no_free_lunch

Schwab, which market will drop by 40%? Housing, energy stocks, tsx?

Thank KClarkin for your analysis. I would just add this has been consistently one of Jason Donville's top picks for years and for essentially the reasons that you listed. I wasn't aware though that they were more focused on Ontario, it definitely strengthens the thesis.

I have had this topic rattling around in my head all day. I think the ultimate proof is in the performance of the stock pickers and from that perspective I don't see the evidence. I know there are some managers who have had great years but there are many "gurus" with 5 and 10 year track records that have under-performed the S&P500. That just shouldn't be happening if indexing is making the market less efficient. How does a concentrated investor like bruce berkowitz underperform for a decade if markets have become inefficient?

I think this really nails it. Personally I think there is enough smart money that prices are fairly efficient. If you get into micro-cap land there are inefficiencies for sure but that isn't related to indexing.

Given the run in FFH over the past year, is it not possible that the market has already priced in deflation to the shares?

Oddballstocks, Personally it is just that I am more cautious with my concentrated account but I think that is all concentration is. With concentration you can take the time to really focus down to the best bets. I think we have very similar investment expectations in general, I am certainly not looking for a double in the next couple of years. Honestly if I could get even 6% real return for the next 7 or 8 years I could probably retire so that is where I am at. If I could get market beating returns investing in a large non-concentrated set of investments I would do that, hands down. I just don't really have much luck with it. Maybe I am a slower reader, maybe I don't put as much time in, I don't know, but I just find that when the market is fairly value I have a hard time finding many good investments and with a larger portfolio I end up compromising.

On the topic of concentration, I run a mini-portfolio in 1 account where I restrict myself to 6 positions. I use it as a test case to see if concentration outperforms when used with real money. I did about 21% this year in this account excluding currency gains (about 30% with currency gain), vs about 4% in my portfolio at large (or 10% with currency gains). Last year it was 46% in the concentrated versus I think 40 or 41% in the total portfolio. This next year I will probably be only investing in stocks in the "concentrated" part and mainly just hold ETF's in the other accounts as it seems I don't have the ability to find more than 5 or 6 good investments at a time. So not trying to deflect my poor performance with these numbers, I really did only do 4% and that's on me, but nevertheless this is just one more bit of evidence in favor of concentration.

About +10%. Really pretty brutal. When you strip out currency gains, probably about +4%. I was up +18% in June and went to 50% cash. Since then the markets are basically flat but the remaining stocks in my portfoolio just got killed. Obviously I made some serious mistakes with what I held in the back half of the year. What is particularly frustrating, and completely my fault of course, is the degree to which I was leverage to commodities despite in general having no particular interest in commodities. I just kept finding bargains in this one sector, or in other sectors dependent on commodities, and ended up with huge exposure. Hopefully next year will be a better year.

You misread the title of the topic. This was predictions for 2015, not a 2014 recap. :)

Verizon. With a 4.5% dividend yield, I don't even need the stock to do anything other than match inflation and I will do okay. Seems like a good defensive bet. Thanks to everyone who commented on the Verizon board.

I think it is interesting that the comments have generally advocated a very broad-based ETF and to not try to improve upon that. I will admit that I should probably listen to the board when there is that kind of consensus. However, I am not quite ready to give up. Does it change things if I say I need to/want to achieve a certain level of 10-year performance? I really need 4-5% real returns for a decade, beyond that whether I beat or lag the actual S&P or any other benchmark is kind of irrelevant to me. So when I look at something like VT and what the PE is on it, I do kind of wonder if it will do 4-5% real over the next decade. You have a lot of folks saying that we could have another dead decade for stocks which is what I am trying to avoid. I am not trying to completely avoid analysis but I am kind of in an uncomfortable situation where I am looking for returns, hence individual stock selections but my AUM is sufficiently high that I am not going to go 20% on a position, and even 10% is frankly just scary. So I end up with 15-20 positions which starts to create a mountain of research work. What is motivating all of this is that I am just trying to find some kind of balance between tracking/finding such a large collection and just giving up and buying an ETF. So maybe etf selection isn't the way to go. Maybe a better way to phrase the question is, are there any suggestions on a strategy that has a chance to achieve these conservative 4-5% real returns without being too active of an investor? It could be following some type of newsletter where there is good reason to expect it will beat an index or at least avoid calamities, an ETF such as MOAT which tends to be more concentrated and has a value style, blindly building a pool based on value-investor picks, you name it. Has anybody else solved this problem? I kind of feel like I am looking for the holy grail.

Bought Softbank (SFTBY). This is a combination SOTP / jockey play. By my calcs, softbank is selling for about 10% less than it's AliBaba stake with remaining investments basically free. Yes, it is more complicated because of tax issues but nevertheless the discount earlier this year was much smaller. Alibaba is not cheap and sprint is getting it's butt kicked so I am relying very heavily on the NAV discount and/or Son's abilities to save the day. This is also my alternative to buying an ETF. :)

Pete, Thanks and I do get your point but I disagree. I inevitably am going to come across as defensive but nevertheless here is my position. First, I think that even when evaluating individual stocks, people oversimplify. There is no way that anyone really understands what is happening in AIG or BAC. When I read the arguments for the stocks on this board, these types of stocks are basically reversion to mean arguments, so why not apply that to ETF's as well? If AIG/BAC can revert to mean why can't an entire stock market? There is actually ample evidence that while the PE's will bounce around, they do mean-revert. Secondly, if you look at multi-decade performances of markets, it is not all the same. Some markets underperform significantly over these long time periods. The markets that underperform extendedly have some serious issue, generally corruption. For instance, apparently the chinese index has had almost no inflation adjusted stock market returns over the past 21 years despite the GDP growing 8x. Why would I want to invest in something like that? Why wouldn't I limit myself to markets that have stronger rule of law and actual histories of rewarding investors? I think if I can combine these 2 factors I will do ok.

I am currently thinking of investing in UK ETF's. EWU (UK Ishares) is selling for 14x earnings, and is down about 12% from January. EWU is generally a bit more conservative with sector weightings but does have a high energy component at 15%. I am also thinking about EWUS (UK SmallCap Ishares), not quite as cheap but geared towards high-growth areas like industrial, tech, consumer cyclical. Kind of the opposite of EWU in some senses. I like that it has a 15 PE. This seems really cheap for a small-cap index. On a more general note, the UK indices have done fairly well over the past 110 years. The numbers were comparable but slightly below US indices performance over the same period. There is a currency issue to consider and hedging the currency isn't something I want to do. The GPB is down considerably from the 2006-2007 highs, not sure if that means anything or not but currencies are supposed to mean-revert. I will probably just risk it on the currency.

I don't think this deflation is bad. It leaves more money to spend on other things. So that should be good for the economy. The bad deflation is usually caused by too much debts, a failing financial system and is a sympton of what is bad. By that logic, a deflation in the price of computers should also be bad. Exactly, exactly. Electronics go down and people thing it's great. Oil prices go down and we're SOL? This is just what the debt soaked countries want you to believe. In reality this frees up more income for paying down debt, buying more things, etc. All in all, very good for any country importing energy.

It seems strange that a lot of basic materials stocks dropped today. I mean with lower energy prices you should have more demand, their energy input cost goes down, their transportation cost goes down, in Canada labour cost and the dollar will go down, it is all a huge positive. Yet you have HBM.to, MND.TO, PKX, probably many more dropping today. What is going on with these companies?

As far as the question at the start of the thread. Shouldn't oil importing economies benefit (Japan, Germany)? In canada, any non-oil exporters, such as manufacturers, with staff in Canada should get a boost from weakening CAD.

I thought his point was that long-term price for oil crashes as solar takes over.

I was fully invested until summer. Since then I have moved up to around 1/3 cash. It's not a call on the market, just with the different scenario's I play out in my mind it makes more sense to have cash. I am also an indie investor, so if I lag the market it is irrelevant.

I agree with everything you said SmallCap. No reason it can't go much lower. I also agree with kevin4u2 on the rising productivity in the US. It is undeniable when you look at the trend of rising production over past 5 years with no concurrent increase in drilling platforms. Despite all of the talk of the producers having to drill like mad just to counteract the high depletion rates, the numbers indicate that productivity is well ahead of the depletion. I should have looked into this more closely before. Basically it doesn't look good. The only positive I see is that the entire media lately is attaching to the idea that there will be an oil bust so maybe it's overdone in the short-term.

OAK Howard Marks, relatively cheap, some hedging as they will do best during times of distress. I think stock is down right now because the dividend has been low for past few quarters. It is basically a bet that divvy will bounce back at some point. Certainly not my most researched stock but come on, it's Howard Marks!

Wow! Thanks for the detailed response. I actually did read your previous emails, that is what got me to the point of trying to understand their financials. :) However I am still very stuck at valuing the company. At this point I can't find their NAV estimates looking through their historical reports. All they talk about is the investments they have made and the amount they are managing in the various funds. I have seen the current estimates on the link you provided but that only goes back to December 2013. I basically am trying to figure out how they pegged NAV in the 2006-2008 time-frame as a comparison.

ap, How do you calculate NAV on this one? It looks like the balance sheet has equity at under $2B but then they have this thing called Capital per Share which is at $52.77. Also, everything is now expensive so I am still interested despite the NAV surplus. Do you have any idea of what the discount/surplus to NAV was back in the 06-07 time frame? Or I can just calculate myself if I could figure out how to do so.

It's .2->1 so your IRR is 400%.

To me that actually sounds rather bullish. :) Just more evidence that most companies have not really bought into the recovery. Since recessions are generally caused by excess, and companies aren't investing, maybe that will push off the next recession even longer.