Dear Superinvestor Bulletin Follower,

Today I found on the internet 13 pieces of investing wisdom from Seth Klarman.  I thought it made for some interesting reading and thought I’d pass it along.

Enjoy!

  1. “Great investments don’t just knock on the door and say ‘buy me.’”
  2. “It is easy to find middling opportunities but rare to find exceptional ones.”
  3. “ When buyers are numerous and sellers scarce, opportunity is bound to be limited. But when sellers are plentiful and highly motivated while potential buyers are reticent, great investment opportunities tend to surface.”
  4. “ Rather than buy from smart, informed sellers, we want to buy from urgent, distressed or emotional sellers.”
  5. “ A bargain price is necessary, but not sufficient for making an investment, because sometimes securities that seem superficially inexpensive really aren’t.”
  6. “ Institutional constraints and market inefficiencies are the primary reasons that bargains develop. Investors prefer businesses and securities that are simple over those that are complex. They fancy growth. They enjoy an exciting story. They avoid situations that involve the stigma of financial distress or the taint of litigation. They hate uncertain timing. They prefer liquidity to illiquidity. They prefer the illusion of perfect information that comes with large, successful companies to the limited information from companies embroiled in scandal, fraud, unexpected losses or management turmoil.”
  7. “ We pursue opportunity largely off the beaten path, sifting through the debris of financial wreckage, out-of-favor securities and asset classes in which there is limited competition. We specialize in the highly complex while mostly avoiding plain vanilla, which is typically more fully priced. We happily incur illiquidity but only when we get paid well for it, which is usually when others rapidly seek liquidity and rush to sell.”
  8. “ When you have been doing this for a while, you start to become more proficient about where to look, which rocks to look under. The rocks we look under tend to have a few things in common.”
  9. “ You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.”
  10. “ Market inefficiencies, like tax selling and window dressing, also create mindless selling, as can the deletion of a stock from an index.”
  11. “ These causes of mispricing are deep-rooted in human behavior and market structure, unlikely to be extinguished anytime soon.”
  12. “ Investing is, in many ways, a zero-sum activity in which your returns above market indices are derived from the mistakes, overreactions, or inattention of others as much as from your own clever insights.”
  13. “ Typically, we make money when we buy things. We count the profits later, but we know we have captured them when we buy the bargain.”

About The Superinvestor Bulletin

We just released out 20th Superinvestor Bulletin Portfolio position to subscription members.

To date on average our 19 prior portfolio positions have outperformed the S&P 500 by more than 10 percent.

Our most recent idea has the following characteristics:

– Represents 20 percent of the portfolio of a market thumping hedge fund

– Is the target of a second, activist hedge fund that is looking to realize value

– The company has no debt and a couple hundred million in cash

– It is profitable and growing rapidly

– We like its valuation

You can get a look at our full report on this company and the other 19 by taking a free trial of our service:

Seeking Alpha Author Research

A free full past issue can be found here:

Michael Burry’s 16% Portfolio Weighting

What we are doing is building a best of the best portfolio.   We take the highest conviction ideas from the world’s greatest investors and are building a portfolio out of them.

Have a great day!

Reese Morgan

Editor, The Superinvestor Bulletin

 

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Just So We Are Perfectly Clear – Canada Has A Major Problem

 

A decade ago I thought that Canada was in the catbird seat.

First, it seemed all but certain that we were headed towards a future of steadily rising (if not spiking) oil prices.

Canada, which was sitting on mountains of barrels of oil in the tar sands seemed to be on the verge of a 50 year boom.

Second, while the U.S. banking sector was falling apart the Canadian banks stood tall thanks to their responsible lending practices.

Yes, the future looked bright. There was a long term economic catalyst and there was a rock solid banking system.

My how things have changed.

This week the Bank of Canada raised its key overnight lending rate by 25 basis points from 0.50 to 0.75. The reasoning for the decision was a quickly improving economic outlook and a stated primary desire to always keep inflation under control.

The Canadian dollar has responded to the Bank of Canada hinting at and then instituting this increase.

Source: XE.com

That is an eight percent swing in roughly a month which is a big move for a currency.

Don’t bet on it continuing. This country has a huge problem with respect to real estate and the debt that is directly tied to that. There is no way that the Bank of Canada is going to be moving rates higher in any meaningful way.

The Canadian housing and debt situation is going to be an anchor on this economy for a long time to come. If it isn’t it is only because the problem has disappeared in a shorter time period through a major housing crash.

Let me show you what Canada is facing through a series of charts.

The first chart makes very clear what has happened in the Canadian housing market. The chart plots Canadian housing prices versus the United States.

Source: Bloomberg

Follow the blue line that is Canada. The country has had housing market crashes previously, in the early 1980s and early 1990s. The Canadian and U.S. markets got to roughly the same point in 2007 when the U.S. housing bubble popped and prices crashed.

Continue reading through Seeking Alpha:

https://seekingalpha.com/article/4087881-just-perfectly-clear-canada-major-problem

 

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Jim Chanos: U.S. Economy is Worse Than You Think

 

We just released out 20th Superinvestor Bulletin Portfolio position to subscription members.

To date on average our 19 prior portfolio positions have outperformed the S&P 500 by more than 10 percent.

Our most recent idea has the following characteristics:

– Represents 20 percent of the portfolio of a market thumping hedge fund

– Is the target of a second, activist hedge fund that is looking to realize value

– The company has no debt and a couple hundred million in cash

– It is profitable and growing rapidly

– We like its valuation

You can get a look at our full report on this company and the other 19 by taking a free trial of our service:

https://seekingalpha.com/author/superinvestor-bulletin/research

What we are doing is building a best of the best portfolio. We take the highest conviction ideas from the world’s greatest investors and are building a portfolio out of them.

Jim Chanos – What The Short Seller Sees Today

Short selling legend Jim Chanos recently weighed in on a variety of subjects.

Here is the full interview:

https://www.ineteconomics.org/perspectives/blog/jim-chanos-u-s-economy-is-worse-than-you-think

His view of the American economy is not particularly optimistic today:

Jim Chanos: It’s intriguing that people are reporting they’re feeling better, particularly in the corporate sector, but even among consumers. People say they feel good about the economy and yet they apparently don’t have any money at the end of every month to keep spending.

We’re seeing weak consumer spending numbers in both auto and housing, which are big drivers of the economy. With unemployment so low and the expansion where it is, these figures should be better than they are. There are portents of even worse things when you look at state and federal tax receipts, which are down, and other leading indicators.

It could all just be a soft spot in an ongoing expansion — time will tell. But the narrative we were told is that animal spirits would take us to the next level of economic activity. That clearly is not happening in mid-2017. We’re 8 years into an economic expansion, and economists say that the modern U.S. economy has never gone more than 10 years without a recession. So as recoveries go we are well into it.

People have bought their cars and remodeled their houses and done a lot of things that one does in an economic recovery. I think incremental spending [spending based on increased disposable income] is going to be harder and harder to come by as time goes on.

We’ll keep watching what the best investors like Chanos are saying and doing so you don’t have to.

 

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