This past week I read a brilliant missive from well known contrarian investor Jim Grant. Our friends at The Sovereign Man completed the interview – forgive me in advance with sharing with my network of global investors. After all, it is in the public domain and every serious investor will be enriched with the wisdom it provides.
Each year I circumnavigate the globe to personally witness the rapid pace of change that is taking place in the global energy mix. As I satisfy my curiosity with evidence, it continues to fortify an investment theme that is hidden in plain sight:
The future of energy will increasingly be electrification.
However, it is not the “electrification” that investors are not appreciating, it is the great enabler that makes electrification possible, COPPER. As you read Grant’s words of wisdom below, I encourage you to consider copper, and the precarious supply/demand situation for the red metal, in the context of each of the ten points. The graphic of Benjamin Graham that headlines this e-mail – a motto we adopt as contrarian investors at CopperBank – dovetails well into this entire narrative. Enjoy!
From Jim Grant:
Here are the 10 most important lessons I’ve learned in finance…
At Grant’s, we seek profits where no one else is looking. We’re happy to wait for the consensus to come to us.
We’ve been contrarian since day one. In our minds, there’s no better lens through which to view the market.
But with detailed security analysis and an expert understanding of market cycles, you can minimize emotions when it comes to your portfolio.
Where do you think we stand on that scale today?
You can recognize the rhythms of market cycles (see lesson 3). And with enough practice, you can profit from those cycles – or at least avoid disaster. As when we warned Grant’s readers in our September 8, 2006 issue about a bubble in subprime mortgage debt – 11 months before the crisis began. And three years later, when we advised going long bank stocks before they rallied 250%.
Today, ETFs account for more than 23% of all U.S. trading volume with a total market value over $3 trillion. And the ETF market is forecasted to hit $25 trillion globally by 2025.
Yes, ETFs allow investors to diversify into lots of markets for a little bit of money. But ETFs allocate money without consideration of value.
And what happens when everyone rushes for the exits.
There will always be value in active management. It keeps the market honest. Active managers bid for companies that have been punished unjustifiably… And they apply selling pressure on egregiously overvalued, fraudulent and dying companies. It’s these inefficiencies – and Grant’s longtime, historical understanding of them – that gives our readers special perspective.
If markets were so all-fired efficient, why did the Nasdaq reach the sky in 2000? Or banks and junk bonds the depths in 2009?
How did Berkshire’s track record happen? If you were an observer, you’d see that Warren [Buffett] did most of it sitting on his ass and reading. If you want to be an outlier in achievement, just sit on your ass and read most of your life.
Let us only say that the point survives the exaggeration.
And when markets correct, they cause the most amount of financial pain to the greatest possible number of people.
You’ll never know exactly when these corrections are coming. But if the creditors aren’t calling your assets on the way down, you will live to fight another day. And if you happen to have cash on hand, you can make the greatest profits of your investing career.
“Consider all the facts – meditate on them. Don’t let what you want to happen influence your judgement.”
“Do your own thinking. Don’t let your emotions enter into it. Keep out of any environment that may affect your acting on your own reason.”
These final three items, which I’ve included as a single lesson, are in quotation marks because I borrowed them from the late Bernard M. Baruch – one of the greatest investors who ever lived.
I know he won’t mind (after a brilliant career in Wall Street and Washington, Mr. Baruch died in 1965, at the ripe old age of 94).
I came to know the great investor in the course of writing his biography. If you read enough, you, too, can assemble a circle of friends from the past as well as the present.
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