Can Turtles Fly?

Haven't had time to spend too much time on investing but I do keep up with news and research things here and there. With the American market selloff in Q4 2018, I have been investigating several stocks. As usual in these corrections, the lower quality stocks have sold off more. I notice that leveraged businesses are somewhat cheap right now. As an example, a lot of John Malone's companies have sold off quite a bit (some of it due to company/industry  specific issues but market selloff amplified it). For example, Liberty Global (LBTYA, LBTYK) and Liberty Latin America (LILA, LILAK) have fallen a bit. They have lots of debt and the is concern over the future of the cable industry but they are getting cheap. In the meantime, in early January, the Nevsun (NSU) takover was completed (on Jan 4). Took a bit longer than forecast bute overall, satisfied with how things turned out. Price Sold: $6.00 Total Return: 4.88% (annualized (estimate): 23%--not meaningful) With a small po...

I took a position in Nevsun (TSX: NSU) which is being bought out by Zijin Mining, which is one of the largest gold mining companies in the world. zijin is a chinese company that trades in Hong kong and there should be no risk with financing and the like. I owned Nevsun about 10 years ago and this buyout would bring closure to one of my earliest stocks. Since the spread is so small, this deal is not worth it for you if your holdings are in a different currency and you don't hedge; or have a US$-denominated account. C$ currency fluctuations can wipe out any gains. NSU also trades in USA but company is Canadian and all my dealings are in C$ and on TSX. Purchase price (TSX: NSU): $5.72 Return Expectation Takeover price: $6 Purchase price: $5.72 Probability of success (my estimate): 99% Return on success: 5% Probability of failure (my estimate): 1% Return on failure (my estimate): -56% (assume it drops to $2.50, the multi-year low from early 2018 (it has traded...

Some people are on holidays; others have light loads—assuming you aren't one of those airport workers stuck trying to clean up from the snowstorms ;) Here is some reading material to keep you busy... (Recommended) Potential actions by regulators to control the too-big-to-fail banks (Reuters Breakingviews via Financial Post): Regulators and government officials created huge moral hazard by creating the oxymoronically-named too-big-to-fail banks. Now they are trying to figure out how to regulate them and, ultimately, prevent the banks from turning into too-big-to-save (i.e. banks that will threaten sovereign solvency). This is a good article that presents several solutions and the ones likely to be followed by the government officials and regulators in the near to medium term... As I have mentioned in the past, the "proper" solution in a capitalist society is to punish the financiers who enable all the risk-taking. In this case, the bondholders have been spared (except f...

If you are already feeling information overload, let me make it worse and offer you the following articles ;) As usual, not in any particular order... GM changes its logo on its HQ building (The New York Times): Subtle but changes like this are important to motivate the employees and project a new brand image. The IPO was successful; the company has reduced its costs; new leadership; betting big on the Volt... Let's see if it re-invent itself, a la IBM in the 90's, or if it will continue its long decline into oblivion. Consulo Mack's Wealthtrack interview with David Einhorn (Wealthtrack; via Gurufocus): David Einhorn is a sharp, up-and-coming, value investor. If I'm not mistaken, he hails from the midwest and is kind of like a young Warren Buffett (less proven than Buffett though; also seems more shorter-term-oriented and doesn't employ strategies of 'Buffett Prime' i.e. 1970's+). He rarely gives interviews worth talking about but I thought I would l...

Some articles I checked out over the last few weeks, that you may find worth reading... (Recommended) Strong bounce from the lost decade for stocks? (New York Times): One of the arguments made by long-term bulls is that the stock market will post strong returns over the next decade because the last decade was extremely poor. That mean reversion has actually been true throughout history. However, what is ignored by bulls is the fact that valuations now are still high and way above what prior averages. This is an excellent article that touches on why we may not see strong returns over the next decade. I concur with some of the analyst comments in the article and think that US stocks will probably post around 7% per year (nominal) going forward. This, as anyone who has studied compounding would know, is a massive difference from 10% per year that stocks haver returned over the last 80 or 90 years. (Recommended if macro-oriented) Timber investment primer (Advisor Perspectives): In t...

I am a total newbie and only been investing for a few years but I noticed something I have never seen before: there is extremely high correlation between gold and bonds (US Treasuries). I haven't looked at distant history to see how common this is, but it certainly has been rare in the last few years. What is most strange about this correlation is that both signal different inflationary outcomes. Long-term bonds will not rise if inflation is thought to be a threat. Conversely, many investors buy gold to hedge against inflation (yes, there are some who buy gold for deflation/wars/disease outbreaks/etc but they are in the minority). Precisely when a lot of brainpower, not to mention ink and bytes, have been spent on the debate over inflation vs deflation, I find it interesting that the market is bidding up both, long-term US government bonds, as well as gold. Here is a quick look at the relationship between gold, bonds, and stocks. I'm using S&P 500 as a proxy for stock...

I ran across a great article in The Economist summarizing the current state of asset markets . Nothing earth-shattering in the article but it does summarize various issues and examines potential bubbles. As the year just started, investors are probably thinking about the same issues so I thought I would quote some key points from that article. THE opening of the Burj Khalifa, the world’s tallest building, in Dubai on January 4th had symbolic as well as architectural significance. Skyscrapers have long been associated with the ends of financial booms. The Empire State Building opened in 1931, two years after the Wall Street crash. The Petronas towers in Kuala Lumpur were unveiled in 1998, in the depths of the Asian crisis. Such towers are commissioned when money is cheap and optimism about economic growth is at its height; they are often finished when the champagne has gone flat. The past three decades have been good for skyscraper-building. The cost of borrowing money, in nominal t...

As far as I'm concerned, gold has finally entered the bubble phase. A special report on a mainstream site like MarketWatch (with 8 articles on it) probably portends to its popularity. None of this means that this is the peak but I have a feeling fundamentals—if there is such a thing for gold—has been thrown out the window.

Some articles you may have missed... Seth Klarman annual meeting notes (various sources; h/t itznuthin1 and toughiee @ GuruFocus): News spreads on the internet like wildfire. Apparently Baupost held its first annual meeting and someone took some notes. It was published on various sites but later withdrawn at the request of the author. I have no idea who the author is or why it was withdrawn so one should be careful when reading this. It either means that the information was not meant to be public or the information may be incorrect (possibly fake.) Since the withdrawl notice didn't suggest the reason for pulling the notes, one can only speculate... I don't really follow Seth Klarman closely because it is virtually impossible to implement his strategies (even if you were able to implement them, it is difficult to figure out why Klarman purchased or sold a security.) Anyway, one interesting tidbit that stood out was Klarman's view that stocks were not cheap, even at the Marc...

It's getting colder in the Northern Hemisphere... Here are some articles for a chilly day... Sorry about the lack of articles on specific investments. I haven't had much time to research them and I haven't found any potential long-term investments that I have liked. There have been quite a few mergers and takeovers announced but the spreads are likely small (no financial crisis or panic selling right now.) But if the market sells off, keep an eye on some of those announced deals to see if the spreads widen. British Columbia's real estate appears to be on the verge of a bust (The Globe & Mail): Difficult to tell from these stories but it looks like the real estate boom in BC might be on its last legs. I imagine it is still strong due to the Olympics build-out but we'll know how bad the situation is after the Olympics. Inside a day-trading software provider (The Globe & Mail): I am not actually sure that we are seeing a rise in day traders but I alway...

It's hard to tell how good David Einhorn is with his macro calls. I don't give him the same respect as many others, when it comes to his macro views. In any case, it looks like Einhorn is making some bold calls. MarketWatch reports that he is expecting a major currency crisis (interestingly not in USA): Greenlight Capital is betting on the possibility of a major currency collapse and a surge in interest rates, the hedge-fund firm's manager David Einhorn said Monday, citing ballooning government deficits in some of the world's most developed countries. ... On Monday, he said Greenlight has added new trades to this investment theme, buying long-dated options on much higher interest rates in Japan and other developed regions -- effectively giving the firm the chance to make big profits from a jump in rates. The options, bought from major banks, are tied to interest rates four to five years out, Einhorn noted. "Japan may already be past the point of no return," h...

No, I'm not turning bullish on gold ;) Story of the week has got to be gold. It is all over the press even though it is only up around 4% this week, which is very tiny for such a volatile asset. It's not clear to me why gold is rallying. Initially it appeared the rally was due to the secret meeting to price oil in currencies other than the US$ . The fact that this has been a rumour for years kind of makes me think it is neither a secret nor should the market have been surprised. I respect Robert Fisk, the opinion piece's author—BTW, it was an opinion piece not a news story—because he always speaks his mind and has openly criticized various governments around the world. However, this isn't much of a news to me. For what it's worth, the suggestion of a secret meeting swiftly denied by various-producing countries . Some speculate the strength in gold is due to the Austrialian interest rate increase. This is a more plausible view. It is possible that a carry-trade in US...

The Globe & Mail is reporting that Barrick, the largest gold company in the world and one of the largest companies in Canada, is closing out a big chunk of its hedges using proceeds from a massive share sale: In a major bet that gold's rally has a long way to go, Barrick Gold Corp. unveiled plans to largely eliminate its troublesome gold hedge book with a massive equity issue worth as much as $3.45-billion (U.S.) – potentially the largest stock sale in Canadian history. On a day when the price of gold topped $1,000 (U.S.) an ounce, the Toronto-based company said it is selling 81.2 million shares at $36.95 each. It will use the proceeds to eradicate more than half of its hedge contracts which have locked the company into receiving a fixed price for some of its gold production. The world's largest gold miner, Barrick produces about 8 million ounces a year. But its hedge book totals 9.5 million ounces, fixed at prices hundreds of dollars less than the $1,009 gold hit yesterda...

Most of the world celebrates Labour Day on May 1st but in Canada and America it's the first Monday of September. Labour Day is going to be quite ironic and possibly unfortunate for me and I'll briefly mention why next week. In any case, on to investing... Here are some articles you may find worth checking out... (Recommended) Andy Grove of Intel, a legend (The Economist): The Economist published its Technology Quarterly —you can purchase a printable PDF for $4.95 if you wish—which is always interesting for the stories it picks up on cutting-edge technology. The linked article profiles one of the giants of the computer industry, former CEO of Intel, and probably employee #3, Andy Grove. Gordon Moore will always be thought of as the #1 techie at Intel but Andy Grove is, and will be, more famous for his business vision. He is definitely one of the top American businessmen in history. Interesting thought in this article well worth reading. (Recommended) Potential liquidation of ...

Gold passes $1000...bubble forming? was the title of one of my posts from earlier this year. Admittedly, the title was a bit too extreme and it's probably a bit premature to start calling for a bubble. I still remain bearish (although I would not short gold right now) and anyone interested can read some of my reasons in my original post back in February . In any case, this post is about the present. The story of the week for me is gold's attempt to break past US$1000. Fifth time lucky? Remains to be seen. The above chart plots the gold ETF, GLD, which is very close to 1/10th the price of gold price. In the last two years, there has been five occasions when gold has been within 5% of $1000. The interesting thing this time around is how gold rallied strongly even though the US dollar didn't decline materially (it was essentially flat this week.) The stock market was also largely flat for the week. In the past, gold has has high correlation with the stock market. Long time re...

Any asset can beat another in the short-term but does gold perform well in the long run compared to stocks. I have a feeling that goldbugs will permanently delete this blog from their bookmarks after reading this post ;) Reader hpmst3 wondered about something he read about gold: On another topic, I read that over the past 40 years, gold has returned 8.4% annualized versus the S&P 500's 9.1% annualized. This was in the wsj, and the author was quoting a money manager from Cincinnati. I was shocked. I thought that Gold's return was a lot lower like around 2 or 3% annualized. I don't know what they were using as a benchmark since ETF's were not around. I am guessing that they used the commodity itself. I have seen you write about gold before. Do you by any chance know if this is correct Sivaram? The numbers are correct. I calculated the numbers and they are very close (any differences are likely due to slight differences in time period, annual vs daily price changes, an...