Curated Alpha; Update on the Resource Markets, Michael Marcus

Tin cup

 

A Blog worth exploring

http://www.curatedalpha.com/category/behavorial-economics/

An update on the resource market

Mr. Rule, a Graham and Dodder in the resource sector, is a smooth communicator, but move on and do your own work. Start here:

https://www.explorationinsights.com/

Free course on resource investing: http://www.sprottgroup.com/natural-resource-investing/investment-university/

http://oreninc.com/orenthink

One of the better gold funds:  www.tocqueville.com

Market Wizard, Michael Marcus Speech:

http://www.curatedalpha.com/2011/curated-interview-with-michael-marcus-from-market-wizards/

 

Who Are YOU?

about_aptitudes_header

Investing Aptitudes 

Three aptitudes necessary for success in bargain investing would be subjective personality to be able to work alone; facility with numbers to analyze and remember important data; and the ability to defer gratification or see future/distant possibilities.  Also, important are the aptitudes that you are LOW in.  Very high musical aptitudes would create stress for you if you did not fully use that aptitude. High, high ideaphoria (flow of ideas) would hamper your ability to concentrate.  See for yourself…………..

Understanding_Your_Aptitudes   90 page book. Learn more…………..

http://www.jocrf.org/about_aptitudes/index.html

Dare to be Great! Position-Sizing.

 

finance devil

So you can get very remarkable investment results if you think more like a winning pari-mutuel player. Just think of it as a heavy odds against game full of craziness with an occasional mispriced something or other. And you’re probably not going to be smart enough to find thousands in a lifetime. And when you get a few, you really load up. It’s just that simple.  –Charlie Munger

Dare to Be Great  You have to weight your opportunities. Of course, how do you know when you have an exceptional opportunity? Experience and method.  Joel Greenblatt was a master at position-sizing when he found low risk investments.

position_sizing  (Academic paper)

One secret: http://www.tradermike.net/2005/07/position_sizing/

Position sizing http://stansberryresearch.com/investor-education/position-sizing/

Trembling with Greed http://www.fool.com/news/foth/2001/foth010213.htm

Trading Places (SELL!): http://youtu.be/1tmI867fAYU?t=1m55s    Note the patience, patience and then ACT IMMEDIATELY IN SIZE.

Searching For Special Situations; The Petro-Dollar

nq140620

 The market, like the Lord helps those who help themselves. Unlike the Lord, the market does not forgive those who know not what they do. –Warren Buffett

A business that must deal with fast-moving technology is not going to lend itself to reliable evaluation if its long-term economics. Did we foresee thirty years ago what would transpire in the television-manufacturing or computer industries? Of course not. Why, then, should Charlie (Munger) and I now think we can predict the future of other rapidly-evolving businesses? We will stick instead with the easy cases. Why search for a needle buried in a haystack when one is sitting in plain sight.

SPECIAL SITUATION WORKSHOP PRESENTATION

Zack-Buckley-The-Road-Less-Traveled-Presentation Motivated students can download the financials of the companies mentioned and check the authors assumptions/work.

Creating Value Through Corporate Restructuring Course-1

 

The Current Situation with Our Petrodollar

http://usawatchdog.com/iraq-about-us-dollar-hyperinflation-trouble-in-2015-gordon-long/

 

Soros on the 2008 Crisis and Reflexivity (History)

georgesoros.html-2_500

I have started to develop a set of generalizations along these lines by introducing the concept of reflexivity.  Reflexivity can be interpreted as a two-way feedback mechanism between the participants’ expectations and the actual course of events.  The feedback may be positive or negative.  Negative feedback serves to correct the participants’ misjudgments and misconceptions and brings their views closer to the actual state of affairs until, in an extreme case, they actually correspond to each other.  In a positive feedback a distortion in the participants’ view causes mispricing in financial markets, which in turn affects the so-called fundamentals in a self-reinforcing fashion, driving the participants’ views and the actual state of affairs ever further apart.  What renders the outcome uncertain is that a positive feedback cannot go on forever, yet the exact point at which it turns negative is inherently unpredictable.  Such initially self-reinforcing but eventually self-defeating, boom-bust processes are just as characteristic of financial markets as the tendency towards equilibrium.

Instead of a universal and timeless tendency towards equilibrium, equilibrium turns out to be an extreme case of negative feedback.  At the other extreme, positive feedback produces bubbles.  Bubbles have two components: a trend that prevails in reality and a misconception relating to that trend.  The trend that most commonly causes a bubble is the easy availability of credit and the most common misconception is that the availability of credit does not affect the value of the collateral.  Of course it does, as we have seen in the recent housing bubble.  But that’s not sufficient to fully explain the course of events.

I have formulated a specific hypothesis for the crash of 2008 which holds that it was the result of a “super-bubble” that started forming in 1980 when Ronald Reagan became President of the United States and Margaret Thatcher was Prime Minister of the United Kingdom. The prevailing trend in the super-bubble was also the ever-increasing use of credit and leverage; but the misconception was different.  It was the belief that markets correct their own excesses.  Reagan called it the “magic of the marketplace”; I call it market fundamentalism.  Since it was a misconception, it gave rise to bubbles.

Read more…

  1. Soros Anatomy of a Crisis 
  2. George-Soros-Theory-of-Reflexivity-MIT-Speech

In Gold We Trust; A Reader’s Question

Gold   In-Gold-we-Trust-2014-Incrementum

The above 100-page report on gold will provide a good financial history lesson.

A Reader’s Question

I was thinking about how many people think that the sell-side is just wrong about everything and completely untrustworthy.  From what I can tell, they are pretty good with the facts and a really valuable source when you want to learn about a new industry via a primers or initiation reports.  This led me to think that most of the sell-side critics think that they have an analytical edge over the sell-siders.  Maybe even an informational edge (which I think is very unlikely since these analysts cover one industry full-time.) But certainly an edge in judgment or behavior.  This I think is possible if you have a longer-time horizon and no man-with-a-hammer syndrome.

What sort of edge do you think is most achievable over the markets in general for an investor that is dedicated?  I’m thinking about full-time investors.

It seems to me that analytic edges are often overstated.  What are some cases that the sell-side or entire markets are just completely off on their analysis?  Maybe the optimistic analysts during the bubble years?  Is this just misaligned incentives?

I would guess that the market usually mis-weighs the probabilities of what may happen in the future, but that would be more of a misjudgment in my opinion.  (Maybe this is just semantics.)
I’d love to hear your thoughts.

My reply: I agree that analysts can provide great overviews of companies and industries in their initiation reports.  I will read them as a supplement to my own reading of original source documents.  I would not read them for valuation or investment recommendations.  The idea that analysts can predict next quarter’s earnings is absurd. Finding a reasonable range of normalized earnings three years to five years out is what matters, not the next six months of earnings.

Another reason I might try to read analysts reports is not for new ideas, but to see the extent to which the market is already discounting my own views.  Note the universal calls from analysts at Goldman and UBS for gold to trade to $900 or $800 See www.acting-man.com:

“Goldman Sachs lowers gold price target to $1,050” (Bloomberg, Reuters, etc. sometime in January and repeated ad nauseam ever since)

“Moody’s lowers gold price target to $900”  (January)

“Morgan Stanley: Gold price won’t see $1,300 again” (April)

Also, analysts may overlook key values in a company because they fixate on the next six months. For example, the most common way of valuing an exploration and production company is an appraisal of net asset value, based on sum-of-the parts approach. But most appraisals tend to ignore exploration assets which are not going to be drilled within some arbitrary time period, say the next 6 to 12 months. For some companies, much of the value is in assets which are not going to be drilled in the next year.

I think most of an investor’s edge is behavioral. (See http://www.amazon.com/Inefficient-Markets-Introduction-Behavioral-Clarendon/)

Take Coach’s (COH) recent plunge.

Coach

Coh Comments June 2014  and June 23 VL 2014 The company has to increase its investment to rebuild its brand. Wall Street analysts then act like this:

Over the Cliff

Therein lies opportunity or maybe not.   But if the markets didn’t act that way, then markets would not overreact. Markets tend to over-discount a known risk or uncertainty and under-discount an unknown uncertainty.

Fire or Ice: Our Economic Future

I disagree with a few of the speaker’s conclusions, but he lays out the history of how the U.S. left behind traditional capitalism where business saves and invests to drive growth to government controlled credit creation to drive consumerism (“creditism”). He says we are reaching our limits to expanding credit because of the lack of income growth. In other words, the Fed is trapped. The Fed MUST INCREASE QE or allow collapse.

Please view this if you have the time this weekend. An excellent video.

Here is his description: My Best Interview                                     April 25, 2014

For anyone who is interested in understanding my views on the global economic crisis, this is the video I would recommend watching, if I could only recommend one. In it, I am able to address almost all of the ideas I have tried to convey through my books and speeches over the past ten years.

The interview was organized, produced and conducted by Tim Verduin. Tim is the CEO of The Resilience Group, an insurance and financial services agency located in Crown Point, Indiana. I thought he asked all the right questions.

Have a Great Weekend.    We will tackle a gold stock valuation next week.

 

Niche Franchise Breached? Value Trap

cab

Taxi Medallions have been one of the best performing assets over the past twenty years: http://www.dailyfinance.com/2011/11/16/the-best-investment-on-wall-street-a-new-york-city-taxi-medalli/

However, you as an investor, must require a very high discount rate when you depend upon government licenses.  If Uber makes inroads?http://www.bizjournals.com/sanfrancisco/print-edition/2013/05/17/uber-takes-the-pain-out-of-hailing-a.html?page=2

Then:

taxi ten

taxi

“Value” investors may flock to the seductive yield:  http://seekingalpha.com/article/2246123-medallion-financial-hail-this-high-yield

But csinvesting.org readers know their history when technological change or a catalyst for regulatory change Airline_deregulation upends an incumbent, then the plunging price becomes a value trap versus an opportunity.  Reflexively reaching for this 8% yield by not turn out well.

Of course, the future is uncertain, but after a five year bull run, failure to advance after last quarter’s earnings beat and pricing pressure from UBER, then TAXI’s high valued medallions may become less so.  The government is placing an artificial restriction to keep supply low while boosting prices that hurt consumers’ choices and pocketbook. I wonder how this fight will turn-out?  I will be watching this unfold.

What do YOU think?

Compare and Contrast

MINERS-GOLD-RATIO-CHARTS-JUN-18

MINERS-INDEX-MONTHLY-LINEAR-CHART-JUN-18

TMS-2-long-term-dosh-slosh

The above represents my understanding of INFLATION, not prices rising. Prices may or not rise depending upon supply/demand for goods and currency. Usually, as the supply of currency increases much faster than the production of goods and services, then prices rise or the value of the currency declines.

World-stock-vs-GDP

inflation_jerryholbert

Thanks to www.acting-man.com and www.zerohedge.com

A Reader Asks, “How Can I Improve as a Value Investor?”

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june12goldbears-1024x647 (1)
A Reader’s Question


Thank you once again sharing the links, access to the value vault, and your blog posts. My experience over the last couple of years has been primarily in private growth investing, and the insights you have shared have helped me significantly reconsider my investment approach.

I have been reading your book recommendations and following CBS lecture notes, but is there anything else you would advise me to do to become a better value investor? I am keen to learn and it appears that there is culture of apprenticeship in the world of public equity value investing. Maybe I could reach out to some practitioners in London (where I am based) – would you be able to highlight any you would consider particularly strong?
Thanks in advance for your help.

My Reply: There are plenty of case studies and examples on this site to learn about valuation. You can visit:http://pages.stern.nyu.edu/~adamodar/        https://www.coursera.org/course/accountingand…Value Investing for Grown ups by Damodaran to learn about valuation and accounting. But the secret to investing and improvement lies within you. That sounds either profound or hokey, but true. I don’t believe MBA courses or apprenticeship (if you can find one) will really help.  You don’t want to learn about another person’s style, you want to develop your own.  Google and youtube.com Michael Burry for why this is true.

As an example, you can read 5 Keys to Value Investing.  The author worked as an analyst for Micheal F. Price. He would submit ideas and get grilled by Price. I didn’t see a whole lot of mentoring going on.  Of course, you want to study other investors and the psychology of investment:

  1. Charlie_Munger_The_Art_of_Stock_Picking
  2. Buffett Klarman and Graham on Mr Market
  3. Great Investor Behavior
  4. Investing and Personality Type

But there are no shortcuts to studying yourself. You have to consistently and persistently keep a notebook, log, diary or tape recorder of your trades/investments/decisions. Review them that day and a week, month and year later. Study your proclivities. Can you step outside and see yourself objectively?   Impossible?   Hire a high school kid on Summer Vacation to film your day at work and see if you notice tendencies.  You won’t believe the tape!

Do you have a business plan for your investing career? Goals? Map out the steps.

I highly suggest you see how your countrymen developed their own styles in: http://www.amazon.com/Free-Capital-private-investors-millions/ by Guy Thomas

Review: Conclusion “Free Capital” treads original ground in profiling anonymous, “everyman” successful investors that no one has heard of yet who have interesting stories, experiences and lessons to share all their own. We can all learn from more than just Warren Buffett, after all.

It’s not without its flaws, of course. As the author himself states, the book doesn’t cover losing investors, people who took some of the risks investors profiled took, and failed, or who took other risks that didn’t turn out right, and then explores what lessons can be learned from their shortcomings. As an avid deep value (Benjamin Graham) guy myself, I would’ve done without the day trader and some of the other guys who seem like GARPy, momentum-based swing traders with short time horizons and questionable “value” metrics.

—-

As an example, I know that I am an emotional basket-case. I cry during the cartoons if Tweedy Bird gets hurt (http://youtu.be/89FDAYsTgfs).  If I buy a stock at $7.05 and the next print is 7.04, I am on the floor wailing.  If Jim Cramer on CNBC said buy Tweedle Dumb stock, I would wait for the stock to rally, then buy after the news is priced in only to sell at a loss seconds later.

Also, I have an aversion to paying full price. I went “Dutch” on my honeymoon; my wedding had a cash bar. My guests had to take the subway to the reception; some had to hitch-hike. I am a cheapie.

Ok, I have to deal with serious psychological issues, but how does that help YOU?

Well, even I can develop methods to work around my quirks. See the chart at the top of the page. I have been buying certain gold/silver stocks over the past year because of two reasons: historic/generational low cheapness and lack of the same in other markets, in general. But prices can swing 10% in a day!  How would I survive?

My time frame is the next three-to-five years. I study the companies without input from others, I turn off CNBC, and I place my buy and sell orders BEFORE the market and then check at the end of the day. I may go months without doing anything in terms of buying or selling, but I will keep following the companies and their industries closely.  I have also held stocks like Enstar (ESGR) for a decade.

My time-frame is longer than most participants.  I work around my psychological hurdles because I have faced them. And only YOU can face yours.

I hope that helps.