I hope the others will humour us with our discussions in parallel to the thread on MRM. I end up having similar discussions often but I think they are useful.
Two books on investing Graham wrote, Securities Analysis in the 1930's and Intelligent Investor in the 1950's there's a collection of notes for the enthusiast as well. Also a book on economics called storage and stability which I haven't had a copy of.
Also worth reading is Walter Bagehot: Lombard Street a description of the money market and Adam Smith's Enquiry into the nature and causes of the wealth of nations.
Of the two books Intelligent Investor is the better one, it seeks not to describe a formula but instills a psychology of investing. To me that's the valuable bit - what do they say catch a fish or teach a person to fish?
See how he emphasises the distinction between investment and speculation, as you say speculation is fine but limit the amounts you speculate with and keep the idea seperate in your mind.
Two big points which are really the essence of what he said.
People get pessimistic when stocks go down, sometimes to excess. Conversely when stocks rise they tend to be over optimistic and pay too much.
How does the average MRM holder from $3 per share feel about the company now? Sorry guys it's rough I know but we have met the enemy and it is our own human nature - are you still rational about the company or never want to hear about it again?
Predicting the future is impossible, what is known is generally priced in. Therefore the future represents what is unknowable.
As you say short term stock movements do not mean the value of a business changes it's just Mr Market getting hormonal.
I would like to move away from Graham as I have myself from this grounding somewhat to my own thoughts and return to MRM and the oil market.
Economics tends to militate against the continuance of any given trend, when oil was $100 per barrel analysts were sure that it could never fall. Now at $50 they are sure it can never rise.
That's a consequence of two things, one is that they all go to the same universities learn the same thing and are all white men working 60 hour weeks. Aspiring to be like the CEO's not really questioning them right?
Bit of a circle jerk really.
I am not from this tradition, I learned the laws of physics/mathematics, sat at the tail of the dog and worked with the guys on the tools/saw some restructures.
To practical people the idea that oil will keep getting cheaper is insane because they know the techniques they are using have physical limitations.
2/3 of the price decreases have been due to skinning contractors and focussing on the best reserves. Those factors will soon turn the other way as depletion tightens its inexorable grasp.
Then the underinvestment in the whole industry will come to the fore, and the U.S tight oil tail will no longer be able to wag the dog.
Anyway back to militating against trends, when the trend for oil was up analysts made the decision these companies were good buys and justified it with the idea that oil is not getting any cheaper. Which is a fact but turned into a belief and overextended.
However high prices led to a glut of overproduction because of the lag to market - an effect Graham, Bagehot and Marx were familiar with.
Now analysts want to justify their conviction oil is low, the convienient story from tight oil executives - technology will solve every problem. Also true but not the whole story as low prices have been leading to a large supply deficit as world oil demand continues to grow.
This is all really simple and obvious right? How can they not see it?
Taking a long time but last point - in the 1920's investment analysts weren't such a big thing. They were investment statisticians who looked at the past record, the assets and interest coverage etc and said that's probably what it will earn in future. To Graham analysing a stock involves looking at the financials, the history and trying to develop how they may change in future.
That's very difficult the last bit.
So my approach to investing is contrarian - I think that you need to be very cynical about everything. The only question I try to answer in relation to the future is will this industry exist, or has it changed permanently.
RCA is never coming back, the newspapers either but oil is still used everywhere. There's a lot I don't know but renewables still have a long way to go as much as I would like to see a change it's not happening yet.
So to me historical record, satisfactory financials at the bottom of the cycle buy and hold for 5 years. Actually cycles are very hard to pick but it's safe to say oil can't stay at these levels much longer.
MRM is ticking so many of my boxes, let's see what happens with that working capital. That's my buffer against the vicissitudes of an uncertain future.
MRM Price at posting:
29.0¢ Sentiment: None Disclosure: Not Held
