Eric50

You guys should watch that... Hilarious and sad.... http://www.swimupstreamtowealth.com/2012/01/hilarious-parody-of-the-government-debt/

60k

Actually OSTK is a screaming bargain at $7...

Buy at the point of maximum pessimism! http://www.businessinsider.com/crash-confidence-index-2012-1

A couple of interesting comments for reflection on this Christmas eve. First, on our financial system: "Our financial system has gone off the rails. It's something we think of as providing capital for new businesses, that will enable people to finance new companies or add to the capital of existing companies. We do that to the tune of about $200 billion a year in financing through Wall Street, or through the financial system. And yet we do some $40 trillion worth of trading every year. I'm selling my investment to you, and you're buying it from me, and it creates no value for society. Indeed, it subtracts value, because the guy in the middle gets his piece." Second, on investment outlook for next year: "If you're investing in stocks with the idea of a one-year outcome, you should not invest. You can lose a lot. If you invest in stocks with a five-year outlook, I would think it is highly debatable if you should do that. You have to think about more than just the probabilities of a market crash. You have to consider the consequences for your savings, and whether you'd be decimated." http://www.businessinsider.com/bogle-time-for-speculators-to-pay-fair-tax-share-2011-12

Carrefour?

"We prefer a lumpy 15% to a smooth 12%." --Warren Buffett 1998 BRK letter and Prem Watsa 2009 FFH letter

It's "voluntary" so that it does not trigger any CDS on the Greek debt.

I forgot about that SEO thing. Thanks Sanjeev for bringing that up. But it also means that they'll have a tougher comp til the end of the year. Unless they can improve their conversion rate.

I just looked at their recent traffic data on compete.com. Overstock had 14.6m unique visitors in September 2011 vs 16.3m in September 2010. That's a decrease of 10% YOY... Compare that to amazon.com that grew 14% over the same periods.... Overstock is really cheap but it's not really a growth business...

The good news is that it's going to be a great short! lol

I agree Carl. To me this is the main problem we have as a society right now: there is not enough capitalism. The nature of capitalism is that the competent people take the business or the market share of the incompetents. The incompetents become bankrupt and hopefully they learn a lesson. This how the system should cleanse itself. However, if there is a systematic bailout support (i.e. no failure possible), you reward incompetency. The idiotic banks that lent to Greece or corrupt states/municipalities should take a haircut; they just haven't done their homework... So you delay the cyclical cleansing and then you end up in a situation like now where the overall economy might fall pretty badly.

I generally consider everything Michael Lewis writes to be a must-read. I was not disappointed by his latest piece. http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111 A couple of extracts include some jaw dropping numbers on the future of education in California: "David Crane, the former economic adviser—at that moment rapidly receding into the distance—could itemize the result: a long list of depressing government financial statistics. The pensions of state employees ate up twice as much of the budget when Schwarzenegger left office as they had when he arrived, for instance. The officially recognized gap between what the state would owe its workers and what it had on hand to pay them was roughly $105 billion, but that, thanks to accounting gimmicks, was probably only about half the real number. “This year the state will directly spend $32 billion on employee pay and benefits, up 65 percent over the past 10 years,” says Crane later. “Compare that to state spending on higher education [down 5 percent], health and human services [up just 5 percent], and parks and recreation [flat], all crowded out in large part by fast-rising employment costs.” Crane is a lifelong Democrat with no particular hostility to government. But the more he looked into the details, the more shocking he found them to be. In 2010, for instance, the state spent $6 billion on fewer than 30,000 guards and other prison-system employees. A prison guard who started his career at the age of 45 could retire after five years with a pension that very nearly equaled his former salary. The head parole psychiatrist for the California prison system was the state’s highest-paid public employee; in 2010 he’d made $838,706. The same fiscal year that the state spent $6 billion on prisons, it had invested just $4.7 billion in its higher education—that is, 33 campuses with 670,000 students. Over the past 30 years the state’s share of the budget for the University of California has fallen from 30 percent to 11 percent, and it is about to fall a lot more. In 1980 a Cal student paid $776 a year in tuition; in 2011 he pays $13,218. Everywhere you turn, the long-term future of the state is being sacrificed." And some interesting thoughts on American society.... "The people who had power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn’t a public-sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of people taking what they can, just because they can, without regard to the larger social consequences. It’s not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans."

That was my point. I learned value investing primarily through the writings of Buffett, Tilson and Pabrai. They are good at marketing themselves but are not necessarily among the very best investors (excluding Buffett who is in a league of his own...). That's irony of it. Having said that, I think it's great to have people like Tilson or Pabrai who share their ideas and principles quite openly. They bring a lot to the community.

Thanks Sanjeev. That makes sense. Also, the lower the initial investment of the general partner in the fund, the higher the return.

Interestingly though, the one who got the call is not Monish but Weschler... Nobody knew him while Monish is quite known in the value investing community. And his returns are quite better...

Sanjeev - 4000%, is that what you returned to your limited partners or your own return that includes the performance fee collected? thks Eric

I read last night a paper from Ray Dalio on how the economic system works. This is really interesting and it provides a great background on the current crisis and what we can expect next. The part I enjoyed the most is his description of the long term debt cycle. http://www.hedgefundletters.com/wp-content/uploads/2011/03/a-template-for-understanding.pdf

Seshnath - Greespan was a friend of Rand but nothing he did as a Fed chairman would have been approved by Rand. I suggest you re-read Francisco d'Anconia's speech on money in Atlas Schugged... Had Greenspan stuck to that definition of money, I doubt he would have kept interest rates so low for so long... The Fed and its politburo philosophy of long term of the economy represents everything Rand fought against... Rearden heard Bertram Scudder, outside the group, say to a girl who made some sound of indignation, "Don't let him disturb you. You know, money is the root of all evil--and he's the typical product of money." Rearden did not think that Francisco could have heard it, but he saw Francisco turning to them with a gravely courteous smile. "So you think that money is the root of all evil?" said Francisco d'Aconia. "Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil? "When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor-- your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil? "Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions--and you'll learn that man's mind is the root of all the goods produced and of all the wealth that has ever existed on earth. "But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man's capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is MADE--before it can be looted or mooched--made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can't consume more than he has produced. "To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except by the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss--the recognition that they are not beasts of burden, born to carry the weight of your misery--that you must offer them values, not wounds--that the common bond among men is not the exchange of suffering, but the exchange of GOODS. Money demands that you sell, not your weakness to men's stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best your money can find. And when men live by trade--with reason, not force, as their final arbiter--it is the best product that wins, the best performance, then man of best judgment and highest ability--and the degree of a man's productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil? "But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality--the men who seek to replace the mind by seizing the products of the mind. "Money will not purchase happiness for the man who has no concept of what he wants; money will not give him a code of values, if he's evaded the knowledge of what to value, and it will not provide him with a purpose, if he's evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason why you call it evil? "Only the man who does not need it, is fit to inherit wealth--the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir; his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one, would not bring back the dead virtue which was the fortune. Money is a living power that dies without its root. Money will not serve that mind that cannot match it. Is this the reason why you call it evil? "Money is your means of survival. The verdict which you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men's vices or men's stupidity? By catering to fools, in the hope of getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment's or a penny's worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you'll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money? "Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money? "Or did you say it's the LOVE of money that's the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men. It's the person who would sell his soul for a nickel, who is the loudest in proclaiming his hatred of money--and he has good reason to hate it. The lovers of money are willing to work for it. They know they are able to deserve it." "Let me give you a tip on a clue to men's characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it. "Run for your life from any man who tells you that money is evil. That sentence is the leper's bell of an approaching looter. So long as men live together on earth and need means to deal with one another--their only substitute, if they abandon money, is the muzzle of a gun. "But money demands of you the highest virtues, if you wish to make it or to keep it. Men who have no courage, pride, or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich--will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt--and of his life, as he deserves. "Then you will see the rise of the double standard--the men who live by force, yet count on those who live by trade to create the value of their looted money--the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law--men who use force to seize the wealth of DISARMED victims--then money becomes its creators' avenger. Such looters believe it safe to rob defenseless men, once they've passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter. "Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot. "Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: 'Account overdrawn.' "When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world?' You are. "You stand in the midst of the greatest achievements of the greatest productive civilization and you wonder why it's crumbling around you, while your damning its life-blood--money. You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men's history, money was always seized by looters of one brand or another, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves--slaves who repeated the motions once discovered by somebody's mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers--as industrialists. "To the glory of mankind, there was, for the first and only time in history, a COUNTRY OF MONEY--and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man's mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being--the self-made man--the American industrialist. "If you ask me to name the proudest distinction of Americans, I would choose--because it contains all the others--the fact that they were the people who created the phrase 'to MAKE money.' No other language or nation had ever used these words before; men had always thought of wealth as a static quantity--to be seized, begged, inherited, shared, looted, or obtained as a favor. Americans were the first to understand that wealth has to be created. The words 'to make money' hold the essence of human morality. "Yet these were the words for which Americans were denounced by the rotted cultures of the looters' continents. Now the looters' credo has brought you to regard your proudest achievements as a hallmark of shame, your prosperity as guilt, your greatest men, the industrialists, as blackguards, and your magnificent factories as the product and property of muscular labor, the labor of whip-driven slaves, like the pyramids of Egypt. The rotter who simpers that he sees no difference between the power of the dollar and the power of the whip, ought to learn the difference on his own hide-as, I think, he will. "Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns--or dollars. Take your choice--there is no other--and your time is running out."

I don't know any good investor who hasn't lagged the market over some periods of time.

Great interview with Jim Grant in Barron's. He's still bullish on gold and gold stocks. Interesting comments on the fed, on inflation/deflation, on the cycles of the eccentrics and also on Japan. I know there are a few value investors who recently bought a basket of dirt cheap stocks in Japan. Grant had the same idea 13 years ago and recently closed Japan-specific fund he had created. He was too much frustrated waiting for value to be found. I'll be curious to see how this evolve over time. Eric http://online.barrons.com/article/SB50001424052702303392404576566862208601914.html?mod=BOL_twm_fs#articleTabs_panel_article%3D1

I'm out with a small profit.

sure, but why bother with the calculation when I can get the stuff in the ground for less than half of its price? You'd also have to take into account the new gold that they are going to find/purchase. To go back to NEM, its reserves haven't changed in the past 5 years, i.e. they increased their reserves at the same pace that they extracted gold.

No need to discount for present value of future gold revenue. My margin of safety is large enough. And frankly, I have no idea what's the intrinsic value of gold. I suspect it's gonna go higher as we are far from the final blow-off phase of a bull market. The Fed will have to adopt a much more orthodox monetary policy before the current gold bull market collapses. Generally speaking, I view gold as an insurance against the stupidity of governments. Unfortunately I don't see an end there... Re gold and exploration, I find it easier to invest with the more established miners. You could get multi-baggers with the juniors but you could easily lose everything. I'm working hard to improve my knowledge in that field but not the point where I can comfortably invest with some of the junior miners.

Ericopoly - Let's take NEM to show you how I assess the gold mines: NEM has an entreprise value of $34.29bn (mkt cap of $32.04bn + debt of $4.31bn - cash of $2.06bn) for 94m ounces of gold in the ground. That means that gold in the ground is valued at $364 per ounce. Latest cash cost to extract the stuff is $583 per oz. So, by buying NEM now you get an ounce for $947 (disclosure: I built my position at a lower price). Of course, this is quite a simplistic analysis (you have to take into account capital costs and the rising cost of extracting the stuff out), but this is a good way to get the stuff cheaper than the current price of gold.