Gyroscopic Investing

For all those who are losing their nerves about the continuing fall of the precious metals: The Gold industry (miners) is so bullish about the future that it's nearly hard to believe it. If you watch the data of the Commodity Futures Trading Commission (CFTC) you will see that the commercial hedgers (miners) have so little short contracts as they didn't have since 2001!!! This means they don't expect (much) lower prices ahead. If so they would secure their business by loading up on short contracts and locking in a certain price. But instead they go all in and leave the price of their production open to the movement of the market. I don't go with clueless fund managers who buy at the top and sell short at the bottoms but with the business professionals. In my opinion this situation should translate  into a big up move for gold. By the way: Silver is the same story... The commercials are nearly nt long. This hasn't ever happened in history. So be patient...

I find this is one of the best quotes from Warren Buffet on gold:

“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”?

frommi wrote: I find this is one of the best quotes from Warren Buffet on gold:

“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”?

That is excellent advice for anyone considering buying a 67-foot cube of gold. In other circumstances, it's not particularly significant.

frommi wrote: I find this is one of the best quotes from Warren Buffet on gold:

“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”?

Of course if the farmland turns to dust and Exxon Mobil fades away, the cube of gold may look more attractive. Why not hedge your bets and hold one third of each?

Also, this is particularly ironic coming from Warren Buffet given his prior interest in other precious metals. At one point he owned 130 million ounces of physical silver, if I recall. Apparently he had more use for the 78-foot cube of silver (the volume of 130 million troy ounces) than the 67-foot cube of gold.

Pointedstick wrote:

frommi wrote: I find this is one of the best quotes from Warren Buffet on gold:

“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”?

Of course if the farmland turns to dust and Exxon Mobil fades away, the cube of gold may look more attractive. Why not hedge your bets and hold one third of each?

Also, this is particularly ironic coming from Warren Buffet given his prior interest in other precious metals. At one point he owned 130 million ounces of physical silver, if I recall. Apparently he had more use for the 78-foot cube of silver (the volume of 130 million troy ounces) than the 67-foot cube of gold.

It is nothing unusual for Warren Buffett to be hypocritical. He has excellent PR but is really not very nice at all.

As for gold vs. Berkshire Hathaway, let's look at 2000-2010, to pick the most recent completed decade.

First, BRK:
"Berkshire Hathaway stock produced a total return of 76% from 2000–2010 versus a negative 11.3% return for the S&P 500.[3]" (from http://en.wikipedia.org/wiki/Berkshire_Hathaway)

Now, gold:
First London fix in 2000 was $282.05
First London fix in 2010 was $1121.50

for a gain of 297% for that decade.

I'd rather fondle the latter!

Pointedstick wrote: Also, this is particularly ironic coming from Warren Buffet given his prior interest in other precious metals. At one point he owned 130 million ounces of physical silver, if I recall. Apparently he had more use for the 78-foot cube of silver (the volume of 130 million troy ounces) than the 67-foot cube of gold.

But I think he bought it at a 20-year low.
If I'm right, he certainly bided his time.

dualstow wrote:

Pointedstick wrote: Also, this is particularly ironic coming from Warren Buffet given his prior interest in other precious metals. At one point he owned 130 million ounces of physical silver, if I recall. Apparently he had more use for the 78-foot cube of silver (the volume of 130 million troy ounces) than the 67-foot cube of gold.

But I think he bought it at a 20-year low.
If I'm right, he certainly bided his time.

It was a good trade for him.  Very profitable.

For whatever reason, though, he doesn't think anyone else should look for similar opportunities in the precious metals markets.

Warren Buffett is a clownish gambler who has had an exceptionally lucky career.  Statistically, there will always be a Warren Buffett-type figure out there, and they will usually rationalize their success as a function of their own abilities, while suggesting anyone can do it if they just study the master's methods.

If you take the home run BRK investment in GEICO out of the picture, however, Warren Buffett would look a lot less impressive.

Even if you want to be very generous with Warren Buffett, he's still a hypocrite.  He's sort of the investing equivalent of the Dave Thomas Wendy's commercials--the persona is charming, but mostly fake.

I don't know. I don't doubt that luck was involved, but I think you're underestimating him. Didn't he make great plays with Coke, Disney, American Express, etc. very early on? A "clownish gambler"?

If you think WB or any other value investor was only lucky, i have two links to read and think about:

http://greenbackd.com/2013/01/09/examin ... l-or-luck/

http://en.wikipedia.org/wiki/The_Superi ... Doddsville

frommi wrote: If you think WB or any other value investor was only lucky, i have two links to read and think about:

http://greenbackd.com/2013/01/09/examin ... l-or-luck/

http://en.wikipedia.org/wiki/The_Superi ... Doddsville

If Warren Buffett's experience wasn't driven by luck, then why aren't all value investors billionaires?  There is more to it than just value investing, and what I am suggesting is that we are talking about a skilled value investor who was aided by a tremendous tailwind of good luck.

I'm not saying that Buffett is an incompetent idiot.  In fact, I am sure he is brilliant.  The problem is that the investing world is full of brilliant people, and most of them will never be billionaires.

Every lottery has a winner, but that doesn't mean that the winner was a better lottery player than everyone else who bought a ticket. 

I don't disrespect Buffett any more than I disrespect a lottery winner.  I just think it's a little silly for Buffett to go on TV and talk about how easy it is to be a successful speculator just because it has worked out well for him.

IMO Buffet is an exceptional executive and an unremarkable stock investor. His modus operandi is to buy companies with a crippling flaw, buy them, and repair the flaw using heavyhanded management techniques. That works great when you are buying whole companies or controlling interests in them. But the same dynamic doesn't work at all when you are a middle class retail investor buying slivers of percentages of companies and have no meaningful input into their management.

MediumTex wrote: If Warren Buffett's experience wasn't driven by luck, then why aren't all value investors billionaires? 

Because they're not as good?
Because they didn't meet Walt Disney early on and buy 5% of the company.
Because they didn't see what Buffett saw in other companies I mentioned until much later.
I don't follow what he does nowadays, but I don't think there are too many value investors who do what he did when he was starting out. They just...buy value stocks.

dualstow wrote:

MediumTex wrote: If Warren Buffett's experience wasn't driven by luck, then why aren't all value investors billionaires? 

Because they're not as good?

My theory is that once an investment guru becomes a household name their exceptional performance has probably just about run its course. 

It was probably about ten years ago that Warren Buffett's popularity began seeping outside the investment community and into mainstream America.  When you look at BRK's performance over that ten year period, it has been about the same as the Permanent Portfolio, but the PP gave you those gains with far less risk. 

MediumTex wrote:

dualstow wrote:

MediumTex wrote: If Warren Buffett's experience wasn't driven by luck, then why aren't all value investors billionaires? 

Because they're not as good?

My theory is that once an investment guru becomes a household name their exceptional performance has probably just about run its course. 

It was probably about ten years ago that Warren Buffett's popularity began seeping outside the investment community and into mainstream America.  When you look at BRK's performance over that ten year period, it has been about the same as the Permanent Portfolio, but the PP gave you those gains with far less risk.

WB is a billionaire now because he is brilliant in raising other people`s money AND good at investing it and was born in the right time and place. Without that he would probably be now only a millionaire like many other good investors. The Graham-and-Dodd Style Investing reduces risk on other ways than the PP, because it looks at real values not the prices paid at the market. This was perfectly visible as the dot-com bubble busted. Reasonable valued stocks were not affected by the bubble-bust, but the index funds were full of dot-com stocks because of the runup.
From the annual letters (last number is outperformance, second is S&P 500 performance):
 
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (9.1) 15.6
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.2) (11.9) 5.7
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0 (22.1) 32.1

The market was very inefficient in these years, nowadays its more reasonable at pricing stocks, even if it currently overvalues consumer stocks a bit.

Btw. the PP seems to be popular now, too , so following your arguments it is doomed to underperform in the future .

frommi wrote: BTW, the PP seems to be popular now, too , so following your arguments it is doomed to underperform in the future .

Is it popular now?

I don't think I've ever run across a single investor outside of this forum and a couple of others who uses it.

I've certainly never met anyone in real life who had ever even heard of it.  Most people who I tell about it in real life dismiss it immediately as nonsense.

MediumTex wrote: My theory is that once an investment guru becomes a household name their exceptional performance has probably just about run its course. 

Definitely. It was better before he was a household name, for many reasons.

I have a friend who is a financial adviser (translation annuity salesman) and when I told him about the PP back in 2009 he had never heard of it. Shortly thereafter, he said he had a lot of customers asking him about it. I suspect the 2008 meltdown had a lot to do with this as it probably resulted in a lot of google searches in the form of "safe investing". Being a financial adviser (translation annuity salesman) I'm sure he told everybody it was a bad idea.

MediumTex wrote:

frommi wrote: BTW, the PP seems to be popular now, too , so following your arguments it is doomed to underperform in the future .

Is it popular now?

I don't think I've ever run across a single investor outside of this forum and a couple of others who uses it.

I've certainly never met anyone in real life who had ever even heard of it.  Most people who I tell about it in real life dismiss it immediately as nonsense.

ns2 wrote: I have a friend who is a financial adviser...

I sent you a PM.  Check it.

MediumTex wrote:

ns2 wrote: I have a friend who is a financial adviser...

I sent you a PM.  Check it.

Thanks MT.

Jim Rogers : Gold could bottom next year in 2014

" It costs money to close a mine[gold], it costs money to re-open a mine so people are reluctant to close mines. So you can see any commodity staying below the cost of production for a while, especially if it’s something like a mine which is expensive to close and expensive to open.

Some people are not going to be able to open mines because of what’s happened.  But then you’re going to eventually have people close mines, and eventually, like I said it’s going to work its way out in 2014, 2015, gold will make a nice bottom and off we’ll go again with the assumption of a bull market."


sounds reasonable?

murphy_p_t wrote: sounds reasonable?

Sounds perfect. Add a drop in coffee prices and some really bad luck for Justin Timberlake and we're talking about my dream year.

notsheigetz wrote:

MediumTex wrote:

ns2 wrote: I have a friend who is a financial adviser...

I sent you a PM.  Check it.

Thanks MT.

I also have a friend who is a financial adviser.  Can I get a PM up in here?

dragoncar wrote:

notsheigetz wrote:

MediumTex wrote: I sent you a PM.  Check it.

Thanks MT.

I also have a friend who is a financial adviser.  Can I get a PM up in here?

It was about a password reset.

If you have a financial adviser friend who forgets his password, let me know and I can help him pick out a new one.

Here are some ideas:

clientSkinner#119
Marketjackplayer*0=0
feemaster@Happywife61
wallstreetplaya&shareslingA877
Decepticondeluder$foshizzle

Like those SAT comparative questions:
Financial Advisor is to friend as government  is to security. 

Yee haw!!!

(Oh, not that kind of scream?)