mcliu

Wow, this is really cool. Thanks for sharing. :) Is the return calculated from the date of the first post? Annualized return would be cool to see.

Interesting emphasis on technology, reminds me of another company.

I recently met another local Dad who went to Harvard and Stanford (our daughters ride horses together). He was econ/business at those schools. In fact, he knows Ben Bernanke because they were down the hall from each other at Harvard. So, I asked him if it were possible to do worse than the market, because the market is efficient. He laughed at that one. Says he had never thought of it like that before. +1 lol

My impression is that higher rates will cause the asset side of the bank's balance sheet to shrink since it's likely to be invested in longer duration products vs. shorter-term funding on the liability side. Has anyone thought about how this impacts capital requirements?

Quick question, if you owned cumulative preferred shares, would you still be liable for the tax on the potential dividend even if it's in arrears? (Is there a difference if you're in Canada vs. U.S.?

This debunks nothing. If you were told that the 10 year would be 1.5% forever, wouldn't you be willing to pay a higher multiple for stocks? Markets are based upon expectations. Investors are worried that rates will increase causing a contraction in multiples. If they knew that rates would decrease, multiples would expand. I did agree with this: "But should it work in theory? The common rationale for the Fed model relates to the “discounted cashflow” approach to valuing equities. Lowering the discount rate you apply to future cashflows increases present value (the share price), other things being equal. The trouble is, other things aren’t equal." There are too many variables when trying to think about equity market valuations. That is way I don't (try not to?) think about market valuations. As the article says, bond yields tend to reflect inflation expectations which also reflect growth expectations. When investors adjust their discount rates lower to reflect lower risk-free rates, they should, at the same time, adjust their growth expectations lower, hence the multiple shouldn't be significantly higher.

Why start in BV and not IB?

How do you guys keep track of potential investments and their prices? I've looked at a lot of companies and there are often times where after I've researched a company, it falls into target range a few months later but I would miss it since I don't keep track of prices. Do you guys use price alerts?

Intrinsic value is the present value of future cash flows. There's a distribution of intrinsic value because you cannot know for certain what future cash flows are. You can use probabilities for each of the different possible cash flows that will accrue in the future and reach an estimated range/confidence interval of the intrinsic value of a business with some degree of confidence. Unless there's only 1 possible path, like a risk-free fixed-coupon fixed-maturity bond, there's no single intrinsic value.

I think a big component of your concentration depends on how much money you're managing. Your concentration is likely different if you're in the $100,000 range vs. the $100,000,000.

Why wouldn't earnings decline? Aren't profit margins currently at record highs and is mean-reverting? Why wouldn't there be strong competition given the high margins? Isn't there tremendous excess capacity in the economy and hence the extremely low GDP growth rates? Wouldn't some external shock easily push growth rates into negative territory? With a negative GDP growth rate, isn't it likely that earnings will decline? I do agree if we see moderate 3 or 4% GDP growth, it's tough to see earnings decline, but given the sub 2% GDP growth, any shocks to the system can easily push GDP growth below 0%. With monetary policy maxed out at this point, it's hard to see what other tools are at the FED's disposal under those circumstances. I'm not saying that, that's what's going to happen, since growth could just as well accelerate beyond 3% or 4%. I'm just saying, there's substantial risks in the system, and it doesn't hurt to hedge. Obviously, if you believe that GDP will continue to grow inevitably, then there's no point hedging. There's always risks and uncertainty with investing, however, the amount and distribution of the risks vary. At this point in time, just like in 2006/2007, there is substantial excesses in the system that warrant a cautious approach to investing.

Impressive. How do you develop such a conviction of your ability to estimate intrinsic value properly?

Earnings could also decline despite the low rates. If you believe that earnings will continue to grow and rates will continue to stay low, obviously what FFH doing is not effective, but on the off chance that the optimal scenario of low earnings and low rates do not continue, then a hedge may be necessary. I'm not smart enough to guess how rates will look in a few years, but in terms of earnings, given where growth rates and margins are at, it seems more likely to be lower than higher.

I don't think anyone can predict how the stock market will perform over the next two or three years. To invest on the definitive prediction that it will rise is close to speculation. Given the amount of external factors affecting markets today, there's possibly a higher probability of markets experiencing a shock in the near future. No one knows how the future will play out for sure, but if you have a slightly negative view, it doesn't seem to be a terrible time to be hedged. Obviously, you'll experience a couple years of poor returns, especially if the hedged event does not occur, but the benefit is a peace of mind and protection of capital. And if the hedged event does occur, the firm will be at a huge advantage.

Hi Packer, when you refer to record cash, is that net of the amount of debt that's on corporate balance sheets? Corporations seem to be issuing large amounts of debt to take advantage of low interest rates.

Shouldn't it always depend on the price? At some price, it will be an obvious good investment.

Apples vs. Oranges.

Spread is decent if you match the high yield with a short in treasuries. So high yields are fine as long as you get your principal back.

If your upside is large, like 20x, a 1% position can generate significant returns.

I guess that makes sense since the loyal customers obviously have higher marginal utility through their subscription.

Isn't Company A a no-brainer given the much higher ROE?

Poker

If you're an American and you've invested most of your assets in the U.S. any currency movement should have little impact on you unless the majority of your consumption is imported, so really, no currency diversification is needed in that case. However, say you're an American and you have most of your portfolio invested in an international portfolio, to take advantage of the growth available in those countries, you should probably hedge the currency, no? So, assuming you do need to hedge, what would you do?

I was wondering the same thing and noticed that there was no reply. Just wanted to bump this thread. For example, I would like to invest in European/Japanese businesses with profits denominated in their respective currencies, but I'm worried about currency devaluation in the future. What's the best/cheapest way for the retail investor to hedge their currency exposure?

How do you have time to track operating performance at all these companies?