PUKE: The Best Investment

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JAG's picture
JAG
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PUKE: The Best Investment

Puke: The World’s Safest Investment

 

Recently, in his latest report, Dr. Martenson quoted a WSJ interview with value investor Seth Klarman. Though I was not familiar with Mr. Klarman or his work, I found one of his statements resonated with my own personal investing experience:

 

And, said Mr. Klarman, one of the best ways to protect against a decline in purchasing power is to buy whatever is "out of favor, loathed and despised." So forget about gold or other trendy hedges. Instead, wait patiently for markets—European stocks, perhaps—to get so cheap that they turn most investors' stomachs. Then you can pounce.”

 

In other words, at any given time, the “safest” investment is the one that makes you want to puke. This of course, goes against our natural or “gut” instincts. Our instinct is to believe that we are safest when we are part of the herd, whatever herd it is that we decide to join. But reality demonstrates that it is often the herd itself that poses the most risk to the individual, and not some “monster” lurking in the peripheral world.

I decided to do a little back testing on this theory and I want to share my results (albeit they are cherry-picked a bit to make a point). So my backtesting was set up like this:


  1. I first wrote down from memory, all the investments that made me want to puke just thinking about them over the last few years.
  2. Second, I determined the most likely time period that my negative feelings towards these investments would have reached a peak.
  3. Third, I charted the performance of these dreaded assets from that time period until present and compared it to the performance of gold, my only long position in these markets.

The first Puke-asset that came to mind immediately was Bank of America stock. I hate everything about this company, and I have even fantasized about applying weapons-of-mass-destruction to it. In the first quarter of 2009, I specifically remember telling my wife "Only a fooking idiot would own this stock". After a disagreement with a bank teller at BAC, I immediately went and bought PMs in retaliation.

"I'll show them.....I thought"......

Holy Cow!  Bank of America has gained over 320% in just over a year, and my gold that I purchased out of spite appreciated just 30% in price. (Meanwhile, the US dollar lost just 2% of its global purchasing power over the period). Take a wild guess who my wife thinks is the "fooking idiot" now?

About that same time period, my brother-in-law began aggressively buying up rent houses in my area. I remember telling him "Only a fooking idiot would be buying real estate of any kind right now!"

Crap! Again the performance of the puke-investments blew away the "logical" investments. 

OK, so now in the fall of 09, I'm getting a little "wiser" and soon come to the realization that the only reason these puke-assets out performed PMs during this period was because they were being supported by the Fed/Gov. All summer we had watched the USD slowly grind down, as the almighty Fed took control and enforced its will on the marketplace. By October and November, the USD was "King of Puke", and you had to be a fooking idiot to not trade all your worthless dollars for gold. 

Well, I didn't fall for it this time...I went "the full-Puke" in the fall of 09 and this has been the results so far.

So with this information, my personal investing strategy has evolved into:

If it doesn't make you want to puke when you buy it, you are sure as hell going to puke when you sell it.

Best, Jeff



ashvinp's picture
ashvinp
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Re: PUKE: The Best Investment

What makes you want to puke is subjective and based on the information available to you and your analysis of that information. There were certainly people (like Robert Pretcher) who were very bearish in 2008-09, but nonetheless realized that the bailouts and stimulus/liquidty injections would create a strong bear market rally in stocks and prop up the housing market. I think your point is more valid if you say that people should consider investing in whatever makes the average herd-mentality investor want to puke. Even then, I'm of the opinion that the coming years are going to be different from the previous ones in almost every way imaginable, including the soundness of previously sound investment advice. What makes me want to puke right now is just about everything... and I'm pretty sure I'll continue puking if I buy into those things. This is why I will only short to raise cash and keep some physical PMs as longer term investments.

Damnthematrix's picture
Damnthematrix
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Re: PUKE: The Best Investment

I don't see gold as a money making investment, merely a storage of wealth that won't go down the toilet WTSHTF.....  so of course investing in "PUKE" will make you more money, so far, because TS has not HTF.......  yet.  But it will.

But what would I know......  I have NEVER invested in the Matrix.  I have NEVER strived to be wealthy, only ever wanted to be "self sufficient" in all of life's necessities, even when those necessities were affluent ones before I discovered the Matrix.

I now own everything I could ever need and want....  and not one ounce of gold.  And no puking!

Mike

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compinthegroove
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Re: PUKE: The Best Investment

I'm not so sure that gold and silver are trendy investments, as Mr. Klarman states.  On forums like this, yeah you'll find a lot of gold and silver bugs.  Go out into the general population and the story gets a whole lot different.  Nobody I know, except for my parents, owns any precious metals.  When I talk to people about gold and silver, they just give me strange looks. When the average person is shopping for precious metals, then I'll be looking for my exit. 

As for GLD and SLV, they're nothing more than a proxy for the actual metals they represent. Right on their prospectuses they state that investors are unsecured creditors, meaning they have no claim on any of the metal these ETFs supposedly have.  They are not gold and silver, they are derivatives!  If you want the real thing, go to the coin shop, stay away from the paper markets!

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JAG
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Re: PUKE: The Best Investment

Damnthematrix wrote:

I now own everything I could ever need and want....  and not one ounce of gold.  And no puking!

C'mon Mike, we all know your just dying to get you one of those iPads....lol.

capesurvivor's picture
capesurvivor
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Re: PUKE: The Best Investment

Well, Jeff,

I guess we all should be buying BP.

SG

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JAG
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Re: PUKE: The Best Investment

capesurvivor wrote:

Well, Jeff,

I guess we all should be buying BP.

SG

I didn't say it, but since I hate BP at least 3X as much as BAC, we should have an easy 10 bagger on our hands. Thats pretty pathetic, huh?

Don't forget the Euro. You don't actually think the Euro is going to go to zero, do you? 

Can we buy BP in Euros via Bank of America's brokerage.....lol

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JAG
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Re: PUKE: The Best Investment

ashvinp wrote:

I think your point is more valid if you say that people should consider investing in whatever makes the average herd-mentality investor want to puke.

I think I was sort-of implying that we are all average herd-mentality investors, only that we think our blogosphere "herd" is superior, when in fact the only thing superior about it is its value to the contrarian investor.

ao's picture
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Re: PUKE: The Best Investment

Jeff,

This investment philosophy has long been espoused by Steve Sjuggerud with a little twist.  I'm paraphrasing crudely here but he would talk about investing in something hated that becomes just a little less hated.

With that thought in mind, we had my son's graduation party this weekend and also went to a number of other graduation parties.  I talked to a lot of people including doctors, lawyers, scientists, engineers, etc. about various topics including investing and gold.  By and large, gold was still hated and feared with only one person expressing more of an interest after remembering that I had recommended buying gold and silver at a party a year or so ago and observing that it has gone up significantly since then.  While gold seems "loved" among those on this blog and increasingly so in the financial media, among the general public, from my limited experience, it is still feared and "hated".

One still has to be careful about this investment philosophy though.  Such companies as Lucent come to mind.

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JAG
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Steve Sjuggerud

Wow, Thanks ao for the trip down memory lane. I remember that there was a financial newsletter in 2002 that recommended buying gold coins, but I could not for the life of me remember the author's name. Bingo...Steve Sjuggerud.... It was the first time that I had ever heard of PMs and I did consider doing it, but found it to hard to actually execute the investment. Wish I had found a way however:

Of course, to be fair, Bank of America stock only took a year to break 300%, lol.

The infrastructure for the gold market is still being developed for the general public, so I agree with the outlook that the gold bubble has yet to fully inflate. However, I think it might be getting closer to awareness. I've been sick lately and unable to sleep. Last night I watched 3 full hours of infomercials about investing in gold. Made me want to puke, and I did! I still think there is going to be a great deal of puking on the exit of this "ultra-safe" gold trade.

Best...Jeff

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compinthegroove
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Re: Steve Sjuggerud

Perhaps Greek stocks are the ultimate puke.  Side of Dubai, anyone?  How about a slice of Hungary?

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Re: PUKE: The Best Investment

I still think there is going to be a great deal of puking on the exit of this "ultra-safe" gold trade.

Best...Jeff

Looks like you still hate it.

Ergo, it's got room to run!

:)

Best,
Chris

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ao
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Re: Steve Sjuggerud

JAG wrote:

Of course, to be fair, Bank of America stock only took a year to break 300%, lol.

The infrastructure for the gold market is still being developed for the general public, so I agree with the outlook that the gold bubble has yet to fully inflate. However, I think it might be getting closer to awareness. I've been sick lately and unable to sleep. Last night I watched 3 full hours of infomercials about investing in gold. Made me want to puke, and I did! I still think there is going to be a great deal of puking on the exit of this "ultra-safe" gold trade.

IIRC, there was another bank back in the tech stock boom that went up roughly 300% in a matter of days ... NetBank.  But it's gone and guess what shiny, yellow metal is still here?;-)  I agree though that when the time comes, one won't want to get caught on the tail end of the gold bubble.  It'll be a big one with a loud pop when it goes.

capesurvivor's picture
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Re: PUKE: The Best Investment

LOLX2!! BP in euros.

The most predatory of the vulture investors.

SG

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V
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Re: PUKE: The Best Investment

BP: Stock rises after it reports oil spill progress

  By Aaron Smith, CNNMoney.com staff writerJune 7, 2010: 9:40 AM ET

NEW YORK (CNNMoney.com) -- BP's stock rose 2% at the start of trading on Monday after the oil giant announced that it is making progress in capping the oil leak in the Gulf of Mexico.

BP (BP) said on Monday that 10,500 barrels of oil had been collected on Saturday. This means that a total of 16,600 barrels were collected between Thursday and Saturday. The spill is leaking at least 19,000 barrels a day.

BP also said it has spent $1.25 billion so far in its efforts to cap the well and clean up the resulting spill, which has fouled the beaches of Louisiana, the hardest hit area. This includes $360 million to build and install structures to try and keep oil from washing ashore on Louisiana's barrier islands.

Thousands of people have been put out of work and the fishing industry is in shambles, though BP has pledged to pay compensation for all legitimate claims. Damage estimates range from $3 billion to $40 billion.

Nonetheless, BP Chief Executive Tony Hayward told investors in a conference call last week that his company is in sound financial shape. Another executive said the company generated $30 billion in cash over the last four quarters.

The problems stem from a disaster that occurred on April 20, when the Deepwater Horizon offshore rig exploded and sank, killing 11 workers.

BP owns the well, while the rig is owned by Transocean (RIG), which saw its stock rise nearly 2% at the start of trading.

BP is in the process of digging two relief wells to try and siphon off oil, but it could be three months before they're completed.

Gulf Coast residents, workers and business owners are bracing themselves for the full extent of the economic and environmental damage, since no one really knows when the spill will be capped and where the currents will take the oil.

Florida tourism officials said that "dime to quarter-sized tar balls" have been found on beaches in the Panhandle.

"Additional impacts are expected throughout Northwest Florida within the next 72 hours," according to a statement posted Sunday on Florida's tourism Web site says. "At this time, there are no beach closures and Florida's state waters remain open to recreational fishing." To top of page

V

docmims's picture
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Re: PUKE: The Best Investment

Scott Adams (Dilbert cartoonist) had an interesting article in the Wall Street Journal this weekend:

http://online.wsj.com/article/SB10001424052748704025304575285000265955016.html?KEYWORDS=buy+hated

where he dicussed investing in companies you hate like:

[W3Feature1]

ashvinp's picture
ashvinp
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Re: PUKE: The Best Investment

JAG wrote:

ashvinp wrote:

I think your point is more valid if you say that people should consider investing in whatever makes the average herd-mentality investor want to puke.

I think I was sort-of implying that we are all average herd-mentality investors, only that we think our blogosphere "herd" is superior, when in fact the only thing superior about it is its value to the contrarian investor.

Yeah but how small does the group have to get before it stops being considered a part of a "herd"? By that logic we could eventually say every group of a few people is a form of herd and we should invest our money against what they like, or with what they hate. I guess my point is the results you orignally posted can be explained without the conclusion that the investments worked simply because you, or a small group of people like you, personally hated them. I'm pretty sure you weren't implying that your hate was the cause for the investment's success, but I don't think it was even related at such a small scale.

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ccpetersmd
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JAG's "Puke", or "Avoid the

JAG's "Puke", or "Avoid the Herd", investment strategy reminds me of advice I first heard regarding the adoption of new medical/surgical technologies: "Never be the first one on the bandwagon, nor the last one off".

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