Category Archives: YOU

Value Vault Update; Information Overload and Investing

VALUE VAULT UPDATE

Many have recently asked for keys to the Value Vaults. Unfortunately many keys have expired, therefore they need to be refreshed. I plan to have new keys for all by Monday so check back.

Meanwhile, new investors can learn from this story about Matt Drudge and information overload–very applicable for investors.

See: http://www.mises.org/media/8340/Matt-Drudge-and-Information-Overload

Anniversary Day for the April Gold Massacre

04-14-2014_GOFO_cleaned (1)

The paradox in investing hinges on the tension between having both the strength of one’s convictions and the intellectual flexibility necessary to admit, relatively quickly, when one is wrong.–Unknown

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process.  It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.  Alan Greenspan (1966) http://www.321gold.com/fed/greenspan/1966.html

There are two ways to conquer and enslave a country. One is by the sword. The other is by debt. –John Adams, 1735-1826

When you consider the rate at which public debt is increasing, along with the fact that so many countries around the world instituted their own versions of quantitative easing (i.e. printing money) while increasing debt levels, these conditions are unprecedented. We have found NO HISTORICAL example of so many major countries simultaneously engaged in quantitative easing. Just ten years ago we would not have thought such an economic environment even possible. –Arnold Van Den Berg, Feb. 21, 2014

Gold Massacre

Today’s price decline in gold is probably a gift for the long-term buyer. A year ago on tax day the gold market had a large sell-off with rising demand from China.  big gld

Today, gold gets sold off $35 in the New York open, because demand from China is falling due to weakening money supply, credit stress and ?? What else can we make up?  China is relentlessly accumulating gold.

small GLD

However, 2014 is far different in market structure than 2013. 900 tons have already been removed from gold ETFs and demand to hold gold is greater than cash based on negative GOFO rates–see chart at the top and read here: http://www.tfmetalsreport.com/blog/5663/plunging-gofo-rates

Take a look at the negative rates here: http://www.lbma.org.uk/pricing-and-statistics.  An article discussing gold’s anniversary day: http://www.321gold.com/editorials/thomson_s/thomson_s_041514.html

http://investmentresearchdynamics.com/todays-gold-price-take-down-operation-has-the-smell-of-desperation/

The cause of today’s sell-off is not manipulation, contrary to the howls from goldbugs, but traders getting ahead of possible collateral issues tied to swap agreements:http://www.alhambrapartners.com/2014/04/15/the-inconvenient-marriage-of-yuan-and-gold/  So, gold prices could continue to be pressured–welcome to markets. Which force will be greater?

Valuation

Has anyone has attempted a valuation of Detour Mines (DRGDF) mentioned in this post: http://wp.me/p2OaYY-2m2? I won’t post my valuation until the $500,000 prize is awarded.

My quarterly report (The Horror!) :Gold and Miners_April First Qtr Report

A reader wished to share a report on investing in materials:  Fortnightly_Thoughts_-_14_04_14_-_Materials

Part 2: Analyzing a Gold Mining Company–Initial Steps

Mark Twain: “A mine is a hole in the ground with a liar standing next to it.” 
2-BGMI-Gold both-W2 (1)

Initial Steps

We first have to understand the product/market of our gold company. Gold companies produce gold and silver which is money. What is money?  Precious metals have exchange value which makes up a large part of their value.  You first have to understand the gold market. Note: why did gold go down LESS than other commodities such as oil in the 2008/2009 credit crisis?

You need to draw up an industry map. How? Find out who the participants are.

Start with history: http://www.fgmr.com/gold-mining-stocks-have-outperformed-the-djia.html

BGMI http://www.sharelynx.com/chartstemp/free/fchart-BGMI.php

QUIZ: What is the best environment to invest in Gold mining equities. Why?

We will circle back to an industry map after you have read about the industry.

What determines the price of gold: http://www.acting-man.com/?p=10251 Also, do a search for gold and/or mining stocks and then read his posts.

The Case For Gold by R Paul

Gold Dollar by Rothbard

Roubini Why Gold Won’t work

Study: www.monetary-metals.com

Gold as collateral: http://www.alhambrapartners.com/2014/02/26/gold-and-reverse-repos/   Also, do a search for gold.

Read free research on gold as money: http://www.myrmikan.com/port/

View all five videos on money: http://hiddensecretsofmoney.com/

Two excellent books: Gold, the Once and Future Money by Nathan Lewis. Also, Gold: The Monetary Polaris by Nathan Lewis.

Gold and inflation: http://www.garynorth.com/public/department32.cfm

The case for gold:  http://www1.realclearmarkets.com/2011/11/18/my_thoughts_on_lewis_lehrman039s_gold_standard_120618.html

Understand royalty companies: http://seekingalpha.com/article/1341411-gold-and-silver-royalty-companies-part-1-the-pros-and-cons-of-royalty-companies   (read all five parts)

Then read presentations of Royal Gold, Silver Wheaton, Franco-Nevada, Sandstrom from their websites for a good overview of the gold mining market(s).

These sites can get you started. Don’t believe the hype!

www.goldsilverdata.com Also, go to http://youtu.be/VjjLhPqO8bY to view video on valuing gold and silver stocks.

Go to www.youtube.com and search for Jim Grant AND gold,   John Doody and mining stocks.  Ditto for Brent Cook, Rick Rule. Search for their comments.

That will get you started and then next week, I will post an industry map. Ask questions.   In two weeks we will crack a company.

Update March 17, 2014: Discussion of Junior Resource Sector

Gold1800to2000

 

Part 1: Analyzing a Gold Mining Company–Where to Start?

Idaho_Gold_Minegold mine 2

Gold mine 3gold mine

 

 

 

Assignment: Analyze and value a gold mining company

Mario Gabelli once suggested to a group of Columbia MBA students to become an expert in an industry. The process will take at least six months of intensive reading and research to get to a level of what you need to know and what you can ignore. Then in a year or so move on to another industry. After five or six years you will have competency in five to six different industries.   Since investing is all about context, we first need to learn about the gold (precious-metals) mining industry.

Whether you will analyze a gold mining company, a shipping firm, a title insurance business or a media company, you will need to develop an understanding of the industry within which your firm operates.

Since we do not have six months to study, we will move at an accelerated pace.

OK, so what do you need to start with and how would you begin?  Pretend that you wanted to build a mining company from scratch, how would you do it? If you were airdropped into Northern Pakistan, what would you first need after hitting the ground?

Friday, I will post my suggestions and information sources. Meanwhile, you can think and search for yourself. Eventually, we will move on to the particular company.   Don’t hesitate to post questions if you are unclear or my instructions are incomprehensible.

Good luck!

Socionomics and History; The Bubble in Social Media

SHARK

The History of the Markets through the lens of socionomics

So does social mood CAUSE events or vice-versa? I found the video below interesting but socionomics seems too general for useful application. 

VIDEO: http://www.socionomics.net/hhe-part-1/#axzz2uM3BV7in

Bush-DecidesTimeCover

Note the date on the above Time cover–August 21, 1999. America was at its height of exuberance. The NASDAQ peaked in March of 2000 seven months later. 

Social Mood and the Stock Market and Presidential Elections

Sex and the Stock Markethttp://www.socionomics.net/1999/09/stocks-and-sex-a-socionomic-view-of-demographic-trends/#ixzz2uM4DB7aq

Talk about social mood? How about a bubble in social media? Do they ring a bell at the top? (Remember the AOL/Time Warner merger).

Facebook’s $19 billion takeover of WhatsApp (largely financed by issuing more of FB’s inflated stock, hence the price tag is in a way actually an illusion) has predictably produced a very wide range of reactions. Jeff Macke at Yahoo’s Daily Ticker was describing it as a ‘brilliant deal‘, heaping scorn on critics who in his opinion just don’t understand the value of a business employing metrics other than the money it actually makes (or stands to make in the future even under very generous assumptions, since a major attraction of the service is that it is actually free for one year, and thereafter costs a pittance). “They’ll eventually figure out how to make money from it”, according to Macke. Perhaps; Facebook’s shareholders were no doubt relieved to hear it.

On the other end of the spectrum of reactions,  Peter Schiff is criticizing it as just another outgrowth of the latest Fed-induced credit and asset bubble, noting that such pricey takeovers are typically only seen when oodles of money from thin air have flooded the system.

A great post: http://www.acting-man.com/?p=28860

Don’t forget to improve your investing by STUDYING the whole movie–ROUNDERS.  

Banker “Suicides”; Economic Myths; Food Crises; Gold Stock Analysis?

jumper

The string of suicides among the leading bank employees is indicative of the change in trend. The major Wall Street banks including Bank of America, Goldman Sachs, JP Morgan, Credit Suisse, subsequently told junior bankers to take more time off since the death at Bank of America last August of a 21-year-old Bank of America intern who died after reportedly working consecutive all-nighters at the bank’s London office.

http://armstrongeconomics.com/2014/02/18/are-bankers-committing-suicide-for-a-connected-reason/

An excellent course on behavioral economics. I took this course and highly recommend but it is a time commitment of $six to eight hours per week. Improve the YOU. https://www.coursera.org/course/behavioralecon

POKER: To learn about investing in the 21st Century: The great poker movie, Rounders: http://www.tfmetalsreport.com/blog/5494/rounders

Munger on Investing: http://www.valueinvestingworld.com/

Any interest in analyzing a gold stock? http://youtu.be/NML5-dgp1u4

Economic Myths

Myth #8: The Fed provides a net benefit to the US economy

It never ceases to amaze us that people who understand that it would make no sense to have central planners setting the price of eggs believe that it is a good idea to have central planners setting the price of credit.

Myth #2: The Fed’s QE boosts bank reserves, but doesn’t boost the money supply.

It’s a fact that for every dollar of assets purchased by the Fed as part of its QE, one dollar is added to bank reserves at the Fed and one dollar is added to demand deposits within the economy (the demand deposits of the securities dealers that sell the assets to the Fed).

Myth #12: Inflation is not a problem unless the CPI is rising quickly

The conventional wisdom that “inflation” is not a major concern unless the CPI is rising quickly is not only wrong, it is also dangerous. It is wrong because monetary inflation affects different prices in different ways at different times, but the resultant price distortions always end up causing economic problems. It is dangerous because it leads people to believe that there are no serious adverse consequences of central-bank money printing during periods when the prices included in the CPI are not among the prices that are being driven skyward by money printing.

Read more:Economics_Myths_on_Fed_Reserves_Saville

An Expert on Bear Stearns:

 Why the rioting? fig1_crises

Social unrest may reflect a variety of factors such as poverty, unemployment, and social injustice. Despite the many possible contributing factors, the timing of violent protests in North Africa and the Middle East in 2011 as well as earlier riots in 2008 coincides with large peaks in global food prices. We identify a specific food price threshold above which protests become likely. These observations suggest that protests may reflect not only long-standing political failings of governments, but also the sudden desperate straits of vulnerable populations. If food prices remain high, there is likely to be persistent and increasing global social disruption. Underlying the food price peaks we also find an ongoing trend of increasing prices. We extrapolate these trends and identify a crossing point to the domain of high impacts, even without price peaks, in 2012-2013. This implies that avoiding global food crises and associated social unrest requires rapid and concerted action.

Tweet Map (clickable)

Clickable food prices tweet map

Press Release: Scientists show link between food pricing and global riots

A new Cambridge study issues stern warning for policy makers

(CAMBRIDGE, MA) — A new study shows that the timing of outbreaks of violence rocking North Africa and the Middle East is linked to global food prices.

Today’s headlines explode with stories of failed political systems, harsh regimes, and denial of rights underlying riots and warfare. The authors, however, point to rising food prices as a key factor too–not only in assessing the aftermath but in predicting future times of unrest.

The study, titled “The Food Crises and Political Instability in North Africa and the Middle East,” is by Marco Lagi, Karla Bertrand and Yaneer-Bar-Yam of the New England Complex Systems Institute.

Using detailed charts showing data from the FAO Food Price Index and the timing of the riots, the authors were able to demonstrate how food prices have a direct link to the tipping points of unrest and upheaval.

The authors also criticize the deregulation of commodities markets in the US as contributing to the rise in food prices.

The authors issued a stern warning that if food prices remain high, disturbances will continue. Averting further crises this year and next requires quick and concerted action by policy makers, they added.

“Our predictions are conditional on the circumstances, and thus allow for policy interventions to change them. Whether policy makers will act depends on the various pressures that are applied to them, including both the public and special interests,” said Prof. Bar-Yam.

More on TA. Does It Work?

09NUTRITION-master675

Readers’ Replies to prior post on Technical Analysis (“TA”) found here: http://wp.me/p2OaYY-2ib

#1 Here is one rich technician. Paul Tudor Jones. Nuff said. Lowery research has been in business a long time doing TA. Tom Demark. Look him up.

#2 Personally I think people should use Fundamentals for investing in anything for the Long Term. Technical Analysis has a purpose but usually only for the immediate future. That’s why most Day Traders use Technical Analysis.

For instance, if you watch the Moving Averages and say that the 200-day Moving Average (200MA) falls below a 50-day moving average (50MA), this is known as a death cross and 9 times out of 10 that I have seen that kind of action, the price on that chart will start to go down.

Technical Analysis is mostly used for short-term movement in a stock, commodity, currency, etc., etc. It is virtually impossible to base a long-term investment on Technical Analysis.

My response: Thanks, but those opinions don’t improve our knowledge about whether TA is a usable tool.  Take #1, Paul Tudor Jones is a big, successful hedgie who uses TA–enough said.  Let’s substitute TA for dresses in drag and flips coins. The meaning would be the same.  I don’t want to pick on anyone, I read the same in many articles on Tudor Jones. I bet you Tudor Jones couldn’t even tell you EXACTLY how he uses charts.  He probably blends many factors into his “sixth-sense” based on thousands of hours of intensive interaction with the markets.See page one: 04_Jul_-_Tudor_Inv_Corp where Tudor loves the dollar and then the next day he is short the dollar. Did a chart give him a signal? If so, what is the STATISTICAL EVIDENCE?

The point is, there is and can never be any statistical evidence since charts just reflect PAST human choices of buying and selling. Future human action can’t be mathematically proscribed.

Paul Tudor Jones II Interview

Also, technical analysis has both passionate critics and ardent adherents. For example, an October 2009 study by New Zealand’s Massey University found that of more than 5,000 strategies that employ technical analysis, none produced returns in the 49 countries where researchers tested the strategies beyond what you’d expect by chance. However, scores of traders, including billionaire Paul Tudor Jones, say the discipline helped them amass great fortunes. So I tried to keep an open mind. (If Paul Tudor Jones is a billionaire, then TA must work! Flawed logic!) Read more at http://www.kiplinger.com/article/investing/T052-C000-S002-our-man-goes-undercover-and-tells-all.html#YYaXPGbZyfPmbyFp.99

#2 If you have evidence that 9 out of 10 times the “Death Cross” moves prices enough for you to take advantage of them–then great for you. But again, if this “signal” did work, why wouldn’t the market DISCOUNT it in the future especially if you could precisely define what a Death Cross is?

There are some money managers who use TA in creative ways for the long-term but I call them market mystics. 

Capital Mkt Update 2008 Montgomery and Capital Mkt Update 2009 Montgomery

http://www.montgomerycap.com/universal_economics.html

http://www.montgomerycap.com/philosophy.html

What I AM saying is to use TA if it works for you however you define “works for you” be it in confidence, money management and setting risk parameters, finding opportunities, etc. but don’t fool yourself. THERE IS NO SCIENTIFIC EVIDENCE THAT TA HAS ANY EFFICACY.

I will make a $1,000 bet. Show me any statistical proof or long-term (fifiteen years or more) of market beating returns solely using TA. Ask these guys: http://www.tradingacademy.com/about-us/.  I guess SELLING TA is more profitable than USING it. I smell a legal high-pressure selling scam: http://www.ripoffreport.com/r/online-trading-academy-boston/norwood-massachusetts-/online-trading-academy-boston-ota-watch-out-for-this-high-pressure-tactical-manipulatio-888094

Why the strange picture at the top of this post?   This NY Times’ article by Gary Taubes shows how difficult it is to obtain scientific proof for even life threatening health issues. 

http://www.nytimes.com/2014/02/09/opinion/sunday/why-nutrition-is-so-confusing.html?

NEARLY six weeks into the 2014 diet season, it’s a good bet that many of us who made New Year’s resolutions to lose weight have already peaked. If clinical trials are any indication, we’ve lost much of the weight we can expect to lose. In a year or two we’ll be back within half a dozen pounds of where we are today.
The question is why. Is this a failure of willpower or of technique? Was our chosen dietary intervention — whether from the latest best-selling diet book or merely a concerted attempt to eat less and exercise more — doomed to failure? Considering that obesity and its related diseases — most notably,Type 2 diabetes — now cost the health care system more than $1 billion per day, it’s not hyperbolic to suggest that the health of the nation may depend on which is the correct answer.
Since the 1960s, nutrition science has been dominated by two conflicting observations. One is that we know how to eat healthy and maintain a healthy weight. The other is that the rapidly increasing rates of obesity and diabetes suggest that something about the conventional thinking is simply wrong.
In 1960, fewer than 13 percent of Americans were obese, and diabetes had been diagnosed in 1 percent. Today, the percentage of obese Americans has almost tripled; the percentage of Americans with diabetes has increased seven-fold.
Meanwhile, the research literature on obesity has also ballooned. In 1960, fewer than 1,100 articles were published on obesity or diabetes in the indexed medical literature. Last year it was more than 44,000. In total, over 600,000 articles have been published purporting to convey some meaningful information on these conditions.
It would be nice to think that this deluge of research has brought clarity to the issue. The trend data argue otherwise. If we understand these disorders so well, why have we failed so miserably to prevent them? The conventional explanation is that this is the manifestation of an unfortunate reality: Type 2 diabetes is caused or exacerbated by obesity, and obesity is a complex, intractable disorder. The more we learn, the more we need to know.
Here’s another possibility: The 600,000 articles — along with several tens of thousands of diet books — are the noise generated by a dysfunctional research establishment. Because the nutrition research community has failed to establish reliable, unambiguous knowledge about the environmental triggers of obesity and diabetes, it has opened the door to a diversity of opinions on the subject, of hypotheses about cause, cure and prevention, many of which cannot be refuted by the existing evidence. Everyone has a theory. The evidence doesn’t exist to say unequivocally who’s wrong.
The situation is understandable; it’s a learning experience in the limits of science. The protocol of science is the process of hypothesis and test. This three-word phrase, though, does not do it justice. The philosopher Karl Popper did when he described “the method of science as the method of bold conjectures and ingenious and severe attempts to refute them.”
In nutrition, the hypotheses are speculations about what foods or dietary patterns help or hinder our pursuit of a long and healthy life. The ingenious and severe attempts to refute the hypotheses are the experimental tests — the clinical trials and, to be specific, randomized controlled trials. Because the hypotheses are ultimately about what happens to us over decades, meaningful trials are prohibitively expensive and exceedingly difficult. It means convincing thousands of people to change what they eat for years to decades. Eventually enough heart attacks, cancers and deaths have to happen among the subjects so it can be established whether the dietary intervention was beneficial or detrimental.
And before any of this can even be attempted, someone’s got to pay for it. Since no pharmaceutical company stands to benefit, prospective sources are limited, particularly when we insist the answers are already known. Without such trials, though, we’re only guessing whether we know the truth.
Back in the 1960s, when researchers first took seriously the idea thatdietary fat caused heart disease, they acknowledged that such trials were necessary and studied the feasibility for years. Eventually the leadership at the National Institutes of Health concluded that the trials would be too expensive — perhaps a billion dollars — and might get the wrong answer anyway. They might botch the study and never know it. They certainly couldn’t afford to do two such studies, even though replication is a core principle of the scientific method. Since then, advice to restrict fat or avoid saturated fat has been based on suppositions about what would have happened had such trials been done, not on the studies themselves.
Nutritionists have adjusted to this reality by accepting a lower standard of evidence on what they’ll believe to be true. They do experiments with laboratory animals, for instance, following them for the better part of the animal’s lifetime — a year or two in rodents, say — and assume or at least hope that the results apply to humans. And maybe they do, but we can’t know for sure without doing the human experiments.
They do experiments on humans — the species of interest — for days or weeks or even a year or two and then assume that the results apply to decades. And maybe they do, but we can’t know for sure. That’s a hypothesis, and it must be tested.
And they do what are called observational studies, observing populations for decades, documenting what people eat and what illnesses beset them, and then assume that the associations they observe between diet and disease are indeed causal — that if people who eat copious vegetables, for instance, live longer than those who don’t, it’s the vegetables that cause the effect of a longer life. And maybe they do, but there’s no way to know without experimental trials to test that hypothesis.
The associations that emerge from these studies used to be known as “hypothesis-generating data,” based on the fact that an association tells us only that two things changed together in time, not that one caused the other. So associations generate hypotheses of causality that then have to be tested. But this hypothesis-generating caveat has been dropped over the years as researchers studying nutrition have decided that this is the best they can do.
One lesson of science, though, is that if the best you can do isn’t good enough to establish reliable knowledge, first acknowledge it — relentless honesty about what can and cannot be extrapolated from data is another core principle of science — and then do more, or do something else. As it is, we have a field of sort-of-science in which hypotheses are treated as facts because they’re too hard or expensive to test, and there are so many hypotheses that what journalists like to call “leading authorities” disagree with one another daily.

It’s an unacceptable situation. Obesity and diabetes are epidemic, and yet the only relevant fact on which relatively unambiguous data exist to support a consensus is that most of us are surely eating too much of something. (My vote is sugars and refined grains; we all have our biases.) Making meaningful inroads against obesity and diabetes on a population level requires that we know how to treat and prevent it on an individual level. We’re going to have to stop believing we know the answer, and challenge ourselves to come up with trials that do a better job of testing our beliefs.

Before I, for one, make another dietary resolution, I’d like to know that what I believe I know about a healthy diet is really so. Is that too much to ask?
Gary Taubes is a health and science journalist and co-founder of the Nutrition Science Initiative.

David and Goliath: Underdogs, Misfits, And the Art of Battling Giants

Perhaps it is one secret of their (Bankers’) power that, having studied the fluctuations of prices, they know that history is inflationary, and that money is the last thing a wise man will hoard.–Will Durant in Lessons of History

How to get a job

VITO

How to Get a Job on Wall Street (Or anywhere else)

This post discusses getting a job on Wall Street, but the basic principles apply to whatever your area of interest is.
An EPJ reader sent this email to me earlier today:

Tomorrow morning I plan to go knocking on doors at different Private Equity firms in the Houston Area. Those firms do not have a career section on their website, so I have decided to go the old fashion way and knock at their door. Basically, I want to get an entre level analyst position and start from there. Today, I am starting an online MSc. in Corporate Finance, so I hope that could help me.
My question to you is, what tips would you suggest me when I go tomorrow morning? would that strategy work?

I receive many emails like this. Early in my career, at one point, I actually went door to door and managed to get a job on Wall Street that way, but it is extremely difficult. You have to be prepared for lots of rejection, you have to know, going in, everything about the job and firm that you are attempting to get an interview at. You have to be clever, pushy and lucky to get past the receptionist and you then have to make your points, powerfully and succinctly, as to why you would be a good fit for the firm. Then you have to be prepared and have answers to any objections. Did I mention accomplishing all this is not easy?
An alternative might be to contact smaller firms by email or phone, contact the partners, and tell them you are willing to work for free for 6 months to prove yourself. Be a pest.

I also like the idea of working for a temp agency. Befriend someone at an agency and tell them that you are willing to work as a temp in the PE industry, hedge fund industry etc., whatever it is you are interested in, because you want to get in the door. Once you are in the door, you can be judged on your skills. Be a pest at the temp agency, so that you are on their mind.

Another strategy is to start a blog, not an opinion and policy blog like mine, but a blog that shows your skills in the field you would like to enter. If you want to get into the PE industry, write one or two analytical posts per month that analyze sectors of the economy and why it may make sense for the PE industry to get involved in those sectors (or why they should be avoided). If you consider yourself, say, a good stock analyst, then start a blog where you post one or two detailed stock research reports each month. Email links to your posts to the people you would like to work for. I know of two analysts that got their starts this way.

When all is said and done, it’s about being clever and focused and knowing well the person/firms you want to work for, so that you can show them the skills you have that can help them.

I found the profile of Tracy Britt Cool in BusinessWeek fascinating. She clearly had been thinking about working for Warren Buffett for a long time and she went about in a methodical way attempting to get a job with Buffett. And, got it! BusinessWeek writes:

When Warren Buffett bought half of a commercial mortgage finance company in 2009, he hired a 25-year-old fresh out of business school to keep tabs on the investment[...]Now 29, Cool is one of Buffett’s most-trusted advisers, traveling the country to assist a constellation of companies too small to command her boss’s direct attention[...]

“When I first met her I thought, ‘Oh my gosh, this girl’s scaring me, she’s so professional,’” said Teresa Hsiao, a classmate at Harvard College. “Her idea of fun may not be what we consider fun, like looking at 10-Ks,” the annual reports filed with securities regulators.

Cool, who declined to be interviewed for this article, met Buffett through Smart Woman Securities, the group she and Hsiao founded while Harvard undergraduates. SWS aims to educate members about everything from compound interest to preparing a pitch to prospective investors.
Cool and Tiffany Niver, a Harvard classmate from Nebraska, wrote to Buffett and asked if members could visit. He agreed. The pilgrimage has become an annual event for the group, which has expanded to 17 chapters[...]Cool was inspired by Buffett’s value-investing principles when she built SWS, Horne said. “I don’t think that was unconscious,” she said. “She clearly had Warren in her sights.”

While at Harvard Business School, Cool wrote in an essay: “My goal is to work with a great investor, who even more importantly is a wonderful teacher and mentor.”

Think about this. She set her sights on working for Warren Buffett and accomplished that! How many people would kill to get a job next to Buffett? A lot. But she did it. Why?  Because she did many things that others don’t do. She had a methodical plan. She developed her skills that would make her valuable to Buffett and then she developed a plan to get in front of Buffett so that she could demonstrate her skills.

Go forth and do likewise.

Investment Strategy

Gold-vs-Gold-Miners-Ratio

Client Report Jan 29 2014

gold vs spy  Gold is money, not an investment.

Value Investing Videos (Manual of Ideas)

https://www.youtube.com/user/manualofideas?feature=watch

Pabrai lectures in India: https://www.youtube.com/watch?feature=player_embedded&v=Py95fWZV2Vo

Reader’s Questions

How much of your decision to not own stocks of businesses outside of the mining sector is based on a top-down or macro decision.  The reason that I as is because you mention that you owned COH in the past and that seems like a cheap stock at the moment.  I could understand that you might not want to own it because of it struggles in the US and possible brand erosion, but that seems more like a quality issue than a valuation issue.  Or is it a fear of a hurting consumer?

My reply: Actually, it is a bottom-up decision.  I have pawed through my 250 stocks that I target in Value-line but see little margin of safety. Yes, I owned COH many months ago but sold near $58 as I had about a $60 to $65 valuation on it.  I am very skeptical that the high end of their profit margins can be sustained because of their clientele and QE. But the undervaluations in miners gave me a better uses for my capital.  So bottom up on both sides push/pull. 

But I am certainly not suggesting anyone follow exactly what I am doing. I still own some non-miners like ESGR but I wouldn’t add to them. 
 
Question: Also, I’m still trying to understand the margin decline argument. I haven’t done enough homework on it myself to ask intelligent questions, but intuitively I don’t understand why a specific geography (in this case the US) couldn’t have more than average of the types of companies that generate higher margins.  The geographic lines on a map seem arbitrary to me.

My reply: Well, set aside geography, because the same principles apply to any country. The most mean reverting metric of companies in general would be profit margins.  Think about the inevitable law of competition and lack of barriers to entry.  But understanding this subject will make you a better investor and save you heaps of pain!  If an analyst projects an increase in multiples on top of today’s profit margins, then I suggest a mercy kill for that analyst and his boss/clients. We are in the death zone–a climber’s term for high altitude conditions. 

Cutting back on growth capex and returning excess capital to shareholders if there are no adequate opportunities to generate excess returns is the right thing to do, but how sustainable is it for large companies like IBM or CSCO? Also, buying stock today may not be below intrinsic value for every company that is doing it.