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Investing

The latest from GMO’s James Montier,  No Silver Bullets in Investing (just old snake oil in new bottles) debunks some widely held beliefs about investing and inflation protection.  His findings will surprise you but his conclusion probably won’t:

“The one thing that unites everything I’ve been writing about in this paper is the golden rule of investing: no asset (or strategy) is so good that you should invest irrespective of the price paid. If when buying a house the mantra is “location, location, location,” when thinking about any investment (be it an asset or a strategy), the equivalent refrain should be “valuation, valuation, valuation.” We would argue that one of the myths perpetuated by our industry is that there are lots of ways to generate good long-run real returns, but we believe there is really only one: buying cheap assets.”

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Interesting read from the WSJ about how horizontal drilling technology is breathing new life into an old Texas oil field.  I especially like their graphic…

I still want to know how on earth you drill horizontally but I don’t have time for an extended wikipedia worm-hole session today.

From the WSJ: Second Life for an Old Oil Field

One of Texas’ oldest oil fields, in decline for decades, has become one of the hottest places in the country to drill for crude, as energy companies create clusters of wells with layers of horizontal branches.

The Permian Basin—86,000 square miles centered on Midland, Texas—has been pumping oil since the 1920s, though production peaked at about 2 million barrels a day in the early 1970s. For decades, geologists have known that oil could be found in different layers of rock piled up like a stack of geologic pancakes.

But now drillers are starting to tap those layers simultaneously from a single site—and are committing billions of dollars to do so.

 

MK-CH988_PERMIA_G_20131119180309

I’ve posted this quote before but it bears repeating:

“For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips… The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place. There are no safeguards that can protect the emotional investor from himself.”

Source: John Hussman by way of Value Investing World 

I’m currently reading The Essays of Warren Buffett: Lessons for Corporate America, Third Edition and while I’m tempted to repeat every little tidbit of wisdom on this blog I’ve thus far been successful at not completely plagiarizing the author’s work.  Below is a fantastic little excerpt on Gold.

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $ 1,750 per ounce— gold’s price as I write this— its value would be $ 9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $ 200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $ 40 billion annually). After these purchases, we would have about $ 1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $ 9.6 trillion selecting pile A over pile B?

— Cunningham, Lawrence A.; Buffett, Warren E. (2013-03-01). The Essays of Warren Buffett: Lessons for Corporate America, Third Edition (Kindle Locations 2516-2522). Carolina Academic Press. Kindle Edition.

As a side note I’ve whole heartedly adopted the Kindle app as my e-reader of choice (I have an iPad & a MacBook Air).  While I like iBooks I find the books on Amazon to be generally cheaper than iTunes and there are more ways to access your books (Kindle app for ipad, the internet, and a Kindle app for OSX).  Although I’ve heard that Mavericks will have an iBook app when it is released later this year so stay tuned.

 

That number is shocking to me.  I for one think high frequency trading is a perversion of our capital markets.  People will argue that it provides liquidity but at what cost?  Read the full article over at Quartz.

“Although the SEC isn’t saying as much, experts think it’s a sign that high-frequency trading are flooding the market with orders, overwhelming the average retail or institutional investor.”

“High frequency trading firms have been known to flood the market with orders, trying to determine the price institutional or retail investors are offering, then cancel 90% of them a split-second later. This can artificially alter the price of a security, netting high-frequency traders profits at the expense of their counterparties. True, those profits are small—often just pennies. But over time, these firms make millions of dollars.”

I like Charle Schwab’s and Walt Bettinger’s solution:

“A penalty on excessive cancellations, rigorous enforcement of rules regarding information access, and a top-to-bottom study of the NYSE’s 40-year-old Market Data System would be good places to start,”