blakehampton

I want to start by saying that I'm not an advocate for investment in China. I followed Munger into BABA and then proceeded to slowly bleed to death until I decided that China was a no-go, especially when I thought about the structure of ADRs. However, I don't see anything wrong with this particular situation, I believe bondholders should be punished. They are essentially financing a company that built property developments on down payments without ever finishing them. The bottom line is the customers who were sold a false promise are higher up on the claim ladder than some foreign bond owners.

So I have seen "the stock market is not the economy" a couple of times and I have to say I don't understand. Wouldn't the stock market essentially be a delayed representation of the economy?

Thanks for the great response. I have this feeling that the repercussions from government stimulus are somehow lurking in the underbelly of the economy. I don't know how to explain it so it's probably speculative, and it has been nearly 4 years since the onset of COVID, you would think that any argument would be a wash. Curious what you think.

What do you all think of the Shiller PE? Seems to be good metric.

Good point

I don't know who would buy 10 years at a 4% yield. It seems to be an exceptionally bad deal when you can easily get 5-5.5% on your money short-term. I do know that the Fed owns a shit ton of 10-years and it seems like they are manipulating the market downward, I don't think anybody knows how that situation will end. On your point of DEO and MSGE, I don't disagree that there are deals in larger capitalization stocks, it just seems to me that they are very rare. How do you know that earnings will be this high going forward and that there will continue to be double-digit growth? I'm quite skeptical. Is what you're seeing rational? This is of course very general, but do you think that people will do well getting in at these prices?

Also this was great, thanks

Does this market not seem crazy speculative to anybody else? I almost feel stupid asking because I know how people say that trying to guess macro is dumb and all, but still. I feel like I take a good amount of time to look at companies and review financial statements. For most, I do bare-bones simple analysis. I look at the income statement, balance sheet, and cash flow statement, as you do, and I also try to understand what business they provide, so that I can give myself an idea if and how growth could happen. I understand that there is always a deal to be found and that I should probably just shut up and go find one. I've also come to realize that there is a relatively decent amount located mainly in the smaller capitalization stocks. If I can own a decently diversified group of these where my conviction is high, I would buy them all in the next hour. But for the reason of my post. When I sometimes take a look at the larger companies, most of them seem very detached from reality in their valuations. Massive companies selling at huge multiples, in which are based on earnings that are influenced by incredible stimulus, low interest rates, and lower corporate taxes. How can this not be a bubble? I don't want to say that a future of higher rates is certain, but if I were to have to make a bet, I would say that rates going forward are certainly going to be higher than what we have seen in the past ten years. I also mention taxes because of the huge federal deficit in the U.S and the very high probability of higher corporate taxes in future, probably not under Trump though. What happens if these huge names ever stumble and people then take a look at their retirement accounts? Thoughts?

You obviously know your VIX. What do you think about the whole 'someone is manipulating the VIX' narrative?

The VIX has seemed to hug twelve forever now, besides that whole Silicon Bank fiasco last year. That's an interesting way to think about it. Owning 10-20 1% positions just so you can soothe that drive to be active.

So with the particular case that I'm referencing here, they actually delisted so that they don't have to report to the SEC anymore. Their disclosures are okay? They have an annual report with simply audited financials, and the notes to them, on OTC Markets, they don't do quarterlies on there. On the news section of their website, they report both quarterly and annual results that have less detail but include messages from management.

Some Questions Generally, how long does it take for you to figure out an idea? How do you know your comfort level regarding a position? Is your strategy with position sizing based on feel or is it more systematic? Do you think it's possible to have a systematic approach, or must it be tuned to your personality? I understand these are sort of basic but I'm still curious. I'm relatively young and I always think it's a good idea to get more perspective, especially when you're asking people who've played out more hands than you. I also think this investment game is hard. Not just because it's inherently hard, though it is, but because it takes a vast amount of experience to understand how you personally react to market stimuli. It's very much an emotional game as it is an analytical one, possibly even more so. Thoughts?

You know I had the exact same thought at first, but thinking about it further, will there even be any money left for investors? The Evergrande situation seems especially bad to me. Basically the company took down payments to start massive amounts of developments, without ever finishing any of them. There are currently people who bought homes that probably won’t end up being built. I would think any money still lying around is gonna have to ultimately go to those property owners. I think what’s happening in the Chinese property sector right now is wildly interesting and if anybody has any further insight, I would gladly hear it.

I set the price for this stock yesterday. Put in an order for 5 shares at a tiny premium and ended up getting filled at about a 3% discount on where they were initially trading. Funny thing is I already owned 7 shares so I gave myself an unrealized loss.

Not yet but I will once I decide and have a full position

They are selling for nearly a third of book and 7x earnings. Seems super cheap but still makes me nervous. I haven’t seen a dividend and I’m sure that management could easily just milk compensation or options. Very few shares outstanding and no real incentive to relist on an exchange.

Ok so I looked into the stock again and figured some stuff out. Back in 2006 they filed a form 15 with the SEC to discontinue being publicly traded, they now only trade OTC. Chair and CEO is the daughter of the founder, and is included in a trust consisting of approx 60% of the company. I’m assuming that there are private transactions considering this thing literally sits with zero volume daily. Even with that, they have bought back 20% of the company in the last 4 years.

Those are great examples, thanks

I’m thinking up questions to ask the management of some companies I’m currently looking at. My issue is I don’t quite understand the specifics of insider trading. For example, is it illegal to buy a stock after learning of a company’s customers with that information not being publicly disclosed? At what point exactly does it become insider trading?

This is a good point. However, in the situation of a publicly traded company, couldn't someone come and buy a majority ownership and sell it themselves?

Inventory?

Another good question is how do you all factor book value into a margin of safety? I feel that if you are looking at a company selling at less than half of liquid assets, there should inherently be little risk outside of huge managerial incompetence.

I have been cutting the reported value of illiquid assets in half but was curious what you all might think.

Never thought about it that way. When I first read "worked," I thought you were gonna explain how money is invested in the couch.

It's kinda sad how many companies there are where management is just milking their position. They provide 0 value to the business while still paying themselves huge sums. These people should be ashamed of themselves.