Quick question: What is your method for calculating maintenance capital expenditure.

I understand this is a hard figure to come to, and many places say you can just take Depreciation Amortization to = maintenance cap ex.

How is this so? What is the logic for D&A (the allocation of past costs to future years) to be similar to the money required to keep the business going at the current rate.

Thanks

Adam Davis: I personally wouldn’t short commodities. For me, shorting is a strategy when you know that something is going to zero, even if you don’t know when. GM was an obvious short in my opinion – there was no chance of recovery and it was about as close to a guaranteed zero as possible. I personally would never short a stock or commodity merely because I thought that there should be a price correction because a lot could happen that would upset your position. Say you short oil at $140, but a massive war upsets supply in a major way. All of the sudden, you’re short on a commodity that, though overpriced based on “normal” levels, is suddenly temporarily cheap due to a major supply/demand imbalance. Too “gambly” for my blood.

Ryan: In my opinion, leverage is not a strategy; it’s a tool to be used sparingly and for temporary purposes. With a double- or triple-levered investment, you could make huge gains…or lose everything – fast. In my opinion, putting enough of one’s portfolio into a great idea usually works out just fine.

What is your opinion on the 200% leverage ETFs as a long term hold? For example DXO

Thank you

It takes guts to admit when you are wrong, especially in public.

In hindsight, taking just copper out of these three metals would have been ideal (so would MSFT IPO shares). But, it seems like you were pretty quick to pull the trigger in this case simply b/c the prices of the other two metals didn’t move up right away (we’re only talking a shade over 60 days here). Are you saying that you are likely to select individual commodities in the future? If so, a narrower bet should probably equal a bigger price/value discrepancy? It seems with a basket you can be at least ‘roughly right’ versus ‘precisely wrong’.

Also, if you are willing to go long on commodities, based on supply and demand observations, does that mean that you would short them (based on the same criteria) as well?

The way I see it, commodities like aluminum, copper, and zinc have value because they are inputs in the production of goods as varied as airplanes, packaging, cans, batteries, and medicine. A company that produces drink cans needs a certain amount of aluminum, and has to pay enough for that aluminum so that the aluminum miners can justify their work, and so on. So for that type of commodity, while I think it is extremely difficult to truly know the world-wide level of supply and the level and demand and be able to compare them to find out what the commodity should exactly be worth at that time, I agree that there is an intrinsic value involved in these type of commodities (however difficult it may be to find), and therefore can potentially be bought at a discount to that value (which is what value investing is all about).

On the other hand, many of the well known value investing hedge funds is allocating a large amount of funds to ‘investments’ relating to gold. To me, investing in gold is not value investing at all. It is so clearly a “greater fool” investment- in which the investment’s success is not based on fundamentals, but rather is contingent upon the sale of it to another guy for more money. People say that gold is a strong inflation hedge, but again I do not see the logic. I can think of much better ways to hedge inflation than buying gold.

When analyzing the vehicle you need to do what a mechanic would do when evaluating a car, look under the hood. That is where the true investing process comes to life. This process is exactly the same whether investing in a business or investing in ETF%u2019s. Investing in commodity ETF%u2019s has the additional challenge of knowing how the ETF will track the underline. Not all ETF%u2019s are created the same and in fact, as many people have learned the hard way with the leveraged ETF%u2019s, they don%u2019t always track the underline. There are numerous oil ETFs/ETNs: OIL, USO, USL, DXO, DTO, OLO, SZO, DBO, DOY, UOY just to name a few. Now that you have solidified your idea to go long oil, the challenge is to find the best vehicle to get you from point A to point B. It is a lot like a horse race: knowing which horse to bet on is sometime more important then knowing who will win the race.