Mr. Price recommends the book, There is Always Something to Do by Peter Cundhill

Peter Cundill, a philanthropist and investor whose work has been praised by the likes of Warren Buffett, found his life changed forever when he discovered the value investment principles of Benjamin Graham and began to put them into action. There’s Always Something to Do tells the story of Cundill’s voyage of discovery, with all its ups and downs, as he developed his immensely successful investment strategies. In the context of recent financial upheavals and ongoing uncertainty, Peter Cundill’s wise and frequently funny reflections are more important than ever. In a seamlessly assembled narrative drawn from interviews, speeches, and exclusive access to the daily journal Cundill kept for forty-five years, Christopher Risso-Gill outlines Cundill’s investment approach and provides accounts of his investments and the analytical process that led to their selection. A book for everyday investors as much as professional investors and investment gurus, There’s Always Something to Do offers a compelling perspective on global financial markets and on how we can avoid their worst pitfalls and grow our hard-earned capital.

John Chew: I enjoyed the book, but there are no great insights for an experienced investor. But the stories of perseverance in the face of company problems/investments are helpful. 

Thanks to sfriedman@santangels.com, (ask to subscribe to his free emails–how can you ask for more!?).

P.S. Mr. Price presents his approach to value investing. Use what can help YOU in YOUR OWN approach. Price practices a form of special situation investing. There are as many ways to invest as people who practice value investing.

Another conviction forced upon my mind, by the examination of long periods of history, was the exceedingly small part played by conscious thought in moulding the fate of men. At the moment of action the human being almost invariably obeys an instinct, like an animal; only after action has ceased does he reflect.” –Brooks Adams in The Law of Civilization and Decay (1897)

Perhaps the only reliable contrary thought one dares hold when monetary innovations are presented is simply one of doubt. Old-timers have confidence only in gold, whereas the younger and “newer” economists are unafraid to experiment with substitutes for what has been called our “barbaric metal.” A speaker contends that gold may be barbaric, “but it is no relic.”

A review of depressions reveals how in every cycle the crisis developed when money and credit became overextended. No answer to the monetary riddle is foreseeable so long as bankers, business-men and speculators act normally, which is that they will push for profits when, and as long as, there is capital gain to be made. They will leave the idealistic “distaste” for money and the power of money to the hippies. 

The trained contrarian recognizes the periods of monetary over-extension and guards against the inevitable “corrections.” He need not understand the riddle of money to avoid its perils.  –Humphrey B. Neill, The Ruminator

 Buy CEF or buying gold and silver bullion at a discount

CEF is a closed-end fund that holds gold and silver bullion--currently trading at a 1.5% to 2% discount. Back in 2011, CEF traded at a 6% premium. The present discount is a function of HISTORICAL and UNPRECEDENTED bearishness by small speculators who are currently net short! If ever there was contrarian signal, this is one. Oh, I forgot one, Noureil Roubini, an economist, says that gold will go to $1,000 because the world is in recovery. See below:

Commercials at a thirteen year high in bullish positioning

http://www.321gold.com/editorials/mcclellan/mcclellan061713.html

In recent years, commercial gold futures traders have been continuously net short ever since late 2001, and so the game consists of evaluating their comparative net short position relative to recent readings.

The reason for this bias to the short side is that a lot of the commercial gold traders are gold producers, who sell their future production ahead of time in the futures markets, and who thus are short. Commercial traders of silver futures have been continuously net short to varying degrees going all the way back to the start of modern COT Report data back in 1986.

In the chart above, the current reading is the commercials’ lowest net short position (as a percentage of total open interest) since 2001, which was when gold prices were just starting a multi-year uptrend from below $300/oz. The message here is that commercial traders as a group are convinced that gold prices are heading higher. They usually get proven right, eventually, although sometimes we have to wait around longer than we might wish for “eventually” to get here.

http://www.cefconnect.com/Details/Summary.aspx?ticker=CEF. Now, you may not wish to own gold as a way to hold/store a portion of your savings, but if you are looking for a way to buy bullion, this might be an intelligent way. This writer’s understanding is that  gold is money (all else is credit–J.P. Morgan)–if it wasn’t, then gold’s U.S. dollar price would probably be 50% to 95% lower. Gold is not a currency due to our fiat currency laws (coercion), and gold is NOT an investment. Gold does not create wealth, but it represents wealth/savings. Finally, extreme bearishness may be a contrarian buy signal, but–as in all things pertaining to human action–prices may decline further for a while. No one knows future prices definitively.

However, with high bearishness among small specs in the leveraged paper market with strong commercial traders on the other side of the trade after a two-year decline of 30% to 50% in gold and silver prices, which side do you want to be on?  The theory of contrary opinion aims at avoiding Crowd opinions. That is a broad generality but the reason for avoiding the crowd in most matters is that the crowd is often wrong. A crowd is swayed by emotion and fear rather than by ruminating and reasoning.

Now, why own some gold? Gold is non-printed, non-government created money. If you believe that our current fiat currency/debt laden system is sustainable or that the Fed can “taper” and “exit,” with precision, perfect foresight, and without consequences then just hold paper dollars. If you do own CEF, pray that bullion declines in price because then the rest of your portfolio is probably prospering. Gold is not an investment but simply another form of money.

Warren and Howard Buffett’s Thoughts on Money and Gold

• The Buffetts Perspective_On_Money
• Howard_Buffett_explains_money
• How Inflation Swindles the Equity Investor (A MUST READ!)

Now where are we today?

View the below videos for a discussion of some economic issues concerning massive debts and zero interest rate policy. The first video is 18 minutes while the next video is 55 minutes.

Arguments given for central planning interventionism and going off the “gold standard” are the periods of booms and busts during the 19th century–forgetting that 1880 to 1913 showed consistent 4% to 5% REAL economic growth while nominal prices declined. Of course, with FRACTIONAL RESERVE banking (Ponzi finance) and regardless of bank notes fully redeemable in gold, there would be booms and busts because credit could be extended through fractional reserves beyond true savings. In other words, money is still being created out of thin air and the currency is not fully-backed 100% by gold (representing true savings). Governments do not enforce a depositor’s property rights by suspending redemption in times of crisis because governments are dependent upon banks for some of their financing. You have to fix all the underlying problems.

Finally, a massive disconnect in reality: Paul Krugman, a nobel-prize winning “economist” says that higher regulatory burdens have NO NEGATIVE effects upon small businesses. How can any one person be so arrogant and ignorant? All he has to do is ASK an entrepreneur/”small” business person DIRECTLY.  If anyone can prove Krugman’s point to me, I  will gladly send you $1 million in gold coins.  As Chicago Slim says, “This will not end well.”

Meanwhile……………..

Readings

So_You_Want_To_Be_The_Next_Warren_Buffett_Hows_Your_Writing_Mark_Sellers

The_Coffee_Can_Approach_Michael_Mauboussin

Have a Good Weekend.

Thanks to www.acting-man.com

Chinese trying to exchange their currency into gold before the arrival of Mao’s triumph over Chiang Kai-Shek

…and if you want to be a Contrarian, then miners is where you want to be…..0 percent recommendation to own miners by financial advisers (May 13). I guess they didn’t survey me.

Here is a case study question: what caused the past great bull and bear markets in gold and mining shares?

Money Managers

HuntValue_2013-04

MoneyManagerInterviewArticle_Spring_2013

Value_Investor_May_2013

FYI:

June 13, 2013
London, England

[Editor's note: Tim Price, Director of Investment at PFP Wealth Management in the UK and frequent Sovereign Man contributor, is filling in for Simon this morning.]

As Ben Graham, the father of value investing, observed, an investment operation “is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

Challenged to distil the secret of sound investing into just three words, he advocated: “Margin of safety”. Unfortunately for all investors today, the margin of safety has all but disappeared.

To appreciate just how far away we are from normality or any remotely normal “margin of safety”, consider the chart below:

10-year US Treasury yields are at their lowest levels in more than two centuries. Even stranger is that these low yields exist when the US has never been deeper in debt (nearly $17 trillion for the on-balance sheet liabilities) and thus when the supply of Treasuries has never been as large.

Have the laws of supply and demand been repealed ?

If the US bond market is in a bizarre bubble, it is hardly alone. Consider the even longer data series below, a favourite of MoneyWeek’s Merryn Somerset-Webb, via Church House Investment Management.

In the more than three centuries’ history of the Bank of England, the base rate has never been this low.

Right now, these western government bond yields are so low because western governments and their central banks are rigging the market in their own debt.

Governments issue debt, only to have their central banks buy it right back. This creates liquidity for commercial banks that can put that money to more productive use– like artificially inflating their stock markets.

Because market manipulation is normally illegal, the monetary authorities have coined a phrase to give their market rigging an air of technical sophistication: quantitative easing, or QE.

Look back at that chart of US Treasury yields. From the austerity post-war years through the go-go years of the 1960s and the stagflationary disaster of the 1970s, T-bond yields rose from roughly 2% to a grotesque 16% in the early 1980s.

But we are now back to 1945 era yields. Do we think the future outlook is for higher yields, or lower ones ? What does the chart suggest ?

This is a nightmarish environment to be practising Ben Graham-style value investing – because the margin of safety has been destroyed by central bank market manipulation.

Western government bond yields are widely held as the ‘risk free rate’ against which other investments can be assessed. Now there is no longer a risk free rate, only the yield available on hopelessly rigged government bonds.

The manipulation of bond markets has inevitable effects upon stock market valuations too; everything is relative. Cash as a meaningful investment choice has also been destroyed by central bank action (see, again, that chart of the UK base rate).

This means that we – and in turn our clients – are forced to take more risk than we would prefer even if our intention is simply to keep our heads above water.

Investors are now obsessed about the prospect of the Fed “tapering” down its bond purchase programme.

Having painted itself into such a corner, having become the prime mover behind both bond and equity market momentum, the Fed may never be in a position to taper anything.

Nevertheless, this is the hand we’ve been dealt and which we must play. We think there is now a significant risk that QE ends (whenever it does end) in a currency crisis.

Since central banks can barely afford to let market interest rates rise any time soon, they will keep the printing presses rolling instead– and most fiat currencies will be printed toward destruction.

So the fundamental rationale for holding gold is as robust as ever in this hopelessly distorted world. But as Pimco’s Mohamed El-Erian now asks, are the markets now beginning to lose confidence in central bankers ? We certainly have.

This is an excellent book for understanding how companies have a STRUCTURAL competitive advantage. I am now re-reading it.

Strategic_Logic.pdf

Financialization of the US Economy    Why Wall Street will have to shrink over time.

I am working on fixing the problem. Please ignore the bogus email (asking for money).

I am sorry for the abuse.

my new email is jac007csi@gmail.com

We last posted the Case Study of Cisco (CSCO) here: http://wp.me/p2OaYY-1YL

My analysis: This case forces you to compare the year-over-year change between sales and accounts receivable. The reason why you should focus on it is because the market was happy that Cisco “met” its 5% growth target for sales.

Cisco’s revenues were up 5.4% year-over-year and met management’s guidance, but accounts receivable jumped 25.2% year-over-year ($4.9 billion versus 3.9 billion–you need to look at Cisco’s prior year’s 2012 quarterly announcement to find the comparable figure for account receivable).

A small yellow flag should fly in front of you. Normally the discrepancy would  indicate potential “channel stuffing,” in order to meet quarterly revenue and earnings estimates. However, if you listened to competitors of Cisco, you knew that the market for Cisco’s products were quite weak. Another explanation might be that Cisco gave generous credit terms to generate sales. Either way, there are slight concerns for future growth. In other words, the quality of Cisco’s growth may not be as high as it appears.

Of course, you need to be aware of Cisco’s valuation and take other information into consideration.  If Cisco’s price is near full value (and I think it is) then this accounting information adds to my inclination NOT to own Cisco any longer.

Chapter 8: Two Key Ratios : Accounts Receivable and Inventories by Thornton L. OGlove in The Quality of Earnings

In 1931, when stocks continued their dizzying plunge during the nation’s most spectacular bear market, Bernard E. Smith, better known as “Sell ‘Em Ben,” was the king of the district. As the sobriquet indicates, Smith was  a short seller who, as legend had it, ran from brokerage to brokerage on Black Tuesday, 1929, screaming, “Sell ‘Em All! They’re not worth anything!” Two years later, this former longshoreman out of Hell’s Kitchen was taking in more than $1 million a month, scorching the few remaining bulls.

According to one of many sources about him, Smith was monitoring the stock of a medium—sized industrial company which supposedly was bucking the trend and doing quite nicely. Because of this the stock was setting new highs almost daily, while the rest of the list was hitting bottom. Smith was puzzled, and one day motored to the factory where he asked to see management, only to be turned away at the gate. Undeterred, he walked around the plant, and noticed that only one of its five smokestacks was belching forth smoke. Smith took this to mean the other furnaces were not operating, and so business was bad. Rushing to a telephone, he shorted the stock which plunged several weeks later when poor earnings were reported. This was how Sell’Em Ben made part of that Month’s $1 million.

The investment world is far more sophisticated today, but such simple ploys still work better than the most baroque equations cooked up in the business schools for use on computers.

One of the these simple ploys—the best method I have every discovered to predict future downwards earnings revisions by Wall Street security analysts—is a careful analysis of accounts receivable and inventories. Learn how to interpret these, and you will have today’s equivalent of Smith’s smokeless smokestacks.   In fact, had old Ben been able to go through that company’s books, he probably would have found two things: a larger than average account receivable situation, and /or a bloated inventory. When I see these, bells go off in my head telling me to analyze that particular stock in a devil’s advocate manner.

END

PS: Low future returns for stocks: http://www.hussmanfunds.com/wmc/wmc130610.htm

The Best is yet to come? http://www.gold-eagle.com/editorials_12/lundeen060913.html

The investment management business is unlike most businesses in that the “average” product (in this case, investment returns) is unsatisfactory from the consumers point of view. Managers who even outperform their respective peer groups could well be an unsatisfactory experience as well for the client if returns are less than the market index.

Our respect for index investing and investing as business owners has led us to two aspects of our approach that are quite different than our competitors. To outperform an index, we believe that our portfolios must be constructed as different from an index as possible. Thinking and acting like business owners reduces our interest to those few businesses which are superior. Both of these views lead to our focused (concentrated) approach.

To outperform our peers, we believe that we must emulate the most powerful attributes of index investing. By definition, index investing is “buy and hold” investing. This leads us to our history of minimum turnover of our portfolios. As a corollary, this also affects our stock selection. If we expect to invest in companies for many years, we must then focus on those select companies with the brightest multi-year prospects for growth. In addition, our view on risk is contrary to the typical manager as well. We do not view risk via individual security price volatility (beta), rather all of our risk analysis is centered on the individual business.

Wedgewood’s underlying equity investment philosophy is predicated on a strong belief that significant long-term wealth will be created by investing as “owners” in companies. In our “Invest as Business Owners” approach, we seek companies that the following characteristics:

1. A dominant product or service that is practically irreplaceable or lacks substitutes.
2. A sustainable and consistent level of growing revenues, earnings and dividends.
3. A high level of profitability, measured by return on equity without the use of excessive debt.
4. A strong management team that is shareholder oriented.

Once we have validated company performance against this set of criteria, we then analyze prospective companies with an eye toward those organizations who have reasonable, if not cheap, valuations.

With a plus 15 year history of outperforming index investing and most active managers our results are testament to the viability of our investment philosophy. It is this approach that sets us apart from our competition… we think and act unlike the vast majority of active managers.

Below are the firm’s top Ten Holdings……..

To see all their holdings go here: Wedgewood Partners Case Study

So, the question I ask my readers, “Why don’t more money managers follow their strategy?” Invest in franchise companies at a good price for the long-term? If you click on their site:

http://www.wedgewoodpartners.com/

you can read an interview and see their track record–it is excellent.Wedgewood Partners 2013 Interview and 

Contrast this with:Southeastern_2013 Annual Meeting – Transcript

Next the statesmen will invent cheap lies, putting the blame upon the nation that is attacked (Syria), and every man will be glad of those conscience-soothing falsities, and will diligently study them, and refuse to examine any refutation of them; and thus he will by and by convince himself that the war is just, and will thank God for the better sleep he enjoys after this process of grotesque self-deception.” –Mark Twain

“When the rich make war, it is the poor that die.”–Jean-Paul Sartre

Case Study of Cisco:

Case Study on Cisco Third Quarterly Earnings  (includes 2012 for comparison purposes).  Instructions and questions in the document.

CSCO_VL   (for reference) CSCO March 2013 Qtr Report

Please explain what you see.

–

The Lord of Dark Matter

Fleckenstein:  “Probably anyone who listens to your wonderful interviews already understands that money printing can’t solve anything … Most recently the housing bubble led to the collapse in 2008/2009, and now we’ve got QE of biblical proportions being foisted upon us by the Fed, BOJ (Bank of Japan), Swiss National Bank, and probably the BOE (Bank of England) soon, etc.

The irony of it all is that 5 years into zero rates, and America alone (with) $5 or $6 trillion of deficit spending, the economy is still crummy.  No one ever says, ‘Why is that?’  Well, the reason is because money printing doesn’t work.”

….Everybody and his brother is bearish.  I get sent two articles a day about some knucklehead who’s bearish on gold.  Well, you know what?  They are all bearish for the same two reasons:  The chart looks bad, and the price is wrong.  Like they know what the price (should be).  How do any of us know what the price is supposed to be?  It’s just a price.

Click the link below to hear the twelve-minute interview:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/6/6_Bill_Fleckenstein.html

A Reader’s Question

VENICE – The run-up in gold prices in recent years – from $800 per ounce in early 2009 to above $1,900 in the fall of 2011 – had all the features of a bubble. And now, like all asset-price surges that are divorced from the fundamentals of supply and demand, the gold bubble is deflating.

Good Advice:http://www.321gold.com/editorials/moriarty/moriarty060313.html    Buy gold mining shares…………..