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East and West

December 30, 2009

It has been very popular amongst the media to bash the west and to predict the demise of the United States.

I’m generally a believer that just because the east (ie China) is rising doesn’t mean America is going the way of Rome.

Americans are tremendously resilient, entrepreneurial and determined. America and the west have stable systems of government, property rights, financial sophistication (which has been strengthened by experience with the recent sub-prime debacle) and freedom.

America will be back stronger, richer, smarter and well positioned to continue its leadership position economically, politically and militarily.

I hope you enjoy this Niall Ferguson opinion which appears in the Finanical Times.

http://www.ft.com/cms/s/0/ac26eb9a-f30a-11de-a888-00144feab49a.html?nclick_check=1

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Fifteen years ago my dad sent me to a long time client of his for some career and life advice.  I had just graduated from university and was trying to figure out what to do with my life.

I remember that day and that advice vividly.  I owned a white Volkswagen Jetta, was wearing a green golf shirt, khaki pants, boat shoes and met in his office in Washington state.  His green Mercedes S500 was in his parking lot and he referred to it as being “ugly as sin, but drives like a dream.”

We spent two hours together and I remember one piece of advice as though it was delivered to me only a few minutes ago.  It was, “do what you love and all else will follow.”

I haven’t always followed this advice, but when I have I’ve been happier, more successful and have just felt normal.

I came across this video of Steve Jobs delivering the commencement address to a Stanford graduating class.  One of his messages, “follow your heart, it knows what you want to become”, reminded me of my mentor’s 1994 lesson.

See the video below.  It’s well worth fifteen minutes.

Gold

December 17, 2009

I host a monthly investment discussion group.  It’s composed of a group of professionals who have invested assets outside of their primary home, take an interest in their investments and make decisions related to them.  We range in age from our early thirties to our late forties.

Last evening we discussed gold, the gold standard, fiat currency, the recent run up in gold prices and, most importantly, given how gold is priced and where we think it goes from here.

What influences the price of gold?  Supply and demand.

Supply comes from mines, government sales and old gold scrap (people selling jewelry etc.).  Demand comes from jewelry purchases, industrial and dental, bar, coin and retail investment and investment vehicles like exchange traded funds.

From Q1 2008 to Q3 2009 total supply increased by 17% and total demand decreased by -8%.  All other things being equal, this should mean that the price of gold will go down.

What is the case for an increase in the price of gold?

Big countries like China and India purchasing gold from the IMF.  While this doesn’t increase the supply of gold, it does increase demand and Joe Retail Investor may run into gold thinking that this move will cause a jump in gold prices.  Trying to time the market (which is impossible in my view) and buy on the recent dip in prices.  Worries about Obama’s massive fiscal deficits and the impact on the US dollar with the inevitable run up in inflation.

What is the case for gold going down?

Interest rates remaining unchanged until 2011 will reduce the potential for big inflation in 2010 and reduce demand for gold as a hedge against inflation.  The slow recovery of the US economy will reduce demand for gold as the ultimate safe haven and will stabilize the US dollar (gold prices run inversely to the greenback).

More generally, although gold has had an exceptional run over 2009, historically it provides pretty dismal returns.  From 1983 to its peak in 2009 gold returned 180% where US Treasuries return 1089% and the S&P 500 returned 2182%.

Our group predicted where we think gold prices will be when we meet again this time next month: $1300, $1050, $1300, $1100 and $1240.

Reading

December 9, 2009

My father once said to me that in order to be successful in business one must master the spoken and written word.

Strengthening communication skills doesn’t need to be done by studying languages or grammar, but can be simply done by reading.

I didn’t start enjoying reading until I was in my twenties, but once I started reading regularly my abilities immediately improved.  I look back on business letters I wrote during my second company (when I was 23/24 years old) and they are long winded and repetitive.  Today letters from me are more concise and readable.  Better for me and better for the recipients.


Check out my reading list on this blog.  You’ll see that I don’t read heavy books, but books that reflect things that are interesting to me. These include books on business, maritime history and disasters, John Grisham thrillers and, more regularly, various periodicals.

If I could only read one item for the rest of my life it would be the Economist magazine.  Its use of the Queen’s English (tyre instead of tire) is interesting and topics are exceptionally wide ranging.  If there is something important going on in the world then this periodical is covering it.

Exit

December 3, 2009

Many investors pontificate on how entrepreneurs must communicate their exit strategy right up front.  It’s argued that in order for an investor to invest he or she must understand how they’re going to get their money out.

I have started, built and sold  two companies and am currently working on starting my third.  Even though I have gone through this process twice on my own, I am by no means an expert because I don’t do angel investing.  Nonetheless, I am of the view that these investors who are advising “neophyte” entrepreneurs to focus on their exit are misguiding them at best and doing them a disservice at worst.

Building a company is a process, not a transaction.  An entrepreneur and manager must focus building their company up to being the best in its marketplace.  Define “best” however you want (market share, employee count, technological innovation, profits, growth rates etc.).

If a business is very good at what it does, then the rest will take care of itself