Tag Archives: Fisher Investments

Selling All My Gold (Not!)

Fisher on Gold

Anyone care to receive a prize? What is the fatal flaw(s) in the above presentation? Another case study in why you must IGNORE the pundits and Wall Street. What proof can you provide that the above video is nonsense?

If you don’t answer the question, then you will end up like this guy: http://youtu.be/qPGUM5PZWEw 


The Importance of Market History; Best Investment Article EVER Written

To go against the dominant thinking of your friends, of most of the people you see every day, is perhaps the most difficult act of heroism you can have.”–Theodore H. White

The attraction which inflation policies have for so many people grows, in part at least, our of what may be called the money illusion.”–Irving Fisher

History, Probability, and Thomas Bayes

By Michael Hanson, 08/07/2012

“Now is an unprecedented time, so market history doesn’t matter. We’re in a whole new world.” I hear or read this daily.


Of course now is unique—every single day is unprecedented. The world   evolves. I’ll even do you one better: Change today is not only rapid, it’s accelerating. That is, change (be it technological or just civilization, generally) is happening at a faster pace than ever before.* Today’s economists and investors are abandoning history by the boatload on this premise. But the opposite is true: History is not only important, it’s more vital than ever to auguring market outcomes.

How is it, despite all the change of the last century, market history still rhymes with today? Simple: The human brain evolves slowly. No matter the technology, the globalization, the newfangled investment products, computers moving at the speed of light, et. al., the human experience of greed/fear, love/hate, panic/euphoria hasn’t changed. These are human universals not  just transcending time, but culture and locale, too. Real estate      boom/bust? Try Tokyo first! Banking crisis? How about every single decade of the Western world since 1500. And so on. Until Androids Dream of Electric Sheep, it’ll be humans at the helm of markets. That’s why history works; we repeat behavior, only the environment around us changes. Ours are the same brains as Socrates’.

Long-time readers know MarketMinder views history as an important component of forecasting. Ken Fisher and Lara Hoffmans often refer to history as a “lab” to test ideas.  Their books are chock full of historical market analyses and reasons why history matters so much. The most recent is the superlative Markets Never Forget (But People Do). (Or see Debunkery and The Only Three Questions That Count.)

I’m a firm believer in the sort of intellectual life where you do the hard work of blazing your own trail of thought—come to your own unique understanding of things. It’s the only way, in my view, to truly own and master concepts. This       frequently means coming to the same truths as many before you, but in a way suited best for your particular mind. This is a tough road—it means I can’t just take Ken and Lara’s view of history at face value, right as it is.

My way of viewing history as a market forecasting tool is via Bayesian Probability. This is a method of statistical probability, and it goes like this: To evaluate the probability of a hypothesis, the Bayesian probabilist specifies some prior probability, which is then updated in the light of new, relevant data.

This encapsulates precisely why history is so important in forecasting. First, note that it’s rooted in probability—perhaps the most important feature of market forecasting. Second, it takes historical observations and uses them to test a hypothesis. It’s data-driven and largely testable (though not at all perfectly in the case of the market past). Next, you must update your view with “new, relevant” data—that is, critical thinking. Any great science writing I’ve encountered has this in common: You should be relentlessly focused on the data-driven rigors of the scientific method, but also employ critical thinking to the       particular (contemporary) situation. For instance, always understand correlation and causation.

Further, Bayes speaks of probability as “an abstract concept—a quantity we assign theoretically for the purpose of representing a state of knowledge.”**       This is such a great view of probability and markets—it’s not the exact       percentages that matter, it’s the notion of representing “a state of knowledge” quantitatively. When it comes to the messiness of complex global markets I see analysts slavishly laboring over formulae and decimal point precision in mathematics all the time, completely forgetting what these numbers are signifying and why.

Maybe you don’t buy Ken and Lara’s view or my interpretation of Bayes. You still believe now is too different to compare to then. Okey dokey. But I ask you this: How can we even know today is unprecedented without first studying prior precedents? Or how could you know today’s frequently fretted ills are so peculiar unless you’ve delved deeply into hundreds of years of financial history first?

Best Investment Article Ever Written

How Inflation Swindles the Equity Investor

P.S: The Graham, Buffett and Klarman Folders are now updated in the VALUE VAULT–but uploading may take a few hours.

Cuba’s Feudal State:http://www.youtube.com/watch?v=or7G0dKdI0U&feature=player_embedded


Learn Accounting; Industry Metrics; Amazon; Geico Valuation; Klarman, Textbook Pubs. are Toast

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” –Warren Buffett

To the Austrians, economics is not a tool of social control, it’s a framework for helping us understand humanity, its history, and our plight in the world”–Peter Boettke

Accounting and Financial Metrics of Industries

Learn more about accounting and a good source of industry metrics (please don’t share my secrets!)http://mgt.gatech.edu/fac_research/centers_initiatives/finlab/index.html

Heilbroner, a socialist, admits socialism is a total failure: http://reason.com/archives/2005/01/21/the-man-who-told-the-truth

Game over for text-book publishers


Valuation of GEICO

http://www.scribd.com/doc/78448120/Warren-Buffett%E2%80%99s-1995-GEICO-acquisition. There is something important missing in this valuation. Can anyone point it out?

Is America’s Debt a Problem?


Klarman and the Importance of History

Facing History and Ourselves.   I am sure this has been posted before, but if not, view this.   http://vimeo.com/32333102

Charlie479 Discusses AMZN

A generous reader shared this: Interesting comments from Charlie479 on AMZN (from VIC). Another example of an investor who thinks strategically and like a business person.

charlie479   12/20/11 11:25 PM AMZN one of the best companies I forgot to say that I chuckled thinking about the analyst making the “I want to buy Amazon at 100x earnings” pitch. I suppose that doesn’t necessarily make it mispriced but the earnings power is certainly higher than current GAAP net income. I think they could easily raise their prices by $0.63 per each $25 order (not exactly the same thing, but if Super Saver shipping was $0.63 instead of free, would that really change shopper behavior?). If they managed the business to maximize current profits like this, that $0.63 increase per $25 would double earnings. If sales grow like they did the past 12 months then suddenly the multiple isn’t looking so crazy. I’m not saying this makes AMZN one of the top half dozen stock investments in the world but the p/e might not be awful if your thesis is right.

I’ve occasionally wondered if someone could beat Amazon if they had $80 billion. I don’t think they could take over the #1 spot but I do think they could become competitive in a lot of areas. I would probably use the $80 billion to start several category-specific internet retailers, develop a large selection within that category, and drive turnover by capturing mind share as the expert in that category and as the lowest price seller, initially at losses. This is more or less the Amazon playbook, and companies like Diapers.com (before being bought), Newegg, and Blue Nile have managed to carve out niches. I bet there will be more. I think if VCs or public markets are willing to lose enough money for awhile, it isn’t that hard to replicate the warehouse network and other logistical moats.

Another reason to temper the who-needs-another-pipeline thought I posed in the previous comment is that consumers sometimes choose retailers for reasons other than price and selection. Certain bricks and mortar retailers will always have an advantage in terms of convenience (e.g. convenience stores, insightful eh?). And customers like to touch and try on certain products, like clothes, so I don’t see Amazon getting anything close to 50% share in those categories. Freshness matters, too, so it’s not clear grocery can be effectively penetrated by Amazon, and I bet that is a large portion of the Global Retail sales denominator. So, perhaps the current internet retail number at 3% is lower than what most people think, but maybe the maximum theoretical internet retail percentage is also lower than what most people think.

charlie479  12/20/11 10:47 PM AMZN one of the best companies

I think Amazon is one of the most admirable companies in the world. It has the expense advantages in rent and labor over B&M retailers that you mention, and it has cost advantages over other internet retailers as well. The massive sales volume makes the fixed cost percentages very low, and the inventory turnover in many products is so high that it can accept lower gross margins and still generate higher ROIC than competitors who charge a larger markup. The lower markup attracts more customers and generates more volume, which only reinforces the edge. It is the higher-turn/lower-markup Borsheim’s dynamic that Buffett describes.

The advantages aren’t limited to cost either. The high turnover also allows them to carry a huge number of SKUs at adequate ROIC, so they can offer customers the widest selection in many categories. For certain categories, after I browse Amazon and then Wal-Mart, I’ll come away feeling that Wal-Mart doesn’t have much of a selection. It’s hard to make Wal-Mart look narrow. Amazon is the first/last place many people shop because they know it has the widest selection and it’s likely to have that selection in stock.

Another non-price advantage is that they’re the most trusted internet retailer. I actually think those customer satisfaction ratings might be understating the difference. Their return policy and customer service is great. Even if a product is available from discountworldxyz.com at a slightly cheaper price, I’ll pay more to get it through Amazon because I know it’ll be the product I ordered, or else I’ll be able to return it. Who wants to deal with negotiating shipping costs or return policies with anyone else? I don’t think this is simply Amazon being more generous than discountworldxyz.com. They have the low-cost structure described in paragraph #1 that allows them to accept higher return costs while still generating better ROICs. I also suspect that their extensive review database reduces some of the likelihood of returns.

I think many retailers like Best Buy are at such a severe selection and cost disadvantage (even adjusting for sales tax) that their businesses are in trouble in the long-term. I even worry about beloved Costco. I no longer have no-price-comparison-needed-let’s-just-buy faith when walking down the aisles at Costco because Amazon has better prices frequently enough to make me doubt. More broadly, as someone who is cheering for the Costcos (no financial rooting interest, I just root for them because I admire them), I worry that Amazon will get to such scale one day that it’ll be a more efficient overall system for one UPS guy to drive from the Amazon warehouse and cruise through your neighborhood dropping off everything you and your neighbors need for the week. That might sound crazy but the current system of having you and all your neighbors separately drive SUVs 15-20 minutes to Costco to each walk through the aisles hand-picking and then checking out, doesn’t sound that efficient by comparison. I haven’t read anything about Bezos explicitly saying that’s his endgame but I wouldn’t be surprised if that’s in the 10 year wish list. If they end up with the cheapest and widest pipeline, there might not be much need for other pipelines.