US Homebuilders: Time to Short Them?

In the past 12 months, homebuilding stocks have jumped in anticipation of a rebound in housing prices.  So far, the rebound hasn’t even occurred yet!  Home prices have stayed roughly flat since 2009.


While I don’t think that I am any good at predicting future home prices, it seems to me that some homebuilders are overvalued.  There are some homebuilders trading well above their book value despite being unprofitable. Continue reading

What gets measured gets improved… or not

On the surface, it seems that measuring key metrics for a business can lead to improvements.  Many businesses will try to quantify their operations instead of relying on qualitative goalposts.  This is probably a good idea in most situations.  However, the real world is messy and difficult.  Sometimes employees will game the metrics used to measure their performance.

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Gold versus gold mining stocks

GLD is a trust that owns physical gold.
GDX is an ETF index of gold mining stocks.

As you can see from the chart below, GLD has clearly been the better performer since the inception of GDX.  (GDX would perform better if dividends were taken into account.  However, it still wouldn’t make a difference.)


In my opinion, gold miners have spent way too much effort on mining the capital markets (e.g. you, me, your pension, etc.) and on chasing projects with terrible returns.

KWG/NOT update – Cliffs’ Black Thor project has bad economics

A year ago, Cliffs put out some information on the economics of its Black Thor project in its Investor’s Day presentation by Bill Boor (see Cliffs’ website).  I’ve only stumbled across it and read it now.  In the figures given out in the presentation, there are some extremely aggressive price assumptions used and the stated IRR is only 14-17%.  The projects’ economics are overstated and this project doesn’t look economic at all.  I wish I had realized this sooner.

Now I’m in an uncomfortable position with KWG Resources and Noront.  Both their fortunes are tied to Cliffs building a mine and smelter that it shouldn’t.

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Osisko (TSE:OSK) – Yet another promotional gold miner

Originally, I was interested in Osisko since it has dropped by three quarters since 2011 and it seemed cheap.  However, the company consistently uses aggressive accounting so it’s not as cheap as it seems.  Overall, Osisko is hard for me to evaluate since (1) I don’t trust the promotional management and (2) there isn’t enough information being disclosed.  I also prefer to invest in management teams that are really good at generating value.

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For-profit dialysis: an unethical industry / DaVita (DVA)

I’ve been researching the dialysis industry because Berkshire Hathaway owns DaVita (DVA), one of the largest dialysis providers in the US.  However, I’m not quite sure why Berkshire Hathaway owns this stock.  The for-profits are rarely rewarded for creating value while there are large financial rewards for unethical behaviour.  Buffett has been vocal about not owning Lorillard (a tobacco company) so I don’t see why he would be ok with owning DaVita.  It is possible that Buffett hasn’t researched the company much as Ted Weschler (probably) made the decision to buy it.

Historically, DaVita has been very rewarding for shareholders ever since Kent Thiry saved it from bankruptcy and turned it around.  However, his integrity strikes me as questionable and I’m of the opinion that entrusting your money with unethical people is not a good idea.

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