Both written by Jeremy Seigel.  These are probably the 2 most useful books I have read on investing.  The books discuss the long term results of investing in stocks since 1800.   Much work has been done on graphs, stats, and research.  Since 1800, 1900, or 1950 stock returns have beaten bonds or gold by a wide margin.  However, I do think he misses a lot of stocks that end up broke.  Also two stocks listed as S&P 10 are now bust, General Motors and Washington Mutual.  There are a lot of hidden gems in these books, so I am going to stop my review here.  Go to the library read them, then after you will buy them on amazon because they are that good.

He also writes about the coming crisis due to the fact the country is living longer.  He even recognizes that it requires far fewer man-hours to make steel than 20 years ago - 4 m-hrs compared to 10 m-hrs.  But, he fails to realize if you added the productivity gains of machines, farming, and minerals, humans would have to live to 200 years old for one to work as hard as someone in the 1950s.    Increased life expectancy is actually good for the economy, in the sense that it adds new industries like health care and nursing homes.  Industries that don't need to be artificial created with taxes like banking and NASA.

Prem Watsa, Chairman and CEO of Fairfax Financial Holdings, has often been referred to as “Canada’s Warren Buffett” due to his successful insurance and investing track record. However, in a recent interview with canada.com, Mr. Watsa expressed very different views regarding inflation compared to Warren Buffett’s recent statements on the subject.

            Inflation Expectations

80% of the economy [the private sector] is de-leveraging. 20% is government stimulus. Companies are operating at 65% of capacity or utilization rate. Unemployment is rising. If in six to 12 months’ time, the stimulus and bailouts don’t work, and we are at zero interest rates, what then? We had 20 years of good, meaning no recession to speak of, and only one year of bad. We are not worried about inflation, just the opposite. If wages start to go up, there will be inflation. But there is lack of demand. That’s the problem.



Greenspan’s Legacy

The Greenspan policy was part of the problem. If Paul Volcker had been chairman of the U.S. Federal Reserve would this have happened? Not likely. He would have put interest rates up in 1996 when Greenspan warned about “irrational exuberance” and the tech bubble. Mr. Volcker would have let Long Term Capital Management go bust, raised interest rates and we never would have been in this current situation.

In response to a question on ActiveValueTrader.com, I'm posting this snippet, so you can see what I'm doing in the markets today....

I'm still holding the SDS at a -14.67% loss currently, which is something I will continue to manage.  The important thing about averaging down is you don't want to keep digging a hole when you're already in a hole.  This means, don't average down for the sake of averaging down.

I don't consider my SDS position a mistake yet, especially since it's a minimal 1% weight.  Since I do not consider it a mistake, I will wait for when the opportunity presents itself, and average down at that point.

If I thought SDS was a mistake, I would have sold it for a loss, without question.

For the past few months, I've been 90% long, 1% short, and 9% cash.

I'm holding two losers, larger than SDS.  They are FSLR -21.76% (a 2% weight in my portfolio) and ISBC -24.92% (another 2% weight in my portfolio).  The ISBC was from an arbitrage play that went bad on me.  In fact, I think it's the only arbitrage play where I lost any money, and the jury is still out on whether I lose money on it or not.

I also have 2 other stocks in my portolio, which are also losing money:  AZN -2.95% and GILD -4.76%.

The winners still in my portfolio are:  BNI, BVN, CVX, ENDP, GOOG, JNJ, K, KFT, KO, KR, MBT, MCD, MOS, PEP, PG, SNN, SYK, WAG, WMT, and XOM.

Overall, my winners far outweigh the losers, especially BVN with a +165.65% gain and 10.56% weighting right now.  I will be reevaluating BVN soon, as gold is in a manic phase.  Manias can last a long time, and when the U.S.A. increases the money supply, via deficit spending, it only helps BVN, so I'm really not in a rush to look at it.

K, PG, and WMT are also heavy positions and winning.

- Vooch

Yesterday, it was disclosed Warren Buffett increased his stake in Wal-Mart (WMT).

WMT is my largest position in my real portfolios, and even here!
 
w00000000h000000000000!

http://www.gurufocus.com/news.php?id=76347

http://www.activevaluetrader.com/forums/index.php?topic=235.msg940#msg940

- Vooch

After hitting today's Home Run with BNI (+25% gain in 10 days), several people asked me what Intrinsic Value I came up with ten days ago for BNI, so I looked it up tonight, and the answer I arrived at, ten days ago, was $202.19/share.

I paid $79.085/share for BNI ten days ago.  The merger is supposedly worth $100/share now, but time will tell.

It's amazing, but it looks like Mr. Buffett, in my eyes, wants to buy BNI for less than 50 cents on the dollar.  Keep in mind, Intrinsic Value anticipates forthcoming periods of market euphoria, when Mr. Market reswings the pendulum in the opposite direction (ie. from a depressive-state to a manic-state).

My methodology is private right-now, but will be released to the public if/when I publish the book I've been writing since 2002.  I believe I'm only a couple more years away before I'm ready to publish.

Anyways, I try to buy stocks for 40-50 cents on the dollar, just like Mr. Buffett.

To quote the master, Mr. Buffett himself:

"It's extraordinary to me the idea of buying dollar bills for 40 cents takes immediately with people or it doesn't at all.  It's like an inoculation.  If it doesn't grab a person right way, I find that you can talk to him for years and show him records, and it doesn't make any difference."

- Vooch

I hit another Home Run today!

As you learned here on October 23rd, I bought BNI.

Today, Warren Buffett announced that his is buying BNI for about $100/share.

I made about +25% in 10 days, and I hope you were able to join me.  If you did, congratulations!

- Vooch

Although I admire Peter Schiff and hope he wins his senate seat.  Hopefully he realizes income taxes are good.  The growth of the 1950s was the result of 80% income tax rates.  But what I am here today is to challenge his notion the the DOW will someday equal the price of gold.  His notion is the DOW is based on U.S. stocks and that as Americans get poorer due to dollar losses, the DOW will go down. 

First lets look at gold.  The first column is the year.  The 2nd column is metrics tons of gold in the world.  The 3rd column is the increase in new gold supply due to mining.  The 4th is the loss in gold due to manufacturing and dental.  None of the numbers are referenced and not too accurate.

Gold Tonnes  Gain Loss
1970 93500   2000 -500
2000 140000 2600 ¬500
2001 143000 2601 ¬500
2002 146000 2600 ¬500
2003 149000 2600 ¬500
2004 152000 2600 ¬500
2005 155000 2600 ¬500
2006 157000 2500 ¬500
2007 159000 2500 ¬500
2008 161000 2356 ¬500
2009 163000 2400 ¬500

The world population is currently 6.8 billion people.  In 2000 is was 6.1 billion.  During this time change the supply of gold increased 16%, the population increased 8.1%.  It is estimate the supply of gold will increase another 100,000 tons before reserves become depleted and the cost of extraction will exceed the price of $1500.  The value of gold is purely based on what people give it.  For that reason you often hear advertisements on radio and t.v. to keep the demand up.  Gold has not inflated in supply (2% per year) compared to any currency.  As inflating currencies via increasing the national debt are the easy way to steal or tax savers.

Now lets look at a DOW stock.  I chose Exxon-Mobil because it is the largest in market cap.  The first column is year, the 2nd column is shares outstanding, the 3rd column is annual dividend, and the 4th column is yahoo finance adjusted price at end of August.

XOM   
2000 6900 0.88 34
2001 6800 0.90 33
2002 6700 0.92 30
2003 6600 1.00 33
2004 6400 1.08 42
2005 6100 1.16 55
2006 5700 1.28 64
2007 5400 1.38 82
2008 5000 1.60 78
2009 4800 1.68 69

During this time shares outstanding were reduced 30.4% compared to the population increase of 8.1%.  Assuming XOM puts out the same amount of oil as in 2000.  It is easy to see the change price of a share XOM, should exceed that of the change in the price of an ounce gold on an inflation basis. 

It should be noted.  If the electric car gains foothold in the U.S., which everyone should hope due to the lower air pollution, it is entirely possible XOM will go the way of Circuit City - bankrupt.  But, before that happens the DOW will replace the stock.

The rise in the price of gold is purely the result of hype and advertisement of the last decade.  The fleeing of corrupt currencies as result of cutting income taxes.  Yes, gold supply change is better than any fiat currency.  But stocks can control their shares outstanding, thus if they are able to increase market share too, they should outperform gold. As long as the hype continues for gold, demand will rise and prices too.  Governments can control their national debt too, thus supply of currency.  They can increase taxes, cut spending, and pass balanced budget amendments to stabilize currency.

The partnership was hit hard in the vicious bear market of 1973 and 1974 when it fell 31.9 percent and 31.5 percent in back to back years. After this difficult experience, Charlie Munger followed Warren Buffett in concluding that he no longer wanted to manage funds directly for investors.



“The way I play the game, if it looks like the markets are becoming less analyzable, you just don't play. Well, this has been a very toxic and hostile environment, so we're not playing that much.”

Soros has taught me that when you have tremendous conviction on the trade you have to go for the jugular. It takes courage to be a pig. It takes courage to ride profit with huge leverage.

Superior performance requires 2 key elements: preservation of capital and home runs. Druckenmiller is saying that in order to really excel you must take full advantage of situations when you are well ahead and running a hot hand.
Great track records are made by avoiding losing years and managing to score few double digits or triple digits years.

PS: In 2008 Stanley Druckenmiller earned $260 million