Unhappy dollar slides to all-time low against euro (Nov 2004)

Unhappy dollar slides to all-time low against euro

By David LitterickLast

Updated: 12:03AM GMT 19 Nov 2004

The dollar hit an all-time low against the euro yesterday, crashing through the $1.30 level as traders dismissed US Treasury Secretary John Snow's insistence on a strong dollar as increasingly hollow.
The euro closed at $1.3024, up nearly half a cent, as dealers continued to fret over how the US will attract the necessary capital inflows to fund its deteriorating trade balance and budget deficit.
The fear is that increasing numbers of overseas investors might lose confidence in the debt-ridden US economy and place their money elsewhere.
Sterling also rose against the dollar, climbing 0.29 cents to $1.8561, while the weak dollar saw the price of gold climb $4.90 to a fresh 16-year high of $444.70 per troy ounce.
Visting London yesterday, Mr Snow reaffirmed the Bush administration's dollar policy, saying: "a strong dollar is in both the national and international interest." He denied the US government secretly wanted a weaker currency to stimulate trade, claiming: "No one has ever devalued their way to prosperity. It can't be done."
He also rebutted speculation of possible central bank intervention to slow the decline of the dollar, saying it was for the market to decide its value. "The history of efforts to impose non-market solutions is at best unrewarding and chequered," he said.
Analysts attached little credibility to Mr Snow's comments, suggesting the administration had no real appetite for tackling the decline of the dollar. The US government is considered more likely to make strong economic growth a greater priority by supporting domestic demand, increasing the pressure on the US deficit and the dollar.
Jeremy Fand, a senior trader at WestLB in New York, said: "The administration is not going to stand in the way of dollar weakness. They are playing hardball with the Europeans."
European leaders have recently become more concerned at the rise in the euro, which makes European exports more expensive and could dampen the growth of an already sluggish economy. But they have so far expressed little desire to tackle the problem. A meeting of European finance ministers earlier in the week failed to arrive at any conclusion.
Central bankers and finance ministers from the world's 20 largest economies meet in Berlin this weekend but few in the foreign exchange market believe the G20 will take action to stem the dollar's decline.
The euro was launched at the beginning of 1999 at an exchange rate of $1.17 and had plunged below 83 cents by October of the following year. Having now breached the $1.30 level, the Federal Reserve's trade-weighted dollar index has fallen by 21pc since George Bush took office in January 2001.
Dealers said investors were turning from the greenback to Asian currencies in the anticipation that the Chinese government will come under pressure from the West to remove the peg linking the yuan to the dollar, leading to an appreciation of the currency.
The dollar is expected to fall further to $1.35 in the coming months, although dealers said hedge funds and other speculators were short of the dollar, leaving open the possibility of a short-term correction.

Falling US dollar in 2004

Greenspan holds out little hope for dollar

By Edmund Conway

Last Updated: 12:33AM GMT 20 Nov 2004


The dollar hit a new all-time low against the euro yesterday as Alan Greenspan said there was little anyone could do to prevent it falling further.
The chairman of the US Federal Reserve warned the European Central Bank from intervening in the foreign exchange markets as he spoke in Frankfurt ahead of the meeting of the G20 industrialised and developing economies in Berlin this weekend.
"It seems persuasive that, given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point," said Mr Greenspan, sending the Dow Jones plunging by over 100 points in afternoon trading. The dollar dropped almost three quarters of a cent against the euro to close in London at $1.3058.
Mr Greenspan said: "Current account imbalances, per se, need not be a problem, but cumulative deficits, which result in a marked decline of a country's net international investment position - as is occurring in the United States - raise more complex issues."
It is not the first time Mr Greenspan has raised concern over the US current account deficit, which amounts to 5.7pc of the country's annual output. However, he also echoed the US Treasury Secretary John Snow's warning earlier this week that he would not support central bank intervention against the falling dollar. He said intervention could have only a limited and short-term effect.
Mr Greenspan said the best action the Bush administration could take would be to cut its spending and reduce the budget deficit.
The dollar is expected to be one of the most heated topics for discussion at the meeting, since European policy-makers have complained that its weakness, and the euro's consequent expense, has hit exports and manufacturing.
Gordon Brown is expected to call for the International Monetary Fund to investigate and compare the fiscal positions of G20 members. The Chancellor is thought to believe this comparison would show the UK is well-placed compared to other major countries, despite recent criticisms about its fiscal position, and the Treasury's slimming chances of meeting his borrowing rules.



http://www.telegraph.co.uk/finance/2899997/Greenspan-holds-out-little-hope-for-dollar.html

Gold is denominated in the US currency (Nov 2007 article)

Sterling hits $2.10 as dollar is dumped

By Richard Blackden

Last Updated: 1:09AM GMT 08 Nov 2007

China has $1.33 trillion of foreign-exchange reserves
Sterling has pushed through the $2.10 barrier for the first time in 26 years after the Chinese government indicated it is prepared to diversify some of its huge foreign-exchange reserves.
China threatens 'nuclear option' of dollar sales
Dollar crunch puts gold centre stage
Oil, gold and euro surge to records
The pound stormed to as high as $2.1021 in trading in London, a level not seen since the early Thatcher era, and many currency experts now predict it go higher despite signs that the UK economy is slowing.
The greenback's renewed weakness was sparked by comments from Cheng Siwei, vice chairman of China's National People's Congress, who suggested China will diversify some of its $1.33 trillion (£660bn) of foreign-exchange reserves.
Mr Siwei told a conference in Beijing: "We will favour stronger currencies over weaker ones, and will readjust accordingly."
Besides sterling, the dollar was down against 14 of the world's 16 biggest currencies this morning, hitting the lowest since the 1950s versus the Canadian dollar, reaching a new record against the euro and its weakest in more than 20 years against the Australian dollar.
Sterling's move higher comes a day before Bank of England Governor Mervyn King and the rest of the Monetary Policy Committee are due to give their latest decision on interest rates.
While the majority of economists expect interest rates to be left at 5.75pc, the surge in the currency is likely to put parts of the country's manufacturing industry under pressure.
The flight from the dollar is helping to fuel oil's assault on the $100-a-barrel mark and investors' appetite for gold, which is denominated in the US currency. The dollar was also hit yesterday by a report that the Fed's loan officer survey reported evidence of an incipient credit crunch across broad reaches of the US economy, with banks tightening lending standards on prime mortgages, auto debt and consumer loans.

Gold sparkles to a 16-year high as greenback slumps (in 2004)

Gold sparkles to a 16-year high as greenback slumps

By Malcolm Moore, Economics Correspondent

Last Updated: 5:42PM GMT 26 Nov 2004

Gold broke through the $450-an-ounce barrier yesterday, rising to a 16-year high as the dollar fell to a new record low against the euro.
Volumes were thin, since the US market was closed for Thanksgiving, as gold rose $3.70 per troy ounce to $452. The dollar fell to $1.3233 against the euro and to $1.8888 against sterling.
Gold, which has risen 13pc since September, has been "primarily driven" by the weakness of the dollar, according to Kamal Naqvi, a precious metals analyst at Barclays Capital. He believes the next resistance level for gold is "about $461". Gold has risen by $59.75 in the past year but only by £8.18 in sterling terms in the same period.
The fall in the dollar was partly triggered by bearish notes from UBS, Merrill Lynch and JP Morgan, which account for about a fifth of the currency markets between them. Merrill cut its March forecasts for the dollar to $1.39 a euro from $1.33 and JP Morgan cut its estimates to $1.37 from $1.30. All three said the dollar is being undermined by the record US current account deficit. As the gap widens, more dollars need to be exchanged for foreign currencies to pay for imports.
Charlie Bean, the chief economist of the Bank of England, warned the large current account and fiscal deficits in the US could trigger "a further - possibly substantial - decline" in the dollar. He said: "At some stage, action will have to be taken to close the US fiscal deficit and when that happens, the real value of the dollar will need to fall if a sharp slowdown is to be avoided there.
"In the mid-1980s, the elimination of the twin US fiscal and current account deficits - then around 3pc of GDP - was accompanied by a fall of around 30pc in the real trade-weighted value of the dollar." Since February 2002, the dollar has only fallen 15pc in real terms. He added that sterling has historically been "relatively stable" in its movement against the dollar and the euro.
Nicolas Sarkozy, the French finance minister, urged the US to cut its twin deficits yesterday, saying "it is absolutely essential so their currency does not skew trade".
The surge in the euro against the dollar sapped German business confidence this month, the country's Ifo economic institute said yesterday. It warned the rise could threaten Europe's largest economy and urged intervention in the currency markets.
Gold will continue to rise as the dollar weakens, analysts predicted, but the price rise has not boosted the share price of gold miners. The FTSE Global Gold Mines Index has fallen this week, and is below its annual high of 1892.90 on January 2, when the gold price stood at $383 an ounce.

US looks at fresh bank investment after $26bn losses

US looks at fresh bank investment after $26bn losses
The US government is investigating new ways of addressing continued dislocation in the US banking sector, contemplating a second round of investment in the hope of reducing banks' exposures to "toxic" illiquid assets.

By James Quinn, Wall Street Correspondent

Last Updated: 11:35PM GMT 16 Jan 2009


Officials from within the Bush administration – in their final days ahead of President-elect Barack Obama's inauguration on Tuesday – are looking at a wide range of options to tackle the crisis in the country's major banks.
High on the list is understood to be a plan to roll out guarantees to back-stop further losses, the like of which have already been granted to Citigroup and Bank of America (BoA).
Another option would be to create some form of vehicle to remove assets from balance sheets once and for all, similar to outgoing Treasury Secretary Hank Paulson's original intention for the $700bn (£474bn) bank bail-out fund.
The discussions, which are understood to involve members of Obama's transition team, have been continuing for a number of weeks, as it has become increasingly clear that the problems in the banking sector have not been stopped by the $125bn round of capital injections into the country's nine major banks.
In addition to the impact the dislocation in the housing market has had on US banks' balance sheets, there is a growing threat from the deterioration in consumer credit, with car loans, unsecured personal loans and credit cards all showing signs of increasing default.
The problems within the US banking market were exemplified in the last few days by a batch of dismal financial results from some of the major banks, with heavy losses sending shares plummeting as concerns that 2009 may yet be as bad a year for financials as 2008 surfaced.
Shares in all the major banks fell yesterday, with BoA closing down 14pc, Citigroup off 9pc and JP Morgan Chase ending the day 6pc lower.
The falls came after Citigroup reported a post-tax loss of $8.29bn in the fourth quarter, its fifth consecutive loss, albeit within the $6bn-$10bn range analysts had been forecasting.
Alongside the results, chief executive Vikram Pandit outlined his plan to split the bank into two units;

• Citicorp, its core banking business with assets of $1,100bn; and


• Citi Holdings, which will essentially be made up of its troublesome brokerage and asset management business, with assets of $850bn.

Meanwhile, BoA continued to stumble, reporting its first loss since 1991, a quarterly post-tax loss of $2.39bn. This figure did not include Merrill Lynch's $15.31bn loss for the fourth quarter, because the purchase was only completed on January 1.
Nevertheless, Merrill's losses continue to weigh heavily on its new parent, which yesterday revealed it is to receive a fresh $20bn capital injection from the US Treasury and a guarantee from the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) back-stopping the losses on $118bn of Merrill's most toxic assets.
In return, the bank will have to issue $4bn of preferred shares yielding an 8pc coupon, as well as paying 8pc-a-year on the $20bn, issue further warrants and cut its dividend and place a cap on executive pay and bonuses.
BoA chairman Ken Lewis, who has come under fire for going ahead with the Merrill deal in spite of the dismal state of its finances, said that in December he looked into backing out of the deal, but that government officials told him to do so could create "serious systemic harm".

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4274591/US-looks-at-fresh-bank-investment-after-26bn-losses.html

Gold to rise for eighth consecutive year

Gold to rise for eighth consecutive year
Gold is set to appreciate for an eighth year as investors seek a refuge from declining interest rates at the same time that central banks inject more cash into the banking system, according to Bloomberg.

Last Updated: 5:38PM GMT 08 Jan 2009

Gold to rise for eight consecutive year Photo: EPA
The metal will average $910 an ounce in 2009, 4.3 per cent more than last year, according to the median forecast of 20 analysts, traders and investors surveyed by Bloomberg. Silver and platinum, which averaged at least 12pc more in 2008, will decline this year, the survey showed.
More than half of those surveyed predict that the price of gold will end the year above $910 – with the four biggest bulls suggesting that a price of $1,000 an ounce will be met by the end of 2009.
Average gold prices have risen for seven consecutive years, the longest winning streak since at least 1949. While the return of 5.8pc through 2008 was the smallest since 2004 in dollar terms, gold rose 1pc in euros and 44pc in sterling, Bloomberg said.
The most bearish analysts were the online trading platform Finotec, bullion dealer Kitco and the bullion banks JP Morgan and Barclays. They all forecast an average price of between 6.3pc and 11.8pc below the average price of $872/oz in 2008.
But Gold & Silver Investments, the bullion dealer, said that many of the bears 'have been bearish for a number of years and have failed to realise that we are in a bull market’.
Gold & Silver Investments added: “Given the deflationary headwinds assailing us early in 2009, they may be proved right this year as further massive deleveraging could affect the gold price. However, we believe this to be unlikely given the massive macroeconomic and systemic risk and increasing monetary and geopolitical risk.
"And we believe that should the deflationary pressures continue throughout 2009, then most commodities and asset classes will again fall sharply in 2009 but gold will again outperform. Importantly, gold also rose during the last bout of sharp deflation in the Great Depression of the 1930s when Roosevelt revalued gold by 60pc and devalued the dollar by 60pc, from $22/oz to $35/oz.”

http://www.telegraph.co.uk/finance/personalfinance/investing/4162212/Gold-to-rise-for-eighth-consecutive-year.html

Risk and Return

Risk and Return


Any investor needs to ask themselves the following questions:

• How long can I invest for?
  


• What is the worst case scenario?
  


• Can I tolerate fluctuations in returns?
  


• What level of return do I need to match any future liabilities?
  


• Do I understand the characteristics of different asset classes?
  


• How do I achieve an objective investment process to meet my profile?

It is the mix of assets that drives returns. Some 75% of the return on a portfolio may be attributable to getting the choice of assets and geographical markets right over the medium term.



Our role as portfolio managers, once you have selected the portfolio, is to actively manage your assets in the global markets within the parameters we have established with you.


Remember this is your personal choice and reflects your emotional response to risk and your expectation of return.



Once you have decided where you feel most comfortable we can then determine the asset allocation that best matches your individual profile.



http://offers.telegraph.co.uk/content-10027/

World's burst-bubble economy

Reviving the world's burst-bubble economy seems further away than ever
In the US and in Ireland, governments have been scrambling again to support their banks.

By Ian Campbell, breakingviews.com

Last Updated: 6:25PM GMT 16 Jan 2009


For the economic prospects of these countries, and the world economy, that is troubling. Recession is only just beginning and yet many banks are holed.
Governments are being obliged to pour in more capital, adding to the huge liabilities they now face. This vicious circle augurs poorly for recovery.
It is not that governments should avoid intervening in banks. They are obliged to. To put public money into the banking system is the right thing to do because neither national economies nor the world can afford the collapse of large financial institutions.
Moreover, fresh losses at banks will make them more risk-averse and less inclined to lend into the economy, excerbating the recession. Economic recovery needs credit and the banks need economic recovery.
To restore their financial positions, banks must continue the retreat from high leverage and risk. But the large amounts of public money poured into them do not automatically mean they will be quick to lend more.
At present, neither is in a strong position to help the other. On the contrary, recession and low-growth risk are creating further asset losses for banks - and further recourse to government budgets already under huge strain.
Had Anglo Irish Bank become insolvent, the Irish government, whose fiscal deficit is already heading towards double digits, would have been liable for some 100bn euros in deposits - about half of Ireland's GDP.
The Irish government has guaranteed deposits in all its banks but could not afford to honour that guarantee without issuing debt that would far exceed the country's GDP. It is improbable anyone would want to buy it. Nor can Ireland resort to the money printing press for funding, as the US and UK governments may eventually do. Ireland no longer has its own pounds to print.
The worst afflicted banks are in countries which have experienced property price bubbles, like the US and Ireland. But as recession bites, more loans in more sectors and in more countries may turn bad.
All this makes it likely that governments will be forced to print more money. At present, central banks are buying financial assets but not directly funding governments. Before long, however, they may be forced along that sorry path - the same one traveled in the past from Argentina to Zimbabwe.
It's not yet the time. But monetising bad debt and devaluing paper money may in the end be the only way of reviving the world's burst-bubble economy.



http://www.telegraph.co.uk/finance/breakingviewscom/4272951/Reviving-the-worlds-burst-bubble-economy-seems-further-away-than-ever.html

Zimbabwe currency depreciating at fastest rate

Zimbabwe shops stop accepting local currency
Shops in Zimbabwe are refusing to accept the local currency after it depreciated at its fastest ever rate at the weekend.

By Peta Thornycroft in Harare and Sebastien Berger Last Updated: 9:30AM GMT 27 Oct 2008

Empty shelves in a supermarket in Harare Photo: EPA
While millions of Zimbabweans are already going hungry, the move by supermarket owners, who have few goods available for customers to buy, has added to the hardship experienced by the urban population.
Most do not have access to foreign currency, such as US dollars or the South African rand, now demanded by shopkeepers for payment.
A sign outside a supermarket in Harare's wealthy northern suburbs informed the public on Sunday that, like many other shops, it would not accept cheques or debit cards, because they take too long to clear while the Zimbabwe dollar plunges hourly.
Weeping with frustration, a well-dressed woman fled the shop in tears as she was left unable to buy anything, despite having amassed Z$14 billion for her weekly shop. But even cash was useless, and the shop manager told her he was only accepting US dollars.
"I felt really terrible telling her this, she is a good customer, a really nice person, but it is too difficult to sell in local currency," he said. "We don't know how to mark up goods as the Zimbabwe dollar is worthless now."
All his goods except meat and most vegetables were imported from South Africa and, with 75 per cent tax, payable in foreign currency to the government slapped on every item, many basic items cost four to five times as much as south of the border, even with a relatively low mark-up.
"I don't even know the rate for the Zim dollar as it changes by the hour," he said. "We have no alternative but to try and stay alive by charging in US. I am really feeling the strain and I can see customers, and many are old friends, are suffering. Some of them used to be quite well off."
The country's hyperinflation is driven by the central bank creating ever more money to fund the government's activities. Even though the authorities chopped 10 zeroes off the currency in August, its interventions and regulations have created a bewildering array of black-market exchange rates.
For cash notes, which the price rises mean are in appallingly short supply despite the printing presses working overtime, on Sunday £1 was worth around Z$110,000. But for cheque transfers, £1 brought anywhere from Z$8 billion to Z$32billion.
At independence in 1980, the Zimbabwe dollar was worth more than the US dollar, but Robert Mugabe's regime has destroyed the economy, with the slide accelerating in recent years, months and weeks.
John Robertson, an independent economist, said the Zimbabwe dollar's current plunge was unprecedented. "We had seen it losing value at about 25 per cent a day, now it is losing hundreds of per cent an hour. It is now a valueless currency."
A Zimbabwean businessman said: "The Reserve Bank is looting, that is what caused this end-of-game crash. The Zim dollar lost three zeroes in a week. Now you can fly from Harare to Victoria Falls for US 20 cents."
For ordinary Zimbabweans life has become almost impossible. Bank cash withdrawals are limited to a maximum Z$50,000 a day – enough to buy two bananas from street vendors, who are still selling in the local currency, but 0.000625p at the cheque rate.
Companies are only allowed Z$10,000, or half a banana in street value.
Shops have begun refusing to accept Zimbabwean dollars in any form.
A businessman said: "When supermarkets have to start paying their workers in US dollars they will have to close. When the civil servants demand foreign currency wages, then that will be the end of the road for Mugabe."
Southern African leaders meanwhile meet in Harare on Monday for an emergency summit on Zimbabwe's political stalemate. Mr Mugabe, the opposition leader Morgan Tsvangirai and the former South African president Thabo Mbeki will discuss implementing a power-sharing agreement, although hopes for progress are slim.

http://www.telegraph.co.uk/news/worldnews/africaandindianocean/zimbabwe/3264644/Zimbabwe-shops-stop-accepting-local-currency.html

Comment:

The goods and assets can still be bought using foreign currencies. The US dollar and the South African rands are accepted for exchange of goods and services. However, the Zimbabwe currency is depreciating at a very fast rate. It continues to lose its buying power. The Zimbabwe government is printing money at a fast rate to keep the country going. Soon, it will be worthless and even those who are now accepting this currency will refuse to accept this currency.

10 TENETS OF VALUE INVESTING

10 TENETS OF VALUE INVESTING

Value investing is ultimately common sense applied to capital allocation.

Its general philosophy and key tools can be summarized in the following 10 value-investing tenets.

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

That's what value investing is.

OWNER PRINCIPLE

OWNER PRINCIPLE

The cumulative effect of these principles is a characterization of the value investor’s role in corporate investing as the owner of not just stock, but a business.

Hence the principles of business analyst, moat, margin of safety, and son-in-law.

It requires appreciating stock selections in the same way the owner of a small business treats decisions concerning his store, farm, or firm.

It requires a long-term view and means avoiding the rapid-fire share turnover characteristic of so many short-sighted market traders.

That’s what value investing is.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

ELITISM PRINCIPLE

ELITISM PRINCIPLE

Few stocks or other investments live up to these principles rigorously applied.

Value investors treat companies as applicants to an exclusive club they run and wish to keep exclusive.

It is far safer to make the error of omission than to make the error of inclusion.

Those invited to join a value investor’s portfolio after applying this elitist exclusionary policy can be invited often, more of their stock bought as circumstances warrant.

It is far more important to diversify across asset classes – having a savings account, some bonds, real property, and stocks – than it is to diversify across stocks.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

IN-LAW PRINCIPLE

IN-LAW PRINCIPLE

The headline-grabbing accounting scandals of the early 2000s underscore the age-old importance of trust in investing.

Value investors invest only in the stock of companies known to be run by faithful stewards of investor capital.

They seek proven track records of good judgment and fair treatment.

History is not always reliable, but any hints of malfeasance in a manager’s record are enough to disqualify his employer.

Value investors imagine managers of companies they are considering as prospective in-laws.

If they would not want their child to marry a company’s top manager, they don’t invest money in that company.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

MARGIN OF SAFETY PRINCIPLE ****

MARGIN OF SAFETY PRINCIPLE ****

Value investors worry that they might be wrong when complying with these first five principles.

So they add a belt in addition to these suspenders.

Drawing on the point that prices are different than values, value investors insist on as large a favourable margin of difference between them as possible.

Doing so produces a margin of safety against judgment error.

While none of these 10 principles should be ignored, this is the most fundamental and universal.

Obeying this one promotes obedience to the others as well.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

MOAT PRINCIPLE

MOAT PRINCIPLE

Market gyrations, price-value discrepancies, and risks of overconfidence warrant exercising extraordinary caution in selecting an investment.

In focusing on the business, value investors ascertain whether the business itself is substantially insulated from adversity.

Value investors avoid businesses threatened by product market downturns, recessions, competitive onslaughts, and technology shifts.

The business itself must be fortified by a moat, a defensive barrier to these ill effects such as arise from brand-name ubiquity, staple products, market strength, and adequate research and development resources.

Franchise value is exhibited by high, sustainable returns on equity (ROE).

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

CIRCLE OF COMPETENCE PRINCIPLE ****

CIRCLE OF COMPETENCE PRINCIPLE ****

Value investors make hard-headed assessments of their competencies. If they doubt their skill in stock selection, they steer clear.

Value investors know their limits, thickly drawing the boundaries of their circle of competence.

They avoid investment prospects beyond those boundaries as well as anything even close to the boundaries.

This rules out broad segments of industry, enhancing prospects and economizing on time and resources devoted to studying business.

Those who cannot even identify a circle of competence should avoid stock picking altogether.

----

For those who feel a need to allocate a portion of their wealth to stocks, choose vehicles other than individual stocks, such as mutual funds, index funds, or do so through a diversified retirement account.

However, these operate as subparts of the broader market, and therefore can be over- or underpriced.

This means applying the same ten principles of disciplined investing, but perhaps less rigorously so.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

PATSY PRINCIPLE

PATSY PRINCIPLE

Patsies lose money in stock investment.

Market timers and others with the inability to assess the underlying value of businesses should not even participate in the art of stock selection and investment.

Those so afflicted are like the patsy in poker, the person unaware that his funds will shortly be held by someone else.

Poker and stock-picking are tricky enterprises, not for the overconfident.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

REASONABLE PRICE PRINCIPLE

REASONABLE PRICE PRINCIPLE

It is never worth the value investor’s time or effort to forecast when tops and bottoms are reached.

If price is a fraction of value, value investors buy, knowing that there is a chance that the price will fall lower.

Over long periods of time the gap will narrow and often reverse.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

BUSINESS ANALYST PRINCIPLE

BUSINESS ANALYST PRINCIPLE

Value investors do not guess when the market or a stock is at its peak, trough, or specific points in between.

There will nearly always be times when some positions are priced attractively compared to value and others when the opposite is the case.

During periods characterized by bullishness, as the late 1990s, there are fewer value opportunities; during bearish times, as in the early and mid-2000s, there are more.

The universe of prospects enlarges as markets fall and contracts as they rise.

Tendencies in either direction reinforce themselves, as pessimism or optimism spreads.

This requires knowledge of business, accounting, and valuation principles.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE

MR. MARKET PRINCIPLE

MR. MARKET PRINCIPLE

Value investors make a habit of relating price to value.

They recognize that stock markets rise and fall.

The prices of individual stocks likewise swing widely.

In the case of stocks and stock markets, a bull exhibits excessive optimism, a bear excessive pessimism.

Dreary rationality, where value investors live, lies in between.

There are stocks priced above what the underlying business is really worth and stocks priced below that.

While over long periods of time the process evens out, the ideal strategy is to search aggressively for investment prospects priced below value.

Also read: 10 TENETS OF VALUE INVESTING

1. MR. MARKET PRINCIPLE
2. BUSINESS ANALYST PRINCIPLE
3. REASONABLE PRICE PRINCIPLE
4. PATSY PRINCIPLE
5. CIRCLE OF COMPETENCE PRINCIPLE ****
6. MOAT PRINCIPLE
7. MARGIN OF SAFETY PRINCIPLE ****
8. IN-LAW PRINCIPLE
9. ELITISM PRINCIPLE
10. OWNER PRINCIPLE