- The funny thing about investment “performance”
- The most important thing to keep in mind about a guru’s track record…
- … and a rare chance at better-than-Buffett results
- A new stop on China’s long march toward “D-Day” for the dollar
- Psychopathic CEOs: More common than you think?
- Waiting on the Fed… socialized medicine, American and otherwise… how the gold toilet might be worth more than the media say… and more!
“Track records are one of the most misunderstood things in finance,” says Chris Mayer.
Chris is back with us for one more day here at The 5 as we draw your attention to a project that’s ambitious for him… and potentially lucrative for you.
“Performance” has been a mainstay of the financial pages in recent weeks. In July, investors pulled $25.2 billion from hedge funds — the most since February 2009 — thanks to mediocre performance. At the world’s biggest hedge fund, Ray Dalio’s Bridgewater Associates, the main fund is down 9% this year. In contrast, the Dow Jones industrials are up 5%.
But that’s not the whole story. Not by a long shot.
To wrap your mind around track records, it’s instructive to look at Warren Buffett’s Berkshire Hathaway (BRK) — the granddaddy of 100-baggers.
In Chris’ exhaustive study of stocks that have turned $1 invested into at least $100, BRK comes out on top among 365 stocks going back the last 50 years. Every $1 invested in Berkshire in 1965 turned into $18,261 by 2014.
Chris has been to BRK’s annual meeting in Omaha several times. Often it’s a snooze, with Buffett fanboys asking questions to which you could find the answers in any one of dozens of books about Buffett. (“What five things do you look for in a company?”)
But this year Chris was glad he made it, because he heard a talk by Larry Pitkowsky, co-manager of the $277 million GoodHaven Fund. “If you invest for decades, you will look like a fool on multiple occasions,” he said. “Get used to the concept.”
Pitkowsky’s firm conducted a study of great investors. The takeaway: The best of breed underperform the market about a third of the time.
And his study’s not the first to reach that conclusion. Thirty years ago, a portfolio manager at U.S. Trust named Eugene Shahan conducted a famous study of great investors and ranked them by their total annual return during their investing career…
“Those are numbers that any investor would be delighted to achieve,” says Chris. “And yet these investors underperformed the market average about a third of the time!”
Asked how much he worries when Berkshire stock falls, Buffett’s longtime business partner Charlie Munger said, “Zero.”
Notably, he said that in 2009 — when it seemed the world was coming to an end, at least financially.
“This is the third time that Warren and I have seen our holdings in Berkshire Hathaway go down, top tick to bottom tick, by 50%,” Munger told the BBC. “I think it’s in the nature of long-term shareholding that the normal vicissitudes in markets means that the long-term holder has the quoted value of his stocks go down by, say, 50%.
“In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who can be more philosophical about these market fluctuations.
“Investment results are, by their nature, uneven and fickle,” Chris concludes.
“Superior results come not by trying to beat the market all the time but by trying to find ways to tilt the odds in your favor and then by being patient. And not being afraid to look like a fool.”
Chris knows all about achieving superior results. Over the last decade, his own recommendations have returned an average of nearly 29%. That beat the market 3-to-1… and Buffett’s returns 2-to-1. And that decade includes the Panic of 2008.
Tomorrow night, Chris pulls back the veil on the “Mayer Method” in a special master class. He’ll show you how to put his techniques to work in your own portfolio. Best of all, he’ll share the names and tickers of six stocks on his watch list.
And it’s all free. It’s yours to watch on a webcast we’ve made available for you through a special arrangement we’ve made with Chris and our friends at Bonner & Partners. It’s tomorrow at 8:00 p.m. EDT. As usual in these situations, a replay will be available later if you’re out of pocket at that time. All it takes for access is to submit your email address — which you can do at this link.
As happens eight times a year, the markets are in suspended animation this morning — awaiting the latest pronouncement from the Federal Reserve.
Around the time this episode of The 5 hits your inbox, the Fed will declare whether or not it will raise its benchmark fed funds rate (it won’t, says Jim Rickards). What’s more, this is one of the four times a year Fed chair Janet Yellen drones on in her Brooklyn accent during a press conference. Expect most of the questions to cover the possibility of a December rate increase (unlikely, but can’t be ruled out, says Jim).
Earlier today, the Bank of Japan made its own pronouncement. It left the benchmark rate unchanged but said it would try to keep the yield on 10-year government bonds near zero. The BoJ will also try to push inflation above its 2% target. How the BoJ plans to achieve that goal when it can’t even hit the 2% target in the first place it didn’t say.
In the meantime, Treasury rates are bumping up a bit — the 10-year at 1.71%. Gold has been climbing steadily, the bid now $1,326. Crude is up more than 2%, back above $45.
The Chinese renminbi has taken another step closer to parity with other global currencies — only nine days before the U.S. dollar’s “D-Day” as anticipated by Jim Rickards.
China’s central bank has named an official renminbi clearing and settlement bank for New York — to go along with the ones in London, Frankfurt, Hong Kong and other financial hubs. The task falls to the New York branch of Bank of China. “The global framework is now basically complete,” Citic Securities’ Ming Ming tells the Financial Times.
Chinese Premier Li Keqiang is in New York this week, where he laid out the final plans with something called the “Working Group for US RMB Trading and Clearing.” The co-chairs of this group include a host of elites, like Obama’s former Treasury Secretary Timothy Geithner, Bush’s former Treasury Secretary Hank Paulson and former New York Mayor Michael Bloomberg.
Those meetings are as clear a signal as any of an assertion Jim Rickards made in these virtual pages last year: “China is not trying to destroy the old boy’s club — they are trying to join it.”
That is, China has no need or desire to wreck the dollar by dumping its investments in U.S. Treasuries. Instead, Chinese elites are working hand in hand with American elites to shift the global monetary framework.
That said, the result is still the same for the dollar. A new kind of “world money” goes live on Sept. 30 — a week from Friday. “You’ll see just how fast an event like this can gut your savings account,” says Jim — “and hike up the prices you pay for everything, from fancy gadgets to basics like groceries and gasoline.”
Have you made an action plan yet? If not, Jim can help you get started when you click here.
Is one out of every five CEOs a psychopath?
American and Australian researchers are out with a study of 261 “corporate professionals” and found somewhere between 3 and 21% of them exhibit the traits of a psychopath. Forensic psychologist Nathan Brookes says that figure “shared similarities to what we would find in a prison population,” he tells Australia’s ABC network.
Brookes says the point of the study isn’t to throw shade on the corporate world. Rather, “we hope to implement our screening tool in businesses so that there’s an adequate assessment to hopefully identify this problem — to stop people sneaking through into positions in the business that can become very costly.”
That’s a laudable goal, to be sure. Who knows? It might even be worth the man-hours lost to people taking and analyzing yet another personality-typing survey…
“You have failed to see the obvious problem with Obamacare, as well as the obvious solution,” a reader writes after yesterday’s episode.
“Obamacare is a failure because it attempts to use health care delivery to generate private corporate profits. But as is the case with other public necessities such as electrical generation, stopping global warming and running prisons, allowing private corporations to profit from these things guarantees results that are catastrophic for society.
“Cuba’s health care system is excellent because it is 100% owned by the government; it is true socialized medicine. And if you think that socialized medicine has failed in Britain and Canada and Australia (and successive neoliberal governments have tried to make them fail), ask any government official in those countries why they don’t hold a referendum to privatize their health systems. They would think you were crazy because they know the people would throw them out of office for proposing it.”
The 5: As the song goes, where do I begin?
We’ll leave it at this today: We’ve said before that a “single-payer” system might well be preferable to the horrendous public-private monstrosity that threatens to bankrupt both individual Americans and the U.S. government.
What we fear, however, is that a single-payer system as envisioned by U.S. politicians will still funnel massive profits to the politically connected and will still be far more expensive than the systems in other countries.
We’d still prefer a free market in which a woman can have a baby for as little as $500 — the inflation-adjusted cost of delivering a baby in 1952. Nearly any family can afford that, and those who can’t could rely on charity care of the sort that existed before the EMTALA law of 1986 basically turned the emergency room into the primary-care doctor of choice for the impoverished.
“I forgot the most important part of math class — show your work,” writes the reader who speculated yesterday on the value of the “solid gold” toilet at the Guggenheim in New York.
“All the estimates of the gold toilet’s value that I’ve found in print say that a toilet weighs at least 70 pounds (presumably, we’re looking at the economy models), and then they calculate the value of 70 pounds of gold. Wrong!
“Most toilets are made primarily of porcelain, and the density of porcelain is around 150 pounds per cubic foot. The density of gold is 1,206 pounds per cubic foot.
“Thus, gold is about eight times more dense than porcelain, so a solid gold throne the same size and shape as a 70-pound porcelain throne will weigh about 560 pounds.
“Now, 560 avoirdupois pounds are 8,960 avoirdupois ounces, or 8,167 troy ounces, which at $1,300 per gold ounce is $10.6 million. (Thus my original estimate of ‘at least $10 million.’)
“But not so fast — now we’re told that we’re dealing with 18k gold, rather than 24k. While the articles didn’t specify the exact alloy, the other 25% is likely silver and/or copper, which are both about half the density of gold.
“Making an educated guess that the resultant density is closer to 965 pounds per cubic foot (75% by weight is 60% by volume), the net weight of the toilet comes out to be more like 450 pounds, of which 75%, or 5,400 avoirdupois ounces/4,922 troy ounces, is actually gold.
“Neglecting the value of the silver, the revised value comes out more like $6.4 million — still far higher than the media estimate.
“If they want to sell that thing to me for $1.7 million, I’ll take it!”
The 5: You have a lot of spare time, we take it…
Nonetheless, we appreciate your dogged determination. Now if someone would just tell us who bankrolled such an expensive work of “art.”
The 5 Min. Forecast
P.S. Once more: For the first time ever, Chris Mayer is teaching his secret for identifying “the next Starbucks,” “the next Apple” and “the next Wal-Mart” years in advance of anyone on Wall Street… We’re talking about stocks that can return 100-to-1.
He’s leading a master class tomorrow at 8:00 p.m. EDT. And it won’t cost you a thing to take part. Just submit your email address at this link and you’re in.
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