02/10/2011
December 3, 2017
02/02/2011
December 3, 2017

02/07/2011

HI Kuppy,
just wondering if you have any comments on Alternative energy areas like Geothermal power stocks like Ram Power..

I know nothing about it. Sorry.


Do you only invest in companies you understand clearly? If you knew a wise investor was investing in a company and he has a history of success, would you not buy into it as well?

If I don’t understand what I am buying, there is no way I can buy it. There are lots of smart guys who make mistakes. I have to understand the thesis and understand what creates the opportunity and also understand the things that could go wrong. I NEVER buy something just because smart people are buying it. I ALWAYS do my own research. However, I like to watch smart investors for what they are buying as it is a great way to find new ideas.


Dear Kuppy.Great website.I am bullish on oil in the next two years and want to buy some deep out the money call options on oil stocks, as a purely speculative play/punt. I was looking at BP, Exxon but are there types of companies more leveraged to higher prices, say deep water drillers or oil services companies? Whats the best way to go about this for me, in terms of getting leveraged to higher oil prices?

When I want leverage to a commodity, I just play the commodity itself. Don’t try to be fancy. That’s the lesson from investing in all sorts of commodities. The producers are all saddled with cost overruns, taxes, royalties and other headaches.


Kuppy,
I appreciate you sharing your views with us. I have noticed you have parried the royalty question two times now. I would recommend a serious look at this sector as a metals investment. I have spent a bit of time with this and I am convinced it is one of the best ways to play the monetary depredation theme. Franco Nevada, especially deserves a look. I have made a personal study of Pierre Lasonde and he is a master investor. I would recommend reading his book written 20 years ago to understand the depth of knowledge he possesses. For one thing he uses no debt! Compare that to RGLD, they are loaded with it. The market clearly has not grasped the royalty concept yet. I believe it will at some point and when it does I think these will be moonshots. Institutions may prefer a royalty to the actual metal itself since it CAN be analysed and it pays a dividend. Also, a royalty has a fixed cost element and if we move to galloping inflation or worse a royalties metal stream
has incredible leverage.
The market is giving us an opportunity to buy these royalties for a song before investors figure out the inherent advantages to a royalty stream. So my question, what percent of a metals portfolio would you devote to such an investment?

I am well aware of the royalty concept. I think this is the best way to play large cap gold. Lassonde is smart. No doubt about it. I probably should look at FNV too. RGLD doesn’t have that much debt FWIW.

I should point out that some royalty companies will be negatively affected by the low cost they pay for metals. In lots of cases, miners will have little incentive to maximize recoveries if they aren’t paid well enough for it. We are already seeing that with some mines, especially when it is a byproduct and not a primary metal.


I feel you’ve provided me with some solid analysis and investing ideas since starting your site, I want to try and return the favor with a little intel from my professional sphere.  I work at a real estate fund in NY, and have been in and around the commercial real estate universe for a little while.  And while I know you understand that real estate faces some issues, there are some nuances that are not typically addressed when I hear the pundits and other folks discuss the lay of the land.  As a starting point, when it comes to the institutional universe, a large input in why we have not seen more distressed selling is that the buyers are so much bigger and better capitalized than was historically the case.  Put another way, the traditional liability pressure that was felt by the owner/operator of the past does not really exist – these folks can be much more patient and pay the monthly vig while the market sorts itself out.  At the same time, while you’d think lessons would’ve been learned, one of the clear unintended consequences of money printing continues to be irrational competition for just about every deal that comes along – cap rates in many markets seem to be back to 2005-2007 levels.

The interesting paradox is how many of these “sophisticated” investors don’t actually understand what’s coming.  They see inflation, but they don’t appreciate what the impact will be.  I’ve seen and heard about multiple deals lately that have fallen apart because the 10-year has moved 100 bps, with both parties seemingly unprepared for this occurrence.  And, while such a move is meaningful, it speaks even more so to how tight pricing is these days.  And, in spite of that, I hear about many folks who think cap rates are still heading even lower.

The investment implications – I’m not sure if there is a Paulson trade out there (at least not yet), but I do think that the rubber will meet the road a year or two from now (regardless of whether the funding crisis is here), particularly in the multifamily space.  Housing has not bottomed, as you know.  And because the multifamily food group has performed particularly well over the past 12-18 months (consider, I’ve seen sub-6 cap rate deals on the west coast of Florida recently), new inventory is probably due to show up in 2012/2013.  This can be seen in how the REITs are talking, and buttressed by how most of the big players and key analysts expect double-digit rent growth in many markets this year.  But, as housing continues to go lower, and rents continue to rise, at some point we might see home ownership become a competitive option again.  If there is even an iota of a recovery in the job market, this scenario becomes even more likely in my opinion.  At that point, the owners of multifamily real estate will face an existential crisis of sorts.

I’ve re-posted this email from a knowledgeable reader as I found it interesting.