mcliu

If you back-out the one-time Quess gain, equity returns are still quite weak..

Maybe I've misunderstood, but I thought Buffett's position was not "everyone should index" but that fund managers (on average) are charging way too much for their mediocre performance? Isn't it also true that for one manager to outperform, you need another manager to under-perform by the same amount? But if both managers take fees, the aggregate net worth of the investor is less.. So what's wrong with his stance here..?

I think he's got a point here, even if it's somewhat promotional for his fun; an LBO is really just financial engineering and low volatility is merely a mirage because assets aren't being marked-to-market every minute.. It seems pretty obvious, since the underlying asset, a business/corporation/company, is the same for a stock fund vs a PE fund, but many institutional investors think PE is somehow better. ::)

Are you suggesting that underwriting (ex. CAT) will be a lot weaker next year? or they'll make more investment losses?

I have a hobby selling physical gold & silver. I will sell bars & coins and stuff like that. I have established clients and am always getting new ones. I can tell you WITHOUT A DOUBT that more people are interested in precious metals when the price is going up and the price is HIGH. Most people WILL NOT buy when the price is low...they are too scared it is going lower. They want to buy when it is high & going higher. I also suspect that this is the same in most markets. Perhaps it is because Jane Blow heard about Joe Blow making a killing in XYZ market. That peaks her interest and she wants to be like "Joe Blow". At the bottom of markets, you aren't hearing about how people made a killing...you are hearing about how they LOST MONEY. Nobody wants to lose, so nobody is interested. At market tops (or near) you hear plenty of stories about people getting rich, paying off houses, how "it is different this time" and so on. Thus, more people get interested, get involved and the market(s) go higher. A self reinforcing loop? I'm buying more. I bought very little in 2017, most of my buying was in 2015-16. I started buying again when it first went bellow $12K this month and I am buying more today. If it drops from here I'll be buying more still. What % of your portfolio are you allocating to this?

Interesting question.. I would like to know if someone's done the math here as well.. The total out-performance vs S&P since 1970 is 2.65% so if you backed out the 21% annual from BRK, did the rest of the portfolio really add value?

There is some truth to some of the above, but I want to focus on this: "It sits on a computer in a database that can be shut or compromised by anyone at any time.Gold doesn't suffer the same fragility and I consoder it a useless investment as well." It isn't on "a computer", but on thousands of them or more. No one can shut off bitcoin as long as there is a network of some kind in operation. A large scale nuclear war which permanently shuts down the internet never for it to be rebuilt would permanently shut down bitcoin, this is the case where gold wins and why gold will always retain some value. It is the preppers store of value and always will be. But short of armageddon bitcoin is preferable to gold. As long as the internet is operating anywhere in the world the blockchain will live, but even if the internet goes down world wide temporarily the blockchain mining will continue right where it left off when it comes back up. It may take a few minutes or hours to reach consensus if that were to happen, but there will be enough people with enough invested to be motivated to make sure that it does happen. The blockchain could be compromised in theory utilizing massive amounts of computing resources, but the more value Bitcoin has the more expensive an attack would have to be. Even now it would almost have to be a state actor to pull it off, and once you get Bitcoin valued into the $trillions even states would most likely not be able to do it. There are many good arguments against bitcoin, but "it isn't physical so someone could turn it off or compromise it" isn't one of them. The best 2 arguments against investing in Bitcoin right now are 1) It has gotten way ahead of itself in value and there will be a giant crash before it someday goes higher when the technology is ready to go mainstream. 2) There is really only a need for one gold replacing store of value and some other cryptocurrency other than Bitcoin will be it. And 2.5) The governments of the world will find someway to destroy it while they still can. I'm thinking maybe passing massive regulations and laws against it, to drive the price down, then use a massive amount of computing resources to attack it. I'm thinking #1 is most likely and is not an argument for never investing in Bitcoin, just not investing now. I called the last one 2.5, because that would just cause #2 to happen. A state-actor resistant coin would need to be invented which somehow limits 51% attacks, I'm not sure how that would work. But I don't think the government (any government capable of doing this anyway) will try it. I think it is more likely that CB will eventually start buying it to diversify their reserves. This is quite interesting. I haven't looked at bitcoins or crypto-currency in any detail, but I was wondering, what's the reason behind choosing bitcoin vs another crypto-currency? Gold exhibits certain properties that other elements do not which makes it suitable as a store of value. With digital currencies, can't anyone come up with an alternative say, bitcoin-2, bitcoin-3.. bitcoin-n, that exhibit the same characteristics as bitcoin? So, why bitcoin and not an alternative crypto? I guess the corollary to that is, would gold be as valuable if we could somehow produce an alternative gold that exhibits the same characteristics as gold.. gold v2, goldv3... goldvn?

Slightly off-topic, but is there a reason why Bitcoin is preferred over other cryptocurrencies?

https://www.barrons.com/articles/q-a-why-a-value-investor-decided-to-buy-bitcoin-1511810246

It's interesting how sentiment has shifted so quickly. When the company was hedged and expected return was pretty low (<6%), shares traded at 1.5x adj. BV. Now that the hedges have lifted, expected returns should be much higher (>10%), shares are trading at 1.0x adj. BV. :o

That's true, but MySpace had a large user base too. Plus, WhatsApp and Instagram were bought not built. It's feasible someone comes up with the next big thing.. I think Apple's ecosystem (esp on the consumer side) is stickier than what most people believe because everything is integrated.

1) FB (There will be other social platforms) 2) MSFT (Lower switching costs than in the past?) 3) AMZN (Great leader and business model but retail is tough) 4) AAPL (Higher switching costs than MSFT?) 5) GOOG (Natural monopoly)

The other question is, how do you distinguish real demand, as in families living in houses, from speculative demand, buying to flip? Supply elasticity is probably low given high transaction costs, long time to build, difficulty finding a new place, etc. etc.

The fact that so many people are calling a bubble makes it suspicious. Sometimes it feels like it's only a true bubble when no one sees a bubble and excess becomes normal. So this could be just the early innings and true euphoria hasn't come yet.

I think his recent results leave much to be desired, but at least he has the decency to admit that his performance was weak and waive (even return) fees. That's unheard of in the industry.

Citi's CEO said this back in 2007. “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” Probably applies here as well. The big banks have to answer to shareholders and keep pumping out profits. What better way to do that than to write ever bigger and riskier mortgages? High LTVs are also preferable since borrowers can buy mortgage insurance. You'll likely get a lower mortgage rate for a high LTV insured loan than a low LTV uninsured loan. RBC for example, almost half of their residential mortgage book is insured, so no credit risk + very little capital needed to support these loans = $$$.

Actually mortgage rates have gone up about 50 bps in the past year or so. But as another poster said, why does that matter when you can make 3,000 bps? Even if you can raise rates 500 bps why would it matter? By the way, to stop things you don't have to hike rates like crazy to brick the whole economy. The government has tools at its disposal to go use more precision based tools to regulate the shit out of real estate and real estate lending without taking down other sectors. But that seems to be unconceivable. Why should real estate speculators suffer and not manufacturers as well? Yes, slightly, driven by higher bond yields, but I think BoC is looking to cut short-term rates than to raise them. http://ca.reuters.com/article/businessNews/idCAKBN16Z1SX-OCABS I think it matters because higher rates makes it harder for people to borrow more and service the debt. Once cash flows get very negative, over-leveraged buyers are forced to sell, and all of a sudden, you'll have much more supply on the market. When net cash flows are positive, speculators have more flexibility to hold on to multiple units and wait for prices to rise. When everyone does this, supply shrinks and it becomes a self-fulfilling prophecy. While, theoretically, there are more precise/targeted monetary or fiscal tools, it's hard to find examples of where that's been implemented successfully. Even in China, where the government has much greater control over markets than most Western developed countries, they're having massive problems regulating real estate prices. Meanwhile, it's easy to find examples of the many cities and countries (that have had loose monetary policy / lending and extremely low real interest rates) that are having trouble dealing with escalating real estate prices, like Australia, Canada, Sweden, Norway, Hong Kong, China, etc. etc. Even with the US housing bubble, it was only until interest rates rose significantly and risky mortgages started resetting at higher rates that large cracks in the market began appearing. Most central banks have learned from that episode and their take-away seems to be to preempt housing corrections by lowering rates ahead of time.

When rates are this low and going lower, borrowers can keep rolling their debts and add more debt. Until we see higher interest rates, the music will keep playing..

Not really going to help if the central bank keeps cutting rates..

Somewhat weird, considering that Mark Wiseman was the guy promoting active management at the Canada Pension Plan Investment Board before leaving for BlackRock. Here's what he wrote shortly before he left: "It has now been a decade since the CPPIB decided to actively manage the CPP Fund, rather than pursue a passive strategy of simply mirroring public market indexes. It’s not a decision we took lightly. Active management requires more resources, and therefore more expenses, than a passive strategy. But we firmly believe that it generates significantly higher risk-adjusted returns for you." http://www.theglobeandmail.com/report-on-business/rob-commentary/yes-please-hold-cppibs-feet-to-the-fire/article30282937/

Maybe short the C$ or Genworth? It's a tough trade all around, like rb said, big carrying costs. Plus, the trend may last a lot longer than anyone expects as EliG says. Until you see a collapse in the Chinese housing bubble or a real tightening/reversal of capital flows, the inflow of hot foreign capital will keep driving prices higher. The problem is the large spread between real estate prices in China and the rest of the world. When someone can sell a tiny apartment in Shanghai/Beijing/Shenzhen/Hong Kong and buy a house in Australia/Canada/US, the trade will continue until the spread closes. Especially when prices are being set by the marginal buyer/seller. It's hard to see when this will happen, particularly as deposit rates in China are set below market rates, forcing people to buy real assets. It also doesn't help when the central banks in Australia/China/Canada keep extending credit into an overheating market.. I guess this is what happens when you allow non-market entities to hold dominant market share in global markets. ::)

Same craziness in Australia: http://www.news.com.au/finance/real-estate/selling/derelict-surry-hills-terrace-on-the-market-for-185m/news-story/1e46bc02c9640e7a07d53289598ba863

There's also no good vehicles to short like CDS in Canada. Saw this today: http://torontolife.com/real-estate/houses/toronto-house-for-sale-252-macpherson-avenue/ Semi-detached bought for $1.4M in 2015, renovated and is listing for $3.3M today :o That IRR though. ;D

Assuming houses appreciate at roughly the same rate as inflation, you are taxing "phantom gains". At the end of 20 years, you own the exact same house as you bought (actually a bit worse for wear). It makes no sense that should also need to pay tax on this "gain". Capital gains on stocks make some sense, since the retained earnings are taxed at a lower rate than dividends. So the real value of a company increases over time. There is still a stealth inflation tax though. Which is why capital gains taxes should be much lower than dividend or income taxes. Mortgage deductibility subsidizes borrowers, not homeowners. So if I have paid of my house, I pay the stealth inflation tax. But I don't get to deduct interest. Not sure if that's entirely true. I actually think houses should appreciate faster than inflation. (I could be wrong though.) If you look at it from a yield perspective. Price = Rent (or CF) / Cap Rate * (1 - Tax). The numerator would grow at something like nominal income growth (real income growth + inflation rate). The denominator would fluctuate based on interest rates. Also, certain prime locations are limited in supply and would appreciate more than those underlying factors due to scarcity.

I don't think you can really time these things..