Notable Notes from the Value Investing Congress

Jonathan of the indispensable Cheap Stocks blog posts some notes from the Value Investing Congress. Among the impressive cast is David Einhorn:

Einhorn opened his presentation with his thoughts on the importance of learning from bad decisions. He cited his 2005 IRA Sohn conference presentation on the merits of homebuilder NBC Holdings, which ultimately fell 40% as the homebuilding sector collapsed. Although the rest of the sector fell much further, an average of 70%, Einhorn learned the following:

• It is not reasonable to be agnostic about the big picture, a macro view is vital
• Even given the above statement, you can still be a stock picker

Einhorn went onto give a stirring speech about what he believes to be the current macro risks:

• The government is too focused on the short-term, too focused on getting re-elected.
• Too much focus on special interests (protection of banks, for one)

Einhorn believes that the lesson of the Lehman collapse, a company that he very successfully shorted, is that companies should not be so big that their collapse can jeopardize the entire financial system.

He went onto state that he has changed his view about the validity of owning gold, given its propensity to perform well not just during inflationary times, but when monetary policies are poor in general. In terms of form of ownership, Einhorn owns physical gold, believing that to be even more efficient than the ETF.

As you know, I own a "double" portfolio position in the SPDR Gold ETF (GLD). But I agree owning the physical metal is best, if one goes to the trouble of storing it properly. Next best would be owning something like Central Fund of Canada (CEF), the closed-end fund, as long as it is trading at a discount. (It has been trading at a premium for a good long while now.)

I encourage you to read the entire Cheap Stocks posts linked. And I also think you should read the entire Einhorn speech (you can find it on Tuesday's RealClearMarkets.com). I'm not overly familiar with his long-term record, yet I find his talk compelling nonetheless. I like that he opens by freely talking about an investment mistake. My observation is that good investors are open about admitting mistakes.