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Outperformance without Better Stock-Picking

NERVES OF STEEL

The Little Newsletter That Crushed the Market

The Prudent Speculator has more than tripled the broad stock market since 1980. What’s its secret?


By MARK HULBERT
Feb. 23, 2017 5:48 a.m. ET

Photo
Mike Lawrie/Getty Images

It pays to have nerves of steel.

That’s the most important lesson to emerge from the Prudent Speculator’s position as one of this country’s most successful investment newsletters of the past four decades.

The advisory service, which celebrates its 40th birthday March 10, has pursued a riskier strategy than almost all other newsletters—far riskier than many investors can tolerate. But those who could and did were richly rewarded. Its advice has made more money over the past 40 years than any of the nearly 200 other services monitored by the Hulbert Financial Digest.

CSInvestor: the author defines risk as volatility!

Since mid-1980, when we began monitoring the investment newsletter industry, through the end of January, the Prudent Speculator’s model portfolios on average produced a 16,937% gain, versus 4,952% for buying and holding the broad stock market (as measured by the Wilshire 5000 index).

That’s equivalent to the difference between 15.1% and 11.3%, annualized. (These performance numbers assume all model-portfolio transactions were executed on the day a subscriber would have been able to act on the newsletter’s advice; dividends and transaction costs, but not taxes, were taken into account.) To put this into perspective, consider that the best-performing U.S. equity mutual fund over this same period produced an annualized return of 13.6%, or 1.5 percentage points per year less than the Prudent Speculator. (The fund, according to Thomson Reuters Lipper, was Waddell & Reed Advisors Science & Technology [ticker: UNSCX]).

The Prudent Speculator newsletter, which was founded in March 1977 by Al Frank and is based in Aliso Viejo, Calif., was initially named the Pinchpenny Speculator. Frank had become interested in investing several years earlier while working toward his Ph.D. in educational philosophy at the University of California, Los Angeles. He started the newsletter in part to report on the performance of his personal portfolio. From the start, his strategy was to purchase undervalued stocks and hold them through for the very long term. The newsletter’s current yearly subscription rate is $295.

In the 1990s, Frank—who died in 2002—began handing the newsletter over to an associate, John Buckingham, now 51, who had been with the firm since 1987. The transition to Buckingham has been unusually successful; the norm in the newsletter business is for services to either languish or close down completely upon the death of their founders. Not in this case. On a risk-adjusted basis, the newsletter’s model portfolios have performed even better over the past two decades than in the first two.

What’s the secret to the newsletter’s success?

It’s definitely not market timing, since it has actively argued against market timing throughout its history. Most commentators assume that the newsletter must owe its success to superior stock selection. But though the newsletter’s stock-picking has been commendable, many other advisors favor stocks with similar characteristics.


Not for the Faint of Heart

Perfomance of the Prudential Speculator

Chart

Source: www.HulbertRatings.com

Recent examples of the newsletter’s picks include Zimmer Biomet Holdings (ZBH),Williams-Sonoma (WSM), Nike (NKE), Schlumberger (SLB), and Digital Realty Trust (DLR). In an interview, Buckingham insisted that he pursues value wherever he can find it. But my computer’s statistical software shows that the newsletter’s recommended stocks tilt to the value end of the value-versus-growth spectrum and the quality end of the so-called quality-versus-junk spectrum, and tend to have smaller market values than the components of broad market averages such as the Standard & Poor’s 500 index.

If neither market timing nor stock selection is the key to the Prudent Speculator’s outstanding long-term record, what is? In my opinion, it’s those nerves of steel I referred to above.

Almost all other advisors who recommend smaller-cap, higher-quality value stocks are unwilling to hold them through thick and thin. Though these value-oriented advisers have longer holding periods than most others, their average currently is 18 months. The average holding period of the Prudent Speculator’s currently held stocks, by contrast, is four years. And there have been many times during the newsletter’s history when its average holding period was even longer than four years. Its current holding period is this short because the market’s extraordinary strength has propelled many of its previously recommended stocks above their target prices.

By selling out too early, Buckingham told Barron’s, other advisors find themselves with either one or two strikes against them. The first strike applies even if those advisors immediately reinvest the proceeds of their premature sales in other undervalued stocks: They still leave too much money on the table, since

The second strike is when advisors go to cash after selling. These advisors often end up bailing out of stocks near the bottom of bear markets. Because it almost always takes them a long time to get back into equities after the market begins to recover, they enjoy only some of the market’s recovery after suffering the bulk of its decline—and therefore lag the market over the long term.

By not deviating from its commitments to equities, the Prudent Speculator sidesteps both of these strikes.

Consider Frank’s reaction to the 1987 crash—the biggest one-day drop in U.S. stock-market history, during which Frank’s model portfolio lost nearly 60%. Far from cashing in his chips and going home, as most of us would have been tempted to do in the wake of a one-day loss that big, Frank said he saw no reason to alter the basics of his long-term strategy.

Similarly, consider Buckingham’s advice to clients on March 9, 2009, the day that turned out to be the bottom of the 2007-09 bear market—though of course no one at that time could have known that. Buckingham’s average model portfolio was sitting with a loss of more than 60% since the 2007 high, and yet his message to clients that day—as it had been every other day during that bear market—was that “our long-term enthusiasm [for stocks] remains intact.”

Many investors no doubt find it boring to remain fully invested to stocks through thick and thin and to hold stocks for many years. In fact, Buckingham says, one of the most challenging parts of his job as newsletter editor is continually finding new and interesting ways of saying the same thing: Remain focused on the long term with patience and discipline.

Easier said than done–90% of investing is character.

Note: He leans toward smaller (more apt to be mispriced) stocks, value more than growth (so he faces lest risk of overpaying for growth), quality over junk (so less chance of bankruptcy risk), and then allows AT LEAST four years for value to come out or be recognized.   His edge is his patient, long-term perspective.

Recent Munger Wisdom

Recent Munger Transcript 340444245-Munger-2017-DJCO-Transcript340444245-Munger-2017-DJCO-Transcript

 

How NOT to be a Deep Value Investor, Part II; Best Trade Ever?

Remember two years ago?      http://csinvesting.org/2015/01/12/how-not-to-be-a-deep-value-investor/

The inevitable loss when you pay massive premiums over net asset values.  Or you can short the closed end fund for profits.

Two years later, down 12% on CUBA, a closed-end fund investing in Cuba.  The closed-end fund traded at a 70% premium to net assets–so the market is efficient all the time?


Ivanhoe and a small investor’s success

An Investor Greatest Investment Ever_Ivanhoe

An Investor Greatest Investment Ever_Ivanhoe

With full disclosure I also bought in late 2015 and 2016 at an average price of 65 cents and still holding. Why? Three tier one assets in the Congo and South Africa with a world famous promoter.  However, I kept my position 1/2 size unlike the other speculator.   These cyclical resource stocks require years of patience.

 

PET ROCKS

Imagine owning a pet that doesn’t need to be trained, walked, fed or groomed — ever. That’s exactly what California ad executive Gary Dahl was after when he came up with pet rocks in 1975. Tired of the hassle and responsibility that came with animate house pets, Dahl developed a toy concept that was 1% product and 99% marketing genius: a garden-variety rock, packaged in a comfy cardboard shipping crate, complete with straw for the rock’s comfort and holes so it could breathe during transport. The Pet Rock Training Manual — a tongue-in-cheek set of guidelines for pet owners, like housebreaking instructions (“Place it on some old newspapers. The rock will never know what the paper is for and will require no further instruction”) — helped turn the scheme from an amusing gag gift into an inexplicable toy craze. By Christmas 1975, Americans were hooked. Although the fad was long gone by the following year, the rocks — which were collected from a beach in Baja, Calif., for pennies each and retailed for $3.95 — made Dahl a multimillionaire in about six months. https://en.wikipedia.org/wiki/Pet_Rock and The-Care-and-Training-of-Your-Pet-Rock-Manual-by-Gary-Dahl

BEFORE I became a value investor, I was addicted to bubbles.  I have over 1,200 Pet Rocks lining my Python cage.  I don’t know what the price chart says, but it doesn’t look good that I will be able to resell at a profit.

Also, I have 20,000 Beanie Babies rotting/mildewing in my basement as well.

but there is hope…..http://dailytoa.st/blogs/if-you-have-any-of-these-11-beanie-babies-you-can-retire-now

An amazing story of mass delusion and the dark side of cute.

How to be a Stoic: http://www.perell.com/podcast/massimo

Lessons from Ed Thorp, a self-taught investor: http://www.gurufocus.com/news/473560/the-strip-and-the-street-a-conversation-with-mathematician-hedge-fund-manager-and-blackjack-player-edward-thorp

Edward Thorp: I came at the securities markets without basically any prior knowledge and I educated myself by sitting down and reading anything I could lay my hands on. I began to get oriented, and then I discovered how to evaluate warrants, at least in an elementary way, and I decided that was a way that I could apply mathematics and logical thinking and maybe get an edge in the market.

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 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

czukdpkweaaqjwn

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

Intelligent Fanatics, The Outsiders, Good to Great

fanatics

https://microcapclub.com/2016/01/how-to-find-intelligent-fanatic-ceos-early/#comments

I have been asked to review the above, Intelligent Fanatics.  Please read the above link.   The question I have for readers: “What EXACTLY can YOU learn from these books that you can apply to your investing?  Or are you just reading narratives of past success?  Think about it for awhile, then reply in the comments section.   Then read on……….

outsiders

good-to-great

good-to-great (Link:Contrary Research)

From Good to Great … to Below Average

Last week, however, I picked up Good to Great by Jim Collins. This book is an absolute phenomenon in the publishing world. Since it came out in 2001, it has sold millions of copies. It still sells over 300,000 copies a year.

The book focuses on eleven companies that were just okay, and then transformed themselves into greatness — where greatness is defined as a sustained period over which the stock dramatically outperformed the market and its competitors. Not only did these companies make the transition from good to great, but they also had the sorts of characteristics which made them “built to last” (which is the title of Collins’s earlier book).

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Ironically, I began reading the book on the very same day that one of the eleven “good to great” companies, Fannie Mae, made the headlines of the business pages. It looks like Fannie Mae is going to need to be bailed out by the federal government. If you had bought Fannie Mae stock around the time Good to Great was published, you would have lost over 80 percent of your initial investment.

Another one of the “good to great” companies is Circuit City. You would have lost your shirt investing in Circuit City as well, which is also down 80 percent or more. Best Buy has cleaned Circuit City’s clock for the last seven or eight years.

Nine of the eleven companies remain more or less intact. Of these, Nucor is the only one that has dramatically outperformed the stock market since the book came out. Abbott Labs and Wells Fargo have done okay. Overall, a portfolio of the “good to great” companies looks like it would have underperformed the S&P 500.

I seem to remember that someone did an analysis of the companies highlighted in Peters and Waterman‘s 1980’s classic book In Search of Excellence and found the same thing.

What does this all mean? In one sense, not much.

These business books are mostly backward-looking: what have companies done that has made them successful? The future is always hard to predict, and understanding the past is valuable; on the other hand, the implicit message of these business books is that the principles that these companies use not only have made them good in the past, but position them for continued success.

To the extent that this doesn’t actually turn out to be true, it calls into question the basic premise of these books, doesn’t it?

I suggest that BEFORE you read any of the above books that you

1.) listen to this: https://youtu.be/LK8sxngSWaU

and read this:halo-effect

A review from a reader:

I read “Good to Great” and “Built to Last” some years ago because they were bestsellers and had good reviews. Although I did enjoy reading them, a voice in my head kept asking questions regarding the reliability of the research and findings. After reading “The Halo Effect”, I was relieved and happy to learn that I am not the only person asking these questions.

The world of business is complicated, uncertain and unpredictable. A company’s performance depends upon a variety of factors beyond the actions of its managers. These include currency shifts, competitors’ actions, shifts in consumer preferences, technological advances, etc. The first delusion is the Halo Effect, the tendency to look at a company’s overall performance and make attributions about its culture, leadership, values, and more. Our thinking is prejudiced by financial performance. In good times, companies are praised and their success is attributed to a variety of internal factors. In bad times, companies are criticized and these factors, which may not have changed, are attributed for the failures. The reality is more complicated and dependent upon uncertain and unpredictable factors.

An interesting section of this book is the one on the delusion of absolute performance. Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time. For instance, GM today produces cars with better quality and more features than in the past. But its loss in market share is owed to a myriad of factors, including Asian competitors.

This is an excellent book because it will make you THINK. Is an oil company great if its profits soared when oil prices went up? Can the formulas used by successful companies in the 80s or 90s be applied to guarantee success today? A professor once told me that to predict future performance by analyzing past data is like driving a car forward while looking at the rear view mirror. In the appendix of this book there are tables showing the performance of the companies studied in “In Search of Excellence” and “Built to Last”. It is interesting to note the difference in performance in the years before and after these studies.

The author, Phil Rosenzweig, is a professor at IMD in Switzerland and former Harvard Business School professor. He wrote this book to stimulate discussion and help managers become wiser – “more discerning, more appropriately skeptical, and less vulnerable to simplistic formulas and quick fix remedies.” In my case, this book has given me a new perspective on business books.

The following is a brief summary of the nine delusions:

1. Halo Effect: Tendency to look at a company’s overall performance and make attributions about its culture, leadership, values, and more.

2. Correlation and Causality: Two things may be correlated, but we may not know which one causes which.

3. Single Explanations: Many studies show that a particular factor leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.

4. Connecting the Winning Dots: If we pick a number of successful companies and search for what they have in common, we’ll never isolate the reasons for their success, because we have no way of comparing them with less successful companies.

5. Rigorous Research: If the data aren’t of good quality, the data size and research methodology don’t matter.

6. Lasting Success: Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but unrealistic.

7. Absolute Performance: Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.

8. The Wrong End of the Stick: It may be true that successful companies often pursued highly focused strategies, but highly focused strategies do not necessarily lead to success.

9. Organizational Physics: Company performance doesn’t obey immutable laws of nature and can’t be predicted with the accuracy of science – despite our desire for certainty and order.

Another lesson to glean is how to read the business press.   Beware of backward-viewing narratives of company success. See cisco-narrative.
You need to truly dig deep into the specific causes of a company success.   Was Wal-Mart a huge success in its growth phase because of the focus and leadership of Sam Walton?  Sure, perhaps, but that doesn’t tell you much.   How will you find the next Sam Walton?   How did Wal-Mart have such success against bigger competitors such as K-Mart in its early history?  You need to dig deeper!
We will discuss further in the next post.

Back to the Future; NCAV Strategy

The Financial Report

By Janet Tavakoli

The Great Gold Conspiracy of 1869

William Worthington Fowler’s Twenty Years of Inside Life in Wall Street or Reflections of the Personal Experience of a Speculator is a joy to read.  (I second that opinion).

Twenty Years of Inside Life in Wall StreetFowler’s ripping yarn covers the New York traded markets from 1860-1880, a period that spanned the Civil War, the post war bubble, worthless paper money, the Black Friday Gold Panic of 1869, the Great Panic of 1873, and the consequent first and worst seven year Great Depression. Fowler witnessed how U.S. government paper money replaced specie leading to bubbles, panics, and crashes. It is time to revisit Fowler’s classic. Our current crisis is much more similar to the crash of 1873 and the first Great Depression than the 1929 crash and Depression. History repeats itself, especially in finance.

Conspiracies “R” U.S.

Fowler met the most influential financiers of the day including Jay Gould, James “Diamond Jim” Fisk, Jr., Cornelius Vanderbilt, Jacob Little, Daniel Drew, Leonard Jerome, Addison Jerome, David Groesbeck, and Henry Keep. Their fortunes rose and fell on margin, carry, and derivatives including puts, calls, and futures. They risked everything speculating in equities and a wide range of commodities including gold, silver, cotton, and more. Fowler’s tale entertains as he exposes the great corners, trading rings, conspiracies, bear twists, manipulations, and frauds.

Main stream media sometimes suggests that conspiracies are only for anonymous people who lurk on the internet, or people who send you poorly written emails from yahoo accounts. But conspiracies are as American as apple pie. One of my favorite conspiracies is The Great Gold Conspiracy of 1869. Fowler provides details of the New York financiers who cooked that one up.

“Here, sitting at their ease, surrounded by luxury, in a magnificent apartment, with shrewd lawyers at their elbow, two confederates plotted The Great Gold Conspiracy of 1869, and coolly organized the ruin of thousands.”

“From April, 1865, to September, 1869, a period of more than four years, the movements of gold had been brought about by artificial means, in conjunction with commercial causes, or rather pretexts. The price of Government Bonds abroad, wars or rumors of wars in Europe, disturbances of trade, the shipments of the precious metal in payment of our imports, sales of gold by our government; these and a thousand other strings were harped upon by the gold gamblers to produce those singular upward and downward oscillations in the price, which enriched the members of the Gold Board, while they disturbed the peace of commerce and beggared a host of infatuated outside dealers.”

“Wall Street, like history, repeats itself. Every summer, since 1865, there had been a rise in gold. In March, 1869, gold fell to 131. The astute intellect of Jay Gould now foresaw another opportunity to push up the price of gold, and having purchased $7,000,000 of it, by playing on the strings of the Cuban insurrection, the Alabama difficulties, the prospect of a war between France and Prussia, etc., terrified the bears and rushed up the price to 145. Emboldened by the success of this move, he formed a new and daring scheme.”

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An intelligent strategy for some of us http://seekingalpha.com/article/3999423-great-ncav-experiment-portfolio-inception

Seek Out the Opposing View; Passive Investing

gold-and-oil-markets

Ganging up on Gold

Because I hold gold related investments, I always seek out the opposing views to test my thesis.  On the recent 5% fall in gold, a chorus of bears came out.

Natixis offers three main arguments for this call, only one of which makes sense, at least “technically”, if you will:

“For 2017 and 2018, we think that the biggest factor influencing the price of gold is the expected path of U.S. interest rate hikes,” the analysts said. “Also, we do not expect further rate cuts by the [European Central Bank] or [Bank of Japan] as this is likely to damage their banking system especially in the case of Europe.”

Natixis economists are expecting to see the Federal Reserve raise interest rates by 25 basis points three times next year: June, September and December.

Not only will higher bond yields raise gold’s opportunity costs but they will also boost the U.S. dollar, providing another headwind for the precious metals, the analysts explained.”

So when you read the above, always ask for theoretical and empirical evidence of the authors claims.  Is there any long-term correlation between US interest rates and the dollar price of gold?  And why?   More here: Ganging up on gold

Some negative comments on gold is spot-on like

gold_usbusd_121016

http://tsi-blog.com/2016/10/the-gold-manipulation-silliness-continues/

More perspective……………..

negative-yields

tax-receipts

cash-balances

cash-incinerators

Passive Investing

……The most successful professional investors like Warren Buffett, Paul Tudor Jones, John Templeton, George Soros and Jim Rogers, know this well. Their methodologies are even built upon the idea that an intelligent investor can get ahead by taking advantage of those times the crowd becomes irrational, the antithesis of the EMH and MPT.

https://www.thefelderreport.com/2015/02/11/the-wisdom-of-insecurity-in-the-stock-market/

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active-vs-passive