Tag Archives: wall street

The Wizard of Omaha (Pt.I)

Every culture has its icon. Even though you may not know much about the culture, you can certainly “put a face” to it. In tennis, there is Roger Federer, in beauty, there is Audrey Hepburn, in jazz , there is Miles Davis. In technology and design, there is Steve Jobs (well, for all you Apple skeptics out there, I will say Bill Gates for the sake of your cynicism).

And in finance and investments, there is Omaha’s Mr.Warren Buffett.

Buffett’s private life is not much of an excitement to many; however, it is his doctrines that have proven to be historically essential. So, my focus will be on Buffett’s first art of value investing.  As for Warren’s private biography, let us leave that to the screenwriters who are preparing for the next made-for-TV biopic on Warren, shall we? (if one would ever be made).

Warren’s Mentor: Benjamin Graham

Prior to Buffett’s entrance to the stock market, Wall Street was considered largely as a casino where gamblers or speculators placed massive bets on the direction of stock prices. The speculative buy-sell frenzy was consistent during the roaring 20s. However the bull market did not last long. In 1929, the stock market crashed, and stock prices hit rock bottom. Line-ups to the hottest and latest jazz clubs were competing with lines at the soup kitchens.

In the early 1930s, a bright young analyst by the name of Benjamin Graham spotted a trend on wall street: Most traders were oblivious to the long-term economics of the businesses that were traded. According to Graham’s observations, stock prices were driven up to surreal levels as a result of speculative frenzies. The prices did not reflect the realities of these businesses. On the other hand, prices were also surreally low at certain times, and similarly did not reflect the business’ long term prospects.

Graham realized that he bought these stocks incorrectly valued at low prices. The market would eventually acknowledge the long term value of these companies. The prices will be revalued, and Graham could sell them at a profit.

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Occupy Wall Street – so what?

The dilemma the “occupationists” are facing right now is that they are not being heard in the media as they wish they would. Just recently the protestors raised approximately $300K (http://online.wsj.com/article/AP337384456a7249c794f1db2b40ced47f.html). The question remains as in what are the different pathways for the protestors:

I think that there should be certain goals for the occupationists, such as:

1. Separation of banks and everything else (such as trading, hedging, derivatives trading, speculations)

Just like the Church and the state – it is difficult to separate the greedy from money.

2. Effective regulation of the banking sector (a corollary from #1)

3. Legislation to enforce speculations to such a degree that risk the capital of the shareholders without their consent. The shareholders must agree in writing that they are comfortable with losing all their money due to the “investments” the firms may be making on their capital. This is comparable to putting images of people inflicted with throat cancer on cig packages.

And what necessary steps should they be taking next? Lets think about this for now. The occupationists, may have arisen from a crowd that is concious and understands the brewing troubling situation of what we see in the U.S. However, the only way to make legislators feel the wrath is to …. put someone incharge. A leader. A visionary – from amongst them. Only when the Republicans and the Democrats realize that their seats are at steak, only then, they will realize that it may be time for change.

My only concern is that if this protest fails, then we will see less effective protests and gatherings in the future. Don’t make it look like a joke, and don’t let Kanye West or any other celebrity to steal the spotlight from the actual cause.

I hope for the best.

Alpha

Gold – a bear’s best friend

If you have been following Gold for the last three months, you must be astonished by the total return received on the yellow metal, a whopping 109% (annualized return). The yellow metal increased in value by 27.4%.  So the question is, what is the reason for the increase in gold prices?

You

Or the investor sentiment. However there is much more that needs to be said about the topic.

Historically, whenever the price of gold goes up, the world sees an increase in the supply of gold. The supply is from Southeast Asia, notably Pakistan, India, Sri Lanka and Bangladesh, where families have been converting excess savings into gold for the last hundreds of years. Traditionally brides are gifted gold jewellery by her parents when she is married, so there is always an ample supply of gold laying around. Whenever the price used to go up, the increase in supply would temporarily dampen the price increase.

Well that is the old gold. The new gold rush is due to the fear of Fiat currency, and notably the prestigious U.S dollar decreasing in value. Investors seek refuge from inflation and growth fears that have been plaguing the Euro and the U.S. As of now, we know that the Euro might as well call it quits. Germany and France are cornered and they do not have a way to get Eruo debt in control. Their only gameplay is more austerity measures on the Euro countries, and devaluing the Euro, which is taking place unsystematic by the market  (unsystematic is a nice way to say, brutally).

Two months ago when the markets were in the fear of Euro, they rushed towards the U.S, because the U.S will always be the safe heaven. Just like the Greeks, the Romans, the Arabs, Chinese empire, and the British empire, the U.S. will always have its cool and be able to repay its debt. (Can you tell if I am being sarcastic enough?) However the market just realized, oh, this is not true any more. There is real growth problems in the U.S. But the bigger problem is the political restlessness that has gripped the U.S, where the politicians bicker and fight about measly decrease in deficits and threaten to default the country. The market will punish U.S for a long time.

As they say it in the olden times; Reputation is like fine china, takes hardwork to keep it in shape, and it only takes one mistake to break it into a million pieces.

I am bearish on the U.S economy, the U.S political system and worst, the U.S social system. As a disclosure, I am long Gold, and will be for the forseeable future.

 

Alpha

Todays sell off – when will we recover?

There is an interesting graphic from JPMorgan funds that I would like to share; it tells how long it takes for the market to recover from its losses.

However, we can never be certain. This market turbulence indicates that the investors need to get into a safe position, rebalance the portfolio for some cash, and decrease equities (unless you have a strong stomach to handle the fluctuations).

I expect that the market may stabalize momentarily, however it still is heading for at least 10% correction (optmistic view).

Here we go:

Time it takes for a bear market to recover

 

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