The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

25 August 2009

The market's yawn

Reader Patrick McGahren writes...

While I appreciate Mr. Buffet's challenge to Congress, I do not believe he would bet his money that this institution will meet the challenge. How to protect assets from currency depreciation may be headline news two or three years hence.

For a relatively young currency, the Euro performed remarkably well during the "panic of 2008" and the EU can sign up countries relatively quickly that offer cheap labor, younger populations and the need for "know how" that will support maturing economies. Iceland just submitted their application!

I just returned from a few days in Paris, expensive and full of people from all over the world, few Americans. A trip there 20 years ago was cheap and full of other Americans. 10 years ago, about par on price but still full of Americans. Times have changed!

My guess is that Mr. Buffet makes good on his visit to Europe a couple of years ago and he begins to make sizable investments.

David, you have written periodically about the US dollar over the years. Care to revisit this comment from 16, May 2007?

"However, change in the markets does seem afoot. I predicate my top down analysis, as it is, on the movements, both intermediate and secular, of the US$. Somewhat self-aggrandizingly, allow me to say my 'calls' re the direction of the US$ have been uncannily correct. But all to no avail; despite my fears, the decline of the US$ has been met with a barely stifled yawn by the markets. At least the markets as capitalized in US$, which have rallied resolutely."
I would suspect that the markets would eventually "take notice" if the value of the dollar continues to erode. How would you address this risk in your portfolio?

Excellent comments, Patrick; thank you.

First, I stand by my ~2 1/2 year old comments you quote: the US$ declines, and the markets yawn. Well, kindasorta; who can forget 2008?

I believe that, in a world of fiat currencies and relative values, something, somewhere, somewhen must stand for fixed value; in that universe, it would qualify as a constant. I prefer that unit of measure be the US$, not because it is my home currency but because it is the world's reserve currency.

What I want matters little, though; the world keeps spinning and international trade still occurs -- despite the debacle of the past 2 years. So:
1) I invest in only the best investments, the crème de la crème;
2) I seek maximum transparency

Proportionate to the various risks

3) I size positions;
4) I time purchases and sales.

An old ad included the tag line, "Master the detail; manage the risk." Well, that same sentiment applies to your investments, and investing methodologies, and really is all any investor need know and do. Master the detail; manage the risk.
-- David M Gordon / The Deipnosophist

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