Gold, the Buffett slayer

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Feb 172012
 

A recent business insider article calls ‘Gold bugs’ thin skinned misanthropes because Warren Buffett “..devotes a few paragraphs to gold and the fools who worship it” in his upcoming annual letter!!   Regular followers of this blog know that I had turned cautious on Gold around $1700’s and bearish in September 2011 – just establishing I’m no gold bug.

In my May 2010 post, I had highlighted how such fancy theories can be quite flawed and prevent you from arriving at the best investment decisions. Now to Mr Buffett’s renewed Vitiriol against gold:

1) The cube of gold will produce nothing in the next hundred years

My answer: No one makes investment decision for next hundred years

2) The cube of gold will not pay you interest or dividends, and it won’t grow earnings.

My answer: So will be the case with a boat load of stocks. The S&P has gone no where in the last 13 years.

3) You can fondle the cube of gold, but it won’t respond.

My answer: Yes, witty.   Hence I’ll try to be funny too.   Mr Buffett should know what to fondle.   If you own lots of gold you do not need to fondle, ‘they’ will fondle you 😀

The reason for Mr Buffett’s bashing?   Well, whatever I say would purely be a guess but I would let the performance of Gold speak for itself:

Gold’s return for the last 10yrs – 488.19%

BRK’s return for the last 10 yrs – 67.77%

Gold continues to wallop the performance of  Berkshire Hathway by a GIGANTIC 420% over his preferred time frame of 10 years.

And if you had listened to Mr Buffett’s  Annual letter of last year, you are in the elite company of those who missed the best performing asset class of 2011 – long dated bonds that returned almost 30%.

Here are the words of another  billionaire who is in the same business. “At the end of the day, your job is to buy what goes up and to sell what goes down. So really who gives a damn about PE’s?” – Paul Tudor Jones

Aug 102011
 

The blame game begins 😀

Did you ever doubt the movements in the stock markets over the last couple of weeks was not a bear market fluctuation? Here is proof that it is- the above headline captured from Yahoo/Reuters.

Wait a second. I thought fund managers never looked at charts. Wasn’t it always their super intelligence and Ivy league education that drove their decision making process? You mean to say small guys who look at charts churned all those trillions of dollars of Market Cap across the globe and the fund managers just sat there and did nothing to prop up their NAV? No value buying? You mean to suggest that algorithmic trading do not take into account PE, Price to book and other parameters and just supports and resistance?

I’ve seen such Technical Analysis/ Chartist bashing in every bear market in the last 12 years. Having worked in an institutional broking arm in the past, I can tell you this – a technicians full worth is realised only in a bear market. The PE multiples, consensus forward earnings put forward by the leading broking arms are very rarely ever, leave alone being right, even close to being right. In a bullish environment these numbers give the illusion of being right. So when a bear market kicks in, the mirage disappears, everyone wants to speak to the chartist and understand where the markets are headed. Do you think I’m bashing fundamental analysis? Nope. Here is the proof.

Do you know what was the consensus earnings estimate in Jan-March 2008? It was close to 1000 for the sensex(check here and here). That number was revised down to 933 in Oct/Nov 2008 citing slowdown in economy (euphemism for I’m watching price action). Any guesses when that number was achieved? Now, HOLD YOUR BREATH!  And take care of your Jaw! We are yet to see that on Sensex!!!!! I’m not talking about the 1000, I’m talking about the revised number of 933. The BSE website shows the current earnings for the Sensex as 913!!!! The current forward earnings estimate for Sensex is around 1200. So the next time you hear markets are cheap compared to their earnings – you might want to think or ask “based on what? Trailing or Forward earnings?”

For fundamental analysis to be effective one must have an approach like that of Warren Buffett or the Chandler brothers who stay far far away from the action, observe, analyse the markets and pick value like a hawk.

Now do not get me wrong, I know some brilliant fundamental analysts in the industry who do not come up with silly numbers like cited above. But those guys are a very rare breed.(Example: So rare that one Fund manager made the CEO of Tata Power wait so that he could talk to an analyst friend of mine)