Category Archives: YOU

Chronicles of a Pump and Dump

pump-and-dump

Read all four parts of this study of shady pump and dump schemes in the Pink Sheet World. (Must Read) https://theintercept.com/2016/09/22/the-money-is-gone/

The Mining Clock

Mining clock

When to start buying mining shares

Ignore the analysis but note the concept.  The advice to NOT buy the miners was the perfect situation to do the opposite:
mining assets

See the lows put in Jan. 11th in both the HUI Goldbugs index and Freeport McM (FCX). Only six days after the publishing of this article.

When to start buying mining shares

Five years ago, the FTSE 350 Mining index reached a post-financial crisis peak at just over 28,000. It currently sits at 7,134, down 75% at an 11-year low, and share prices remain vulnerable.Global commodities markets remain massively oversupplied and Chinese demand is waning, but there will come a point at which mining shares are a ‘buy’ again.  (You always want to buy commodities and/or commodity stocks at the point of MAXIMUM PESSIMISM or when supply is greatest and demand lowest!).

Investec Securities has built a “Mining Clock”, which brilliantly illustrates the mining cycle, including when to buy and when to sell. It’s a real “cut-out-and-keep” for every investor.

Investec writes:

“Please see the updated Mining Clock below where we indicate that it appears still too early to be buying the mining sector. This is despite five straight years of underperformance from mining equities globally, in every sector, save Australian listed gold equities which outperformed the ASX in 2014 and 2015.” (Where is the article that told you WHEN, exactly, to buy?).  Rearview investing doesn’t work.

The above article proves once again that no one can time a sector–except when (like in this article) there is no hope for a rebound.

GDX LT Chart

Aug52016JrGoldbullanalogs

Aug52016HUIBullanalog

Aug52016Goldbullanalogd

xau

ev

http://prostedywagacje.blogspot.co.uk/2016/08/how-to-play-this-bull-market-in-gold-in.html

Last time I sold a few of my miners back in July

july

http://csinvesting.org/2016/07/08/time-to-sell-some-miners-but-not-much/

And now over the next few days and weeks, a time to rebuy at the margin.  But if you are in a bull market Sentry__Com_BullishGold_MacLean___E then sitting tight is what you must do.  At most, I think we are in six to seven on the mining clock.  So far, the public is not yet participating except perhaps in the last month.

WHAT do YOU think?

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HAVE A GOOD WEEKEND!

P.S.: http://donmillereducation.com/journal/   Work on yourself!

How to Lose Money Consistently; A Contrarian Speaks

buy buy sell sell

First, I get my stock tips from experts.

Second, I wait until the recommended stock goes up after the broadcast tip to make sure the trend is your friend.  Who needs to understand accounting anyway or the present value of free cash flow.  I mean understanding the magnitude and sustainablility of free cash flow or how the business makes money is old news.  Compare expectations versus funamentals?  I go with price because price is all.

I don’t need to think probabilistically because there are sure things like following Jim Cramer’s recommendations.

I am often wrong but never in doubt.

What behavioral biases? I am right, always right.  I don’t need losers like you second guessing me.

Now why would I blindly follow Jim Cramer?  The most important part of investing is having someone to blame when you lose money.  I typically lose 9 out of ten times and my losses are triple my wins.   Consistency wins!

Please read: http://ericcinnamond.com/parachute-pants/   A fantastic blog of knowledge from an experienced investor.

This article hits home because I have also felt the pain of being a contrarian as anyone who types in “gold stocks” in the search box can see.

AG

I bought AG in mid-2014 at $8, then $4.50, then $3. Over two years, I was down over 45% based on my average price.  Clients screamed. One said that if my IQ was higher, he could call me stupid.   One client took out an insurance policy on me and told me that I might have an accident.   Now all is forgiven. Yes, I have sold some AG but still retain a position because conditions haven’t changed, but the price has begun to discount the good news. Risk is higher now than in 2015. Yet, there doesn’t seem to be a mania into these stocks–so far.  But mining stocks are burning matches where their assets deplete and deplete.  You have to jump off the train when people are clamouring for these companies.

Parachute Pants

Did your parents ever tell you not to worry about what other people think? I remember my mother telling me this when I was in eighth grade. I’m not sure if she was simply giving good advice or trying to talk me out of buying parachute pants. In the early 80’s parachute pants were a must have for the in crowd. I wanted to fit in, but my mom convinced me it wasn’t necessary to act and dress like everyone else. In hindsight, good call mom. Now if only she would have talked me into cutting off my glorious “Kentucky waterfall” mullet! The pressures of conforming and fitting in don’t go away after eighth grade – it sticks around many years thereafter. Investing is no different.

In the past I’ve discussed and written about the psychology of investing and the role of group-think. The pressure to conform in the investment management industry is tremendous, especially for relative return investors. As their name implies, these investors are measured relative to the crowd. One wrong step and they may look different. Looking different in the investment management business can be the kiss of death, even if it’s on the upside. If a manager outperforms too much, he or she must have done something too risky or too unconventional. For some relative return investors being different (tracking error) is considered a greater risk than losing money. Losing client capital is fine as long as it’s slightly less than your peers and benchmarks. From what I’ve gathered over the years, to raise a lot of assets under management (AUM) in the investment management industry, the key is looking a little better, but not too much better, and definitely not a whole lot worse.

How did we get here? Since my start in the industry, relative return investing has gradually taken share from common sense investing strategies such as absolute return investing. How well one plays the relative return game is a major factor in determining how capital is allocated to asset managers. I believe this is partially due to the growing role of the institutional consultant and their desire to put managers in a box (don’t misbehave or surprise us) and turn the subjective process of investing into an objective science. Institutional consultants allocate trillions of dollars and are hired by large clients, such as pension funds, to decide which managers to use for their plans. The consultants’ assets under management and their allocations are huge and have gotten larger over time, increasing the desire by asset managers to be selected. This has increased the influence consultants have on managers and how trillions of dollars are invested.

During my career I’ve presented hundreds of times to institutional consultants. While I have a very high stock selection batting average (winners vs. losers), my batting average as it relates to being hired by institutional consultants is probably the lowest in the industry. It isn’t that they don’t understand or like the strategy. In fact after my presentations I’ve had several consultants tell me they either owned the strategy personally or were considering it for purchase. Although they appreciated the process and discipline, they couldn’t hire me because I invested too differently and had too much flexibility and control (for example, no sector weight and cash constraints). In other words, they liked the strategy, but they were concerned that the portfolio’s unique positioning could cause large swings in relative performance and surprise their clients. In conclusion, in the relative return asset allocation world, conformity is preferred over different, as investing differently can carry too much business risk (risk to AUM).

Over the past 18 years the absolute return strategy I manage has generated attractive absolute returns with significantly less risk than the small cap market. Isn’t that what consultants say they want – higher returns with lower risks? Yes, this is what they want, but they want it without looking significantly different than their benchmark. This has never made sense to me. How can managers provide higher returns with less risk (alpha) by doing the same thing as everyone else? Maybe others can, but I cannot. For me, the only way to generate attractive absolute returns over a market cycle is to invest differently.

Investing differently and being a contrarian is easy in theory. When the herd is overpaying for popular stocks avoid them (technology 1999-2000). Conversely, when investors are aggressively selling undervalued stocks buy them (miners 2014-2015). It’s not that complicated, but in the investment management industry, common sense investment philosophies like buy low sell high have been losing share to investment philosophies and processes that increase the chances of getting hired. Instead of asking if an investment will provide adequate absolute returns, a relative return manager may ask, “What would the consultant think or want me to do?” I believe the desire to appease consultants and win their large allocations has been an underappreciated reason for the growth in closet indexing, conformity, and group-think.

In my opinion, the business risk associated with looking different has reduced the number of absolute return managers and contrarians. And some of the remaining contrarians don’t look so contrarian. For example, look at the four-star Fidelity Contra Fund. According to Fidelity this “contra” fund invests in securities of companies whose value FMR believes is not fully recognized by the public. Three of its top five holdings are Facebook, Amazon, and Google. I suggest the fund be renamed to the “What’s Working Fund”. With $105 billion in assets under management, one thing that is working is the sales department! Wow, that’s impressive. What would AUM be if the fund actually invested in a contrarian manner? My guess is it would be a lot lower, especially at this stage of the market cycle when owning the most popular stocks is very rewarding for performance and AUM.

I’m not just picking on Fidelity. The relative return gang is in this together. After the last cycle we learned most active funds underperformed on the downside. Given the valuations of some of the buy-side favorites currently, I suspect they’ll have difficulty protecting capital again this cycle once it undoubtedly concludes. This could be the nail in the coffin for active management. If the industry is unwilling to invest differently and they don’t protect capital on the downside, why not invest passively and pay a lower fee?

In my opinion, given the broadness of this cycle’s overvaluation, the most obvious and most difficult contrarian position today is not taking a position, or holding cash. In an environment with consistently rising stock prices and the business risk associated with holding cash, I don’t believe many managers are willing to be patient. That’s unfortunate because I’ve found the asset that is often the most difficult to own is often the right one to own. The most recent example of this is the precious metal miners.

After the precious metal miners crashed in 2013, I became interested in the sector and began building a position. Besides a couple positions I purchased during the crash of 2008-2009, I had never owned precious metal miners before. They were usually too expensive as they sold well above replacement value (how I value commodity companies). Miners are a good example of how quickly overvalued can turn into undervalued. In addition to selling at discounts to replacement cost, I focused on miners with better balance sheets to ensure they’d survive the trough of the cycle.

After the miners crashed in 2013, they eventually crashed again in 2014 and became even more attractively priced. I held firm and in some cases bought more in attempt to maintain the position sizes. After adding to the positions in 2014, they crashed again in 2015 and early 2016. I again bought to maintain position sizes. I’ve never seen a group of stocks so hated. Many were down 90% from their highs – similar to declines seen in stocks during the Great Depression. The media hated the miners with article after article bashing them and calling their end product “barbaric”. I haven’t seen many of those articles recently. The bear market in the miners ended in January. Today they’re the best performing sector in 2016, as many have doubled and tripled off their lows.

Owning the miners is a good example of how difficult it can be to be a contrarian. While clearly undervalued based on the replacement cost of their assets, there didn’t appear to be many value managers taking advantage of these opportunities. I thought, “Isn’t investing in the miners now the definition of value investing? Where did everyone go?” It was extremely lonely. Some investors argued they weren’t good businesses as they were capital intensive and never generated free cash flow. Obviously they’re volatile businesses, but after doing the analysis I discovered that good mines can generate considerable free cash flow over a cycle. Pan American Silver (PAAS) did just that during the cycle before the bust. As a result of past free cash flow generation, Pan American entered the mining recession with an outstanding balance sheet. New Gold (NGD) is another miner with a tremendous asset in its low-cost New Afton mine, which also generates considerable free cash flow. I also owned Alamos Gold (AGI). Alamos had a new billion dollar mine, Young Davidson, which was paid for free and clear net of cash and was expected to generate free cash flow. Alamos was an extraordinary value near its lows and was the strategy’s largest position in 2016.

Assuming a mining company had developed mines in production, generated cash, and had a strong balance sheet, I believed while the trough would be painful, these companies would survive and prosper once the cycle turned. They weren’t all bad businesses when viewed over a cycle, as all cyclical businesses should be viewed. Furthermore, many had very attractive assets that would take years if not decades to replicate. In the end, survive and thrive is exactly what happened for many of the miners this year. I sold several of the miners as they appreciated and eventually traded above my calculated valuations. The remainder were liquidated when capital was returned to clients.  It was a heck of a ride and was one of the most grueling and difficult positions I’ve ever taken. But it was worth it.

The reason I bring up the miners is not to boast, but to illustrate how difficult it is to buy and maintain a contrarian position in today’s relative return world. I believe it helps in understanding why so few practice contrarian investing, or for that matter, disciplined value and absolute return investing. During the two and a half years of pain (late 2013-early 2016), equity performance in the strategy I manage suffered. I initially incurred losses and was getting a lot of questions — I had to defend the position. Relative performance between 2012-2014 was poor (high cash levels also contributed to this). During this time, the strategy lost considerable assets under management. People were beginning to believe I lost my marbles. Whether or not I was going crazy is still up for debate, but one thing was certain, holding a large position in out-of-favor miners wasn’t encouraging flows into the strategy. While the miners were eventually good investments, in my opinion, they were not good for business.

As value investors we often talk about being fearful when others are greedy and greedy when others are fearful. However, in practice it’s extraordinarily difficult. In addition to the pain one must endure personally from investing differently, a portfolio manager also takes considerable career and business risk. Given how the investment and consultant industry picks and rewards managers, it can be easier and more profitable to label yourself as a contrarian or value investor, but avoid investing like a contrarian or value investor. Instead simply own stocks that are working and are large weights in benchmarks – the feel good stocks. I’ve always said I know exactly what stocks to buy to immediately improve near-term performance. Playing along is easy. Investing differently is not.

Investing to fit in with the crowd may feel good and it may be good for business in the near-term, but fads are cyclical and often end in embarrassment (google parachute pants and click on images). Participants in fads and manias often walk away asking “What was I thinking?”. But for now owning what’s working is working, so let the good times roll. I’ll stick with a more difficult position. Just like I did with the miners, until it pays off, I plan to stay committed to my new most painful contrarian position – 100% patience.   —

Boy does the above post ring true. 

HAVE A GREAT WEEKEND AND STAY COOL ON THE US EAST COAST.

Do Investors Overreact?

DremanLufkin2000 Do Investors Overreact

Institutions Increase Sentiment

PERSPECTIVE

Aug 5 2016 Gold bull analog

Aug 5 2016 HUI Bull analog Aug 2016

Aug 5 2016 Jr Gold bull analogs

I made my money sitting tight–got that? Jesse Livermore

MGI Debt and not much deleveragingFullreportFebruary2015 (2) A Must Read.

Have a Great Weekend.

Special Situation Quiz Question; An Overcrowded Trade

collection

 Rags make paper,
Paper makes money,
Money makes banks,
Banks make loans,
Loans make poverty,
Poverty makes rags.
-Anonymous

Interview at Special Situations Hedge Fund

You have been working so hard to have an interview with Buffo and Greensplat Special Situations Hedge Fund and now you are in their offices.   The interviewer sits down and then asks, “Can you please tell me what you think was the greatest special situations trade/investment of the past thirty years and what was the catalyst for the trade?”  Hint: This made huge multiples on the original capital.  Few recognized the opportunity until too late.

An overcrowded trade in the search for yield. http://truecontrarian-sjk.blogspot.com/

Tuesday, August 2, 2016

THE FIRST AND THIRD SHALL BE FIRST, WHILE THE SECOND SHALL BE LAST (August 1, 2016): There is a fascinating pattern to the trading during the first seven months of 2016. The strongest sectors by far have exclusively been silver and gold mining shares, in that order, followed primarily by other commodity producers and mining-related emerging-market equities. The second-biggest percentage winners have mostly been high-dividend, low-volatility assets including consumer staples, utilities, REITs, tobacco shares, telecommunications companies, and long-dated U.S. Treasuries. The third-best performers of 2016 have been mostly energy companies and a variety of emerging-market stocks and bonds.
This is puzzling is because the first and third groups are inflation-loving assets, whereas the second group performs well when deflation reigns. How can the financial markets be both inflationary and deflationary?
The deflation trade is nearly over, but it has remained in a bull market due to huge inflows from investors desperate for yield.
High-dividend and low-volatility assets including FXG and XLP (consumer staples), IYR and RWR (REITs), XLU, IDU, FXU, and VPU (utilities), along with TLT and ZROZ (long-dated U.S. Treasuries) have been among the second-best performers of 2016. They have also been among the top winners of the past five years. Many of those who have retired or who need to pay their monthly expenses have become overly dependent upon income-producing investments to generate yield. That’s fine as long as high-dividend assets are either bargains or reasonably priced, but it creates a dangerous situation when they are trading at all-time highs even compared with previous historic peaks. There have been all-time record inflows into high-dividend and low-volatility funds which have far outpaced their previous records. A person who has retired with a half million or a million dollars might perceive that he or she “needs income” in order to maintain a basic lifestyle, and most of these investors don’t realize that if everyone goes to their financial advisors and wants the same level of “safe” income then they are all going to end up owning the exact same assets. What would be reasonable for a tiny minority of investors has become an inevitable catastrophe since millions of others are acting similarly without realizing the consequences of collectively being in such an overcrowded trade.
The inflation trade has only been in a bull market since January 20, 2016, and has a long way to go to recover its losses since April 2011.
Unlike most high-dividend assets which had bottomed in the first quarter of 2009, most commodity producers and emerging markets had been in severe downtrends from April 2011 through January 20, 2016, and even after their subsequent strong rebounds remain far below their previous peaks. Earlier this year, many of these assets completed multi-decade nadirs, with some of them touching levels not seen since the 1970s. Therefore, they remain substantially below fair value. Silver and gold mining shares including GDXJ, SIL, GLDX, SILJ, and GDX have tripled on average in just over a half year, and have thereby outpaced nearly all energy producers which had initially rallied but have gone out of favor along with most emerging-market equities during the past several weeks. This has created the best bargains for those assets which are in the process of completing important higher lows including URA (uranium), GXG (Colombia), FCG (natural gas), and FENY, a more diversified and less volatile fund of energy producers.
The Daily Sentiment Index for crude oil, indicating the percentage of traders who are bullish toward any asset, plummeted to 10% at the close on Monday, August 1, 2016. This is an incredibly low level for anything which is in a primary bull market, as energy commodities have been since February 11, 2016. The shares of energy producers mostly approached or reached multi-decade bottoms on January 20, 2016. Whenever it is possible to buy at higher lows during a major uptrend, this is ideal because a sequence of several higher lows is often followed by an accelerated rally.
The high-dividend and low-volatility bull markets are very stale and incredibly popular, while few know about the uptrends for commodity producers or emerging markets.
Almost everyone knows that high-dividend shares have been the biggest winners of the past several years and are still eager to jump aboard the bandwagon, while few realize how overcrowded this bandwagon has become. Historically, the most wildly trendy and popular trades have always proven to be disappointing. Although it is rarely compared with the internet bubble of 1999-2000, the Nifty Fifty overvaluation of 1972-1973, or the blue-chip top of 1929, high-dividend and low-volatility names have become the bubble of the decade. The total assets in USMV, a frequently-touted low-volatility fund, have tripled in one year. Just as in 2000, almost no one who has invested in these securities realizes that they can lose half or more of their money. Almost no analysts, even those who know how overvalued these popular securities have become, can emotionally imagine them plummeting. They might know intellectually that it is possible, but they can’t really imagine it happening any more than anyone at the beginning of the century could envision the Nasdaq plunging by more than 75% within three years. Alas, a similar fate awaits those who are participating in high-dividend and low-volatility shares and funds.
Just because you’re in the water to get exercise doesn’t mean you can ignore the great white sharks.
When I point out the dangerous of owning high-dividend and low-volatility shares, I often hear the refrain that “I’m not in these due to their extreme popularity” or “I only own these to generate the income I need to pay my expenses.” The market won’t treat you differently just because your motivations are allegedly pure. You might be the nicest person on your block, you might generously donate to charities, and you might frequently help old ladies to cross busy streets. Even if you’re swimming in the water just to get your daily exercise, you’re not magically exempt from being eaten by hungry great white sharks that are lurking nearby. If any given trade has become desperately overcrowded, then no matter why you’re involved in it, you’re going to be as badly hurt as the ignorant buyer who is doing it to keep up with his poorly-informed friends. As Warren Buffett has stated, when we strip off the clothing and pretense, we’re all fully exposed underneath. When the U.S. housing bubble collapsed in 2006-2011, as it about to do again in 2016-2021, it won’t spare those who are nice to animals or who do good deeds. I will discuss real estate in more detail in the near future.

Search Process–No Hope: Dry Bulk Shipping

MES-to-Build-Bulk-Carrier-for-Malaysian-Owner

From 1975-2001: ROI for T-Bills was 6.6%, S&P 500 14.1% with a 15% std. dev., Bulk Shipping 7.2 with a 40% std. dev., and Tanker Shipping 4.9% with a 70.4% std. dev! (Source: Maritime Economics, 3rd Edition)

Who in their right mind would invest in the shipping business? Well, if you can buy low, then fortunes can be made.  Recently, the Baltic Dry Index (BDI) hit a thirty-year low of 291BDI Index and note the long-term chart below.  Always look at MANY years of past data. The boom of 2007/08 will probably not be seen again for many years.

bdi

See a deep contrarian investor discuss the dry bulk shippers (March 2016):Deep Value Inv./Operator Discusses Dry Bulk Mkt.

“Dry bulk is a screaming buy; one of the best entry points in the cycle in the last thirty years. But be prepared to sustain a prolonged period of poor freight market conditions and have plenty of cash reserves and low leverage. In other words, you have to have a longer-term perspective than most investors–three to five years at least.

Isaac sowed seeds into the land during a drought.  –Leon Patitasas

“That’s the funny thing about ships. They are actually more attractive to buy at 20xs EBITDA, or even negative cash flow, than they are at 4xs EBITDA,” Coco said.

“So you are telling me that investors should seek out money losing shipping deals?” she asked incredulously.

“Correct. And sell the ones that are making lots of money. Itis like that little Napoleon said….”Buy on the sound of cannons and sell on the soundsof trumpets.”    (Source: The Shipping Man by Matthew McCleery).

John Chew: Here is where I wonder if this post helps readers’ understanding of investing because is this investing or speculating?   Note as much as what Warren Buffett does NOT do. He doesn’t invest in mining or shipping stocks. He has already had poor results with the airline industry.   So why even mention an industry in massive distress with historically sub par returns and huge volatility? I would prefer businesses with great reinvestment opportunities or great capital allocators at the helm like Markel (MKL), but a horrific business going from a distress price to a bad price may give much better returns depending upon the price paid.  Also, the worst bear market in freight rates in the past 30 years for dry bulkers means unusual opportunity just as the worst bear market in gold miners in the past 100 years offered bargains galore.

Readers know that I ventured into the miners in mid-to-late 2013, subsequently suffering back-to-back declines of about 25% before seeing the portfolio rally about 100%. So I still do not have a great return (12% after three years), but I bought miners with a five-year-to-seven year outlook and I am only three years into the investment. With Junior miners you can expect to see a 50% decline before they rally five to 10 times (assuming you chose the ones that survive! –Rick Rule).  In a land of negative-to-low interest rates, I have to look further for bargains.

Readers can pipe in what they would like to learn in future posts–let me know.

Dec302015GoldStocksBears

Five years of declines in gold mining stocks and then…..

sc

Are you investing or speculating by dry-bulk shipping stocks?  These are stub stocks where the equity is a small fraction of the enterprise values due to the shrunken market cap and the large debt taken on to finance ship purchases. But if you buy a few well-managed and relatively well-financed shipping companies that can survive the trough of the cycle–two to four more years?– you can tolerate a few going to zero if the ones remaining multiply many-fold. Not for the weak-kneed. Scorpio Bulkers (SALT) has ALREADY diluted shareholders and has taken drastic action to survive. Note management buying shares at $3.00 Scorpio Bulkers Inc. Announces Financial Results for the First Quarter of 2016. An ugly past, but we invest for the future in terms of mean reversion. I have not yet invested in any shipping stocks!

Here is what I love about the shipping business.   10 ships and 11 cargoes, then a BOOM. 11 ships and 10 cargoes, then a BUST.  You are also on the SAME footing as the most experienced ship owners in the world. NO ONE knows when the cycle will turn.   This is like a poker game where the investor that has the ships when others have thrown in the towel takes a lot of the marbles.  The worse the freight rates and the outlook, the better IF you can carry the costs until the cycle turns, and it WILL turn due to the laws of supply and demand.

I view this as intelligent speculation.   I allocate five tranches of investment into five shipping companies.  Say $5 units each.  One unit goes to zero (ouch!), the next to $2 (Boo!), the next to $1 (Damn!), the next to $3 and the next to $50 (Homerun!) and it takes three years.  There is a 31% compouned return.  Though I have no idea if this is realistic because I must study the shipping industry thoroughly.  I am just formulating a possible strategy IF I find the right companies at the right prices.  But I am drawn to the shipping companies because some companies are trading below depressed net asset values. As Mr. Templeton suggests, look where the outlook is most dire.

The best source to learn about shipping is Maritime Economics. And a must read:

51VJQBA-hNL._SX310_BO1,204,203,200_

Meanwhile keep reading………………..

RISK Management Video – Be prepared for the unexpected.

Time for Review: Behavioral Portfolio Managment

book cover

Video on Behavioral Portfolio Management

Emotional crowds dominate market volatility (nothing new here). Emotions trump arbitrage.  If you learn anything from this post may it be that you concentrate on your best ideas and do not overdiversify beyond ten or twelve stocks.  Also, understand randomness. Teams hurt performance. Avoid closet- indexers.

See slide 6 for a summary: 10495_Howard Presentation Slides

Behavioral Portfolio Management A research paper

T Howard CFA Behav PM   Short article

And here is a secret not to be shared with others: If you are going to have a behavioral edge, then don’t do what the mass of investors are doing–invest with a at least a five-year time horizon so you can give mean regression to work if you buy non-franchise companies (assets like cyclcial mining, manufacturing, etc.) or allow your franchise companies time to compound because of a slow mean reversion.

nyse-ftse-stock-holding-period

global-stock-holding-periods

But holding stock five years or more is SCARY because of the VOLATILITY.  Not so:

cotd-returns

The enemy

I’LL BE BACK; Meanwhile Keep Learning

Bull_market_03.24.2016_normal

John Chew asked me to post while he goes through his stem cell transplant.  He says, “I’ll be back.” He thanks the many readers for their kind words of encouragement. 

His hospital roommate. John may opt for a radical new therapy.

Unfortunately, John challenged the status quo so he may have to be hospitalized longer.  Sign up to Farnam Street Blog

Novagold Annual Report 2015 This annual report’s shareholder letter including the links provides an excellent example of how several investors view the capital cycle for an asset.  History does provides a guide.

http://latticework.com/featured/ Worth a look

Sign up: http://investorvantage.com/ to receive reading links like:

10 THINGS WE’RE READING & WATCHING:
    1.   Overcoming Their Fears 
    3.   3 Critical Things An Investor Needs – Capital Exploits
    5.   Unique Behind The Scenes Look Into Buffett’s Process – Vintage Value (must read)
    6.   Andy Groove And The Iphone SE – Ben Thompson
    7.   How Maritime Insurance Built Ancient Rome – Priceonomics
    9.   How Buffett And Munger Differ In The Way They Think – Outlook Business
    10. Podcasts: Conversation with Bethany McLean A fantastic interview for aspiring analysts. Her book on Fannie and Freddie seems like a must read!
Ackman: PSH-Annual-Report-12.31.151 See the section on Valeant.
A short summary of the tug of war over Valeant. Setting aside the noise about fraud, greed, and accounting issues, The Valeant Casino, this is a company that financed fast asset growth with cheap debt (at the time) while taking advantage of the flawed quasi-socialized medical system in the US.   Valuation depends on a normalization of true long-term cash flows–VRX_Update_StillOverpriced_2016-03-15 and EV_EBITDA_Misses_the_Point (View video on valuation and ROIC below for more context). The beneficiary of medical care does not DIRECTLY pay ALL of the costs. Who would be willing to accept a $1,000 tube of anti-fungal cream for their itchy feet if a third-party didn’t pay? See Dying with dignity.
Seconal

Meanwhile……be wise not smart and stay-thirsty-my-friends-3

Back in July/Emergency Stem Cell Transplant

I hope to return by July, but if not, I will see you all on the other side.  Someone will still check each week to manage the Deep Value Group. Scroll down and follow link http://csinvesting.org/2015/01/14/deep-value-group-at-google/

F1.large

I have been diagnosed with a rare bone marrow blood disorder called Amyloidosis.

My immediate treatment is

My view so far: Fear Loathing and Stem Cell Transplant

Now I could have this attitude https://youtu.be/2bCwyzT0Z6E but I choose this

 

Coal’s Sunset/The Capital Cycle; Graham Bangs the Table

millenniumforce02wide

http://csinvesting.org/2016/01/13/more-on-the-capital-cycle/ was our last discussion on the capital cycle.

Coal_Haul_Truck_at_North_Antelope_Rochelle

Now, look at these two excellent posts on Coal.

A perspective on current conditions in other markets:

The Big Long – Final Feb 28 2016 The writer promises a follow up to discuss catalysts–which, I believe, will be the change in supply and demand dynamics and the capital cycle. See article referred to here: 2_Buffett and Graham Call the 1974 Market Bottom

and for more historical and emotional perspective: