20 Lesson Course in Value Investing

2014-03-18-dollar-decline

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

 

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

Investing Course

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

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

Gold Stock Analysis Question

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

Government Debt Bubble; Financial History

DEBT

In the Land of the Free, the Government Accountability Office (GAO) recently released its 2013 Financial Report of the United States government.

This is the government’s best attempt at an honest accounting of its books. And even though they use a different accounting system that gives them special advantages, the picture is still remarkably bleak.

We all know that the US government has racked up a substantial debt; as of this morning, total outstanding public debt is $17,546,814,482,078.90. ($17.5 trillion)

But it’s not all about the debt. Debt is not necessarily evil… and it’s important to look at the situation qualitatively in addition to quantitatively.

Let’s drop a few zeros and consider this in terms of personal finance.

Assume you had $1.75 million in total debt. That sounds like a lot to most people.

But if you had $3 million in liquid assets to offset the debt, plus $500,000 in annual income to pay interest, living expenses, and just about any contingency that could come your way, you’d be in great shape.

It would be even better if that $1.75 million in debt financed a lucrative real estate investment which was generating a 25% cash-on-cash return for you.

But that’s not the case for the US government.

Despite the Obama administration touting a budget deficit of “only” $680 billion in 2013, the GAO’s more accurate accounting shows a total government cost of $3.8 trillion on total revenue of $2.8 trillion.

In other words– the administration wasn’t exactly honest with the American people– the deficit was more like $1 trillion, not $680 billion. But it gets worse.

The GAO added up ALL the US government’s assets in 2013. Aircraft carriers. The highway system. Land. Cash and financial assets. The total is $2.97 trillion.

The liabilities, on the other hand, total $19.88 trillion. This includes the official public debt, plus all sorts of IOUs and loan guarantees.

This means the net EQUITY of the US government is minus $16.9 trillion.

Moreover, the US government’s cash position is a mere $206 billion… roughly 1.1% of its public debt. This isn’t enough to cover net interest payments for the next year.

Unlike a savvy investor who borrows cheap money to purchase productive assets, the US government borrows money to pay interest.

Quantitatively AND qualitatively, the data point to an inevitable conclusion: despite all the propaganda, this is NOT a risk free environment.

And understanding these trends and consequences is absolutely critical to your long-term financial survival.   From: www.sovereignman.com (Simon Black)

A solution? Debtors’ Prisons

local-govt-debt1-13

http://www.oftwominds.com/blogmar14/legal-looting3-14.html

 

Total-US-Government-Debt-overlayed-by-Rodrigues-Bubble-Model

A great audio interview of Bob Hoye, a financial historian & money manager, discusses our current situation compared to the past: http://radio.goldseek.com/nuggets/goyette.03.19.14.mp3

Is Bitcoin a Scam?

Bitcoin-Crash

Bitcoin the PERFECT SCAM

Bitcoin is as a SCAM by design as I have voiced many times over several months in that even when a large percentage of people have their holdings stolen the price is stable enough to continue to entice new entrants into exchanging hard earned fiat currency for bitcoins via the ramblings of the clueless mainstream press, investors who will also at some point lose the value of all of their holdings.

As I have pointed out several times before bitcoin ultimately has a destiny with extinction because in order to continue verifying bitcoin transactions then bitcoin miners need exponentially greater processing power to achieve this, where today a bitcoin miner would need to invest in order of $20,000 to have any hopes of breaking even, costs that looks set to double every year where a decade from now break even mining operations would require an investment of more than $40 million which would imply far fewer mining pools that would in effect OWN the bitcoin craptocurrency and through the block verification process even be able to re-write who owns what.

Ultimately this means that the bitcoin mining will become the sole enterprise for criminal enterprises as no legitimate enterprise would be able to cover the costs of verifying bitcoin transactions (blocks) and thus earning new bitcoins, thus leaving bitcoin mining wholly to criminal gangs operating bot nets in control of millions of infected computers that would each mine fragments that would periodically be harvested by the bot nets.

So bitcoin holders don’t be surprised when you come to open your wallet.dat file that you find it is empty!

Read more: http://srsroccoreport.com/bitcoin-the-perfect-scam-price-does-not-reflect-true-dangers-of-holding-bitcoins/bitcoin-the-perfect-scam-price-does-not-reflect-true-dangers-of-holding-bitcoins/

Agree/disagree.

Interview of Volcker

http://www.thirdave.com/news/third-avenue-credit-manager-interviews-paul-volcker/

Will the last bear turn out the lights:

http://www.testosteronepit.com/home/2014/3/17/will-the-last-bear-please-turn-out-the-lights.html

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

 

Detecting Fraud: Seminar on Reading 10Ks, 10Qs and More

money-and-magnifying-glass-by-Images_of_Money-cropped

The free webinar, “SEC Filings Master Class,” took place Nov. 13-15, 2012.

Michelle Leder, who makes her living unearthing news in SEC filings, will help you feel more confident in your SEC-document sleuthing. In three one-hour sessions, you’ll enhance your ability to spot red flags in SEC filings.

WHAT YOU WILL LEARN

  • At least four things to look for in Form 10Ks that can result in good stories
  • At least four things to look for in proxies that can result in good stories
  • At least four things to look for in Form 10Qs that can result in good stories

AGENDA

For each of the documents below, Leder will point out at least four key things to watch for that can produce good stories. She’ll offer examples of stories that have been done, point out where to find these types of stories in the fine print of the SEC document and offer attendees a chance to practice finding the news themselves.

  •  Hour One: Form 10-K, or the annual summary of the company’s performance, is filed within 60 days of the end of its fiscal year.
  • Hour Two: Proxy, or Schedule 14A, provides information to shareholders before the annual meeting. It includes executives’ compensation.
  • Hour Three: Form 10-Q, or the quarterly summary of the company’s performance, is filed within 35 days of the end of each of its first three fiscal quarters. This session will also touch on other key filings.

YOUR INSTRUCTOR

Michelle Leder launched Footnoted.com (originally Footnoted.org) in 2003 to take “a closer look at the things that companies try to bury in their routine SEC filings,” according to the website. Its launch coincided with the release of her book, Financial Fine Print: Uncovering a Company’s True Value. Morningstar bought the site in 2010, but Leder bought it back in 2012.

What do you think?

SELF-GUIDED LESSON

Check out the resources below. At your own pace, you can walk through the self-guided lesson on tips for digging deeper into SEC filings.

http://businessjournalism.org/2012/11/12/sec-filings-master-class-self-guided-training/

Understanding Bear Markets; Without Comment

Understanding Bear Markets:  http://www.nextbigtrade.com/2014/03/11/learning-from-the-devious-gold-bear/

Charts below from: http://www.alhambrapartners.com/2014/03/11/valuation-bonanza-march-2014/

ABOOK-Mar-2014-Valuations-FINRA-Margin-Debt

ABOOK-Mar-2014-Valuations-FINRA-Net-Worth

 ABOOK-Mar-2014-Valuations-FINRA-Net-Worth-Change

ABOOK-Mar-2014-Valuations-CAPE

ABOOK-Mar-2014-Inventory-to-Sales

 SP-500-vs-200-MA

 

Volatility-Index

 

Speculative Hedge Funds Piling In.

Nasdaq-COT

Market-Sentiment

Investor Interview (Audio)

Russian Bear

A good interview of a self-taught professional investor (John Hempton of http://brontecapital.blogspot.com/.   GO HERE: https://soundcloud.com/the-odd-lot/john-hempton-audio-interview

Certainly this investor is a tad eccentric, but he certainly has found a great method to find and manage short selling opportunities.  A great listen. Also, seek out http://oddlotinvest.wordpress.com/about/   Wow, a treasure chest of obscurities.

Risks for equities, IN GENERAL, are high.  Note that the equity and debt market combined for companies is at all-time highs. Be careful.

EV multiple all time high

EV mult vs return_0

Overvalued stock market HussmanInfAdjDow_2

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!

Looking At Bottoms; Gold Stocks

200205666-001

No, not these…..

Bottom

 

 

 

I mean these……….. (Thanks to http://www.classicvalueinvestors.com/

Gold Stocks

The table below is meant to highlight the HUGE price ranges of the micro-cap junior precious metals sector. I tend to avoid or make allowance for some of these companies going to $0.00 or diluting shareholders with equity offerings.

GroupofMinersPerformanceFebruary182014-300x90

 If you go back and read the author’s post over the past two years, you will get a feel for the suffering of investors who ride a BIG BEAR market in small junior mining stocks. Be aware of the downside as well! See:  http://classicvalueinvestors.com/i/2014/03/goldgroup-mining-this-is-what-i-call-a-great-day/

How one investor changed his life by developing his OWN method of investing.

Below is an advertisement to get you to hear the audio story. The ad places the HOOK, “an unusual money-making secret.”  Baloney, he doesn’t use any “secret”. He simply found a method to value, buy cheaply, and manage a portfolio of precious metals’ stocks.  And over the years he has done extremely well while stomaching swings of 50% or more. He can hold on, because of his work and confidence. THAT is his secret. I know this guy and you should listen to the interview. Yes, a bit hokey at first –who cares that he got revenge on his ex-wife–but a true story. There are LESSONS here.

Dear Reader,

If you’re a middle-aged guy, divorce is one of the worst things that can happen to you. It can ruin you, both financially and emotionally.

But I recently heard the story of a Ft. Lauderdale man named John  (Actually, John Doody of www.goldstockanalyst.com) who discovered an unusual moneymaking secret after going through a bitter divorce.

John says this secret has made him a multimillionaire over the past decade… even though his ex-wife took almost all of his assets. And he asked us if he could share his story with you.

In fact, he says he even went through the expense of having his transactions verified by an independent auditing firm… just so he could prove his incredible story to the world.

Click here to listen to John’s story.

Jan. 2014 Interview of John Doody (down 50% in 2013!) http://youtu.be/95gjTXIGsgU

Regards,

Will Bonner, Publisher, Diary of a Rogue Economist 

Who Wants to Analyze a Gold Stock?

If there is interest, we can work through a company in a few posts next week.

HAVE A GREAT WEEKEND!

Activist Short-Selling

Easily offended

NBER short selling study finds Asensio to be the Pioneer of recently defined field.   See www.asensio.com  There are plenty of research reports and case studies on short-selling hyped frauds. A worthwhile education.

March 5th, 2014.  In January 2014 the National Bureau of Economic Research ["NBER"] published a behavioral finance article titled the first titled “How Constraining Are Limits to Arbitrage? Evidence from a Recent Financial Innovation.”  The study indentifies Manuel P. Asensio of Asensio & Company as the “pioneer” of short selling “arbitrage” and found that Asensio & Company’s short targets experienced the largest price correction among this recent class of short sellers during the study’s timeframe.   The study defines this recent class of arbitrage short seller as “information producers as arbitrageurs rather than as short-sellers, to distinguish them from uninformed short-sellers in the market.” 

The study describes a “recent financial innovation that allows limits to arbitrage to be sidestepped, and overvaluation thereby to be corrected” even in settings characterized by extreme costs of information discovery and severe short-sale constraints or limits.  Limits “interfere with arbitrage processes so that security prices can deviate from true values for extended periods of time” and include costs of discovering a mispriced security, the costs of the resources needed to exploit a mispricing and short-sale constraints and the risk that mispricing could get worse, forcing early liquidation of a position at a loss.  Limits mentioned in the study also include “sophisticated public relations campaigns against shorts” and targets that “put pressure on their shareholders to recall stock out on loan, to put a squeeze on short sellers.” Yet the study found that short selling arbitrage can succeed in correcting mispricing and generate cumulative abnormal profits “even in this uninviting setting.”

The study “arbitrageurs” expend considerable resources to identify overvalued companies and profitably correct overpricing.  It notes that short selling arbitrageurs reveal their information publicly as a way to sidestep the so-called limits and found evidence that “revealing the information voluntarily and thereby accelerating price discovery reduces the risk of the arbitrage strategy and sidesteps the arbs’ limited-resource constraint.”

The study found that “[f]or this strategy to work, critical that the information the arbs reveal to the market is credible – or else the longs will ignore it. We observe that the arbs in our sample argue their case by way of highly detailed reports which they post publicly and for free.  Compared to reports published by sell-side equity analysts at investment banks, which have a tendency to be bothoptimistic and biased.”

The study contributes to the “growing literature on the role of short sellers in producing and transmitting information in capital markets. There is little prior evidence on what short sellers know and how they acquire information. Our unique data allow us to observe the information discovery process at the level of individual information producers and to study how the information the arbs discover is then incorporated in security prices.”

The study found the short seller arbitrageur evidence ‘illustrates why financial markets need short sellers to function well. While some short sellers may indeed be speculators who do little more than destabilize share prices, as is often alleged, the short sellers in our sample are information producers who help correct mispricing and thereby help make markets more efficient. This is all the more remarkable given that many targets in our sample were held by highly sophisticated investors who apparently did not spot the overvaluation until it was too late.”

The study is available at http://www.nber.org/papers/w19834