Tag Archives: Strategy

A Strategy for Resource Stocks; Investing Course

A Strategy for investing in highly volatile, cyclical stocks

Once again, gold, silver and their mining stocks are selling off for whatever reason: risk-on as money floods into the stock market, rising nominal yields, 95% certainty of a (meaningless) 0.25% interest rate hike, momentum–take your excuse. The main point is to know your companies (valuation) and wait for sales like you do at the grocery store.   This week we are having a sale on some miners.

As Sprott’s Rick Rule often says, “If you are not a contrarian in the resource sector, you are a victim.  The above video is provided to show a particular investing strategy when your quality miners are selling off to prices where you estimate a margin of safety.  However, it doesn’t mean you predict THE exact bottom.  If your holding period is three-to-five years, you can occasionally pick up cheaper merchandise. Use prices to your advantage, not disadvantage.  I also wouldn’t be surprised to see the miners sell-off further because of their highly volatile nature–huge operational and asset-based leverage–when gold or silver goes up or down, both the price of their product goes up or down and the value of their reserves.  Never expect exact timing–a fool’s game.  Also, miners are impacted by the cost of their inputs, so a rising gold/oil ratio is a positive, for example.

What about the gold price in my assumptions?   I am assuming gold is money (“All else is credit”–JP Morgan) and thus I can benchmark it against world currencies. Gold has been THE strongest money relative to all other currencies for the past 20 years, 30 years, 40 years, 50 years, 100 years.  Gold is THE only money and store of value that can’t be created out of electronic bits like FIAT MONEY.  The stability of available supple is what makes gold the premier money. Of course, due to LEGAL TENDER LAWS, gold is not a currency in the U.S., except that may be changing in some states like Arizona: http://planetfreewill.com/2017/03/09/Ron-paul-testifies-support-arizona-bill-treat-gold-silver-money-remove-capital-gains-taxes/.

In fact, gold (originally silver) is the only Constitutional money allowed–http://www.heritage.org/constitution/#!/articles/1/essays/42/coinage-clause

You can get a historical overview of gold’s‘ price history below. Notice a trend?

http://www.macrotrends.net/1440/hui-to-gold-ratio Now view the miners in perspective.

P.S. Let me know if anyone wants to see a NPV case study on a miner.

Designing an analyst course

My goal is to organize a comprehensive analyst course using the best investors’ teachings and lectures. For example, Buffett, Munger, Graham, Fisher, Tweedy Browne, Walter Schloss, Klarman, and many others etc.  Why not use original sources of the best practitioners?  This is the course I wish I had twenty years ago.  It will be Buffett and Munger teaching not me.

The course would cover search, valuation, portfolio management, and you (how to improve decision-making).   There would be different modules continuing articles, case studies, videos from Columbia Business School and others. We would go from DEEP VALUE to FRANCHISE INVESTING.   Valuing assets to assessing franchises. Understanding reversion to the mean and slow reversion to the mean.  You need to understand that when a moat is breached-watch out! Note Nokia in cell phones.

I would have to make it a private web-site because of copy-right.   This would be more of like a private study place, library, and discussion area for learning.   There could be a in-person value class in some convenient location depending upon interest once folks have had a chance to go through the modules.

For example, putting ebitda into perspective might be a mini-module on a sub-set of cash-flow: http://csinvesting.org/placing-ev-and-ebitda-into-perspective-case-studies/   Now, if you scroll down to the last link, you can see that it was taken down.   With a private web-site, you would see this: http://csinvesting.org/wp-content/uploads/2012/09/placing-ebitda-into-perspective.pdf

Let me know your thoughts because this would be a huge project to complete.  What focus do YOU want?   How would YOU design and make the course.

Have a great weekend!

Hannibal Lecter’s Lecture on Strategy, Lesson on Margin of Safety

The sooner you fall behind, the more time you’ll have to catch up. –Steven Wright

Hannibal Lecter’s One-Minute Lecture on Strategy

“For any particular thing, ask, “What is it in itself? What is its nature?” — Marcus Aurelius, Meditations (c. 175); — Hannibal Lecter, The Silence of the Lambs (1991).


Lesson on Margin of Safety

While studying strategy don’t forget to always invest with a margin of safety. Don’t do this: http://www.youtube.com/watch?v=7s5KFbyBmrQ

Buffett Discussing Strategy with Raikes of Microsoft

I almost had a psychic girlfriend but she left me before we met.

OK, so what’s the speed of dark?

How do you tell when you’re out of invisible ink?

If everything seems to be going well, you have obviously overlooked something  –Steven Wright

Buffett Discusses Strategy with RaiKES

A generous reader shared this:http://www.scribd.com/doc/78033425/Buffett-Raikes-Email-Discussing-Competitive-Advantages-and-Companies

This weekend I will post the analysis of Wal-Mart and Global Crossing.

Thanks for your patience and perseverance.

Strategy Quiz and Case Study

Change is inevitable….except from vending machines.

A fool and his money are soon partying. –Steven Wright


Dear Readers:

I know the three of you out there will be wondering about replies to your questions. This week requires traveling so please bear with me until I can reply properly.  Meanwhile, continue your work towards completing the Wal-Mart case study and Competition Demystified reading pages 1-110.

This quiz is meant to reinforce concepts you should be thinking about. Whenever you first look at an industry and/or company what should be one of the first questions that you ask______________________?

Research Question

Now, you have been asked to research a new company that has a product where the demand is estimated to increase 10 fold and you must advise your $2 billion hedge fund on Park Avenue, in New York whether to invest.  After two months of 18 hour days, you find out that the research on growth estimates was wrong!  The demand for the service will increase 1000x fold!  You are so excited you can barely wait to speak to the portfolio manager.  How great an investment will this be? What further MAJOR questions should you ask if demand will grow so rapidly. Take five minutes to frame your questions and what you will say to the big boss whom you will be meeting soon.

OK, scroll down and click on the cases below to learn what happened. Surprised?  Why or why not? Let me know your thoughts.



http://www.scribd.com/doc/77775204/Global-Crossing-A –sorry this had to be placed in the Value Vault under Global Crossing A (36 pages) due to security restrictions. If you do not have a key then email me at aldridge56@aol.com with VALUE VAULT in the subject line.


For a different perspective and more context: http://www.scribd.com/doc/77780615/Bubbles-and-Gullibility-2008

Greenwald Strategy Notes #1

 “If you don’t read the newspaper, you are uninformed. If you do read the newspaper, you are misinformed.” –Mark Twain

I stayed up all night playing poker with tarot cards. I got a full house and four people died. –Steven Wright

These notes should supplement your reading of Competition Demystified and your case study on Wal-Mart (in Value Vault).


A book on moats and investing

Moats and filters: http://www.lulu.com/spotlight/4filters Neither have I read nor recommend the material on the web-site but I do want you to be aware of the book.

What is Strategy?

Be deliberate; be thorough; be aware–Zen Master

Strategy is big – Bruce Greenwald.

Michael Porter

Greenwald credited Michael Porter for his work on strategy and his focus on competitors. Review here a Harvard Business School article: http://www.ipocongress.ru/download/guide/article/what_is_strategy.pdf

Five Forces Industry Analysis in Value Vault and here: http://www.scribd.com/doc/77131692/Five-Forces-Industry-Analysis

Mauboussin Articles on Strategy

Measuring the Moat on Michael Mauboussin’s website.

Network Economics: http://www.scribd.com/doc/77133968/CA-Network-Economics-Mauboussin

Review of Competition Demystified first 30 pages:

Anyone running a business knows that competition matters and that strategy is important.

Don’t confuse strategy with planning to attract customers or increase margins. Goals are not strategy.

Strategies are those plans that focus on the actions and responses of competitors. Strategic thinking is about creating, protecting and exploiting competitive advantages.

Some consultants call it singularity. What they mean is that for a firm to earn profits above a minimum normal return, a company must be able to do something that its competitors cannot.  With a universe of companies seeking profitable opportunities for investment, the returns in an unprotected industry will be driven down to levels where there is no “economic profit,” that is, no returns above the costs of the invested capital. If demand conditions enable any single firm to earn unusually high returns, other companies will notice the same opportunity and flood in.

Both history and theory support the truth of this proposition. As more firms enter, demand is fragmented among them. Costs per unit rise as fixed costs are spread over fewer units sold, prices fall, and the high profits that attracted the new entrants disappear. If the company is on a level playing field then competition will erode the returns of all players to a uniform minimum (Reversion to the Mean or “RTM”)

It is now 25 years ago that Harvard professor, Michael E. Porter wrote “Competitive Strategy“. Essentially Porter says you need to consider Five Competitive Forces to analyse the attractiveness of an industry for a company.

Prof. Greenwald suggests, in most cases, studying only one factor will do: Potential Entrants. They claim the Barriers to Entry is by far the most important factor in business strategy.

“Either the existing firms within the market are protected by barriers to entry or they are not,” the authors write.”

Firms operating without competitive advantages should concentrate all their efforts on being efficient;

  • Companies that do have competitive advantages need to design strategy with their competitors in mind;
  • Most competition is over pricing or capacity, and there are established techniques for analyzing these situations and devising the right strategies to handle them;
  • Cooperation between competitors is possible and beneficial and can be accomplished without breaking the law;
  • In an increasingly global economy, competitive advantages still stem primarily from local conditions. Even large international firms need to understand and protect the local sources of their success.

Most importantly, according to the authors there are really only three sustainable competitive advantages;

  1. Supply. A company has this edge when it controls an important resource: in Hollywood, for example, it may mean having Julia Roberts or Tom Cruise star in a movie. Or a company may have a proprietary technology, like a prescription drug, that is protected by patent.
  2. Demand. A company can control a market because customers are loyal to it, either out of habit – to a brand name, for example – or because the cost of switching to a different product is too high. Companies often put off changing software vendors, for example, for that reason.
  3. Economies of scale. If your operating costs remain fixed while output increases, you can gain a significant edge because you can offer your product at lower cost without sacrificing margins.

The goal of this book is to present a step by step process for strategic analysis.”

Management time and focus are the most important resources of a firm.


Strategic decisions are those whose results depend on the actions and reactions of other economic entities. Tactical decisions are ones that can be made in isolation and hinge largely on effective implementation. Understanding this distinction is key to developing effective strategy.


Strategic choices, in contrast to tactical ones, are outward looking. They involve two issues that every company must face.

  1. The first issue is selecting the arena of competition
  2. The second strategic issue involves the management of those external agents.

You should have a firm foundation to complete your Wal-Mart case study. If I am going too fast, tell me.


Munsingwear CS Solution

Readers were given a case study on Munsingwear here:


Do the work and write out your analysis, then go here for the solution:


The history of Munsingwear can be glanced at here:






Case Study Munsingwear: A Test in Thinking Strategically

Ready to earn your wing-tips? Advise your client as an investment banker how to restructure and save his business.




Ironically, the students who have had the must trouble with this case study are business school graduates. Use common sense and think about what information is provided without jumping to assumptions or projections.

Good luck.

The answer will be emailed to you if you so request.