giofranchi

Hussman not only prints graphs about stock market predictions and subsequent actual returns, he also give a numerical correlation. Does the blog point that out? If it doesn’t, I am already suspicious… ;) Gio

I will do. But let me tell you right away what I think from the quote you have posted: imo they are trying to be much too precise… Because I consider the following of the pendulum to be more a “feeling” than something precise… In other words, what might be truly misleading surely is not to be interested and vaguely aware of where the pendulum is at any given time, but to think you could know its precise position! ;) Gio

Sorry!... Didn’t want to sound sarcastic… My fault! In theory I agree. But in practice there is no way escaping the fact we are investing in the stock market, and what the general market does is like enjoying tailwind or suffering headwind for all our investment ideas. That’s why Mark’s concept of “the pendulum” is and will stay highly relevant. Let me give you two examples: BH selling at BVPS and LMCA selling below NAV are imo incredibly cheap today… Yet, I wouldn’t be surprised at all if in a market crash they both decline faster than the general market… And, though I do believe 10 years from now they will turn out to be great investments, I know I will have to wait a long time, before my thesis is finally validated. It will be far easier to wait, if in the meantime I am able to average down… So, the question is: I have 3 ideas that I think are very good businesses which could be purchased at fair/good prices today… Why am I only 70% invested in them, instead of 100%? Your answer might be: because you are wrong! Another answer might be: because of Mark’s pendulum… ;) Cheers, Gio

Not only: I think cash might be useful even in a rising market, at least for a portfolio as concentrated as mine. Given the fact I hold just a few companies, the volatility of my portfolio can often be much greater than the one of the general market. And cash helps me take advantage of opportunities that might arise irrespective of what the general market is doing. ;) And don’t you think the fact you are experiencing difficulties in finding investments that meet your criteria and the fact the Shiller PE of the S&P500 is approaching 29-30 might be somehow correlated? Another thing I would point out about the markets from 1996 to 2000 is that, as Hussman has often said, the average stock today is already more pricy than it was in 2000. In other words, those who keep saying the Shiller PE of the S&P500 was over 40 in 2000, keep missing the fact that internet and technology stocks substantially distorted the picture back then. Gio

anders, as I have already said, I think I am quite prepared to see the Shiller PE of the S&P500 go well beyond 30… And if that happens, I am sure I will make a lot of money! ;) In my experience every time I failed to make money cash was never the culprit… Instead my investments were, simply because they didn’t perform as I expected! You still want to be 100% invested when the Shiller PE of the S&P500 gets above 30? Well, as I have already said, then you will always find some rationale to be fully invested, and you will never hold cash. Period. Maybe you’ll do fine… But it is just not my style! Gio

David, Malone is 10 years younger than Buffett and Liberty Media is much smaller than Berkshire; Watsa is 20 years younger than Buffett and Fairfax is very much smaller than Berkshire; Biglari is 47 years younger than Buffett and BH is very very (add as many “very” as you want) much smaller than Berkshire. ;) Anyway, I agree: if the price of LMCA and/or BH gets too high in a market bubble, I will sell them and redeploy the proceeds into Berkshire! :) Gio

original mungerville, This is what Hussman had to say in his latest weekly commentary: Which is basically what the Shiller PE of the S&P500 is telling us right now. Of course you might answer Hussman is not a good investor, he has not made any money for his shareholders in a while, etc. … And I might even agree with you … This doesn’t change the fact than when it comes to general market valuation no one that I know of, and I repeat: no one!, has done a more accurate, thoroughly researched, and convincing work than Hussman. Period. Anyone who doesn’t read his weekly commentary should start doing so. If the Shiller PE of the S&P500 truly gets to 30, valuations will be even more stretched! Furthermore, just look at the ups and downs of the markets in the 20s’ and 30s’: those were two decades of unbelievable booms and busts! And, although the Shiller PE might not have been very useful in the midst of those booms and busts, surely it acquired meaningfulness at the extremes! It never got lower than 6… and it never got higher than 30! If it approaches 30 again, I strongly believe you should take notice. I simply repeat this: In 1929 the Shiller PE of the S&P500 reached 30… a market crash of more than 80% followed… If the Shiller PE of the S&P500 gets to 30 again, and you don’t become defensive… you will never be. Gio wmc141124.pdf

Of course, I fully agree! :) Gio

Newton suffered from something we all have instead spent lots of time thinking about: he ventured outside his circle of competence! ;) Gio

Hi Vinod, please take a look at the slide in attachment. Of course, if you think SIRI is wildly overvalued, that won’t be of great help to you… Anyway, buybacks at SIRI just keep going on (share repurchases year-to-date at the end of 2014Q3 totalled nearly $2.1 billion), and Malone is not someone who likes buybacks if he thinks the price of the shares is overvalued! ;) Gio

Maybe! But with LMCA today we already have a 12% discount, right? Not bad! ;) Gio

My point of view is very simple and straightforward: in the last 100 years the Shiller PE of the S&P500 has reached 30 only twice, and both times with dreadful consequences… If you don’t play it safe with a S&P500 Shiller PE of 30, imo you will never play it safe… Nothing wrong with that, of course! It is just not a style I am comfortable with. Gio

+1 ;) Gio

Jay, for what I can see that $1 billion in fcf is growing quickly and steadily. EBITDA is higher: I think SIRI long term debt is circa 3 times EBITDA (maybe a bit more), which is not too aggressive imo. Furthermore, we are at a S&P500 Shiller PE of 27, while I said I would call a bubble when it reaches 29-30… I am not positioning my whole portfolio as if a crash would be just around the next corner!... I must be prepared to see a S&P500 Shiller PE of 32-33, because you never know when a bubble is going to finally burst, right? Another year… Maybe even two… Who really knows? And given how it is priced today, I think LMCA might perform very well during the next two years… If the bubble doesn’t burst! Later, LMCA might have become something completely different… Maybe SIRI will have been acquired and spun-off… And Malone might be onto something completely different! My point is this: if the S&P500 Shiller PE goes from 27 to 32, before the bubble finally burst, I need something to keep making money: cash won’t be useful, Fairfax might be, but with obvious limitations we all know… BH and LMCA must really do the job! ;) Gio

Well, they have $0.5 billion of net debt, with a NAV of $13.7 billion… Doesn’t seem levered at all to me… But it is also a growing cash machine, isn’t it? ;) Gio

I have purchased this book, and it is definitely on my reading list! :) Gio

Hi original mungerville, well... "cash" that has appreciated more than 30% this year and which pays dividends! Not bad, right? ;) Gio

Thank you for posting the article! :) Gio

Yes, of course! But in that case I have 70% of my capital invested in three businesses that might do very well (Fairfax might do very well, even if the stock market doesn’t crash, like it has proven so far this year!) Gio

That’s why I hold lots of cash! ;) Anyway, I don’t know of anyone better than Malone at taking advantage of any market crash that might await us. I will be much more willing to double down in the Liberty family of businesses than in any other company, because I know Malone is working on some incredible bargain. And don’t forget LMCA today is almost debt free! In 2008 it was not so, and that could be a great advantage this time around. As far as Biglari is concerned, the fast food industry generally behaves much better than the general market in a downturn. Furthermore, he hold lots of cash, which could be deployed opportunistically. And he surely knows how to do that! Last but not least, both LMCA and BH are among the cheapest stocks I know today (at least in the North American stock market). Gio

If the Shiller P/E of the S&P500 gets to 29-30, I truly think we will be in the midst of a stock market bubble… Today the Shiller P/E is slightly above 27. As it seems we are slowly but inexorably going into a stock market bubble, I have decided to concentrate my capital in the hands of 3 people: - Prem Watsa: 36% of my capital - John Malone: 17% of my capital - Sardar Biglari: 17% of my capital With cash at 30% of my capital. And more cash coming in every month through my own businesses. To weather the consequences of what inevitably follows a stock market bubble, I want to be very concentrated, and to hold a significant amount of cash. Gio

Evergreen / Gavekal Monthly Chartbook November 2014 Gio EVA+11.21.2014_NA.pdf

Yesterday the Shiller PE of the S&P500 reached 27… On our way to 29-30?… Like 1929?... That's when I will call a bubble in stocks! We will see… ;) Gio

Thank you for posting! :) Robert Rodriguez is definitely among my favourite thinkers about the markets. Gio

Realistically, I deem that to be a very unlikely scenario… A scenario in which the policies of all the central banks around the world basically fail… And after Japan, also Europe and the US slide into a prolonged deflationary environment… It is really difficult to believe such an utter failure might actually happen… The two most likely scenarios imo are: 1) Markets from now on drift almost aimlessly up and down for an extended period of time. 2) The Shiller P/E of the S&P500 reaches 29-30 (from almost 27 today) during the next few months, and then the bubble bursts. In scenario 1) I vote MKL, but FFH might do very well nonetheless. In scenario 2) I vote FFH, but MKL might do very well nonetheless. Cheers, Gio