Tag Archives: COH

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.


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.

Three Valuation Case Studies; Classical Gold Standard


“No they cannot touch me for coining, I am the king himself.” –William Shakespeare,King Lear

Valuation Case Studies

Sit down with the Value-Line tear sheet and write down your thoughts. Does the company grow? Is it profitable and by how much? Good or bad balance sheet? And what would you pay and why?  Then listen to the lectures and see where you agree or disagree. On Friday or the next post, I will go over each company quickly–the goal is to acquaint you with an easy search tool-Value-Line and what to look for when analyzing a company.

Coach (COH): COH then Video Lectures: http://www.oldschoolvalue.com/blog/stock-analysis/video-coach-coh-valuation/

General Mills: GIS then Video Lectures: http://www.oldschoolvalue.com/blog/stock-analysis/video-general-mills/

Oracle: ORCL then Video Lectures: http://www.oldschoolvalue.com/blog/stock-analysis/video-oracle-orcl-valuation/

Learn how the founder of Old School Value got started: http://classicvalueinvestors.com/i/2010/03/interview-with-jae-jun-from-old-school-value-blog/

Controlling for Quality to improve investment results (Quant Investing)  http://greenbackd.com/2013/03/19/performance-of-the-decile-approach-to-magic-formula-alternative-quality-and-price/

More on currency wars…….

You need to understand the strengths and weaknesses of the Classical Gold Standard:

Warren Buffett’s Dad: Howard Buffett on the Gold Standard

The St. Louis Fed’s View: St Louis Fed 1981 on Classical Gold Standard

And the Austrians: The Gold Standard Perspectives in the Austrian School

PS: I haven’t forgotten readers’ questions like suggestions on accounting, how to start, etc.


LBO List Search Strategy

Highlight Reel

All corporate growth has to funnel through return on equity. The problem with growth companies and growth countries is that they so often outrun the capital with which to grow and must raise more capital. Investors grow rich not on earnings growth, but on growth in earnings per share. There is almost no evidence that faster-growing countries have higher margins. In fact, it is slightly the reverse.  (CHINA!)

For there to be a stable equilibrium, assets, including entire corporations in the stock market, must sell at replacement cost. If they were to sell below that, no one would invest and instead would merely buy assets in the marketplace cheaper than they could build themselves until shortages developed and prices rose, eventually back to replacement cost, at which price a corporation would make a fair return on a new investment, etc.

The history of market returns completely supports this replacement cost view. The fact that growth companies historically have underperformed the market – probably because too much was expected of them and because they were more appealing to clients – was not accepted for decades, but by about the mid-1990s the historical data in favor of “value” stocks began to overwhelm the earlier logically appealing idea that growth should win out. It was clear that “value” or low growth stocks had won for the prior 50 years at least. This was unfortunate because the market’s faulty intuition had made it very easy for value managers or contrarians to outperform. Ah, the good old days! But now the same faulty intuition applies to fast-growing countries. (www.gmo.com  4th qtr. 2012 letter)

Value Investing News and Links

Don’t forget to go to www.grahamanddoddesville.com and www.santangelsreview.com for their FREE value investing news emails. I would immediately go on a suicide watch if they ever stopped sending me their great links. SIGN UP! Oh, and visit their blogs as well. Both writers are thoughtful observers of the investment world.

10,000 hours: https://www.santangelsreview.com/2013/02/03/10000-hours-of-deliberate-practice/


Charlie Munger: http://www.marketfolly.com/2013/02/notes-from-charlie-mungers-daily.html

Baupost Letter Summary: http://www.institutionalinvestorsalpha.com/Article/3152364/Baupost-Navigates-a-Tough-Yet-Still-Profitable-2012.html

Where Are We Now?  Ebullient

Shall We Dance Now: http://www.hussmanfunds.com/wmc/wmc130211.htm



Don’t forget the trade cycle: http://www.forbes.com/sites/michaelpollaro/2012/04/27/the-bernanke-bust-the-why-how-and-when/

An Excellent Book on the Trade Cycle (Prepare for the Bernanke Bust to Be….could be a month or years?) Austrian Trade Cycle

Why the real economy is so feeble: An economy built on an illusion is hardly a sound structure



Note what Einhorn says about Apple’s excess cash.  Note also that the junk bond market is ebullient, so as night follows day, expect some buyouts–LBOs or MBOs (Dell). One search strategy might be to find companies with steady free cash flows and strong (underleveraged) balance sheet and wait ahead of the buy out announcements–owning a group of 5 to ten names.

Grant’s Feb. 8, 2013 issue quotes Bloomberg on Jan. 31:

With exclusive brands that help build customer loyalty and a FCF yield that is higher than the median of its peers, Kohl’s could be an attractive buyout candidate for a private equity firm…..The company’s real estate also adds to its appeal…. Kohl: KSS_VL 2013

But I think Coach (COH) is an even better candidate: COH_VL_Feb 2013 with its higher, more consistent returns and excess cash.

Build your list because Mr. Ben Bernanke wants the $360 billion in committed unspent capital dedicated to buyout funds (Bloomberg estimate) to be spent.  Source: www.grantspub.com

Then sit back and ….lobster or the cracked crab?