Category Archives: Investing Careers

Thomas Kaplan, an Investor in Novagold

Mr. Kaplan is the perfect investor to study to improve your investing in deeply cyclical resource investments and to understand gold. As Mr. Kaplan explains in an interview (2017): “Gold is not someone’s liability…. Economically, we are in unchartered waters.”

His philosophy is to start with a macro theme (A long-term bull market in gold) and then locate the best asset (Novagold) to leverage that theme. He considers gold the best risk reward of any asset class. Setting aside that gold is the best asset to own during financial crises, gold will be facing a severe supply crunch since no new large deposits over 5 million ounces are being discovered much less developed. Development from discovery to production requires over 20 years.

In addition, more and more foreign jurisdictions like the Philippines or Papua New Guinea are becoming too risky to mine. Mr. Kaplan estimates the equilibrium price to incentivize new discoveries is probably $3,000 to $5,000 per ounce. I think that is too low of a price.

The patience and conviction to be successful in this type of investing are extraordinarily high. Most professional investors cannot even pretend to be as patient. Mr. Kaplan became involved in Novagold during the crisis of 2009–imagine the fear and financial stress swirling amongst investors then.

Recognizing the obvious: Intrinsic value rising well before price

From 2009 to 2019 the intrinsic value was rising as Novagold became de-risked.  The decade ticked by as Novagold obtained all the required permits, it strengthened relationships with native communities, it spun off non-core assets like Galore (copper) to Trilogy, Novagold treasury increased its cash balance to $250 million with an annual cash burn of less than $10 million, and NG’s relationship with Barrick strengthened. Few cared or paid attention. Meanwhile, many jurisdictions have become even higher risk like the Philippines, Papua New Guinea, etc.

Price goes sideways while intrinsic value rises quietly.   These are the best situations to hold onto.  You just need VAST patience and to pay attention. Value accretion was occurring away from the financial statements. You would see expenses each quarter, but you would need to be aware of the permits won and the relationships strengthened. No algorithm or computer screening model will do that for you. But NG just traded as part of an index until decoupling in mid-2019.  Everything related to Novagold was increasing except the share price until one day……. Meanwhile, Mr. Kaplan held fast because of his knowledge and conviction.

NG trades with the indexes, GDX and GDXJ, then decouples upward as price catches up with intrinsic value.

As a word of caution, this post is not a recommendation to buy Novagold even though I have been a shareholder since 2015. You should understand that Mr. Kaplan has been an investor for over 11 years through declines of 85% in NG’s share price. As an investor you might check on the statements and claims made in the annual reports listed below. If Novagold’s grade is considered outstanding, then look at the annual reports of five major miners and verify/check whether that fact checks out. Take nothing on faith so you can learn conviction.

How would you be willing to hold a investment without a huge payoff for over a decade while waiting for the market to turn to your analysis?

If you study those letters and annual reports, you will have a course in patient investing in a deeply cyclical industry and in understanding gold.

  • UPDATE 5/1/2020: 2008 Annual Report marks the entry of Electrum during the Great Financial Crisis.
  • 2012 Annual Report began the time when management change had begun in earnest with CEO Greg Lang arriving from Barrick Gold as well as divesting of assets to focus on Donlin Gold. Those actions made the company into a perpetual option on the value of gold.
  • The Tortoise and The Hare Chairman’s Letter of 2015 explains why Thomas Kaplan was (and remains) bullish towards gold.
  • Please note how consistent Mr. Kaplan’s and Novagold’s message has been over the past twelve years. The Donlin project attributes remain consistent even while the resource base increases.

Remember that Novagold (NG) as a perpetual option is highly leveraged to the price of gold and to sentiment so expect prices swings of 25% to 50% or more. Such is the requirement to being a long-term investor. My secret is not to look at the share price but once a quarter.

Short attacks are ultimately noise. Eventually, value will out.

Project Punch Card Investment Event December 7th in NYC–Hurry!

Old computer data entry punch cards.

Our goal at Project Punch Card is to foster long-term investment orientation amongst students underrepresented in the investment research and management business.

“We are delighted to announce that Alice Schroeder, the author of The Snowball: Warren Buffett and the Business of Life, the latest addition to the conference, will give a NEW keynote and share her insights on Mr. Buffett’s lesser-known investment secrets — built from thousands of hours spent with him and unique access to decades of Mr. Buffett’s archives.

Buffett_Case Study on Investment Filters Tabulating Company as an example of her work.

The Punch Card Conference has an incredible line-up of speakers and thought leaders including David Abrams (in a rare public appearance), John Rogers, Jonathan Levin, Murray Stahl and more.

We are offering a limited number of super-early-bird tickets for $145 until Nov-9 (TOMORROW-Friday), after which the price increases to $495 for early-bird tickets and $995 for full priced tickets.”

https://www.eventbrite.com/e/project-punch-card-value-investing-conference-tickets-50982639447

Who is it for?

We expect a blend of Portfolio Managers, Investment Advisors, Analysts and Allocators (i.e pension funds, Endowments, insurance, FOF etc). Ideally we would like people from the target communities — women, people of color, or graduates of underprivileged colleges in the investment industry. Marketing and strategic partners such as Smart Women Securities, Forte Foundation and SEO may also be a material component of the audience composition.

What is included?
Breakfast, Full Sit-down Lunch, Coffee Breaks, and Networking Opportunities.

Warren Buffett to students on the choice of a career:

When you go out in the world, look for the job you would take if you didn’t need the money. You really want to think about, what will make you feel good, when you get older, about your life, and you at least generally want to keep going in that direction. Don’t work for money . . . You’ll never be happy. You have to find the intersection of doing something you’re passionate about and at the same time something that is in the service of other people. I would argue that, if you don’t find that intersection, you’re not going to be very happy in life.

Why a punch card? Once again, the Oracle of Omaha said it best:

I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches–representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you would do so much better.

Learn more about the investment competition:  https://projectpunchcard.com/home/

John Chew: This seems like an EXCELLENT opportunity for students and emerging money managers at a CHEAP price.  If you net out the lunch/food you are paying $100 to $120 for an incredible conference.   I don’t know the other speakers but Murray Stahl is one of the most underrated stars (in my opinion) in the business.   See for yourself: Murray Stahl The Skeptics Almanac-third-edition-volume-3

Also, Paul Isaac of Arbiter Partners, is another excellent investor who has been interviewed multiple times by Jim Grant of https://www.grantspub.com/

This New York-based investor has value investing in his blood. His father, Irving, an arbitrageur, was instrumental in finding Max Heine his first job on the Street. Heine went on to run the legendary Mutual Shares Fund, and Irving Isaac sat on its board for three decades. And Paul Isaac’s uncle, Walter Schloss, a student of Benjamin Graham, was praised by Warren Buffett and profiled in Barron’s. At his former position leading a fund of funds, Paul Isaac produced high single-digit returns annually. That fund was sold after the 2008-2009 financial crisis. He continues to manage Arbiter, a hedge fund that has returned 21%..

I have no association with the organizers of this event.   I may be given a free ticket.  However, I may not be able to attend.  I hope to change my schedule to attend because just being able to meet Murray Stahl would be worth it for me. 

A Resource Investor: Tom Kaplan

 

 

 

 

 

 

 

 

 

 

 

In all seriousness, whether you agree with his thoughts on gold and resource investing, he has the proper attitude for an investor.

See the letter to shareholders from Tom Kaplan: NG_AR_2016 (pages 5-7)

and NG_AR_2015 (pages 2-10)

NovaGold may not be the cheapest long-dated option on the market because of the partnerships that they have with Barrick and Teck.   Also, even if the grade of gold to tonnes of earth/rock is double the average resource, there are many other costs to consider when comparing projects.

Another long-term investor in a long-dated option (Seabridge might be sold for $0 to a major copper miner and then take back a gold royalty stream in return for the project to be developed) to read: SA_2015_Ann_Rep

What sets the gold price: A lesson in flawed logic.

What sets the Gold Price

 

A Deep-Value Canadian Grahamite Teaches His Process

Tim McElvaine explains his simple but effective process.

2016-05_conference_transcript_McElvaine Fund An excellent tutorial on Graham-like investing. Note his simple four-pronged approach.   Read more below:

An Excellent Discussion of Cyclical Resource Investing

Precious-Metals-Summit-Conferences

and an excellent interview of Tom Kaplan: The Historian-an-interview-with-thomas-kaplan/ and ng_ar_2015

i-did-nothing-mark-mckinney-final (A cyclical investor)

Metals investor Kaplan raises $200 million for acquisition fund

By Svea Herbst-Bayliss | NEW YORK

Prominent metals investor Thomas Kaplan raised $200 million, more than expected, from investors eager to join him in making acquisitions in an industry starved for cash.

Kaplan’s Electrum Group LLC raised the money in Electrum Special Acquisition Corp, according to a prospectus filed with the U.S. Securities and Exchange Commission on Tuesday.

Electrum had expected to raise $150 million, it said in the prospectus. The “blank check company” expects to use the money to buy a company or assets with a focus on gold and other precious metals.

Details about the money raised were revealed on Thursday.

Kaplan, an Oxford-educated historian turned metals expert with a long track record of success, is betting that he and his team can spot an unloved company to buy and help it flourish again as demand in the sector improves.

“We are building up a war chest, given what we think is a unique buying opportunity in the metals and mining industry,” said Electrum Chief Executive Officer Eric Vincent. He would not describe what the target might be.

http://www.reuters.com/article/us-funds-kaplan-spac-idUSKBN0OR21O20150611p

Kaplan previously made big bets on NovaGold Resources Inc and Gabriel Resources, earning money as the price of gold climbed some years ago but suffering when it later dropped.

In 2007, Kaplan sold Leor Exploration & Production LLC, owner of natural-gas wells in Texas, for about $2.6 billion.

Last year Electrum started Electrum Strategic Opportunities, a private equity fund whose clients include the Municipal Employees’ Retirement System of Michigan.

(Additional reporting by Josephine Mason in New York; Editing by Lisa Von Ahn)

STUDENT CONTEST


The Santangel’s Investor Forum invites eligible students to apply for a free ticket to attend the 2016 Forum, to be held in New York City on November 3, 2016.
The Leonard Family has endowed a table at the upcoming conference to enable a select number of talented students to attend the annual invitation-only event.
The contest was very beneficial for last year’s winners, including one who met his current employer through the event. We were excited recently to receive the following feedback about this 2015 Forum Winner:
“[He] started working here a couple months ago and he’s been terrific so far, and I just wanted to give you a big thanks for the connection. He has a bright future.”
All enrolled undergraduate and graduate students are eligible. Interested candidates should apply by emailing their resume and a current investment idea write-up to Steven Friedman (sfriedman@santangels.com).  The idea can be for any type of security or asset class, but the write-up must be limited to 300 words. Preference will be given to unique and original ideas. Please submit ideas by October 15, 2016.
Please feel free to pass this along to anyone who may have an interest.

 

 

Yes, There are Good Stockpickers (VIC)

Ted Talks

Evidence suggests the professional investors in my sample have significant stock-picking skills. Interestingly, these skilled investors share their profitable ideas with their competition. I test various private information exchange theories in the context of my data and determine that the investors in my sample share ideas to receive constructive feedback, gain access to a broader set of profitable ideas, and attract additional arbitragers to their asset market. The proprietary data I study are from a confidential website where a select group of fundamentals-based hedge fund managers privately share investment ideas. The investors I analyze are not easily defined: they exploit traditional tangible asset valuation discrepancies, such as buying high book-to-market stocks, but spend more time analyzing intrinsic value and special situation investments.

Can Investors Pick Stocks on VIC 01272010-Wesley Gray

VIC

Bubble in Safety? http://intrinsicinvesting.com/2016/08/24/wd-40-a-case-study-of-the-bubble-in-safe-stocks/

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.

CASE STUDY Activist Action on Coke 2014 Proxy

KO IMGAGE

We are taking up from the last post http://csinvesting.org/2016/07/25/major-analyst-exam-reading-a-proxy-then-assessing-management-and-directors/

This case study teaches us about reading a proxy, management compensation, board governance, and the struggles of activism.

Mr. David Winters of wintergreen_fund_annual_report_2015_1231 has struggled since inception. From inception on 10/17/2005, Wintergreen has returned 68.73% vs. 113.22% for the S&P 500.   Another fund started in 12/30/2011 returned 15.95% vs. 77% for the S%P 500.   Nevertheless, he has done a service for the investment community by pointing out egregious compensation plans in Wintergreen-TheTerrible10-2-web.  Then note the passiveness of the big index funds in terms of protecting their own shareholders, 20150430-Wintergreen-Advisers-BigIndex.

Mr. Winters began his battle with Coke in 2014. KO_VL Jan 2015. Coke has a fine franchise with high returns on capital, but its cost structure (including management’s compensation) may be far too high considering the competitive pressures that incombents are facing.   Coke has had to make pricey acquisitions to diversify out of brown sugary fizz drinks. Also, all incumbents are facing new pressures like DollarShaveClub.com breaching of Gillette’s (P&G) moat–see below

Dollar Shave Club Hurting Gillette

Video:

Analysis of Dollar Shave Adshttps://www.youtube.com/watch?v=cW8S-QBKcq4


As a review: Mr. Winter’s on Wealth Track: https://youtu.be/x6I1B3MaTms

Ok, back to Coke’s Proxy and Wintergreen’s battle to have Coke’s Board rescind the 2014 incentive compensation plan.   See the progression of the battle along with the slide presentations: Wintergreen Faults Coca Cola Management (KEY DOCUMENT TO READ!)

Then view Wintergreen’s presentations along with the articles in the link above:

What do you make of Mr. Winter’s struggle?  How can you explain Mr. Buffett’s actions? I was DISAPPOINTED but not surprised.  What did you learn that would be of help to your investing–the key to anything you spend time on?   Note Mr. Winter’s designation of corporate buybacks as another shareholder expense.   I believe shareholder buybacks are a use of corporate resources (a shrinking of the equity capital) that may either be a waste or a good use of resources depending upon whether the purchase price of the shares is below intrinsic value. Mr. Winters stresses that buybacks simply use corporate funds to mop up shareholder dilution. Regardless, Mr. Winter points out the huge shifting of shareholder property to a management that hasn’t performed exceptionally well.  Coke’s Board had granted exceptional awards for middling performance–now that is a travesty.

When I think of Coke, a great franchise that is not currently super cheap, I think of other “stable” franchise stocks like Campbell Soup or Kellogg’s.  The market has bid these up so your future returns will be low.  Do not misunderstand me, these companies are massive, slow-growth franchises, but if you pay too much, then you may have lower future returns for many years.

CMP Soup

CMP Soup

38630396-An-Open-Letter-to-Warren-Buffett-Kellogg-Company

—-

Lie with statistics http://tsi-blog.com/2016/07/you-can-make-statistics-say-whatever-you-want/

HAVE A GREAT WEEKEND and KEEP DANCING

Free Stuff Investing Strategy; Tracking Stocks

n1hey-2

https://soundcloud.com/rangeley-capital/dell-emc-and-a-free-tracking-stock

You can make a lot of money buying from forced selling. Buy from Wal-Mart’s liquidation sales then sell on Ebay/Amazon at 200% mark-ups.   You are helping your fellow human beings.

Also, learn about EMC tracking stock.

Read more: http://seekingalpha.com/article/3917776-warren-buffett-buys-kinder-morgan-and-5-new-picks?ifp=0&app=1

GO SEE THE BIG SHORT!

So you’re Michael Burry who gets his hair cut at Supercuts and doesn’t wear shoes and you know more than Alan Greenspan?

Michael Burry: Yes.

I Saw the Crisis Coming (Michael Burry vs. Alan Greenspan)

A Review:

A lesson on the MBS crisis

Peter Schiff howling about the coming housing bust: https://youtu.be/Z0YTY5TWtmU

and see the results: aerial-photos

Lake Las Vegas/Macdonald Ranch 05.2012

The movie provides a case study in belief in authority and incentive-based bias.   See how many more biases you can pick out: https://en.wikipedia.org/wiki/List_of_cognitive_biases

The movie can’t cover all the reasons behind the housing/debt crisis, but you will get a sense of what great investors have to go through when they take a massively contrarian position.  Note that Michael Burry started becoming worried about housing in 2003. Why?   He asked himself the simple question: How come real estate prices are RISING or NOT going down in Silicon Valley during the biggest tech bust in history during 2001/2002?

More on Burry

BURRY_2000 Annual Letter

BURRY_Scion_2006_4Q_RMBS_CDS_Primer_and_FAQ

BURRY_Scion1Q2001

BURRY_Scion2Q2001

Burry_Writeups

BURRY_The_Crisis_By_Alan_Greenspan-3-9-10

Mike Burry Lettersw

BURRY_Scion3Q2001

I remember being in the president’s office at Merrill Lynch in 1999 to see about selling www.art.com and the president pointed out through the glass partition to his trading floor and said see my risk team?   They are the best in the business! 

Update: http://thefelderreport.com/2016/01/15/the-big-short-is-only-half-the-story/