Fool's Gold

I've written on this issue before, and last week, our investing hero Warren Buffett also weighed in, in an op-ed piece for Fortune magazine. I strongly recommend everyone read Warren's excellent article. Ofcourse, when Warren speaks, people listen (and criticize, like this post from a commentator for the WSJ).

Essentially, what Warren is saying is exactly my thesis on the yellow metal - it has no productive value! Yes, one could argue that as governments continue to print money to satisfy their mountains of unfunded liabilities and deficits, gold may be relatively more attractive than paper currencies like the US dollar. Afterall, governments cannot print gold. No, they cannot print gold; but they sure as hell can confiscate gold (Google 'Executive Order 6102'). As a sidebar, if you are really afraid of government failures and the end of paper currencies, you should buy guns and canned food, not gold (although that seems to be what some goldbugs have been advising too!). You cannot eat a gold bar (or more precisely, your body cannot digest gold), and most certainly, you cannot eat a claim on a bar of gold stored in a vault.

But since this is an investing blog, let's focus on the investment aspect of gold. Investing is the forgoing of current consumption in exchange for a claim on future consumption that is hopefully higher than current consumption. When you invest in gold, all you are betting on is that there are more people behind you who would want to own gold more than you and would be willing to exchange more goods and services (or paper money!) for your bar of gold than what you've paid. The classic Greater Fool Theory of investing. Sure, if you time your purchases correctly, or play up to people's fears, you can make a lot of money (again, we come back to the paper currency; am I the only one to see the oxymoronic contradiction?). But that's it.

Every ounce of the yellow stuff that's dug out of the ground (at huge expenses, one might add), is added to global supply. Gold, unlike oil, a true finite resource, never gets used up. An ounce of gold dug up and refined in 1000 BC can be resmelted into a gold coin in 2012 (incidentally, has anyone looked at recycling the tons of electronic waste we produce each year? All those dead or unfashionable phones and gadgets could be a treasure trove of gold and other minerals!). For now, demand for gold is high because of rampant fears of inflation and government defaults. But when the tide turns, don't be surprised if the price of the yellow metal falls dramatically (we note the marginal cost of producing an ounce of gold is ~$600) as investors (speculators) rush to the exits.

- The Aspiring Analyst

Brasil Telecom - Playing Out As Expected

We wrote about Brasil Telecom's ADRs (BTM-NYSE) back in October, and our thesis is that BTM is an undervalued telecom player in Brazil where Management is working to unlock hidden value by simplifying its corporate structure.  Today's press release from the company announcing the shareholder's meeting to vote on the reorganization simply confirms that our thesis is playing out. 
To refresh your memory, each Brasil Telecom ADR represents 3 shares of BRTO4 (BRT04-BOVESPA), one of the many public listings of Brasil Telecom S.A. (Oi. S.A.), the second largest telecom group in Brazil with approximately 25% market share of the Brazilian market. 
Oi has always been known to have a convoluted corporate structure, leading to its shares trading at a significant discount to its peers (it trades at just 3.5x EV/EBITDA vs. global peers between 4.0x - 7.0x). The management team recognizes this problem and has decided to simplify the ownership structure of Oi by consolidating into 2 public listings (BRTO3 and BRTO4 and the NYSE-listed ADRs). 
What is especially interesting about BTM is that prior to the reorganization, each shareholder of BRTO4 and BRTO3 (and by extension the ADR holders) will receive a special dividend equal to R$2.54 (or ~$4.20 per ADR). Combined with modest multiple expansion from a simplified corporate structure, it is not unreasonable to expect each ADR to be worth north of $30 per share over the medium term, with a near-term $4.20 dividend kicker.


- The Aspiring Analyst

2011 Report Card - C+

Dear readers, we have posted our newsletter for January. All in all, 2011 was a tough year. Although we beat the index marginally, our investing performance left a lot to be desired. Hopefully, 2012 will be a better year for your analyst.

- The Aspiring Analyst

Where Have We Seen This Movie Before?

We have to admit, the most recent coordinated central bank liquidity measures seem awfully familiar with those announced in 2007/2008. To find out why, please see our December newsletter.

- The Aspiring Analyst

Special Edition On Canada

This month, we do a little deep dive on Canada to see whether it really is as strong as everyone thinks. The short answer is no. To find out why, please read our newsletter!

- The Aspiring Analyst

Starting To See Value

With recent market volatility, we are beginning to see value in particular securities, as detailed in our October newsletter. Our advice for investors is to look at as many good companies as you can, find their intrinsic value, and be prepared to buy when Mr. Market gives you an opportunity in the coming months.

- The Aspiring Analyst

About That Gold...

As we wrote back in May, we are not fond of the yellow metal. It has no productive purpose, although lately, with the ever skyrocketing price of gold, supporters have claimed that it could simultaneously protect against inflation (Central Banks using quantitative easing to monetize governments' debts) and deflation (caused by a double-dip recession). Again, how something can simultaneously protect against two fundamentally different views of the world is beyond our comprehension.

We certainly hope the price action in the past few weeks (racing to recent higsh of over $1,900 / oz before crashing to ~$1,600) will serve as a stark reminder of the inherent speculative nature of gold. Remember, in 2008, gold actually fell along with the value of all assets. If anything, you should buy gold equities (with low-cost production or unrecognized assets), since they actually generate cash flows from their productions of gold. 


- The Aspiring Analyst

I'll gladly pay you Tuesday for a hamburger today...

Our thoughts after hearing President Obama's speech today is aptly captured by Jim Quinn of The Burning Platform (brilliant post - one of those, why didn't I think of that calibre post.)

POTUS wants $447 BB in new stimulus. Everything will be fully paid for, according to POTUS. The only catch is, he doesn't know from where. So he'll ask the Congressional Committee tasked to find $1.5 T in cuts before the end of the year to find another $447 BB. Brilliant. POTUS gets the photo-op. Congress gets stuck doing the hard work. 

- The Aspiring Analyst

Ben Is Set Up To Fail

Dear readers, through a recent email exchange with a Canadian thought leader, we came across an interesting idea. Why do we, as a society, continue to rely on men to do superman's job? Aren't we simply asking for failure? We explore this idea a little bit in this month's newsletter.

The Aspiring Analyst

Almost Time To Be Greedy

Dear Readers,

Our August newsletter has been uploaded. Although we believe the recent market downturn still has a ways to go, we think value investors should begin sharpening their pencils to take advantage of some upcoming fire sales.

- The Aspiring Analyst