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English article in Der Spiegel - "A new study by a German think tank warns that a euro exit by Greece, Spain, Portugal and Italy would cut global GDP by 17 trillion euros and plunge the world into recession, with France suffering the biggest loss. A Greek exit alone would be manageable, but must be avoided to forestall a domino effect, it says. " It gives the estimated cost of each of the dominoes falling, with same surprising predictions for instance although Italy leaving would cost Germany €1.7 in lost GDP, the biggest loser would be France. http://tinyurl.com/ca84y8a

Article - 'Dangerous Territory' - Concerns Mount that ECB Bond-Buying Program Is Illegal. "European Central Bank President Mario Draghi is spending a lot of time on the road these days, not unlike a traveling salesman. The product he has on offer is credibility, but in Germany at least, it is proving difficult to find eager takers." From Der Spiegel 17 days ago, so it's not only the Budesbank to be sceptical. http://tinyurl.com/9cyta2m

Interesting article re goings-on in Abu Dhabi: http://www.ft.com/cms/s/0/74891724-1d2a-11e2-869b-00144feabdc0.html

It seems that a certain degree of strain has developed in British/UAE relations over the UK taking a "soft" stance on Islamist groups there. Apparently this has resulted in Bp (LON:BP.) being excluded from a bidders list relating to an Abu Dhabi oil concession. Intergovernmental talks are ongoing.

Some in Finland are considering "A Finnish parallel currency is imaginable" from FT. Having a 1:1 exchange rate between Markka and euro for some time is examined in a paper by the Finish bank Nordea. This would allow Finland to leave the Euro zone with fewer problems than through a sudden switch. Interesting that some are beginning to examine this possibility.
http://www.ft.com/intl/cms/s/0/14cbb94e-1ebb-11e2-b906-00144feabdc0.html

Good post on the dilemma facing investors in Trinity Mirror (LON:TNI) : http://boards.fool.co.uk/one-point-i-think-that-people-are-missing-is-that-12671792.aspx

A useful and simple pre-purchase checklist from dividend investor, Todd Wenning: http://cleareyesinvesting.blogspot.co.uk/2012/10/5-questions-to-ask-yourself-before.html

An article on rail traffic forecasting, that will interest HS2 campaigners! http://www.schroders.com/tvp/archive?id=forecast%20should%20stop . The author at Schroders also raises the behavioural finance read-across of overoptimism.

In reply to marben100, post #34

Just a quick comment on that topic, about which I have a fair bit of historical experience......

.....IMO it is dangerous to generalise about the reliability of models, but it seems to me that the key issue to focus on is whether models rely extensively on people switching modes of transport or whether the traffic is mainly expected to come from merely diverting journeys that use the same mode.

For example, if it is argued that there would be substantial switching from road to rail, I would be much more sceptical of forecasts than if they were merely arguing a switch from slower lines.

It is also exceptionally difficult (generally) to work out the importance of generated traffic in forecasts (ie traffic that is generated by the mere availability of the new route). Two contrasting examples of that from the 1980s:

a) The M25 (on which I worked) saw much more traffic generation than assumed in the models,  mainly because more people and businesses than expected located themselves around junctions and planned their lives/businesses around the fact that the M25 had been brought into existance.

b) The Eurotunnel saw much less traffic generation than assumed in the models. It was reasonably evident to me at the time of the float that they were being over-optimistic, so I didn't get sucked in by the offer of free travel etc......but eventually the business finally worked because it put enough of the ferry routes out of business.

Forecasting is very tricky indeed - but even more so when overlain with environmental politics.......which I guess is one of the big issues that may tend to bias forecasts for new rail routes. The other huge factor in rail demand forecasting is (IMO) the estimation of relative property values along the route....the bigger the disparity in property values, the greater the demand for rail travel (eg commuting from Norfolk, Lincolnshire, South Wales and Yorkshire to London - which would be bonkers in the absence of the property price factor)

ee

A lengthy and thought provoking note from Edison regarding the gold mining sector. Well worth a read for anyone with an interest in the sector. As well as calculating (and slicing & dicing) some sector metrics, for UK Canadian & Australian markets, Edison present their gold price forecasts & rationale (talk about sticking your neck out!). On that later issue, they touch on what I believe is the key issue: whilst real interest rates remain negative, gold remains attractive as a store of value. Once interest rates start rising (without inflation taking off first) - watch out! I see no sign of interest rates rising any time soon, given economic fragility and huge public sector debts, which would be prohibitively costly to service, were interest rates to rise significantly. Hence I remain relatively sanguine about the current gold price.

http://www.edisoninvestmentresearch.co.uk/sectorreports/Gold4_221112.pdf

Concerning EV/oz metrics... my own view is that they have a limited usefulness. What counts IMO is the NPV of a company's resource - adjusted for political & other risks, which will depend on OPEX, CAPEX, taxation and timing of production. These will vary widely from company to company and would have a big impact on sensible NPVs. ozs with a $1,000 cost of production have a very different value to those costing only $500 to extract.

Mark

Excellent, detailed, article on Munger's stock selection criteria, focussing on "moats": http://25iq.com/2012/12/06/charlie-munger-on-moats-first-of-the-four-essential-filters/

...The need for a business to have a “moat” is so strong that Munger has made it one of the “four essential filters” he uses in deciding whether to invest in a given business. The four essential filters are:

1. A business with a moat,
2. A business that can be understood by the investor,
3. Management in place with integrity and talent, and
4. A business that can be bought at an attractive price that gives an attractive margin of safety. http://www.psyfitec.com/2009/10/buffett-and-munger-on-bbc.html...

 

Mark

Nice short piece from Todd Wenning (@ToddWenning) on "What to do when a sell-off strikes your stock": http://cleareyesinvesting.blogspot.co.uk/2012/12/what-to-do-when-sell-off-strikes-your.html

Very much the approach I try to follow - and not only with stocks I own but some I might like to... after BG (LON:BG.) 's recent 30% tumble, looked like a good entry point to me which I accepted. H/T to WShak1 for bringing that one to my attention, though he saw it as a short-term trading opp., whereas I viewed it as an entry point for a longer term shareholding.

Cheers,

Mark

In reply to marben100, post #38

Thanks again, Mark!

Excellent point about using the approach to evaluate opportunities outside of your portfolio, as well.

Best,

Todd

Good grief! Some academic economists talking sense about portfolio management: http://ftalphaville.ft.com/2012/12/12/1304672/tackling-the-two-headed-monster-of-efficient-markets-theory-and-the-principal-agent-problem/

[though perhaps their regulatory ideas are a bit off-piste :0)]

The FT's Gillian Tett slams momentum investing: http://www.ft.com/cms/s/0/c6bb0de2-4ac3-11e2-9650-00144feab49a.html

Despite having worked in the past, is it leading to poor fund performance now and risking asset bubbles?

Worth highlighting this article on "margin of safety", the last of a series of four, based on Charlie Munger's investment approach: http://25iq.com/2013/01/02/charlie-munger-on-margin-of-safety-the-fourth-essential-filter/

I'd like to highlight one particular quote:

Warren Buffett describes the valuation investing process in this simple way:

“Though this … cannot be calculated with engineering precision, it can in some cases be judged with a degree of accuracy that is useful. The primary factors bearing upon this evaluation are:

1) The certainty with which the long-term economic characteristics of the business can be evaluated;

2) The certainty with which management can be evaluated, both as to its ability to realize the full potential of the business and to wisely employ its cash flows;

3) The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than to itself;

4) The purchase price of the business;

5) The levels of taxation and inflation that will be experienced and that will determine the degree by which an investor’s purchasing-power return is reduced from his gross return.” http://www.berkshirehathaway.com/letters/1993.html

A simple mechanical strategy, proposed by Ben Graham, that has produced a 17.8% CAGR over 35 years:  http://www.valuewalk.com/2013/01/examining-benjamin-grahams-record-skill-or-luck/

...but at the cost of some heart-stopping volatility!

Interestigng article on what I consider to be some of the real causes behind the current global economic malaise. Economies are in transition, again: http://chronicle.com/article/Robots-Arent-the-Problem-/138007/

Those that have also read Fault Lines will appreciate that it's a paucity of  formerly well-paying manufacturing jobs, and downwards pressure on low-skilled pay, that led politicians of both right (Bush) and left (Blair/Brown) to pump out easy credit, leading to asset price inflation and the debt crises we have seen and are seeing. Unfortunately politicians are still pursuing this "solution" without addressing the underlying causes.

Those causes are not that "we don't make anything any more", nor that we need "labour market liberalisation", the latter leading to even more downward pressure on low-skill pay and even greater inequality. Rather, we need improved education and to value more highly the service jobs that will form an increasingly significant part of the real economy.

Mark

and to value more highly the service jobs that will form an increasingly significant part of the real economy.

The chances are that will never happen unless there is a shortage of labour to fill them.

Another illustration of why "making stuff" is not the solution to unemployment and consequent consumer weakness: http://www.nytimes.com/2013/04/02/business/economy/rumors-of-a-cheap-energy-jobs-boom-remain-just-that.html

Part of the solution?: http://blogs.telegraph.co.uk/finance/jeremywarner/100023849/minimum-wage-should-be-substantially-raised-not-cut/

By contrast, substantially raising the minimum wage immediately addresses two major economic anomalies. One is the now perverse growth in corporate profits and cash accumulation. Rather than being recycled into the economy, which is what happens in normal times, corporate profits are being hoarded, further eating into demand. In the US, corporate profits as a proportion of GDP are at a record high. Wages, by contrast, are at a post war low. Again I don't lightly dismiss the right to make or even hoard profits, but things are getting seriously out of quilter. This is not the way capitalism is supposed to work, where wealth accumulation gets shared through trickle down effects. The division of spoils has reached a level which if unaddressed threatens to be dangerously destabilising, socially and politically.

Other parts of the solution may be eliminating employers' NI to encourage firms that can employ more people, paid for by increased corporation tax on those that employ few. If necessary, break the taboo of raising the basic income tax rate (now at historically low levels), accompanied by a raised personal allowances (as already planned, to assist those on low pay most) and reduced VAT.