True Value Investing

This is the first post of
a new blog.

Something I've always been
fascinated by is underlying
value.

Call it intrinsic value or
inherent value but there is
something alluring about value
that does not go away or takes
a long time to go away.

Take gold, for example. Gold
has intrinsic value. Gold was
valuable one thousand years ago
and it will be valuable one
thousand years from now.

That's one way to judge intrinsic
value. How long has it been
valuable? How long will it
remain valuable?

Shoreline property is an example of
something that has intrinsic value.

The shores near the the mouth of
the Hudson River were probably quite
valuable to the Native Americans
one thousand years ago. One thousand
years from now, shore property at the
mouth of the Hudson will probably remain
valuable.

In value investing, it pays to look at
the intrinsic value of something. Is
this thing going away? Is that thing
going to last?

This can be tricky. Photographs will,
in all probibility, be here 100 years
from now just as photographs were here
100 years ago.

But what about chemical photographs?
What about photographs that derive from
a dark room process. I'm not so sure.

One of the keys to value investing is
making sure you know what it is that
people value.

In the case of photographs, it is the
end result and not that process that
people care about.

Your three-year-old niece looks just
as cute in a digital photograph as she
does in a photo-chemical photograph.

Perhaps this explains the current demise
of Eastman Kodak. A quick glance at a
five-year chart is pretty horrifying.

Seems they saw themselves as being in
the photo-chemical business rather than
being in the photo business.

In other words, they might have done better
if they had been a little more focused on
the end result.

Same could be said of passenger trains in
the 1950s.

If they had viewed themselves as being in the
transportation business rather than the
train business, they might have started buying
airplanes in the 1950s.

Perhaps this would have made sense as it really
doesn't matter how you transport people as long
as you get them there.

That is to say, it doesn't matter in the big
big picture.

Of course, the railroads might have had problems
with anti-trust regulations had they started investing
in airplanes. I don't know enough to say.

Come to think about it, the movie business had the
same problem in the 1950s. Thought they were in
the movie business rather than the entertainment
business. Thus, they were highly resistant to
television.

This blog post is inspired by a friend who sent me
the following article via email:

Gold: The Ultimate Un-Bubble

Interesting article. Discusses the possibility that
the price of gold is never really and truly a bubble.

Rather, it seems, it is everything else that bubbles
while gold remains relatively range-bound in price if
you discount for inflation.

I think there is something to this premise.

No doubt about. Gold has a way of keeping its intrinsic
value, regardless of what people say about.

Of course the price fluctuates. However, that fluctuation
is extremely range-bound, especially when you discount for
inflation.

By range-bound, I mean the value never seems to go up
by more than 4-times or so. Something like that.

As for loss of value, it never seems to lose more than
75 percent of its value over time.

To some people, that might sound like a tremendous
fluctuation in price, but it is not.

You could go into a state of frozen animation for 100 years,
come back to full life, and your gold would still be worth
approximately what it was when you left.

For many people, gold is more of an inflation hedge
than an investment.

Ed Abbott