Personal Finance

A Private Letter from Warren Buffett

on Wednesday, 11 September 2013 13:51

UnknownIn the mid-1970s, an investor with tremendous business experience, Warren Buffett, became the business “coach” and confidant of the Washington Post‘s Katharine Graham. Graham became chairman and CEO of the newspaper company unexpectedly when her husband committed suicide. She leaned heavily on Buffett’s business judgment – especially when it came to the question of how to manage the business fund. Buffett addressed that critical question in a private letter to Graham.

 
Fortunately… I was sent a copy of that letter late last month. Here’s what Buffett told one of his closest friends about how to manage her company’s pension account…
 
The directors and officers of the company consider themselves to be quite capable of making business decisions, including decisions regarding the long-term attractiveness of specific business operations purchased at specific prices. We have made decisions to purchase several television businesses, a newspaper business, etc. And in other relationships, we have made such judgments covering a much wider spectrum of business operations.
 
Negotiated prices for such purchases of entire businesses often are dramatically higher than stock market valuations attributable to well-managed similar operations. Longer term, rewards to owners in both cases will flow from such investments proportional to the economic results of the business. By buying small pieces of businesses through the stock market rather than entire businesses through negotiation, several disadvantages occur: a) the right to manage, or select managers, is forfeited; b) the right to determine dividend policy or direct the areas of internal reinvestment is absent; c) ability to borrow long-term against the business assets (versus against the stock position) is greatly reduced; and d) the opportunity to sell the businesses on a full-value, private-owner basis is forfeited.
 
[These disadvantages are offset by] the periodic tendency of stock markets to experience excesses, which cause businesses – when changing hands in small pieces through stock transactions – to sell at prices significantly above privately determined negotiated values. At such times, holdings may be liquidated at better prices than if the whole business were owned – and, due to the impersonal nature of securities markets, no moral stigma need be attached to dealing with such unwitting buyers.
 
Stock market prices may bounce wildly and irrationally, but if decisions regarding internal rates of return of the business are reasonably correct – and a small portion of the business is bought at a fraction of its private-owner value – a good return for the fund should be assured over the time span against which pension fund results should be measured.
 
[Success] in large part, is a matter of attitude, whereby the results of the business become the standard against which measurements are made rather than quarterly stock prices. It embodies a long time span for judgment confirmation, just as does an investment by a corporation in a major new division, plant, or product. It treats stock ownership as business ownership with corresponding adjustment in mental set. And it demands an excess of value of price paid, not merely a favorable short-term earnings or stock market outlook. General stock market considerations simply don’t enter into the purchase decisions.
 
Finally, [success] rests on a belief, which both seems logical and which has been borne out historically in securities markets, that intrinsic value is the eventual prime determinant of stock prices. In the words of my former boss: ‘In the short run the market is a voting machine, but in the long run it is a weighing machine.'”
…..read more HERE

Michael’s Sept 10th Comment on the student expectations for employment post-university and the reality of their training.

CLICK HERE to listen

Update: How Sardines Are the Same as Gold

Posted by Victor Adair - VictorAdair.com

on Tuesday, 10 September 2013 22:20

Screen Shot 2013-09-10 at 3.13.24 PMLast week’s blog about old Doc, the sardine trader, generated a lot of feedback…the essential question was, ”But how does this story help me to understand today’s gold market?”

Here’s how:

The purpose of that lovely old story, and why it gets re-told and re-told down through the years, is to get people to understand that the Paper market is NOT the Real market…no matter if you are talking about gold or sardines.

…..read more HERE

FREE LIVE webinar Sat – how to register and join

Posted by Michael Campbell

on Tuesday, 10 September 2013 21:56

MC horz cropped - 2013Immediately following the show on Saturday I will be joined by GPS Portfolio strategist Steve Deschesnes for a live webinar – which means you can watch us live on your computer. I’ll find out for you what key market indicators he is tracking right now. And more importantly, how you can follow exactly what he does in the days ahead. Plus ask some questions!

This is our first live webinar and due to the contraints of the technology only the first 500 listeners will be able to register.

Michael Campbell

HOW TO REGISTER

1)    CLICK HERE to register or paste this address into your browser – https://www.disnat.com/en/knowledge/event_register.aspx?EventId=d2dac22c-40ff-47f3-b4d3-1da8962fc850

2)    Once you click Submit you will be sent an email with the subject – Web seminar scheduled: Market Overview with Disnat GPS Portfolio Strategist. This email will include the link you will use to join the webinar on Saturday. The webinar will begin immediately after the show at 10:15am pacific time on Sat Sept 14th. You will be able to join the webinar as soon as the show starts at 8:30am Pacific.

HOW TO JOIN ON SATURDAY

1)   Open your confirmation email and CLICK on the link
          Enter your name and email. The event password is – DISNAT.
          Click Join Now.
          Confirm your email address and click Submit

2)   JAVA requirement – If you do not have Java on your computer the system will ask you to add this small, free piece of software.
          CLICK Use Java link
          CLICK Run
          At this point you should be able to see the workshop slides on your screen
          You can adjust the volume on the page to hear through your computer speakers.

*N.B.   If you cannot hear through your computer you can listen over the phone!
         Dial 1-866-699-3239
         Enter 667 097 102

If you are having any difficulties please feel free to call the Disnat Customer Service at 1-866-873-7103 or call the MoneyTalks office 1-877-926-6849

If you would like more detailed instructions CLICK HERE for a complete visual demonstration.

 

 

Godfather Russell: JP Morgan, Gold & The Future Of The Dollar

Posted by King World News

on Tuesday, 10 September 2013 16:10

On the heels of continued volatility in key global markets, the Godfather of newsletter writers, Richard Russell, discussed JP Morgan involvement in the gold market and the future of the US dollar.  Russell also warned about the massive worldwide debt, covered stocks, and also included two charts of gold and the US dollar.

Richard Russell: “The fundamentals in the US and the world are enough to turn your hair gray.  Debt worldwide is out of control.  Total debt to GDP in most countries in the world is at a mind-blowing 300-400%.  It’s obvious that this debt will never be repaid.  As the US continues to grow, it is forced to borrow more money.  

The Fed now owns $2.2 trillion in federal debt.  This year, in 2013, the Fed has purchased more debt than the Treasury has issued.  I could go on and on about the horrors of the debt situation.  But remember, the market is not stupid.  It contains all the information known to everybody.  This is the reason that I follow the markets so closely.  If we are heading into a brick wall, the market will know it and reflect it.

Ultimately the nation is caught in a vicious vice in which it must borrow more and more to sustain itself.  The question now is not how to generate income but where to find the safe zone.  When looking for safety investors normally make a dash for cash.  But with the Fed creating cash wholesale, the future of the dollar is in question.

A nation is as good as its currency, and a currency is as strong as a given nation.  Below we see the US Dollar.  I’ve applied the same rules to the dollar as I’ve applied to the Dow … If the Dollar should fall apart, I would consider such an act as bearish as a crashing Dow.

KWN Russell II 9-10

…..one more chart with commentary HERE