moore_capital54

Nothing would change for anyone on this board if we returned to a gold standard system. I assume for the most part everyone here is a creditor and not a debtor and that you have more assets than liabilities. The only thing that would change is that you would no longer have to worry about inflation as much, and most definitely real GDP would decline for a few years, maybe even a decade. But life as you know it would be a lot more straight forward. There would be little worrying about the future, the uncertainty of government debt, commodity prices etc. A dollar would be harder to earn but when you earned it you would know it's value. I heard this weekend, that Peter Thiel's Seastead is interested in having a gold denominated currency in one of their first floating islands. That is going to be very interesting.

Carvel, unfortunately I do not feel like engaging in a long debate on this matter on this Sunday. I will just say that a hard money system is the optimal system for unleashing the powers of capitalism. A fiat system punishes the savers and rewards the debtors, encourages lower classes of society to assume debt, and leads to significant booms and busts. In a gold-standard system whatever progress society makes is permanent. Money retains its value. Deflationary issues are not bad, they are good and are part of the natural cycle of capitalism. A fiat system attempts to force trust on the participants in the market place. We have now learned that this trust can disappear without warning and results in widespread fear. With a gold standard system that would never happen. There would be no questions about counterparty risks or ability to repay. This was a very light version of my thoughts, if you go through some of my historical posts you will see more about this. Keep in mind, if we had a gold-standard system where Base money was supported by a ratio of gold IE: 35 to 1 or what not, Central Bankers would still have the same tools IE: Interest Rates, and we would keep a fractional reserve banking system to allow the economy to expand and contract based on the forces of capitalism. The key difference is that the government would no longer be able to subsidize their deficits, leading to a much healthier economy, and the same would be true for market participants, would be able to sleep at night knowing their US Dollars were convertible into gold. In this system the lower classes would have a harder time to succeed, they would have to work a lot harder. But the good news is that any advancement in prosperity would be near permanent and sustainable. I tell people that on a gold standard system human prosperity escalates a stairwell as opposed to a slope. With each prosperous period we take a new step forward, its sustainable, its permanent. With fiat money we are always on a slope, one mistake and we can slide down to where we were 10-20 years ago. I see comments on this board that just strike me as incredibly naive. Bmichaud for example (sorry man we seem to butt heads) with his analysis of why China is not a creditor to the US, going out of his way to convince himself that we are doing them a favor. Come on... We would all be much better off if we reduced the debt in the system and had a medium of exchange that would retain its purchasing power over time. The economy might contract for a few years but the growth would be geniune and sustainable.

The worst thing that could happen is for the USD to lose its reserve status. Especially to an RMB that is backed by gold..

Bmichaud, who cares about the UST's right now, what if China and Russia engage in trade utilizing gold as a medium of exchange? What if China buys its iron ore in gold from Australia. The US is only 25%~ of world GDP. Try to understand, this is very serious and even more due to the obvious fact that these policies are being pushed from the top of the chinese politicial system. The chinese would like to control their commodity prices so they can shift from an export nation to one which is supported by internal consumption. They view gold as the ultimate currency and it matters little what you or americans think. If chinese use gold as a medium of exchange it will not be good for America or any other nation with fiat currencies. Only the creditor nations can afford to make this switch, the debtor nations are screwed if the rest of the world moves on to hard money. This will be a game changer.

http://cnbusinessnews.com/china-to-install-more-than-2000-gold-atms/ This is the kind of stuff we all need to be worried about. If the creditor nations begin to use gold as a medium of exchange...

OEC, my views on gold, and central banking are in no way related to macro. They are related to what I view as structural issues, where gold is the ultimate solution. Moreover, I like gold for reasons that are pretty straight forward IE: Supply/Demand. Most of my arguments on this board relating to gold were against posters that tried to refute gold's validity as an investment or as having "utility". I invest in gold because it is a scarce element that serves best as a medium of exchange. And you are correct, for the most part we invest in gold through the junior market and in effect are acquiring gold for pennies on the dollar, never once did we invest in gold for the fear trade or as a hedge against macro events. With regards to Macro hedging via portfolio construction, Let me expand on that for a second. The way we do it is we ease into a position based on our assessment of how cheap it is. This has worked very well. In 2007 for example we were not finding many companies we felt were cheap and as a result had a substantial amount of our aum in cash. So in a way when you are constructing a portfolio and are not able to find anything that is cheap, hoarding cash is a sort of macro hedge. Because the reason you are not finding cheap securities is due to the market most likely getting ahead of itself. But using that same methodology, we are able to deploy that cash when we see tons of opportunities, as we have been these last few months. But we don't attempt to time the market in any way, and we have definitely stomached some significant volatility and even paper losses but as we continue to deploy capital our cost average should reflect a price which in hindsight will be near the lows. And yes I don't view cash as delta hedging. Think about it, cash is more like dry powder or ammunition. Professional Investors What I mean by professional investors are either investor that make a living from successfully deploying capital in their personal accounts or fiduciaries that have some type of a leveraged compensation schedule IE: 2/20 for hedge fund managers. And in that regard I stick to what I said. the period between 2000-2011 has been a lot more profitable for such investors. This can be attributed to the fact that never before have hedge funds become more ubiquitous, more accredited investors than ever, and markets that have become global allowing to access efficiently securities from Korea to Australia with cheaper commissions. There are many many reasons, cheap money, ability to leverage, shorting, and substantial capital flows into smaller capitalization companies. Never before has a hedge fund manager been able to raise so much capital so quickly than now. This was not the case in 1990-2000. Most of the investors from my vintage have made the majority of their gains over the last decade and not in the 1990-2000 decade. Some may have given some back, but for the most part the majority of their wealth has been derived over the major bull market of 2003-2007 and the Canadians I know have minted it from 2008-2010 in the junior space.

Sir with respect, any professional investor that has been around for the last 12 years has gotten rich. Some may have given some back over the last few years, but for the most part, and take this with a grain of salt if you like, but there is no doubt in my mine 2000-2011 has been a better investment environment than 1990-2000, No doubt about that and I have been through both periods, as a professional investor.

I don't agree with Mungerville, I am in the Parsad camp that a value investor need never to delta hedge. What you can do is construct a portfolio in a manner that has hedges built in IE: larger cash and different securities (Fixed Income, Preferreds) but to sit there and say that in 2015 you will jump in the market is a little insane. Nobody knows what tomorrow will bring, and nobody is putting a gun to our heads to deploy capital. But if you deploy according to the principle that price is what you pay, value is what you get, there is no need to hedge as that will hurt your compounding over the long-term. All that hedging does to a value investor is provide the weak minds with the ability to stomach volatility or temporary paper losses. If you have done your research on a business, and understand the fundamentals, no hedging is required. Cheers!

Exactly how much better did Prem do than Francis from 2000 to 2010. Francis return 7% annualized, while Fairfax's book value increased by 9.9% annualized...using leverage and hedges! Check the numbers before shouting from the rooftops! Yes, their actual equity holdings did better on an annualized basis, but what is that position relative to the total assets within Fairfax? In my own personal portfolio, I've returned better than 20% annualized over the same period...no hedges, no leverage, no shorts. Over the last five years, MPIC Fund I, LP has returned 12.5% annualized, when the S&P500 returned about 1%...no hedges, no leverage other than the occasional use of options. Corner Market Capital's own portfolio is up about 12% this year...no hedges, no leverage, no shorts. So feel free to do what your conscious is telling you, but don't extrapolate your use of hedges and macro views as a necessity when trying to invest successfully...even in volatile times. Cheers! Parsad that is a fantastic YTD return +12%... What positions contributed to this outperformance? Most value investors I know are down this year or up in the single digits.

I love Ackman, and his track record is fantastic.

Personally, there is something about Kyle Bass that I just despise. He talks his book way too much and seems to get a kick out of scaring investors. He is the epitome of what drives fear in the markets that are more interconnected than at any point in time. Hes the kind of guy that will mass email all his cronies about something pile in then go on TV and talk his book. Hes very smart but he has a bond villain kind of feel to him.

namecsw, you have only posted 4 times and each post has been fantastic. Please keep it up, I enjoy your insights very much!

Very sad day

Great piece. We have been finding some great value in Europe. Carrefour SA for example is already showing us a profit. http://www.bloomberg.com/news/2011-10-05/don-t-fear-greeks-bearing-gifts.html

yeah I guess you are right about that...

My personal view is that Buffet retired from Buffet Partners because as he said "you shouldn't be doing the same thing you were doing at 30 at 60" (paraphrasing). Something changed with Buffett, he obviously got bored of being retired and missed the game. During those times, Buffett would have NEVER had the access to capital he had through a public holdings company with a fund. Fund aum's were very volatile and outflows ocurred rapidly. Buffett didn't plan it this way he merely ended with control of Berkshire as part of the distribution of Buffet Partners, LP and couldn't help but allocate the capital efficiently. In the subsequent years, Munger and all the other Graham and Dodd investors that ran partnerships experienced significant outflows. Float for example, or owning the Bank in Illinois would have never even been allowed under an LP Structure as they require regulatory approvals. Buffet's idea for using float to invest in equities as opposed to a fund was a genius one, but gave him a clear advantage over the likes of Soros. I believe that Buffett and Soros have accumulated their wealth in totally different ways. As a fund manager Soros has made a lot more money by just picking stocks. But as a business builder/investor Buffett has made history by compounding his way to greatness. I also believe that if you adjust buffett's wealth to Berkshire's intrinsic value he would most likely be worth over $100b. So again my position is that Buffett based on his equity and debt investments alone, with no float, bank capital or ability to raise debt at low yields, did not necessarily exhibit better stock picking abilities than Soros. You are also forgetting another very important element that contributed to his accumulation of wealth. By owning shares in berkshire, buffet has never once paid capital gains tax as he never sold any shares allowing his wealth to compound tax free. In a fund structure, Buffett would have had to pay the 15% Carried interest each and every year plus the Nebraska state tax rate (if there is one im not sure). No doubt that Soros earning over $50B in his lifetime (PRE TAX PRE GIFTS) is extremely impressive.

Munger when Buffet wrote that piece the S&P 500 Market Cap was nearly identical to today's, while aggregate earnings are significantly higher. Another great part of this essay is this: Perhaps by now you're mentally quarreling with my estimate that $100 billion flows to those "helpers." How do they charge thee? Let me count the ways. Start with transaction costs, including commissions, the market maker's take, and the spread on underwritten offerings: With double counting stripped out, there will this year be at least 350 billion shares of stock traded in the U.S., and I would estimate that the transaction cost per share for each side--that is, for both the buyer and the seller--will average 6 cents. That adds up to $42 billion. Move on to the additional costs: hefty charges for little guys who have wrap accounts; management fees for big guys; and, looming very large, a raft of expenses for the holders of domestic equity mutual funds. These funds now have assets of about $3.5 trillion, and you have to conclude that the annual cost of these to their investors--counting management fees, sales loads, 12b-1 fees, general operating costs--runs to at least 1%, or $35 billion. And none of the damage I've so far described counts the commissions and spreads on options and futures, or the costs borne by holders of variable annuities, or the myriad other charges that the "helpers" manage to think up. In short, $100 billion of frictional costs for the owners of the FORTUNE 500--which is 1% of the 500's market value--looks to me not only highly defensible as an estimate, but quite possibly on the low side. It also looks like a horrendous cost. I heard once about a cartoon in which a news commentator says, "There was no trading on the New York Stock Exchange today. Everyone was happy with what they owned." Well, if that were really the case, investors would every year keep around $130 billion in their pockets I can only imagine what the fees are today with 75% of all trading being done by robots. I would love to see what this market would look like without HFT. Liquidity providers my ass.

Vinod I think you said something very important here that I haven't seen before mentioned on this board. The most important line from your post, in my opinion is this: I came from a very poor family, and I do not every want to be that poor again. Everyone here should understand that each investor has a different financial background, base of capital, and expectations for long-term returns. Some of us here are in a position where we must guard our capital as it is newly formed and constitutes a huge portion of our net worth's, others may be fiduciaries for more aggressive capital. When adding this layer of perspective, I can see why everyone on this board may be right as it relates to their individual situation. The capital I invest is 100% risk capital, and I have a very long horizon. I don't need to touch this capital for years even decades. That is why I may appear a little more aggressive to some of you. I did not come from a poor family and was blessed in that regard, that does not mean I am prone to risk, but that may be why I am more optimistic about the future and and able to sleep at night with significant volatility and paper losses. The thing about the market for me is that I am a big believer in human potential and the stock market is essentially a monopoly on capital flows, so over-time if I buy the right companies I will do very well. Some of you here may do better by timing the market buying the same stocks I buy, but over-time my experience with timing markets has not been great. While buying things on the way down has generated some handsome profits. The way I see it, most of this capital will end up being inherited by my daughters and so I truly don't need to worry about daily fluctuations or perfect entries/exits. So with Bmichaud for example, if you are right you may compound at an additional 5-10% over the next 5 years. Which will really be awesome for you. But if I am right, you may miss an entry point all together, and most definitely compound at inferior rates. Now there are plenty of ways to skin the cat, but incidentally, I have gotten to this point by deploying capital this way for nearly two decades, so I am comfortable waiting another year or two if I am wrong. Oh one more thing - about the money printing, I think I deserve some credit here for calling the long-dated security buys. We have already established that buying 30 year treasuries is essentially printing money. Albert Friedberg's letter will be out next week. He has absolutely nailed it these last two months up 30% on a 2 billion dollar fund. I pasted his last letter and will do the same if you guys are interested but this week I heard that he is betting heavily on inflation. You can bet your arses the fed will get it's inflation.

Hyping it as a dividend stock is, IMHO, disingenuous. It might be a good value but not on account of the dividend. But more importantly, good investors seek out reasons why they might be wrong and not why they are right. Norm, I will take 8.2% in this environment. Also, not sure when I was ever hyping anything... As for being a good investor or not, with respect I am not sure you are qualified to make such an evaluation. Cheers!

Again, well said. I do feel that cash is a great hedge as well, but when you see companies you like dropping 50-70% as we have seen over the past 2 months that is what you had your cash for in my view. I remember a berkshire annual meeting, I think it was 2009, where Buffett or Munger said that any Manager who was all cash in 2008 was not someone they would even waste their time on.

Well Said. I think Pabrai said an investor should be a Gentleman of Leisure. I loved the statement and fully agree.

Thanks Parsad, and I agree. Tombgrt, that is exactly why I am so vocal. We absolutely nailed it in 2008-2009, and I know so many fund managers and professional investors that even in July-December 2009 were still waiting for the "double bottom" to form. A great investor once told me something that resonated. He said, all the best buys in my career felt like shit when I was buying them. I can definitely relate to that. As long as you believe you are right on the fundamentals over the long-term why wait? Bmichaud for example is waiting based on some metric from 1974. Good Luck with that. I think in his case is simply rationalizing his personal bias for cash. Maybe as a fidcuaciary he has little wiggle room? Who knows? Deep down inside, I feel the same way about Munger but the problem with Munger is the resolution of his predictions has been so on point that it is difficult to counter his arguments at this stage. Hes been right... for now. Our investors can sustain volatility and they have. We have gotten a total of $400k in redemptions in September. I see so many bargains in the market right now that I will continue to buy and maintain full exposure to equity markets. Besides our BAC trade we really haven't' experienced significant paper losses.

The Segals are a great French Canadian family. I am not sure if some of you are familiar with David's Tea? Its a wonderful concept. Well that is another Segal Family enterprise. I would bet that the Segals know what they are doing, and their money is where their mouth is. I don't see how CTU can deliver me a permanent capital loss over the next 5-10 years. When Hersch Segal sold his shares you know who bought them? His Cousin Jane! You can't make this stuff up, their interests are aligned!

I definitely feel some animosity towards me, but the truth is I have been on vacation. I value all the members of this board and would occasionally read posts for many years until I decided to join. I don't have a problem admitting when I am wrong about something either or giving credit where credit is do. For example, I recently wrote to Munger privately who has been right on the Macro while I have been wrong. But that is what makes a market, both sides of the coin. I have been through this before, and am just voicing my opinions and enjoy all comments. Even ones like NORMR, where he states that an 8.2% current dividend yield is less than fantastic on a company trading below book, at 1/3 of sales, and about 5x normalized FCF. A company majority controlled by a family that has delivered value for decades and has distributed dividends to shareholders that have exceeded the current market cap. I don't hedge my posts as some of the members on this board do. As Governor Christie recently said to a reporter, you will never have to wonder where I stand on an issue. On that note I will also disclose our current performance as of Sept. 30. -15% on the Value Fund +3% on the Resource Funds We have maintained our exposure to equity markets in a way that I feel will outperform when investors come back to reality.

Ben I was going to literally do the same thing. Parsad, that is exactly what my definition of a "real" value investor is. Bmichaud I am not sure why that quote discredits the rest of the post. Just because I am viewing a forward PE and you view a trailing PE, the S&P Today is indeed reflecting a 9.9 P/E Ratio.