blainehodder
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Posts posted by blainehodder
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Does anyone know of a study where any of the proposed valuation measures could be used to determine asset allocation between stocks and cash with market-beating returns? If not, I just don't understand the point of articles like this.
I would love there to be such a study, but I strongly suspect that the opportunity cost of waiting for the reversion would be much higher than the cost of predicted downturns.
This is Hussman's biggest mistake in my opinion. The obvious solution is moving your money to markets that offer attractive long term returns. Not to hold cash.
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Hard landing, or smooth line?
Regardless, I will continue to ignore Chinese macroeconomics when it comes to my stock purchases.
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"Shady" is a hard thing to define. Be careful of hindsight bias. Look at the following:
1) Guns
2) For Profit Ed
3) Cigarettes
4) Pharma
5) MLMs
6) Gov. Contractors
Notice what these candidates have in common? They are all found on the magic formula due to high returns on cap and being generally out of favour. Be very careful shorting companies with low EV/EBIT, and high ROTC (particularly baskets of them). This could take you into negative academic alpha land.
Some might say the big banks are shady... What would have happened had you been short banks recent years?
Of course this demonstrates hindsight bias as well, but it is generally agreed upon that cheap + high returns on cap = good performance.
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Thanks for sharing. Also, that's a great subreddit. Hadn't heard of it until now.
is that you Joe, or do you just like the name/site (fwallstreet)?
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The most shocking thing to me about the poll so far is how bullish the board has become. Only 25.5% of members have selected cash so far as opposed to ~40% the preceding two quarters...
The poll asked: "Choose the companies you believe will have the best total return."
I don't think anyone honestly thinks cash will have the best return. You would be insane to believe that. Cash might beat the market in general, but it absolutely will not beat the returns of every company on that list. This poll basically asks you to wing it for the best 1 yr returns, not to select a nicely positioned portfolio you think will provide opportunity for the long term. These are pretty different questions.
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Anyone done a deep dive into Turkish banks? Quickly glancing at some ratios gives me an impression there could be bargains. Under tangible book for banks with a history of profits.
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bahaha. I thought I was the only one who did this!
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In the spirit of determining how potentially hard investing can be, and more importantly, to have a little fun with board member cohorts, I put forward a friendly contest. The goal is set for a bogey of negative 10% alpha against our global benchmark of MSCI ACWI since we are a global board.
If you care to join the party in our intellectual contest, your list must contain a portfolio of at least 10 positions (no more than 20) and for you crafters out there, the positions must be available for trading. The list is to be presented in alphabetical order with equal weighting. Portfolio entries accepted up until January 4th 2014. A tally of the entries will be conducted as of November 30th 2014 to see how many contestants’ portfolios actually exceeded the MSCI ACWI just to spite us. A portfolio from contestant #1 follows below:
Contestant #1
AMZN
ANF
AZO
BBBY
CPA
CRM
EVEP
FMD
LULU
MNST
NFLX
PHI
PNRA
STRA
UAN
WSM
6.25% Each Position
Let the games commence!
As this is primarily an intellectual exercise, one should invert caveat emptor heavily.
I'm curious JEast, why AZO?
Financials are amazing. Not even a blip in the recession. What do you see in AZO as a short candidate?
http://www.gurufocus.com/financials/AZO
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Another great article by @jesse_livermore. Who is this guy anyway?
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The whole idea of net net investing doesnt work anymore. Its too easy to screen for them now. In graham's time you could find 10 companies that were trading at like 25% of their assets. Nowadays every net net has something seriously wrong with it. Maybe in Japan you can find a few, but even then the attractive thing is that they are trading at a discount to cash flow.
Seems like speculating, your holding some asset that might or might not be worth alot more indefinately, that is barely generating any cash. Or losing money. Your basicly waiting for a liquidation or turn around, or a greater fool bidding the price up.
Pretty much every study on the matter disagrees with your hypothesis. Net net investing still very much works. I agree many net nets are hideous companies with poor management, but the strategy still works. Simple strategies based on valuation almost always outperform the broad market over time, even if they are widely know and followed.
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I hate to sound like a macro investor... but the forward P/E argument isn't great. Hussman has demonstrated that simple forward P/Es for the market are not very predicative of returns...not to mention the "normal" historical forward P/E is closer to 12 (including the dot-com bubble). It is important to note the shift in use from trailing to forward P/Es.
http://www.hussmanfunds.com/wmc/wmc070820.htm
I agree on his assessment of TSLA and the banks though!
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EBIT/Tev (one of the best if not the best predictors of returns in general) had it in the cheapest decile of >10B US equities when Buffett was buying. Add to that the fact that they are the low cost producer, a history of strong capital allocation, a history of strong returns on capital, and a rock solid balance sheet. Bonus points for oil as a bit of an inflation hedge if CPI picks up. That is a recipe for success.
Pretty consistent with Wesley Gray/Greenblatt research.
What is EBIT/Tev?
Earnings Before Interest and Tax/Total Enterprise Value. You could go further up the income statement to EBITDA yield, but I prefer EBIT when running loose screens (uses depreciation as a proxy for capital deterioration, which as we know isn't true). Papers that I have seen seem to show it is roughly a wash on performance between the 2 stats.
Enterprise level metrics show superior correlation to results as they normalize for leverage. P/E and for that matter book/market screens give an "unfair advantage" to levered up firms. Finally book screens don't seem to work well on mid-large cap stocks in practice.
Return on Capital seems to add some juice, as Greenblatt claims in the Little Book. The Magic formula ranks stocks on a 50/50 factor of ROC and EBIT/EV... but, you should know that Tobias Carlisle contends that the cheapest value decile stocks, ranked by ROC, should outperform the seemingly random 50/50 factor that Greenblatt has chosen.
At some point of course, over fitting may be an issue, but I suspect Tobias is closer to the truth, hence my comment on XOM.
Perhaps we should move this discussion to another thread. I do think it would be valuable to discuss apples/apples metrics though. I have noticed quite a bit of confusing ratios that cross compare firm, value, and equity level metrics. Each metric can of course be useful, but only as long as you are comparing apples to apples, if you follow what I mean.
EDIT: Oops...I realize you may just be looking for the XOM EBIT/ev yield?
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Good piece by Mr. David Hay.
For those who don’t like CAPE, please look at Figure 17 on page 5: the stock market is probably going nowhere for the next 10 years… And I don’t see why anyone should disregard this information as useless in his/her investing decisions.
Of course, if you are as good as Packer or Eric, you might very well overlook what everybody else (the market in general) is doing… The law of gravity to you clearly doesn’t apply! (And I say this with a mixture of envy and great respect!)
Everyone else, first of all, must know his/her self: I guess chances are you are subject to the law of gravity. Just like I know I am!! ;)
Gio
Gio,
If the market is going nowhere for ten years where should capital flow to? Knowing that capital has to flow somewhere where would you recommend?
Much like how not all stocks in the US are expensive, not every country's broad index is expensive.
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A BRK takeout seems unlikely precisely because Weschler and his family own for their own accounts. If you want a sign of impending takeout.... Look for them selling out, not buying in.
It doesn't make sense that Buffett or Weschler would be seen front running Berk since the Sokol incident. I'm a little surprised Buffett has allowed these positions at all. As it is, don't these positions open up BRK or Ted to lawsuits? A buyout could be seen as a direct transfer of BRK wealth to the Weschlers.
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he believes the standard of living in usa will go up. he believes the American system works. I think he sees inflation in the future, as well as a week dollar. Burlington Northern is an inflation hedge. Now he has sunk $4b in Exxon. Berkshire is a great inflation hedge and good holding if the dollar weakens in the future. Holders of brk will maintain their purchasing power.
Interesting take on Burlington. I'm not sure I agree about it being a hedge due to the capital intensity. What do you see in it that works as an inflation hedge? Pricing power?
Traditional Buffett inflation hedges are closer to sees Sees/KO like businesses. What are your thoughts on BNSF?
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Sold some RGR today. I may load it into some SWHC.
Unwound some BAC 2015 calls today into this rally and went into the common.
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EBIT/Tev (one of the best if not the best predictors of returns in general) had it in the cheapest decile of >10B US equities when Buffett was buying. Add to that the fact that they are the low cost producer, a history of strong capital allocation, a history of strong returns on capital, and a rock solid balance sheet. Bonus points for oil as a bit of an inflation hedge if CPI picks up. That is a recipe for success.
Pretty consistent with Wesley Gray/Greenblatt research.
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Stumbled on this interesting blog post. What would you bid?
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The Fed's job is really a lot more expansive than the dual mandate. Technically, it is there to preserve prices and jobs, but really, the deeper reason for its existence lies in its ability to act as a lender of last resort.
Yes I agree. This does relate back to the dual mandate though ---> Acting as lender of last resort avoids disastrous employment ad monetary stability effects.
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It is easy to know that it does have some effect and that all else being equal (even if they never are) prices would be lower in its absence. Consider what happens in general to the price of a stock when a company issues a lot of shares vs. when it buys them back.
Yes but the fact that things are never equal is really really important! In addition, context matters a lot!
I doubt that you ever use such a generalized approach when you look at stocks
All true. But ask yourself, has the fed been acting more like BRK (almost never issuing stock, only on a rare occasion to make a large accreditive acquisition) or more like some penny stock company run by a scam artist?
I'd argue that they've acted as expected. BRK's job is to increase economic earnings power on a per share basis. The fed's job is the dual mandate, and they use CPI (targeted around 2%) and unemployment (targeted at 5%). It is your job to trade accordingly. If you wish to buy gold and ammo, or stocks and housing, or long or short the USD, that is a personal choice... but the fed has been pretty crystal clear about what they will do. It hardly seems like a scam to me.
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If you don't believe in CPI as a measure of inflation, you might like to take a look at the MIT Billion Prices Project, where they gather pricing data from hundreds of online retailers to track real time prices. Of course this data has its own flaws, but it is a good double check against CPI.
Spolier: It pretty much tracks CPI.
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If I remember correctly, aren't these the guys that typically NEVER has a losing day in their trading division?
I would expect them to be good, VERY good. They are JP Morgan after all! Not to have even 1 losing trading day in a typical quarter?
That makes me think they are some type of space aliens with 500 IQ's...
OR
Perhaps they are engaged in some type of activity that results in SURE FIRE profits...even at the expense of their clients.
If you were a client, why would want to do business with them? Sure seems suspicious...
These numbers are mainly due to flow. They are making a brokerage fee. It isn't prop spec.
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Interesting that Burry and Loeb both used to post on SI.
Take a look at Loeb's posts:
http://www.siliconinvestor.com/profile.aspx?userid=1397374
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Not sure if anyone has access to this article, but the abstract is interesting:
We examine the stock market effect of changes in the composition of the Dow Jones Industrial Average (DJIA). Unlike S&P 500 listing studies, we find that the price and the trading volume of newly listed DJIA firms are unaffected. We attribute this result to a lack of index fund rebalancing, since index trading is limited for most of our sample period and index funds mimic the S&P 500, not the DJIA. Firms removed from the index, however, experience significant price declines. We consider information signaling, price pressure, imperfect substitutes, and information cost/liquidity explanations for these asymmetric findings. The evidence is consistent with the information cost/liquidity explanation, which holds that investors demand a premium for higher trading costs and for holding securities that have relatively less available information.Buying all deleted DJIA stocks is obviously a poor strategy as is buying all 52 week low stocks. This has to do with the fact that many deletions like 52 week lows have an obvious declining trajectory and some are on the way to bankruptcy...
This is hardly the case for BAC, therefore it wll not likely be effected in any way. Corellation doesn't equal causation.
What are you buying today?
in General Discussion
Posted
Bought OGZPY and RSX calls.
Crazy dumping on ALSK and GNCMA. Lather, rinse, repeat seems like a reasonable idea.