Sell Out: “The Other Side”


Reader:  “Is it just me or has Barry Ritzholtz gone over to the other side. I see him guest hosting Bloomberg more so maybe it just goes with the territory….I’m dismayed and don’t like it when these guys sell out. Roger Lowenstein and his article on Bernanke….in Atlantic Monthly. Just venting………”

Fleckenstein: Lowenstein, who is a good writer, has been a serial defender of the Fed. As for Barry, I can’t say, he is just another one of a lot of guys who don’t want gold to be higher, as it means much of what they currently think might be wrong.”



A TBP reader at Oppy forwarded me the above comment from a reader of Bill Fleckenstein. I sometimes forget that — despite tens of 1,000s of posts, years of columns, almost a decade of media appearances — some people have no idea about anything I have ever said or written. Apparently, some folks are too lazy/biased/ignorant/committed to a position/ to be bothered spending 30 seconds doing the slightest bit of homework after they come across a headline or Tweet. Rather, they read whatever they want into it — including all of their baggage, biases, and behavioral quirks — as opposed to engaging in actual thought.

The exchange above is a perfect example. Thus, I want to use this opportunity as a “Teachable Moment” to explain to those who may be unfamiliar with my investment philosophy or prior writings (so craftily hidden online) to explain why I write the things I do — on everything from Gold to Trading to Cognitive Biases.

If you are unfamiliar with my prior body of work, here are 10 things you should know about me:

1. I am Agnostic on everything: I am agnostic about Gold. In fact, I am agnostic about any asset class, sector, stock, bond or commodity. You cannot be in the market very long and grow attached to anything, as EVERYTHING will eventually disappoint you.

I call this my universal entropy theorem of investing, and its why everything — from Microsoft to the 10 year bond, from Apple to Gold — eventually goes to shit.

2. Biases and Behavioral Economics: I have spent the better part of my career trying to learn why that big under-used melon on the top of your neck fails to work as expected as investors. I have learned that some of it is a design flaw, although to be more accurate, it is actually a feature, not a bug. Your brain has evolved to help keep you alive — and it has been wildly successful for the species Homo Sapiens in that capacity. As investors, on the other hand, not so much.

3. Objective Empirical Data Beats Narratives: Everyone loves a good story. Our history as a species is several million years long, but over that entire period, the written word has only existed for a relatively brief few 1,000 years. Storytelling seems to be a good way to pass on information and knowledge.

I suspect this is why we are hard wired to prefer a narrative versus cool hard mathematics. This foible trips up investors who time and again fall prey to a good tale, despite when the underlying data is saying the exact opposite of the story. Hence, its why dotcoms developed new metrics — it fit the narrative. It is why Apple was going to defeat the law of big numbers. And, it is also why Gold comes part and parcel with its own unique tale, complete with heroes and villains and a comeuppance at the end of the tale for the bad guys.

4. Media: In my disclosure page, I write the following about my media appearances: “All media appearances (tv, print, radio) are unpaid. I show up, say what I believe, and go home. There are no fees, no scripts, no banking favors. I always disclose positions/conflicts to the producer/editors in advance. If time permits, I spit out my personal/client positions on air; Same goes for print. I try to post a heads up on TV appearances in advance when I can, but since they tend to be last minute affairs, no promises.”

I say what I do on media (like Bloomberg or any other outlet) for three reasons: 1) Its what I believe; 2) Being in the media is part of my job (branding, marketing, name recognition, etc.), 3) Its fun. I have a good time with it, engaging in debate, structuring ideas, pushing back against myths.  I never use PR people (when the Bailout Nation came out the publisher hired a PR agency for a month), I simply write what I write and if I get invited somewhere great — but thats not why I write, and I have been writing on various subjects for decades before I ever did media.

5. Valuation: Ultimately, investing is about identifying good value over long periods of time. The way we can do this for stocks is by looking at (preferably objective) metrics such as cash flow, revenues, price to book, dividends and last (and yes, often least) earnings. For bonds, its about the credit worthiness of the borrower, the yield, duration, and inflation relative to Fed rates. There are metrics for energy and real estate; for industrial metals, food and timber it is harder to value; for precious metals it is extremely hard to find an objective intrinsic valuation.

6. About Gold: I recommended people buy Gold at a time when the underlying factors were a falling dollar and high inflation back in 2005-06 or so, and Gold was in the $400s.  At the time GLD was $43-45. The first time I recommended Gold to the investing public was on CNBC’s Power Lunch, when I suggested having a position in the GLD ETF. This was about 8 years ago, and GLD was in the $40s.  I recommended adding to your gold trade at $1040 for technical reasons. Based on a some technical work we did, including some quantitative analysis, we put a $1350 target on spot Gold. When Gold Hits Our $1350 Target, I suggested there was more upside but some profit taking was in order. In July 2011, to a roomful of Gold Bugs in Vancouver, I informed them that Gold is a Trade, Not a Religion — and I explained that these things tend to end with a spasmodic spike rather than a stock like rollover.

Note the statement Gold is a Trade, Not a Religion is actually grammatically incorrect — it should read: “Gold should be a Trade, and not a Religion” because for too many people it has become a religion.

7. Shorting: I like to short overvalued assets.  In general, I like short sellers as guardians against fraud. My working assumption is that anyone who is against short selling or short sellers is pro-Fraud.

I have not been short gold (nor held an asset or fund that was short). In fact, I don’t believe I have ever been short gold.

8. Quantitative Research: I do believe in crunching numbers, looking at cycles, trying to use math to optimize the investing process. That is half of my day job, as CEO of Fusion IQ. I believe the evidence is overwhelming that an objective, empirical approach to investing is vastly superior to a myth based, narrative driven heuristic approach.

9. Asset Management: The rest of my daily work involves managing actual assets for clients. We run an asset allocation model that owns stocks bonds AND commodities. (We sold all of our gold related holdings, including First Eagle, in December 2012 because they were under-performing — and that is part of our process).

Managing assets for clients has the potential to introduce all sorts of biases (career risk, cheerleading, etc.) but I try my damnedest to avoid these by creating specific rules for investing, and doing what I can to refine and follow them.

10. My Bias. Speaking of bias: As a fellow member of the species Homo Sapiens, I am as biased as any other human is. However, I have some degree of awareness of this. I hope this enlightened view allows me to avoid making at least the really obvious mistakes.

The bottom line is if you are buying something you don’t understand based on a narrative that is half myth pushed by people with an incentive to bring in more buyers, well then, you are setting yourself up for a disaster.  This is true for Gold, equities, IPOs, penny stocks, banking deals, etc.

To Fleck’s reader: “No, its just you . . .”


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