I was wondering- What is the relationship between interest rates and copper prices? I'm sure it's at least partially about borrowing to purchase fixed assets, in order to mine, and as the cost of capital rises (the interest rates), those investments become less profitable, slowing growth. But isn't that just generally true? So in what way is copper more significant to understanding broader growth patterns in the economy? Also, aren't there many other factors involved in price trends of copper? Are there any other relevant influencers for these price movements? Any thoughts you have would be appreciated.

Thanks!

Loved the article. The in-depth research was noteworthy, and interesting. The topic seems like one that will always have many answers, since market price movements ultimately are a function of millions of people haggling over prices for assets they are buying and selling. Each of those people has a different situation, perspective, and financial culture operating behind their bids and asks. These types of regression analyses are always interesting, because they not only tell us about stocks, but are technically a commentary on the trends in the people behind the stocks, expressing themselves through the daily market movements. Understanding those people deeply seems like a good way to exploit the marketplace for profitable opportunities.

Thanks for the thought-provoking writing!

Very interesting article, and clear writing. As I understood what you wrote, it seems that there are two different factors, more recently, impacting the demand for MLPs in the market. The central one is the increasing need for these companies to actually reinvest their profits for infrastructure growth and development, due to a shift in the nature of the business. Secondarily, the FERC ruling reduces some of the benefit these companies enjoyed, by removing the seeming doubled-tax compensation.

Question: What did you think of the FERC ruling? It does seem like the companies were getting an extra tax break, and that their ROEs were already including the tax costs. Is your understanding of this issue in agreement with the ruling, or against it? I know many of the companies were arguing against the ruling, but it was hard to understand the merit of their argument, based on the numbers I was seeing. What is your opinion, if you don't mind my asking?

I liked how you used a paradigm of directly investing in the Real Estate assets yourself, in order to analyze the RIET investment candidates. Do you ever find yourself researching areas that companies in which you invest buy properties? This would follow logically from the perspective of direct investing. When I invest in equities, I also use the perspective that I'm a part-owner of the business (which you referenced), and I find it trickles into the total approach I use for analysis. In the case of RIETs, examining the individual areas (but not the individual properties- that would be cumbersome for an individual investor) would potentially yield additional insights in the investment. What has been your experience in this area? Do you find this to be true?

Thanks for the great article!

I liked your "Everything Bubble" label for the period we're currently experiencing. Do you see signs that this is really a bubble, in a comparable sense to what happened in 2008? I've been looking for signs, but I haven't seen anything, beyond the constant positivity in markets over the last 9 years. Valuations are definitely high, but not exorbitantly so. I also feel this may be a bubble, but I don't have clear evidence to support this sense. Any thoughts?

I learned this idea from a few different books. One excellent read is a book called "7 Habits of Highly Effective People", by Stephen Covey. The basic idea is that we often think about our feelings as being very definitive, as in, "this is just how I feel", and difficult to modify. The perspective he shares in the book is that there's a consistent structure to how feelings work, and that they're part of a hierarchy. The hierarchy works like this: Your core perceptions about someone, something, or a situation, lie at the top of the hierarchy. Based on how you perceive someone or something, that will define the types of thoughts you can have about that. Your thoughts are the underpinnings of your emotional reactions to those things. So, if you perceive someone as an enemy, even if they are not actually an enemy, objectively, you will have adversarial thoughts, and subsequent negative emotions. If this is true, it means that in order to change your feelings, you need to dig into how you "see" the situation, on the perceptual level.

In Benjamin Graham's "The Intelligent Investor", in Chapter 8, he talks about the need to develop emotional awareness when investing. For me, emotional awareness means detecting my feelings, then tracing them back to my underlying thoughts, and then perceptions, so I can understand why I feel what I feel. Then, I compare my perception of the situation to a more statistical perspective on the situation. If my perception is different, that means, I'm not being objective, and am letting my perception get influenced by my feelings (which then leads to my feelings being influenced by my perceptions in return, leading to a loop- which is why fear builds on itself).

I'll give an example. I once invested in a company called Herbalife, at the same time that Bill Ackman, the hedge fund manager of Pershing Square, shorted it. It went down from $70 to $25. I bought it at $30. I felt fear, and didn't want to be contrarian, because "everyone" was saying that it was a poor business, and a pyramid scheme. There was a ton of noise in the marketplace. I did my own analysis before I bought, and had clear proof that it was mispriced, and should be priced at at least $60 a share, even if Ackman was right. I looked at my feelings, and said "this is just fear of going against the crowd", which sometimes is legitimate, but this time, was not. (I sold out at $55, bought again at $37, and sold out again at $60:). It was a solid happy ending:)).

@[Alexis Renault](user:7620)

Loved this. Being truly contrarian is such a rare thing, and it's so key to successful investing. As you wrote, most people, even when they know about the principle, don't have the strength to follow through, because of fear. They actually know what they could do, that they could go against the crowd, but their fear is self-perceived as "logic", giving them "reasons" why, in their particular situation, it wouldn't make sense. So, it ends up that people don't realize they're "in one of those" situations, the kind they learned about when they encountered the idea of being contrarian. I focus on deepening my emotional self-awareness, and trying to look at my feelings as simple physiological products of my perceptions. This helps me be contrarian in heated situations, by realizing that my emotions are just chemicals bouncing around in my body, trying to confuse my mind.

Hi, Thanks for sharing the summary, and the link to the original article. I enjoyed the thoroughness of the research in the original study, as well as the concise summary you provided.

Question: As an asset, commodities are very different from equities, in regards to their investment characteristics. I know this makes them a potential diversifier to a portfolio, but is there any kind of systematic way of analyzing them, to invest in them proactively, as opposed to just using statistics? In equities, there is fundamental analysis based on the nature of the underlying business, but with commodities, the main dynamics are supply/demand, which is essentially just a question of surpluses and shortages. While these statistical studies seem to bear out that adding commodities can create diversification in a portfolio, they don't really relate to underlying causes of price movements. I'm sure this is because that wasn't the goal of the study, I'm just asking to get a sense of actionable ideas, based on the article. Do you have any thoughts about this?

Thanks,

Zev.

Masterful article. I loved the weaving together of the macro/interest rate issue with the deep analysis of Seaworld. The parsing of the different types of debt, and the swaps they've been using to try to reduce variability in rates was very clarifying.

I was curious- I didn't look at their filings yet, but was there information regarding the different derivative instruments disclosed? Or are you just taking a worst case estimate of the embedded losses that are "hiding" on the balance sheet? Were the derivatives being used as hedges against interest rate changes (I assume not, since that would mean they should have recorded a gain, to offset the variability of interest rates you described)? I'm curious about this information, since according to your estimation, the embedded losses are material to their earnings.

Thanks, and thanks for a very insightful article.

Got it, and thanks for the reply:). Your approach makes sense to me. You're basically saying that you try to find ways to make sure the numbers make sense, at least, to reduce the possibility of fraud. It would be nice if we could create some kind of certification (kind of like the CFA GIPS standards) that companies (probably predominantly foreign ones) could use to "certify" themselves as being legitimate. I really don't check out too many Chinese companies because of these issues, and it's unfortunate for me, as well as for them.