Tuesday, December 23, 2014

Some Thoughts From 2014 Horizon Kinetics Market Commentaries

  • "one of the sources of return is simply the operation of the equity yield curve: that however successful the financial outcome might be, it will be too far in the future to be relevant to most investors and, thus, that as‐yet‐unrealized success is excessively discounted in the present."
  • "PAH produces specialty chemicals for a wide range of industries. It manufactures over 1,000 compounds, and its largest customer represents only 3% of sales. It exhibits very little cyclicality. Energy costs are only 2% of sales. It’s important to qualitatively differentiate the nature of the PAH chemicals business from that of the typical chemicals company. These particular chemicals are often proprietary both as to makeup (the company has over 750 patents) and process. Their employees spend considerable time with customers guiding them as to how to use these chemicals, often in multi‐step processes, such as might be used to enhance the performance of a circuit board. PAH refers to these as dynamic chemistries and seeks out markets requiring highly technical post‐sale customer service. What PAH sells tend to represent a very small portion of the cost of a customer’s product, yet are important to the product’s function or appearance. According to the company, customer retention is very high because the cost savings from switching to another provider are modest, while the switching costs are high due to process complexities and quality control requirements."
  • "For someone desirous of an inflation hedge that is a much better mirror of inflation in any given year, land is a much superior index. Of course, land is not a hedge against political instability, which gold is because gold is mobile. Land is not mobile, so it is only a hedge against inflation, not against political instability. Gold got its reputation as a hedge because sometimes political instability and inflation arrive together."
  • "it would be relatively easy to create a portfolio of unique uncorrelated assets, so as to give investors genuinely uncorrelated equity exposure. It might be a very good idea and a very interesting investment product. Unfortunately, there are limitations to the amount of money that can be raised among these companies for ETF management purposes, due to their more modest market capitalizations and, often, high level of inside ownership."

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