Value Investing During Worldwide Quantitative Easing

[OracleofCarolina]

http://centman.com/insights/wp-content/uploads/2014/06/inflation-june-2014.pdf

 

Arnold Van Den Berg has a great way of simplifying macro talk for knuckle-dragging folks such as myself.

 

Cheers!

[Zorrofan]

Thanks for posting!!

 

cheers

Zorro

[Guest hellsten]

Thanks. Great article:

 

While it may take years to build it, once inflation comes, it is almost unstoppable.

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You can do a lot to hedge your portfolio by purchasing natural resources, gold stocks,

silver stocks, mining companies, and some of the other cyclical types of companies, or

basically everything most growth investors would never buy.

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But once inflation picks up and crosses that 4% threshold, the stock market begins to decline.

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You need to watch inflation and be prepared to adjust the multiples.

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The only time stocks are a hedge against inflation is when you buy them at the low multiples of 8, 10, and 11 times earnings.

Then they will be a wonderful hedge over the long run.

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be sure that you buy companies that have only long-term debt, because if you buy companies that need to refinance their debt in the next 5 to 10 years, and we're going through a period of high inflation at that time, these companies are going to pay more for financing their debt.

However, in a higher inflationary environment, it may be very difficult to get financing at all.

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oil really helps against inflation, almost as good as gold.

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1972-1974 recession, if you bought:

+350% gold

+300% oil

150% CRB commodity index

-48% S&P

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When you look at these commodities, I don't think you should even become interested in them until they're down 45-50%.

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the average decline from their peaks was 42%, and right now they're down 21% from the top…I don't think most commodities are in the value zone today.

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we think a couple of them are coming into the buy zone, and one of them is silver.

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Inflation can also occur due to a drop in the dollar.

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we could actually see a currency crisis somewhere over the next 3 to 5 years.

 

Arnold's been buying gold companies:

http://www.dataroma.com/m/holdings.php?m=CMAFX

 

There seems to be a bubble in startups, social media, and growth stocks. I guess inflation will put an end to that. Wake me up when we're there.

 

Century Management’s Gold Valuation Analysis:

http://centman.com/insights/2014/03/century-managements-gold-valuation-analysis/

 

Inflation, Gold, and Gold Mining Companies:

http://centman.com/insights/2014/02/inflation-gold-and-gold-mining-companies/

 

With or without high inflation in the future, we believe many gold mining companies have been selling at bargain prices and have added them to our portfolios.

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CM Investment Strategy For Metal/Mining

We are using a basket approach to implement our investment strategy for these mining companies. To date, we have analyzed more than 40 gold (and silver) mining companies and have invested in approximately 10 to 12 (depending on the individual client’s portfolios), which represent roughly 10% of our typical CM Value I (All-Cap Value) client portfolio. If prices get cheap enough, we plan on increasing our exposure and would consider going upwards of 15% to 20% of the total portfolio.