gold Stocks, Quality Companies
I updated this post: http://wp.me/p2OaYY-245
Lee Munson of Portfolio LLC says “Sell the gold rally“. (A hilarious video)
The question for investors and speculators alike is if gold has at long last marked the end of a wrenching nearly two-year pullback from the 2011 highs over $1,900. Lee Munson of Portfolio LLC says any rally marks a chance to make a graceful exit from their positions.
“Investors are confusing the fact that [gold] holds its value super long, hundred-year periods of time versus inflation versus making actual growth,” Munson says in the attached video. “It just holds its value. That’s not a reason to hold anything.”
Those who quibble with that analysis, parsing the numbers to maximize the apparent returns of gold versus stocks are missing the point. Gold has worked over shorter periods as a speculative vehicle but the die hard goldbugs have seen minimal returns at best and dramatically underperformed stocks.
Since 1940 adjusted for inflation the only period over which gold has outperformed stocks is 2000 – 2010; and that lead is slipping fast. History suggests gold is extremely volatile in shorter terms but dramatically lags U.S. equities for the truly committed gold enthusiasts.
Munson has simple advice for gold investors enjoying the terrific rally from the recent lows. Sell. “Exit out of the trade. Get serious. Get real.”
Disingenuous or Clueless? (from “Mish”)
I do not profess to know what the price of gold will be at any time, but Munson seems to think he does, so much so that he screams sell after a measly rally.
Munson is certainly clueless about the fundamentals of gold.
If you don’t understand the fundamental driver (and it’s not jewelry or central bank selling) please consider Plague of Gold Bears Now Say “Gold Unsafe at Any Price”; What’s the Real Long-Term Driver for Gold?
Gold outperformed between 2000 and 20010 for a reason. And that reason is global central bank debasement of currency. Gold also outperformed in the late 70s for the same reason, but it did get ahead of itself.
Additional Reading
Cash, Bonds, Equities, or Gold?
You have to put your money somewhere (and somewhere includes cash).
This is not about being a “die hard gold bug”. This is about understanding the case for gold as it exists now.
The fundamentals of gold are strong, yet sentiment is so extreme that bears says “gold is unsafe at ANY price”. Now Munson says this puny rally is a chance to exit.
With sentiment this extreme in the face of strong fundamentals and a rally, I like my chances here.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Read more at http://globaleconomicanalysis.blogspot.com/2013/07/fools-say-sell-gold-rally.html#5AsKu1e0jpiSssK3.99
http://globaleconomicanalysis.blogspot.com/2013/07/fools-say-sell-gold-rally.html
http://globaleconomicanalysis.blogspot.com/2013/06/plague-of-gold-bears-now-say-gold.html
http://globaleconomicanalysis.blogspot.com/2006/04/us-vs-japan-land-prices-pictorial.html (A GREAT post for financial history buffs)
How To Research A Company or Industry
Part 1 : First, read the paper on Trying Too Hard. We must be humble in our approach and attitude. Simple is better.
Part 2 in the next post will discuss Buffett’s advice on how to research a company.
Part 3: We will examine a speculative mining company.
TRYING TOO HARD by Dean Williams
The title Marshall mentioned, “Trying Too Hard”, comes from something that happened to me a few years ago. I had just completed what I thought was some fancy footwork involving buying and selling a long list of stocks. The oldest member of Morgan’s trust committee looked down the list and said, “Do you think you might be trying too hard?” At the time I thought, “Who ever heard of trying too hard?” Well, over the years I have changed my mind about that. Tonight I am going to ask you to entertain some ideas whose theme is this: We probably are trying too hard at what we do. More than that, no matter how hard we try, we may not be as important to the results as we’d like to think we are.
But I also hope to persuade you that’s not all bad. Sure, we get an uncomfortable feeling when we question the value of some of the things we’ve thought we’re supposed to do . . . . but the rest is pure good news. Complete with more time to do the thing we’re well-suited for, greater efficiency in own companies and, probably, better results for our customers.
Here are the ideas I’m going to talk about: the first is an analogy between physics and investing. With apologies to anyone who knows anything about physics—or about investing, for that matter–let me put it this way: The foundation of Newtonian physics was that physical events are governed by physical laws. Laws that we could understand rationally. And if we learned enough about those laws, we could extend our knowledge and influence over our environment. That was also the foundation of most of the security analysis, technical analysis, economic theory and forecasting methods you and I learned about when we first began in this business. There were rational and predictable economic forces. And if we just tried hard enough. . . . If we learned every detail about a company. . . .If we discovered just the right variables for out forecasting models…Earnings and prices and interest rates should all behave in rational and predictable ways. If we just tried hard enough.
Read more……Trying Too Hard
—
Interesting blog on competitive advantages/book reviews:
http://www.paulcarl.com/category/blog/ (Scroll down and explore)
Posted in Investor Psychology, Search Strategies, Valuation Techniques, YOU
Tagged Growth Investing, Research Techniques
http://www.zerohedge.com/news/2013-06-19/rick-santelli-rages-what-bernanke-so-afraid
And perhaps clarifying some of the issues Rick brings up, here are the pertinent thoughts from the most recent Seth Klarman letter:
Posted in Economics & Politics, Investor Psychology
Tagged Central Banks, FED, Santelli Rant
