Producer discusses the above movie–a good discussion about the U.S. Dollar https://youtu.be/6Ad9jtn2kOc
How do you like the Fed’s ability to stabilize the dollar (stable money) and the economy?
Worth the time to study the above. Pop Quiz: What Exactly Backs the dollar?
Hint: 1. 8,000 tonnes of gold (hopefully!) and…………?
Bill Miller used to run Legg Mason’s Value Trust but then people learned he wasn’t a value investor and not to trust him –Port Stansberry
Value Investing in India
India’s market seems cheaper than the good ole USA’s S&P 500. The average stock in the US is trading at 25-times earnings. Americans have to look beyond the decks of the Titanic and view foreign shores. I traveled for a half year in India but I am ignorant about investing there, but we can always learn.
Stansberry Radio
This week, Steve Sjuggerud and his good friend Rahul Saraogi, a managing director at Atyant Capital, join Stansberry Radio to share the unique situation in India right now.
AUDIO (A tad obnoxious, but bear with them) http://www.stansberryradio.com/Porter-Stansberry/Latest-Episodes/Episode/541/0/Ep-151-Rahul-Saraogi-Investing-in-India
Rahul is a hedge-fund manager based in Chennai, India. He has been investing in India as his career for 14 years. And he told us on the radio show that India is “looking better than I’ve seen it in my career.”
Rahul wasn’t so concerned about the specific way you invest… as long as you simply get some money in. “India itself is going to do really well,” he said. “You need to have a piece of India in your portfolio.”
Guest: RAHUL SARAOGI
Rahul is a managing director at Atyant Capital and manages the Atyant Capital India Fund. In the last 13 years he’s managed money exclusively in the Indian markets. His mission is to consistently identify the best 10-15 investment ideas from among the thousands of publicly-traded Indian corporations. Rahul’s value-based investment philosophy stands apart due to his belief in the paramount importance of corporate governance, specifically how management operates with its minority shareholders in mind.
Prior to Atyant, Rahul spent four years leading Meridian Investments, generating a 430% absolute return for the firm’s high net worth clients.
Rahul graduated from the Wharton School of the University of Pennsylvania with a degree in Economics. Outside of Atyant, he practices Vipassana, a 2,500 year-old meditation technique that helps people see things as they really are. Rahul lives and works in Chennai, India.
CSInvesting: Color me skeptical, but I will take a look.
If I had to invest with a manager in India (vs. an ETF. See above) I might seek out: Prof. Sanjay Bakshi to the left of Prof. Greenwald of Columbia University.
http://www.sanjay_bakshi.net/articles-talks/
Prof. Sanjay Bakshi of http://www.value_quest_capital.com/
Revisiting Failure (JCP)
Improving as an investor is hard. You can make money while doing the wrong thing and vice-versa. I always write down the reasons for my investment thesis and then record the result when the position is exited. I will place a tickler in my calendar say eighteen months later to again review my past investment to see if there is more I can learn dispassionately. My last post on JCP, http://wp.me/p2OaYY-1JG. I bought near $20 on the assumption of buying below real estate value with little value for the retail operations, then sold near $15 after Johnson was fired. I was wrong.
Here is an update on the story behind the company’s struggles, How to Fail in Business While Really, Really Trying. Read: http://omnichannelretailing.com/how-to-fail-in-business-while-really-really-trying/ A good read! Investing teaches humility. My take-away turnarounds in a difficult business often don’t turn. The reputation of the business overcomes the management.
Posted in Search Strategies, Special Situations
Money talks. Chocolate sings!
I was reading the PDF and I had a question about the early discussion related to pricing below competitor's costs with a brand that demands a premium in the market. There was a suggestion that the premium brand is not able to arbitrarily price higher above the shared costs of the industry and earn outsize profits because this would invite competition, whereas when they lower prices closer to competitor costs, they're still able to be profitable due to marketplace premium while denying competitors (potential and actual) the profitability they'd need to be incentivized to enter and compete. How has Warren Buffett been able to raise prices continuously on See's candy? His competitors aren't continually raising prices on their candy, are they? Why don't these price increases become self-defeating and invite competitors? You can see all comments on this post here: http://csinvesting.org/2012/01/24/study-on-economies-of-scale/#comments
My Reply: Good question. In the example you mentioned, the same logic would apply to Sees Candy. I have extensive notes on Sees but trapped on a dead laptop. The notes below have an analysis on Sees pricing. Read the PDF on Sees, and we can discuss further.
http://www.scribd.com/doc/79357646/Sees-Candy-Schroeder
I rarely suggest investment books, but here is a thoroughly revised edition of a book that Joel Greenblatt recommends in his MBA classes: Contrarian Investment Strategies: The Psychological Edge by David Dreman.
I have read about a third of the book, and certainly any Contrarians out there should read the book. For example, on page 179 there is a table of Analysts’ and Economists’ earnings growth estimates for the S&P 500, 1988-2006 (18 years)
Analysts Economists Actual
Average 21% 18% 12%
Percentage Error 81% 53% —
Even a cynical observer of Wall Street like me can’t believe my eyes. How can analysts estimate on average 21% earnings growth? The odds of any company growing in excess of 15% per year for 10 years is almost infinitesimal. Take common sense so we add an optimistic GDP growth rate of 4 percent a year plus nominal inflation rate of 6% and we have 10% earnings growth, How can analysts even think of 20% EPS growth?
Too big NOT to fail: http://www.youtube.com/watch?v=lAxKAzpGmVA&feature=player_embedded
That leads us to David Stockman’s interview with Bill Moyers on CRONY CAPITALISM or Welcome to the USA today. http://billmoyers.com/segment/david-stockman-on-crony-capitalism/
The Blow-up Artist. Victor Neiderhoffer interview on being wrong. http://www.scribd.com/doc/79358509/Niederhoffer-Discusses-Being-Wrong
http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy
http://www.thefreemanonline.org/in-brief/presidents-speech-targets-china-trade/
http://www.thefreemanonline.org/in-brief/obama-calls-for-fairness-through-higher-taxes
Note the chart below. Thoughts? Hedge Funds are a better deal for the fund managers than the clients. Buyer beware.
The Loser’s Game by Charles Ellis: http://www.scribd.com/doc/78279980/CWCM-the-Loser-s-Game
(Source: www.santangelsreview.com) Failure Speech by Paul Tudor Jones (2009) http://www.scribd.com/doc/16588637/Paul-Tudor-Jones-Failure-Speech-June-2009
Einhorn on Why He Shorted Lehman Brothers’ Stock: http://foolingsomepeople.com/main/TCF%202008%20Speech.pdf
Seth Klarman Interview by TIFF: http://www.tiffeducationfoundation.org/commentaryPDFs/2009_Ed2_COM.pdf
I owe several of you replies to your questions. Bear with me as I finish reading the Wal-Mart and Global Crossing Case Studies.
A new readers asks,
I spent about 3 hours yesterday catching up on posts from your site that I had saved in my Google Reader over the past month. I am not sure how to describe my feeling right now besides to say I was enthralled and inspired. Your website is like finding a value investor pirate’s secret treasure trove on a deserted island. There is such a wealth of material and information and it’s all such high quality thoughts that I kept thinking, “Who the hell is this guy?” Attempts to dig into posts related to answering that question yielded several tantalizing details but the mystery remains.
Are you currently or were you an MBA student? I am trying to figure out where these lecture notes are being pulled from. It says “auditing classes from 2001-2007″… that’s an awful long time and the institution and role of the note-taker are left unsaid. I get you’re trying to focus on quality, not reputation, a worthy goal, but I am fascinated simply from the stand point of why I am suddenly able to access all of this information, for free. It doesn’t really matter, I am just curious, that’s all.
My replay: Thanks for the kind words. I have never been an MBA student. I worked on Wall Street as a broker and investment banker before starting a few companies here in the US and Brazil. Upon selling those businesses, I sought to dig into value investing. I saw that the author of a value investing book was teaching at Columbia Business School so living in Greenwich, CT–only 45 minutes from the campus–I hopped the metro train and sat in on his class. The first class was around 1999, when his students would regularly laugh at the idea of valuing companies when all you had to was buy Price-Line or Yahoo and see the price rise five percent in an hour. All I had to do was sit in the back and keep my mouth shut. Now, I think Columbia is touchy about outsiders sitting in on classes.
But you really don’t have to do what I did. You just need to read, read and apply your independent thinking to investing. Look how Michael Burry learned (See the Big Short by Michael Lewis or search this blog). But, I do believe that becoming an “expert” or skilled investor probably takes 5 to 20 years of intensive commitment. Of course, you never “master” investing which is why the journey is fascinating. Also, several great investors have confirmed my belief that the best way to learn about value investing is through your own efforts and application of principles that you will learn through Buffett, Fisher, Klarman, Graham and your accounting textbooks. There are a lot of dead ends and wasted time if you do not know the proper principles and methods for investing.
Investing really is constant applied learning which is cumulative. Let me share what I have noticed with ALL successful investors:
NOT TEAM PLAYERS:
The investors work alone. Any group decisions for Buffett or Walter Schloss? They make their own deicsions, and they are little influcned by any form of group affiliation. Buffett said of Walter Schloss: “I don’t seem to have much influence on Walter. That is one of his strengths: nobody seems to have much influence on him.” Ditto for Michael Burry.
FOXES, NOT HEDGEHOGS
These terms originate from a remark attributed to the Greek poet Archiloschu: “the fox knows many things, but the hedgehod knows on bigf thing.” Foxes are eclectic, viewing the world through a variety of perspectives, with no allegiance to any single approach. READ WIDELY and not just on finance and economics.
Understanding how markets work is more important to an investor than understanding technology (trading systems).
Note that Michael Burry accumulated his investment knowledge gradually, from his own experience and from reading others’ experience via bulletin boards, rather than from finance textbooks. (Hint: study the www.valueinvestorsclub.com or www.yahoo.com finance boards of intelligent contributors).
Successful investing is a practical craft, not an academic discipline, and certainly not a science. The craft of investing is comprised of heuristics: a toolkit of approximate, experience-based rules for making sense of the world. (See the book: FREE CAPITAL by Guy Thomas).
GOALS FOR THIS BLOG
My goal is placing all this material here is multi-fold:
I have the material so I might as well post for the 20 or so hard-core students who will wish to use it. Many talented investors helped me, so giving back is my responsibility, though sharing this material helps me as much as anyone. I do not expect many readers because few people are suited for long-term, intensive self-directed learning.
There are those who are already in the business who think they already know everything; others seek a conventional route of the MBA; while some want investment ideas/tips–not theory, case studies and practice. I wanted the material on the web for easy searching and access.
Secondly, many people have made excellent contributions to the value vault. Like the quarterback who hands the ball off to the running back who then runs 98 yards down field while breaking 7 tackles and leaping into the end zone, I receive too much credit.
Thirdly, interactions with curious readers help keep my thinking sharp.
Other questions:
I have a friend who has been working on developing a grass-based, intensive rotational grazing miniature farm on an acre of land about an hour north of Los Angeles, California. He looks at all the reading, time, energy and money he has spent on this project so far (and in the future) as the cost of acquiring a “personal MBA in agriculture” (yes, he gets that agriculturalists don’t get MBAs, but he’s approaching this project from the mindset of a businessman).
When I read through your site, I realize I could do the same thing using some of your material, as well as other blogs I follow and various recommended readings, as a launching point to pursue my own “personal MBA in investing” over the next 12 mos or so. The focus on case studies, and the ability to directly apply my learnings to my own small portfolio in real-time provide the perfect means to make real-world application to the theory being taught in the “classroom.” I think this is a big idea and I am very excited as I consider it more and more seriously. I plan to blog my entire journey and produce various supporting course materials along the way (such as reading list, top blog posts, favorite video lectures links, etc.) as well as keep a running tab on costs, so at the end of it all I can show other people what I learned and how much it cost to get the knowledge.
Yes, use the material how you wish. Start a study group and work on several of the cases. Eventually, there will be sections on special situation investing, competitive analysis, valuation, Austrian Economics. Or you can take a case study and develop it further. Seek higher; you can also sign up for courses at the Mises academy (www.mises.org) or go to www.thomasewoods.com to learn about Austrian economics.
I want to thank you again for the resources you place on your site. I’ve only just begun to dig into them and it may be some time before I begin actively participating in your site’s discussion but I do think it’s wonderful already.
And I absolutely LOVE that you’re into Austrian economics, as well. Finally, I’ve found someone else who is interested in synthesizing these two great (and in my view, complimentary) philosophies/disciplines, just as I am: http://valueprax.wordpress.com/about/ (going to need to re-write that soon, though, to reflect my slightly new direction for the site, ie, cataloging my progress in acquiring a “personal MBA”)
My reply: I became interested in Austrian Economics because Rothbard and von Mises had the only coherent theory and explanation for booms and busts. But as I studied fruther, I learned more about the structure of production and time preference which helps you understand the risks in different businesses. Every wonder why a steel company fluctuates more in earnings and price than a beverage company? The distance from the consumers in terms of time and production structure. Look at your watch. How long did it take to make? Two hours? Well, who mined the sand to make the glass? Who mined the metal to make the case? Who killed the cow to make the leather wrist-band? And who planned all the production? Perhaps your watch took two years from the moment of assembly to the first production of the materials. You need to understand this if you EVER invest in a highly cyclical company–what company isn’t at some level cyclical?
Okay, that’s all for now. Thanks for sending the link to the Value Vault. Where are you located geographically, generally speaking? East Coast, West Coast? Big city, small town?
I live in Greenwich, CT home of many hedge funds, but I have never been to one.
Good luck on your journey.
Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything – all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Steve Jobs
The only real failure in life is not to be true to the best one knows. BuddhaI can accept failure, everyone fails at something. But I can’t accept not trying. Michael Jordan
http://wenzel.podbean.com/2011/12/10/the-robert-wenzel-show-week-7/
http://www.jamesaltucher.com/ A favorite blog.
You can always be learning from the news around you. See the post below about the probable bankruptcy filings of two restaurant chains catering to middle America.
http://www.huffingtonpost.com/2011/09/30/friendlys-bankruptcy_n_988607.html
Friendly’s management states in a press release that rising costs are hurting their profits. When you hear that then you know the company is not a franchise. The business has little ability to pass on costs while still retaining its customers. The effects of inflation–rising food, energy and labor costs–can devastate profitability. Too much debt would be lethal because these companies must continually invest to maintain quality to retain customers. If cash flows go to pay a large debt expense, then little is left to maintain the business. These types of businesses can only earn their cost of capital over a full business cycle if they are efficiently run.
The history of Friendly’s Restaurant Chain is here: http://www.friendlys.com/about/. The business thrived for over 50 years but it was run by two brothers, who were great entrepreneurial operators. Without the loving attention to detail from owner-managers and the leveraging up of a commodity business to juice returns by a private equity firm, decline is deadly and perhaps inevitable.
This post complements the prior post here on inflation:
http://csinvesting.org/wp-admin/post.php?post=79&action=edit
There are several lessons.
Think hard about business failure.
If you studied the prior post on the case study, then you know to do your own work in evaluating a company, ask simple questions, walk away if you are confused or uncertain, and do not blindly follow “expert” opinions.
If you have ever watched CNBC’s market experts (watching for extended periods of time could cause serious brain impairment), do you notice that never do you hear them say, “I don’t have the faintest clue where the economy or market is going.” Few admit that they know they don’t know (Socrates). This should leave you thinking, “If the people that know, don’t say, then the people who don’t know have the floor to themselves.”
To reinforce the above principles click below on the Marketwatch video discussing analysts biases in the history of Enron’s failure.
If you still doubt the wisdom of not following analysts’ recommendations, you should go here: http://www.turtletrader.com/analysts-bias.html
Of course, security analysts who work for underwriters are biased to give buy recommendations, but many investors do not realize that analysts have no clue how to value companies. Instead, these analysts futively attempt to guess next quarter’s earnings which may be meaningless to estimating the intrinsic value of a company.
Another problem with analyst “research” is that too often Wall Street analysts filter down information from the management of the company that they follow. In order to maintain a friendly relationship and stay “tuned in” as a respected source on a company, it is difficult for the analyst to reach negative conclusions that contradict management’s optimism. An industry analyst can ill afford to lose contact with the management of a significant company within an industry the analyst follows.
If you think this writer is a hardened cynic, I beg to differ. Wall Street has always worked this way. Go here: http://www.amazon.com/Where-Are-Customers-Yachts-Investment/dp/0471770892/ref=sr_1_1?ie=UTF8&qid=1317224465&sr=8-1
The book is a humourous take on the lunacy of Wall Street in the 1920s and a great read. Same as it ever was http://www.youtube.com/watch?v=-io-kZKl_BI (Click on minute 1.40)
To reiterate, if you do your own work then you won’t blindly be making the mistakes of another person, and–most importantly–you can correct your own mistakes. Minimizing errors is more helpful to long-term investment returns than picking winners. Long-term performance is highly correlated with error avoidance.
A valuable source of lessons on how to analyze companies and read annual reports can be found below–sorry, copy and paste into your url:
www.olsteinfunds.com/pdf/olstein_anniversary.pdf
Also, think of the time you save by not watching CNBC, reading security analysts’ reports and, instead, study Value-Line tear sheets and company annual reports to find investments (We will cover in a future post). What you do not do is as important as what you do.
Feedback, criticism and complaints are always welcome.
I want to take a moment to thank the one person reading this blog. Thanks Mom!
Posted in Investor Psychology, Risk Management
Tagged Enron, failure, Reading, Wall Street Analysts