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Article from 1975


Rabbitisrich
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http://nymag.com/news/businessfinance/47178/

 

In a word, Mr. Paris sees ever worsening cycles that go something like this: a credit crunch that leads to a recession, which leads to reflation of the monetary supply to pump up the economy, leading to even higher inflation leading to controls, leading to a burst of superinflation when the controls are lifted, leading to an even more severe credit crunch to try to restrain the inflation, leading to an even more severe recession, leading to even more massive reflation (like a big tax cut) . . . and so on, ad disastrum. His book was written a year ago and "So far," he notes gleelessly, "things seem to be right on schedule."

 

As you would expect, Paris, a Chicago-based officer in the investment firm of Spencer, Trask, thinks this is the time to aim for survival rather than capital maximization. He suggests dividing your $10,000 among "cash equivalents," like Treasury bills or savings accounts (that can be quickly converted to cash); gold coins, like the South African Kruger Rand (which gold enthusiasts agree are more practical for the little investor than investing in gold itself); and stocks in gold-mining companies. Or, if you are trying to maximize capital, he suggests buying only high-quality stocks to try to catch what he expects will be the temporary updrafts in the market. "You had some great rallies in the thirties," says he.

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I have no idea how Paris made out, but that Warren Buffett fella seemed to do OK.  From the same article...

Warren Buffett, a very successful money manager turned private investor, "has no idea what stock prices will do," but thinks our hypothetical investor should "buy some marketable security that represents a good business that he understands, at far below its value to a private owner." Private-owner value, he says, is where the businesses would trade between two well-informed private businessmen who are under no compulsion to deal. This varies from industry to industry, and tends to be based on multiples of likely future earnings. "There are businesses trading hands rather frequently, like banks, TV stations. . . . Business is done, and the prices in that world of private ownership are enormously different from what little pieces of paper [stock certificates] change hands for. Where it used to be that public companies were selling way above their private-owner values, now just the reverse is true."

 

Private-owner value gives you a benchmark of reality in the approach to securities, says Buffett, instead of trying to decide whether they're going to go up next month. "It's standard Graham-and-Dodd [the classic text], but all I can say is that if you're not in a hurry, it works."

 

Since I've had 3 stocks taken out this year (TSE:TUN, WEST, ORH) and a fourth about to be taken out (TSE:KOS), Buffett's opinion on private owner valuations holds even today (~35 years later).

 

-O

 

http://nymag.com/news/businessfinance/47178/

 

In a word, Mr. Paris sees ever worsening cycles that go something like this: a credit crunch that leads to a recession, which leads to reflation of the monetary supply to pump up the economy, leading to even higher inflation leading to controls, leading to a burst of superinflation when the controls are lifted, leading to an even more severe credit crunch to try to restrain the inflation, leading to an even more severe recession, leading to even more massive reflation (like a big tax cut) . . . and so on, ad disastrum. His book was written a year ago and "So far," he notes gleelessly, "things seem to be right on schedule."

 

As you would expect, Paris, a Chicago-based officer in the investment firm of Spencer, Trask, thinks this is the time to aim for survival rather than capital maximization. He suggests dividing your $10,000 among "cash equivalents," like Treasury bills or savings accounts (that can be quickly converted to cash); gold coins, like the South African Kruger Rand (which gold enthusiasts agree are more practical for the little investor than investing in gold itself); and stocks in gold-mining companies. Or, if you are trying to maximize capital, he suggests buying only high-quality stocks to try to catch what he expects will be the temporary updrafts in the market. "You had some great rallies in the thirties," says he.

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