kvattiku

Terrific article. I used to have high regard for Bharara (the guy heading the insider trading scandal). But after reading this, I am not sure any more. This article reinforces whatever Patrick Byrne (of Overstock.com) and deepcapture folks have been saying all along. It's really pathetic to see Obama acting just like all the others - don't know how this system can be cleaned up.

Hi netnet, I have been trying to follow the metals sector (mainly precious metals) for the past year or so. I attended the Hard Assets Investments conference in SFO last November and wished that I had attended earlier too. As I think you are in the Bay Area, you can attend it for free this November. As far as royalty companies go, I follow a company called Sandstorm Resources (SSL.V) fairly closely. It's a pretty new company with a model similar to Silver Wheaton. In fact, the CEO and CFO were among the first 5 employees or so at Silver Wheaton. I have not taken a position yet as I am not very sure about their incentives..they keep issuing options as well as regularly raise money. In fact, they just announced a big offering this week. But I do think they have made some pretty smart investments last year in 4 companies (Luna, Santa Fe Gold and Silvercrest have all started production recently). Disclosure: I have a pretty big position in Santa Fe Gold (SFEG.ob) as I think they are pretty conservative and flying under the radar currently. They are supposedly a very low cost producer of gold/silver. Another unique royalty company I came to know recently is Solitario Exploration & Royalty Corp. (XPL). You can listen to their latest presentation at the Denver Gold show last month. I think they are about 2-3 years away from receiving any meaningful cashflow from their investments. Disclosure: No position. One other tiny company is Bullion Monarch Mining (BULM.ob). Even though they seem to have pretty good assets, I don't have much confidence in their management. But they do get around 5-6 M a year from Newmont Mining and are involved in a lawsuit against them for additional royalties. They seem to take this cash flow and invest it in a speculative oil shale technology play. Disclosure: No position. A couple of other interesting plays out there are: Golden Predator Corp (GPD.TO) and Endeavour Mining Corp (EDV.TO). GPD is an interesting royalty and a core precious metal exploration play (mainly in Yukon). They have a huge land package in Yukon and are very early in their exploration cycle. They do get about 1M from royalties now and are expected to get a lot more in about 4-5 years timeframe. EDV has recently made some smart acquistions and sold one of them for a huge gain (about 80M in about 6-7 months timeframe). They recently changed their name (from Endeavour Financial) to highlight their new focus on being a gold company. Disclosure: No position. If you are really interested in solid management and asset plays, I will recommend you to follow billionaire Rob McEwen. I feel that he is one of the smartest and most ethical guys out there in the resource sector. He was the former CEO of Goldcorp and a huge investor in his two companies US Gold (UXG) and Minera Andes (MNEAF.OB). Minera just about doubled in the last month. I really feel that he could be referred to as the Warren Buffett of the mining sector. I wish I had taken a position in these two companies early this year, but did not as I wanted to look at production plays or close to production plays. Also, Minera was involved in a huge dispute with their partner Hochschild till recently which got resolved finally. Goldcorp's recent announcement related to the takeover of Andean resources for about 3.5 billion is also a big reason for their stock rise. One of the other great success stories I have followed is GORO. The Reid's are pretty unique in whatever they do and built a 1 billion dollar company without caring about Wall Street till recently. I believe their history is solid and are connected to Rob McEwen also. I really wish that I knew about them much earlier. I was very close to taking a position at around 10$ this year, but shied away. One other solid undervalued company (in my opinion) that I came to know recently is Andean American Gold (AAG.V). They have a solid asset in Peru which is expected to go into production in about a year's time. Their Invicta asset is a huge one in terms of the mind boggling economics. I have not yet taken a position, but regret every day for the past month or so for not getting in. It has been hitting highs on almost a weekly basis. It's just getting to be noticed and I think that it's going to be a huge multibagger like GORO was back in 2006.

Hi Myth, Do you have an Interactive Brokers Roth account? If so, don't you have to pay a lot in commissions especially for low priced stocks. I have been thinking of buying a lot of great gold/silver mining companies (trading on Venture/TSX) mostly priced in the sub dollar range. I would appreciate any suggestions to lower my transaction fees. Thanks.

Hi Tariq, I have posted the following questions on your blog too. I am not sure if its a little too late. 1. Commerce Bancorp (formerly CBH) used to be a unique bank which had a different business model. If it were a standalone company now, would it have been affected the same way as most of the big banks. Also, would it have taken more market share from the likes of BoA and Citi. 2. Are there any banks similar to Commerce Bancorp which are radically different ? Thanks for doing this.

bargainman and yudeng, I feel the same way. A lot of (pretenders) got hit hard last year. The bad part is a lot of them did not even understand the true risks and claim that they did not foresee the meltdown. They still are not ready to accept that it was either their ignorance or arrogance that resulted in those failures. I am only referring to cases where there was real risk of permanent impairment. I have always felt Bill Miller was given unnecessary hype and attention by the media. And they dont talk much about folks like Bob Rodriguez (FPA Capital) who has a real record of absolute returns. I have tremendous respect for FPA folks as they never clamour for clients money and just focus on absolute returns. As a result of their holding a lot of cash (close to 40% for the most part), they lost a lot of clients. Its very similar to what Seth Klarman does. I was surprised when FPA folks took a huge position in Circuit City (could never understand why they did that even though they predicted the meltdown). Compared to them, Bill Miller never believes in holding much cash (believes that they can get away with relative value investing). Another one that comes to mind is Rich Pzena (Pzena Investment Mgmt). They took a huge position in Lear Corp which was a highly leveraged firm. He kept harping on normalized earnings and multiples in 2007-2008. They even successfully blocked Icahn's takeover attempt for about 38$ (saying that it deserved much more). I know that a lot of others also invested in them (including me for a short duration) when it sold off to about 18$. Mohnish had a position too and made some money. The point is anybody who says they did not see the risk of GM or Ford going bankrupt is either ignorant or arrogant. There have been countless articles in the media for the last 4-5 years which suggested that. But to have a position in a company like Lear (even now) should raise red flags about that investor's acumen. Cheers.

1. Which companies do you admire the most (ones with ethical and honest management, great capital allocators) in India? 2. Which companies shareholder letters/annual reports are the best in terms of increasing one's business knowledge (ex: Berkshire and BAM in the US)? Thanks.

Hi Cardboard, Klarman mentioned that he had bought interest rate caps and swaptions (as a hedge against inflation).. Please check the following article (towards end of page 3) http://www.advisorperspectives.com/newsletters09/pdfs/Seth_Klarman-Why_Most_Investment_Managers_Have_It_Backwards.pdf