Weekend Reading – Wanting the market to crash, overspending, not showing up and more

I pity the fool…who has to shovel! I’d post pictures of all the flowers and cherry blossoms out here but that might be insensitive. I might have to mow the lawn this weekend, so it’s not all roses. #westcoastwinter

re: Spain — not surprising as Spain is a notoriously ill-run country (as are Portugal, Italy, Greece, et al). Reminds me of that dude a few years ago who outsourced all his computer work to China, but got fired for being resourceful and efficient. Guess exploitation is for the employer and not employee. Also reminds me of the bus drivers out here: the senior higher-paid drivers would “sell” their shifts to the junior lower-paid drivers; the senior driver was essentially paid the difference in wages to not work.

re: Buffett, KM, and you — “Warren Buffett bought a boatload of Kinder Morgan stock this week, I’ll continue to hold my shares then.” This is flawed thinking, in my view.
Firstly, it most likely was not Buffett who made the buy decision, but one of his money managers. Second, Berkshire (not Buffett) acquired the shares some time in Q4 2015 — not this week. This always happens when BRK releases their reports; the exact same thing happened when the public discovered he bought into Suncor — PRICE POP! Were your thoughts about post-65% decline KM last week as excited as post-BRK buy this week? Third, it’s biased to agree with only the portions of Buffett/Berkshire investments that support your own investment decisions. BRK also utilizes leverage, trades options, buys private equity, holds a lot of cash, and has zero index funds — does your portfolio? Thing is, at this point, both Buffett and BRK are institutional investors, they have completely different investment strategies and goals than an individual or household. Both you and Buffett will hold KM, but very likely for different reasons (e.g. BRK are holding for profit, already 15%; you are most likely holding in hopes of erasing losses).

re: Gold — I think Kyle and I have discussed this point a long while back. First off, I’ll point out that Jeremy Siegel’s comparisons of gold vs. other financial assets is hugely flawed: “A dollar invested in the following assets in 1802* would have been worth the following amounts in 2001 (adjusted for inflation): Stocks: $599,605; Bonds: $952; Bills: $304; Gold: $0.98”

From 1802-1968, gold was currency in America. For almost 85% of Siegel’s data range he’s saying, “A dollar of cash invested in a dollar of currency…”. It’s deeply ignorant and a blatantly misleading point; the price was controlled by the government, not the open market. It was also illegal to own large sums of gold. Would you buy stocks if the government dictated the absolute price and said you could own a maximum of ten shares? For a factual review, how did gold fare against stocks from its date of release, 1968, until now? Presented as annual returns: stocks 9.87%; gold 7.3%; inflation 4.1%.

*Prior to the invent of the full S&P index fund in 1978 there was no cost effective manner in which to buy stock in every component, yet another massive hole in Siegel’s theory, but I’ll let it slide for sake of comparison.

Buffett bought a lot of silver back in the late 1990’s, citing “equilibrium between supply and demand was only likely to be established by a somewhat higher price”. He’s also speculated on copper in the late 1970’s. To eschew speculation of gold, he’s being either very forgetful or hypocritical.

Second, gold has a price, a market, and liquidity, thus it has value. Whether it is over or undervalued, I have no idea. Considering that most above-ground gold is “hoarded” (i.e. stored indefinitely), I would say most of gold’s price is comprised of irrational factors (fear, greed, etc.). Kyle is correct in that gold is not for investing, but speculating. In that respect, the average investor — not the DIY PF blogosphere, but the financially ignorant people who still let the big banks put their money into proprietary mutual funds — should not consider gold in any shape or form.

That said, there is no problem utilizing gold as a trading instrument based on that premise — human irrationality. If human nature were a classic portfolio, it would be at least 60% irrational, 40% rational. You can invest all you want in human rationality (fundamentals, innovation, etc.), but I’d say there is far more money to be made from the irrational side, and if you ignore that then you are missing a very large chunk of opportunity. If not, then why would an Goldman Sachs bankster start a virtual gold store? He is definitely not losing money (1% fee for being the middle man).
http://www.cbc.ca/news/business/gold-price-bullion-rally-1.3450887

I’ve been churning silver on a personal level (opposed to a professional level) since 2009; I still make a healthy stock-market beating annual net profit. Fear is very present and valuable. Precious metals are not for investing or hedging, they are for crisis situations (thanks to the 24/7 media noise for keeping us in crisis mode!). What’s that ancient Chinese saying about crisis and opportunity?

It’s also amusing that farmland is stated as a non-speculative anti-gold play when the past decade-plus has witnessed a huge degree of greed-driven speculation (vs. gold’s fear-driven speculation). Full disclosure: I’ve profited from farmland.

Have a great weekend!

Geesh I don’t envy you. We had our share of rain this week but that’s not the same as snow. 🙂

Wiper blades left up like that drive me nuts.

Mark, if you come out and your wiper blades are back down, you’ll know I was in the neighbourhood with my irrational pet peeve.

That was quite a snowfall. Took me a long time shoveling our driveway — and makes me want to buy a snowblower.

Thanks for sharing the weekend reads.
R2R

Thanks for the mention Mark. Geez you have a lot of snow there. It’s been around 7 degrees and manly sunny for like 10 days. I’m sure the snow will make it here in March though. Have a good weekend