Saturday, May 22, 2010

You Should Be More Worried Than Ever

Why? This man is.

Legendary Investor Is More Worried Than Ever

"We didn't get the value out of this crisis that we should have," Mr. Klarman told the audience. "For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions." He added: "All we got out of this crisis was a Really Bad Couple of Weeks mentality."


You could have heard a pin drop as Mr. Klarman proclaimed, "I am more worried about the world, more broadly, than I ever have been in my career." That's because you can make good investing decisions and still end up with bad results if you reap your profits in currencies that do not hold their purchasing power, he explained.

I have and will continue to urge caution even in inflation protected Treasuries and I-Bonds. I buy and hold them until maturity. I know what I will be getting more than likely and it isn't much. I will even lose money after taxes if inflation does pick up, due to the taxation.

"All the obvious hedges"—commodities and foreign currencies, for example—"are already extremely expensive," he warned.

Especially gold. "Near its all-time high, it's a very hard moment to recommend gold," said Mr. Klarman.

I believe that. I have stated here that $1000 gold was expensive. I've been wrong so far in the eyes of the market but I do continue to believe it. "Obvious" is just another word for "sure thing". I do not believe in sure things.

Markets are constantly in a state of uncertainty and flux and money is make by discounting the obvious and betting on the unexpected. - George Soros

The obvious almost never works in the long-term, because by the time it has become that obvious it is too late to invest.

Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception. - George Soros

That's true of all bubbles in my opinion.


GawainsGhost said...

Yeah, I read that article this morning. Klarman really knows what he's talking about. Here's the list of his true and false lessons learned from this crisis.

That's the soundest investment advice and most incisive analysis I've read.

The first principle of value investings is, safety of principal and adequacy of return. Or, as Buffett once said, "The return of money is more important than the return on money." Makes perfect sense to me.

It's the relentless (read irrational) pursuit of profit that has been the downfall of many a man. What should be paramount is risk analysis and wealth protection.

I agree with you about gold. What is happening is price inflation fueled by a herd mentality of panic buying and speculation. To my mind, it's over-valued, along with just about every other commodity and stock. And I think there will be a major market correction in the near future.

Stagflationary Mark said...


Wow. What a great article. It's a must read. Thanks for posting that.

Here's a direct link.

Must Read: Seth Klarman On The True And False Lessons From The Financial Crisis, Blasts Government Market Intervention

4. Risk is not inherent in an investment; it is always relative to the price paid.

That is probably the #1 thing that drives my investment decisions.

GawainsGhost said...

Yeah, I thought you might like that one, Mark. Klarman is spot on. He rarely speaks in public, but when he does, people ignore his advice at their peril.

Stagflationary Mark said...


Peril is a great word to use these days.

I'll take any excuse to revisit this blog's longest running joke. It all started back in 2007 when I felt the need to heckle Larry Kudlow.

Candy Mountain Revisited

Three More Years of Goldilocks? - Larry Kudlow, November 21, 2007

From Candy Mountain...

We're from the future Charlie. The world is in peril. All that is good has been consumed by evil...

GawainsGhost said...

Oh, to live on Sugar Mountain
With the barkers and the colored baloons
You can't be 20 on Sugar Mountain
Though you're thinking that you're leaving there too soon.

Stagflationary Mark said...

The song very much reminds me of when I left home to come to Seattle. In that sense it is kind of sad.

However, I still enjoy the simple pleasures of youth as best I can. I'll still run around in the sprinklers with my dog for instance, much to the amusement of my neighbors no doubt, lol.