anders

Great stuff.. Seth Klarman brought this matter up in one of his letters... i cant remember which one it was but you can prob google it... All my life... or at least from around 3 years old when you start to challange your parents... I have had a "built-in" contrarian view... ie when 7 years old, a person says A, I automatically said B.. if the whole group said B, I more strongly argued for A... I think that comes from curiosity and inverting... as a corollary, sound logic does not betray me at the point of maximum pessimism.. But when i started investing, the contrarian approach - buying 50 cents on dollar - hurt me a lot.. so I had to change my investing process... First off, I dont like to be a contrarian - a person that rejects popular opinion. I want to be an intelligent investor.. an investor that connects contrarian, growth, value, into one process with a clear view and knowledge about the business.. IMO, an intelligent investor know when to use the contrarian tool.. when the market is gripped by panic or euforia which creates great distortions in prices to value.. but when these emotions are fairly intact and balanced, the conseus view will very often be correct - because the market is efficient in discounting the news, but not in discounting them correctly and thus the margin of safety to price will not become big enough without the effect of strong human emotions.. BP: Being a Contrarian 1 So following up on the oil/gas comps... When the rig blew up in the mexican gulf and BP quickly depreciated in price.. I thought that not only did the market discount in lower revune and damage cost, but it would exaggerate it quite a lot.. and when the market started to talk about bankruptcies, I thought the probability said no so I bought it around 28.. It was probably luck that it bounced at that level, it could have easily gone down to 15.. but bankruptcy? not very likely at the time.. So why around 28?.. It was because at that level, the consensus in the market discounted in 100 billion of damages to the company, and by analysing the company and previous similar accidents ie exxon valdez, I came to the conclusion that no way could consensus be right on projecting the damage so fast, 100 billion seemed like a made-up-easy-to-rember-number... The news was effeciently disounted in, but very inefficient in doing it correctly... and even with big damages, BP could pay it off with CF over time.. So if the risk came down, the price would certainly go up.. and even if the consensus was right about the 100 billion mark damage, I would still probably get a good div yield while waiting for the risk to come down... That was a good investment imo and a good way to use the contrarian tool.. BP: Being a Contrarian 2 Buying BP because of lower oil prices is another sort of game imo.. then its the direction of oil price which is hard to predict... What happens when all the oiltankers that got filled up - with steep curve contango in oil futures - gets sold in the market later this year..? What happens when the maintanence period of storage / refineries start this spring, and if maintenance gets interrupted ? what happens if storage runs out ? Waht happens if sanctions is lifted from Iran and their supply comes out in the market ? and so on.. its too many "what ifs" to determine a high enough probability for investing.. and consensus is probably more right than wrong since the market has more time to better correct the data into the price... That would be a bad investment imo and a poor way to use the contrarian tool.. Hope it made a bit sense.. Cheers!

Yes, logarithmic would be preferable... But the underlying point.. What analyst today would dare to risk his career by reversing earnings estimate..? and what does that do to the voting machine..? Still lots of retail cash on the side line.. QE will continue until it sucked everybody in imo...

Yeah ;D DAX up 22,5% YTD and we are only in 3rd week of ECB QE.. 1.5 more years to go.. Yellen probably already thrumping on the mother of all QE.. It will be a bumby ride for sure..

Company earnings growth estimates goes through the roof.. see attached

Posted a thread about this some year ago.. still trying to figure it out and its a slow process.. You know when buffett said.. "investing is part art part science" but he never mentioned in my knowledge details about the "parts"... so how much is part art ? and how much is part science..? As I get older, the part art is becoming increasingly larger because it includes many more dimensions and thus logically it is where I should put my focus which imo goes hand in hand with schloss view that you have to own a business to really understand business dynamics: the culture, the product, the dealer, the employed, the leaders, the margins, the marketing, the consumer, the economic environment and so on.. That is why if you can understand how a business is built from the inside, it is easier to understand the problems it may face from the outside and thus makes it less of a problem to put a price on it.. This is also why I believe the circle of competence is much smaller than many people think because no two businesses are ever the same even if it looks like it on paper.. "Diversification is a protection against igonrance, It makes little sense if you know what you are doing." For your third point I am following the advice from Buffett to deal with ignorance: Write down on paper why you are buying the business, what could go wrong, the ifs and buts, how the CF move, how the margins are created and so on.. and if you cant apply it pencil to paper then you should think it through some more.. I believe that if one really does that process, many would be surprised on how little of that paper that gets filled and their igonarance would be illustrated by themselves.. at least that was what happend to me first time I started doing it.. Best Regards,

yadayada, Check out gapminder, great tool that visulizes data. Best,

Thank you for a great debate. It seems to me we are talking around the same argument. Net energy imports account for about half of the total U.S. trade deficit and value of the trade flow moves of course with production, consumption, and prices. With higher oil price, production and energy export increase and import decline which improve the energy trade deficit (why USA reached its lowest trade deficit in 2013, and also the reason why saudi arabia is not keen on cutting production since they are on the losing side of the trade). My assumption is that with lower oil prices, production level for export will decline and import rise thus increasing the trade deficit. If US oil import would be absent, the US trade deficit would go from -700bn to -300bn. Yes, Buffett is the basis for my argument. I have a vague memory of him saying that only looking at gov debt to gdp is misleading and also need to take in total asset base into consideration. Also him speaking on charlie rose about the fiscal deficit being a stimulans and not worried unless it go more than -10% of gdp. But not worried at this level doesnt mean a link does not exist (in economics they are interlinked and you can read all about it at NBER) and, it does not mean he wouldnt be worried if it gets worse. My interpretation when I first red the article, it that he is concerned for the future of USA, and he explains it quite colorful.

@ JB, I would call it "deflationary money printing" if there is a word for it. And my reason is since it gets stuck at the banks it becomes unproductive borrowing thereby the money velocity declines and a weakening economy follows. If it gets out to the public, it becomes productive since money volocity increses and strengthes the economy. I believe that the intention from the fed is for printed money to reach out in all corners of the system but the banks hold it as insurance. I believe FED lost its power to influence rates and can only guide where they like it to be in future. And after going up x bs and economy starts to halter again.. the mother of all QEs will arrive.. And when the printed money starts its journey out into the system the velocity will be impossible to stop.. I hope Im wrong.. Best,

@ Tim, If it sounded that I had an offensive tone, it wasnt my purpose. 1) I would prefer not to deep dive into math and sources. I simply red EIA report 2014 and their projection and thought it made sense - that is, US oil production will decrease and US oil consumption increase over the next coming years and as a corollary will put negative pressure on the trade deficit. IMO it is very unlikely that USA will maintain its production level the coming years if prices stay at these levels. ...Quota // Level... Since english is not my mother tongue I do appreciate all help I can get improving it thank you, but you dont need to feel that you have to do it for my sake. 2,3) But it is not two totally different things. Fiscal policy and balance of trade is interlinked and the topic is "who will pay pack the debt". And I believe that balance of trade is where you find the root of increased debt level in a society and thus where I find it most interesting to disuss, it is where it begins. And if you factor in income and payments to get to current its still negative since decades. Blending in fiscal policy; A goverment surplus = trade surplus + excess of investment over private saving. So if USA keeps its spending fixed and lower the taxes thereby go into deficit, then either the trade surplus or investment over saving must decline, or both. So can you imagine USA to raise taxes to cover a negative balance of trade?!? Is there any example of where USA have a budget surplus and current deficit? Every budget is balanced, there is no thing as an unbalanced budget and the true tax in a country is how much the government is spending and how much the country is buying goods from other countries. And the citizens are paying for it, if not through direct taxes than indirectly in the form om inflation or borrowing debt. No way a country can directly raise taxes and not increase its production without harming its citizens buying power. This is why average joe have seen his dollar decline over 90% over the last 90 years. 4) Yes, I never argued differently, but I think it is pretty clear that somewhere down the road, USA will face some hard choices. And Buffett has made a great job in raising a big red flag for what he thinks awaits the next generations of americans. Its simple arithmetic, Japan will at a point default, USA continuing at same pace will at some point default. Not acknowledging this is imho ignorence. ----- Since 1940, the US has had 12 budget surpluses out of 74.. roughly each 6th year. How is that a recipe for success without somewhere on the road correcting the balance sheet? And how does this effect future americans ? Will USA be able to make trade surplus - through production or FED devaluing the USD increasing export? or will the treasury just write off the debt to the FED? or will it be colonized by purchase with cheap dollars? I apologize for previously being blurry and I hope I better illustrated my point. I would much appreciate that we skip the deep diving, take a step back and I would very much appreciate your thoughts on who you think will be standing left with the bill ? Rgds

@ Tim, That implies that USA will maintain its production quota with WTI @ $47 ?!? Production will fall and imports will rise putting pressure on the trade deficit. Plz read EIA paper on projection. Depends on what side of equation you are on. Importing more than exporting for decades, buying more than you produce for decades and borrow to do so - yes that is inherently bad for future americans imo. A constant outflow of USD will at some point find its home again. The discussion is about the trade deficit. 'So far' does not mean permanent. I think it is a interesting topic since it touches “intergenerational inequities”. It will be very interesting to see how the US will handle the debt level when it becomes inbearable. For decades the US has been selling pieces of the country coupled with increasing the debt level. If thus the Fed start embracing highly inflationary policies (which I believe is the case) the holders of USD will most likely opt for US land instead of US Bonds and, a true colonization of USA by purchase would be initiated. Rgds

I remember when I first red the article made by WB "Americas growing trade deficit" in 2003. I revisited the article because there is a couple of words in that article that i never forget: "every time you hear that foreigners will start move out of the dollar, dismiss it". When was the last time the US had a trade surplus ? Correct me if Im wrong but that hasnt happend since mid 70s and, with lower oil price the US trade deficit will most likely increase again. And with a stronger dollar, it will probably increase even more. So it continues, the US gradually giving away a part of their national net worth. It easy to get lost in this credit jungle environment but it always comes down to the simple fact that credit is borrowing from the prosperity of the future. But at one point, someone will have to pay it back and, looking back at history its been through war. Should the coming generations work harder days due to of our way of living ? should yellen inflate it all away by endless QE letting foreginers take the hit? or should treasury forgive the debt to the fed? what about taxpayers? Simply, who will be standing left with the debt ? Rgds,

I used to run a covered call fund.. short calls or long puts doesnt go well hand in hand with value investing approach... if you want to long puts on ie high tech comps you need to put it into a strategy over time, otherwise you are just speculating and thats not a game I believe anybody can master successfully.. how many didnt long puts and lost a lot of money on VW during financial crises, or tried to succesfully short cisco during it bubble.. maybe you will be succesful 9/10 but its the 10th that kills the performance. So what I told my previous workplace and imo to other people is that these methods is a function of option strategy, generating maybe a yearly 5% yeild depending on vol. Its an investing strategy in itself and, if you want to couple that with ie value investing then it will likely turn into a speculation. We allocate some percentage in a trade account for special situations purposes ie shorting stocks/bonds, risk arb, stressed credit, currency play etc trying to squeeze out some extra percentage points in performance, but never mix them with the other part. My two cents,

"A hole in the ground with a lier on top" ;) I like the mining comps at these prices.. but have great respect for the sensitivity in gold price.. I have bought some and continue adding on these prices, the stars being the royalty companies.. also like the picks & showels to mining industry.. The majors have done some aweful aquisitions in the past, then refocused cf on the balance sheet during the financial crisis, then shifted it a bit to the pnl - reducing cost basis. Imho, some come with solid balance sheets, pay a fair dividend (adjusted to gold price), and have great upside if gold stays at these levels. The gold demand clearly outstrips supply and should correlate sooner than later. Looking at history, gold price does not really correlate with higher interest rates and the great depression / HUI index scenario could very well rhyme.. yeah, im bullish ;D

Thx guys! Well, im already running an investment business and, no doubt the passion is still there,.. Started with passive investing and now moved into passive/venture, taking a more active role.. I guess it is where the comes into the picture.. But I dont have the passion in reading 50'000 pages over the weekend as Buffett does, I dont have the passion in reading 10k on my honeymoon and therefore was hoping that it doesnt only come down to passion in reading... Frankly, Im getting tired even if exponential knowledge works like ecstasy for the brain.. maybe its just a xmas break that is needed without books and reports.. From birth I have been told that talent comes from working hard, "rise early, work hard, strike oil" kind of mentality... skip fancy words and jargon and dig in the ground until your hands bleed, then continue until you dont feel it... I love what I do, but having dinner with my family, realising that I havnt heard a word my kids said because I was which strikes me as going in the totally wrong direction.. Im being a bit abstract, but I guess you guys understand what I mean.. it maybe just comes down to this

“I think Buffett is a better investor than me because he has a better eye towards what makes a great business. When I find a great business, I am happy to buy it and hold it. [but] most businesses don’t look so great to me.” - Seth Klarman For a number of years I have been developing my business eye. What I do is reading; reports, reports, reports, reports, reports, reports, books, books, reports, reports.... But for the first time in my life, im starting to be tired of it.. I dont want to, but that is how it feels... It is much like you practice piano 6 hours every day, or stand at the golf ranch 5 hours per day for years... One question I think about a lot is what factor makes the difference of being really great, or world class pianist..?!? Is klarman simply saying, buffett reads reports on his honeymoon, I dont.. or is there other qualities that make up the difference ?!? I saw an intervju with a world class skier, he said its only 1% skill, gift, talent and the rest 99% is practice.. but is it then a talent to be able to have that dicipline to practice I wonder... Your thoughts in this matter would be much appreciated, Best,