Category Archives: Uncategorized

Keys to A Few Value Vaults

Click on VIEW FOLDER and there are many books, cases, and more. Let me know if you wish more posted. Here are a few vaults.

Books View Folder
VV_CS_Inv View Folder

 

UPLOAD_Contributors View Folder

20 Lesson Course in Value Investing

2014-03-18-dollar-decline

The results above of the Fed’s ability to maintain stability of the U.S. Dollar

 

“Studies of everyday reasoning show that the elephant is not an inquisitive client. When people are given difficult questions to think about—for example, whether the minimum wage should be raised—they generally lean one way or the other right away, and then put a call in to reasoning to see whether support for that position is forthcoming. For example, a person whose first instinct is that the minimum wage should be raised looks around for supporting evidence. If she thinks of her Aunt Flo who is working for the minimum wage and can’t support her family on it then yes, that means the minimum wage should be raised. All done. Deanna Kuhn, a cognitive psychologist who has studied such everyday reasoning, found that most people readily offered “pseudoevidence” like the anecdote about Aunt Flo. Most people gave no real evidence for their positions, and most made no effort to look for evidence opposing their initial positions. David Perkins, a Harvard psychologist who has devoted his career to improving reasoning, found the same thing. He says that thinking generally uses the “makes sense” stopping rule. We take a position, look for evidence that supports it, and if we find some evidence—enough so that our position “makes sense”—we stop thinking.” Course on Plato.

Investing Course

I don’t know the quality of these lessons, but beginners can learn from Sanjay Bakshi’s attitude and approach.  Let me know if you find the lessons worthwhile.

http://www.safalniveshak.com/value-investing-sanjay-bakshi-way-2014-part1

Gold Stock Analysis Question

Anyone want to submit an industry map of gold mining company before I do. Best map wins $2,000 prize equivalent (rare investment book).

CS on Critical Reading Skills; Sealed Air Video

 

ECRI-Weekly-LEI-Growth

CASE STUDY ON CRITICAL READING

OK, you are working for this guy: Video: http://youtu.be/R8y6DJAeoloHe walks into your office and drops this on your desk early in the morning before you have had a chance to slurp your coffee and gobble your jelly-donut: Case Study Critical Reading_Bubbles. He wants a full report. He wants to know what causes bubbles and busts.

What do you tell him about the report he gave you? How long before you reached your conclusion? What evidence do you present for your conclusion?  Time is precious.

What do you suggest should be the next step to gain an answer for your hedgie boss?

How efficient are you at getting to the essence of the document? Stuck?

Ask Hannibal Lechter:

 Case Study “Response”

In its report Globalization and Monetary Policy Institute Working Paper No. 167, entitled “The Boy Who Cried Bubble” by authors Yasushi Asako and Kozo Ued.

The article is 44 pages long. In the opening paragraph on page two in the Introduction, the authors state “History is rife with examples of bubbles and bursts. A prime example is the recent financial crisis that started in the summer of 2007; However, we have limited knowledge of how bubbles arise and how they can be prevented.” (Right there–you have your conclusion. These guys have no clue how bubbles occur. Secondly, seeing any higher level math means ignorance and folly. How can human action be quantified with mathematical precision–the fatal conceit).  Tell your boss that the paper is useless or even misleading. 

One could safely stop reading right at that point knowing full well that what follows cannot possibly be anything but self-serving platitudes and incomprehensible mathematical gibberish.

And that is precisely the case. The mathematical gibberish starts on page five and continues for the entire remainder of the document.

Here is a quick sample from page seven.

Math 1

All the remaining pages are equally incomprehensible to all but the geekiest of geeks. Here is another example from page 39.

Math 2

Hiding Behind Nonsensical Math

I am quite sure there are some academic geeks who understand the formulas presented by Yasushi Asako and Kozo Ued.

Regardless, it’s all mathematical nonsense in light of their ridiculous conclusion stated upfront “We have limited knowledge of how bubbles arise and how they can be prevented.”

Ben Graham argues, “higher-level math implies a level of precision that does not exist in the real world.” (p. 259 of The Intelligent Investor)

Read more at  http://globaleconomicanalysis.blogspot.com/2014/01/bubblicious-questions-what-causes.html#ueRA5dx1OFAvUKC9.99

SEALED AIR CASE STUDY

Video https://www.hightail.com/download/elNLTG01MHczeUp4Tk1UQw    Link Expires May 24 2014

Case Materials:

Greenwald_Class_Notes_6_-_Sealed_Air_Case_Study

Sealed Air 1998 10-K

Sealed Air Case Study_Handout

The History of Trading in the Pits; Much More

Trading Pits

The successful investor is a master of paradox. He expects the unexpected, distrusts the experts and loves what the majority hates. He believes that, in markets as in heaven, the first shall be last and the last shall be first.

There’s fool’s gold–pyrite–and then there’s fools’ gold owned by idiots who will trade it for worthless dollars.

History of the trading pits: http://www.tradingpitblog.com/ Great blog!

What is money? What is money_ TTMYGH_17_Feb_2014

Assessing Long-Term Account Performance

http://www.tocquevillefunds.com/insights/secular-lessons

Hard wired for bubbles (Dan Ariely)

http://www.peakprosperity.com/podcast/84804/dan-ariely-why-humans-hard-wired-create-asset-bubbles?

Thinking properly about “cash sitting on the sidelines.” Or how to think properly. http://www.acting-man.com/?p=28594

Rick Rule on Gold Miners and Gold (Of course, when you ask a barber if you need a haircut…..But, he has a lot of experience in these markets.  Survival is proof enough of competence in the miners!

AUDIOhttp://kingworldnews.com/kingworldnews/Broadcast/Entries/2014/2/16_Rick_Rule_files/Rick%20Rule%202%3A16%3A2014.mp3

Rick Rule: We’ve said on your interviews, ‘You’ve suffered through the pain, why not hang around for the gain?’  I think we’re in the beginning of the gain session.  Your readers and listeners, at least those who are new to the sector, need to understand that we are in a rising channel, but we are in a rising channel that is going to have higher highs and higher lows….

It’s going to be volatile.  You are going to see 15% declines, and you are going to see 20% gains for seemingly no reason.  The important thing to note is that I certainly believe the precious metals sector and the precious metals shares have bottomed and they are moving up.

We’re tempted to say that the bottom was reached and the recovery in the junior shares began in July of last year.  Certainly, November, December, and January have seen pretty good rises — 40% share price escalations have not been uncommon.

It is not uncommon for well-constructed portfolios in a precious metals market recovery to experience five-fold or ten-fold gains.  So for those people who went through the downturn and are now beginning to experience the upturn, firstly, congratulations.  And second, keep your seatbelt on.  It’s going to be very volatile but I think we are higher, probably substantially higher from here.” 

 

Eric King:  “William Kaye, the outspoken hedge fund manager from Hong Kong, was telling King World News that demand (for gold) out of China is just ‘insatiable.’  Your thoughts on the physical demand we’ve seen around the globe — it’s been quite stunning.”

Rule:  “He would know better than I with regard to Hong Kong demand, but certainly we’ve seen very strong physical demand from around the world.  A lot of the physical demand has taken place right here in the United States.

What’s interesting about his (Kaye’s) statement is the dichotomy between the private physical markets and the long-term markets.  I can’t help going back to an announcement about 12 months ago, when the Germans wanted to repatriate their 1,500 tons of gold, and they were told by the US government that it would take seven years (to get back only 300 tons of gold) that was theirs.

At the same time, over 30 days, in the physical market, Chinese retail buyers bought and took delivery of 1,120 tons of gold.  One of the things that this points out is the very, very odd dichotomy between central bank and multilateral institutional holdings of gold, and the paper gold market on one side, and the honesty of the physical market on the other side.  

My suspicion is that the physical market is prevailing and will continue to prevail over the paper market.  And the subtext of this is that the documented large (gold) short positions that exist in the paper market may get their long awaited religious experience as they are unable to deliver against futures obligations.”

from www.kingworldnews.com

Seth Klarman on investing vs speculating:

Mark Twain said that there are two times in a man’s life when he should not speculate: when he can’t afford it and when he can. Because this is so, understanding the difference between investment and speculation is the first step in achieving investment success.

To investors stocks represent fractional ownership of underlying businesses and bonds are loans to those businesses. Investors make buy and sell decisions on the basis of the current prices of securities compared with the perceived values of those securities. They transact when they think they know something that others don’t know, don’t care about, or prefer to ignore. They buy securities that appear to offer attractive return for the risk incurred and sell when the return no longer justifies the risk.

Investors believe that over the long run security prices tend to reflect fundamental developments involving the underlying businesses. Investors in a stock thus expect to profit in at least one of three possible ways: from free cash flow generated by the underlying business, which eventually will be reflected in a higher share price or distributed as dividends; from an increase in the multiple that investors are willing to pay for the underlying business as reflected in a higher share price; or by a narrowing of the gap between share price and underlying business value.

Speculators, by contrast, buy and sell securities based on whether they believe those securities will next rise or fall in price. Their judgment regarding future price movements is based, not on fundamentals, but on a prediction of the behavior of others. They regard securities as pieces of paper to be swapped back and forth and are generally ignorant of or indifferent to investment fundamentals. They buy securities because they “act” well and sell when they don’t. Indeed, even if it were certain that the world would end tomorrow, it is likely that some speculators would continue to trade securities based on what they thought the market would do today.

Speculators are obsessed with predicting – guessing – the direction of stock prices. Every morning on cable television, every afternoon on the stock market report, every weekend in Barron’s, every week in dozens of market newsletters, and whenever businesspeople get together, there is rampant conjecture on where the market is heading. Many speculators attempt to predict the market direction by using technical analysis – past stock price fluctuations – as a guide. Technical analysis is based on the presumption that past share price meanderings, rather than underlying business value, hold the key to future stock prices. In reality, no one knows what the market will do; trying to predict it is a waste of time, and investing based upon that prediction is a speculative undertaking.

Market participants do not wear badges that identify them as investors or speculators. It is sometimes difficult to tell the two apart without studying their behavior at length. Examining what they own is not a giveaway, for any security can be owned by investors, speculators, or both. Indeed, many “investment professionals” actually perform as speculators much of the time because of the way they define their mission, pursuing short-term trading profits from predictions of market fluctuations rather than long-term investment profits based on business fundamentals. As we shall see, investors have a reasonable chance of achieving long-term investment success; speculators, by contrast, are likely to lose money over time. www.shortsideoflong.com

A True Contrarian: John M. Templeton


 

What is your investment approach? John Templeton, “I search for bargains.” “Buy at the point of maximum pessimism. Go where the outlook is the worst.”

The above video is worth viewing if you want to understand how important personality and values are for the type of investor you become. Templeton’s thrifty ways and contrary streak were embedded in his approach. He is seldom studied. Too bad. 

The Templeton Way A book synopsis

Templeton on Investor Attitude

Criticism is the fertilizer of learning. –John Templeton.

A Great Individual Investor’s Investment Letter; A Reader’s Questions

NSA-Santa

A successful individual investor recaps 2013 (Must Read) David Collum_2013_year_in_review  

Note how few long-term decisions he made. Owning long-term bonds from 1980 to 1988, etc.  Buying precious metals in 2001 and STILL holding on through 2013–now that is long-term investing! 2013 was only his second losing year in several decades thanks to gold and silver being down 39% and 55% this year.

Video

A Reader’s Question

I have a couple of valuation questions that I have been wrestling with recently.  I would love to hear your take.

First, do you ever use a PE ratio for valuation?  I have always used a EV to EBIT or something ratio whether pre-tax or after-tax.  (I have an idea of the multiples that interest me in both cases.)  Sometimes I come across something that has a low PE but not so low EV/EBIT.  I think this is when the company has financial leverage and is paying an interest rate substantially below the earnings yield.  If it’s a high quality business and the leverage does not harm the company is it sometimes better to use a PE?
John Chew: No, I would use EV (enterprise value which includes net debt) rather than “P” or market cap because debt is part of the price that you pay. Also, look at the terms and conditions of the debt. Note the quality as well as the quantity of the debt. Bank debt is more onerous than say company-issued bonds. 
Also, if you are normalizing earnings, and current earnings are depressed and may be for a while, do you account for this in the valuation, perhaps as a liability?  Or is this an effort to be overly precise?  This quote from Jean-Marie Eveillard in The Value Investors suggests that the former method is overly precise because the future is uncertain:
  “There is no point asking about a company’s earnings outlook because if we are investing for the long-term, then short-term earnings never affect our intrinsic value calculation. Asking management about long-term plans is also pointless to me because the world changes. No one can predict what will happen, and so what is important for us as analysts is to discover the underlying strengths and weaknesses of the business ourselves.”
John Chew: You do not count this as a liability when you normalize earnings.  You look back over a long enough history 12 to 15 years (including the 2008/09 credit crisis) to sense what normal earnings are.  Part of normalizing earning would be assessing the competitive advantage of the business or the uniqueness of the assets.  For example, you should be able to have confidence in the earnings power of the assets owned by Compass Minerals (rock salt positioned near the Great Lakes giving a cost advantage). 
Finally, I want to share a quote from Dylan Grice that I recently found and thought you may find interesting:
Dylan Grice in the July 17, 2012, Popular Delusions
The power of a discounted cashflow model is that it allows us to achieve a value which is objective. With a model based on discounted future cashflow we can arrive at intrinsic value.
But is this correct? Can cash flows be objectively valued? Suppose I’m a fund manager worried that if I underperform the market over a twelve-month period I’ll be out of a job. What value would I attach to a boring business with dependable and robust cash flows, and therefore represents an excellent place to allocate preserve and grow my client’s capital over time but which, nevertheless, is unlikely to ‘perform’ over the next twelve months? The likelihood is that I will value such cash flows less than an investor who considers himself the custodian of his family’s wealth, who attached great importance to the protection of existing wealth for future generations, values permanence highly, and is largely uninterested in the next twelve months.
In other words, an institutional fund manager might apply a ‘higher discount rate’ to those same expected cash flows than the investor of family wealth. They arrive at different answers to the same problem. The same cash flows are being valued subjectively and there is no such thing as an objective or ‘intrinsic value’ embedded in the asset, even though it has cash flows.
John Chew: Well, I agree that investors have different discount rates. You need to use one that fits your situation.  We are discussing human beings making decisions under uncertainty or human action.  All value is subjective. To learn more go to: http://mises.org/austecon/chap4.asp
Thanks for the questions and to all a Happy, Healthy and Prosperous New Year in 2014

 

What is the Trend Telling Us? Robert Mundell’s Monetary History

longtermAUBasket1718

 Does anyone sense a trend over the past three hundred years?

The severing of the dollar link to gold in 19171 and the movement to flexible exchange rates in 1973 removed constraints on monetary expansion. The dollar emerged as the only international money and, in the words of Robert Mundell:

The U.S. Federal Reserve could now pump out billions and billions of dollars that would be taken up and used as reserves by the rest of the world. Not only that, but US government Treasury bills and bonds became a new form of international money. Dollars became the reserves of new international banks producing money in the Eurodollar market and other offshore outlets for international money. The newly elastic international monetary supply was now made to order to accommodate the supply shock of the oil price spike at the end of 1973. The quadrupling of oil prices created deficits in Europe and Japan which were financed by Eurodollar credits, in turn fed by US monetary expansion. The Fed argued that its policy was not inflationary because the money supply in the United States did not rise unduly. The fact is that it had been exported to build the base for inflation abroad. As I showed in an article published in 1971 (IMS in the 21st Century Robert Mundell and mundell-lecture), it is the world, not the national dollar base that governs inflation. Prices rose 3.9 times in the quarter century after 1971, by far the most inflation than at any other time in the nation’s history.

Our Current Situation

debtchart

Our choices are to restructure the debt, grow our way to repayment and/or print. What choice will the Fed make?Money-TMS-2

US money supply TMS-2 (components by legal categorization) since 1960 – by Michael Pollaro.

If there were a free market for money, unexpected sudden increases in the demand for money (due to exogenous events like e.g. the threat of war) would likely also see a reaction from the supply side.  However, the increase in resources devoted to obtaining a larger supply of the money commodity (in a free market, money would be a commodity with a pre-existing use value) would be strictly guided by the wishes of consumers. Moreover, even if the money supply were completely fixed, a demand for higher cash balances would simply lead to adjustment by raising money’s purchasing power until the higher demand was satisfied (we are assuming that if a free market in money were to obtain, the entire economy would likely be unhampered; prices and wages would be free to adjust).

Given the enduring popularity of inflationary policies, we suspect that lessons that should have been learned long ago will have to be relearned – the hard way.

Read the article on why many hope for a return of inflation: http://www.acting-man.com/?p=26808t

Meanwhile the market sets up with its Fed induced distortion: http://www.cnbc.com/id/101137648

Value Vault Videos and Book Folders

ARROW Oct 23

 

VALUE VAULT VIDEOS AND BOOKS

 
Books

View Folder

Bruce Greenwald Valuation and VI Videos 2005

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Bruce Greenwald Value Investing Class Videos 2010

View Folder

 


                     Bruce Greenwald Videos Part two

View Folder

Greenblatt Videos

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Corp. Finance

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Distressed_1

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VV_CS_Inv

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HAVE A GOOD WEEKEND!

Plenty here to keep anyone busy. Post your notes/thoughts/questions.

 

Regional Econ. of Scale with Govt. Privileges: The Bunny Ranch


The Economics:

1207-jimi-lynn-document-1

http://www.tmz.com/2012/12/23/bunny-ranch-prostitute-jimi-lynn-lawsuit-brothel-contract-lube/

http://www.tmz.com/2012/12/23/bunny-ranch-prostitute-jimi-lynn-lawsuit-brothel-contract-lube/

 

Economic Indicator: Whore house traffic is down by 40%. Times are tough!

Visiting the Bunny Ranch: http://anotherworldblog.wordpress.com/2011/02/01/trapped-at-the-bunny-ranch-part-2-interview-with-a-prostitute/

Treasure Chest! Many Quality Investment Books

Books

Dropbox Links

Editor: It seems as though the traffic crashed the links, so I will need to find another storage/sharing method. Patience while I work on it.

This leads me to wonder if starting a private web-site/blog with a csinvesting analyst manual would be an improvement. A person could have a book with links to videos/case studies and books in an organized fashion to become a knowledgeable investor–more learning materials than any other web-site/university times ten!  Imagine a private library/study area/discussion lounge for learning value investing.  The site could be self-sustaining with a nominal fee per annum. It would weed out the people who are not very committed.

Also, sharing info would be easier.         Thoughts for the future………

Meanwhile I will try to find another way to share those books. 

REMS of a stock operator

Reminiscences of a Stock Operator (A Classic)

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