AchilliesValue
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Posts posted by AchilliesValue
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Maybe cities will finally take note that hosting the Olympics is economically a disaster, but I doubt they will. Chicago should be counting their blessings. Can you imagine with all the problems that city and state already have.
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Plan hit the nail on the head w/ Europe. Spain can't push nominal GDP growth above the effective rate because they don't have control of their own currency. Bridgewater put this out awhile ago about the history of deleveragings that's worth a read. http://www.bwater.com/Uploads/FileManager/research/deleveraging/an-in-depth-look-at-deleveragings--ray-dalio-bridgewater.pdf
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the question is how do you profit from this
or not lose money from this
Hold your nose and go look for good businesses that are selling well below their IV. While the market looks expensive I think there are still bargains to be found in the sub 300 mil area.
Also I thought the best question was about the counterparty risk. Defiantly some food for thought.
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Interesting to hear him speak positively on Canadian housing which a lot of people are worried about
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Oddballsotck & Kraven,
Just curious if you have been able to obtain the returns Schloss and TB have gotten. Both of their performance records are old (circa 1984). TIA
Packer
I have a detailed Schloss record until '95 and when he retired in 2001 I have an article that says limited partners returns were 15.7% or 721.5x from 1955-2000. He took 25% of profits w/ no hurdle so that implies a gross return of 20.9% vs 11.2% for the S&P. From 1984-1995 he "only" returned 18.8% (gross) vs 15.3% for the Dow and limited partners actually under performed after fees.
Back on topic my current portfolio is
BOBS
CSTR
DRAD
MAG
SAND
SHLD
STTYD
TWMC
20% Cash
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It's a lot of fun to watch especially if your on the sidelines like me. Bass' thesis makes a whole lot of sense but I'd prefer to not be on the other side of a trade that a central bank bank is manipulating.
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Paper is interesting because it has components of both. Cyclical coming from housing and secular from migration away from paper to electronic media.
Also because a lot of those paper companies have substantial hidden asset value.
A lot of the ones I thought of initially have been mentioned but a few more publishing (dying), healthcare dependent on medicare, government IT contractors and gold miners (particularly junior minors)
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From my one minute of due diligence I do not understand CBI, but STARZ looks interesting.
Meryl Witmer who was recently named to the Board of Directors recommended it at the most recent Barron's Roundtable.
CB&I, or Chicago Bridge & Iron [CBI], trades around $47. It is an engineering and construction company that builds some of the largest energy and petrochemical-infrastructure projects globally. It also licenses process technology in the petrochemical, gas-processing, and refining fields. There will be significant infrastructure and manufacturing capacity built to take advantage of oil and gas shale production in the U.S. and natural-gas finds elsewhere. CB&I and Shaw Group [sHAW], which it plans to acquire, could be huge beneficiaries. After the deal is completed, there will be 110 million shares outstanding and $1.2 billion of net debt.The crown jewel of CB&I is its Lummus Technology division, which licenses proprietary technology and garners an annuity-type stream of earnings. Lummus licenses the most widely used ethylene technology, and has about a 40% market share. It also licenses technology for other petrochemicals. CB&I's ability to provide both engineering and construction expertise and process technology is a competitive advantage.
Who are some of its customers?
Witmer: Westlake Chemical [WLK] and Williams Partners [WPZ] have announced plans to expand, and both have chosen Lummus. Dow Chemical [DOW], ConocoPhillips [COP], and ExxonMobil [XOM] are all planning major greenfield expansions later in the decade. Lummus is enjoying terrific growth. CB&I has guided analysts to expect operating income from Lummus of $225 million in 2013, up from $120 million last year and $96 million in 2011. This division alone may be worth $2.5 billion, or about half the equity capitalization of the entire company. In addition to petrochemical expansions, LNG [liquefied natural gas] export terminals and large-scale natural-gas processing plants are fertile ground for CB&I. The company is working on major LNG projects in Australia and western Africa.
With the tremendous amount of business coming up for bid, contract terms are improving across the industry. A dearth of fixed-price bids and an increase in less risky cost-plus contracts is a great development for companies such as CB&I, Bechtel, and Fluor [FLR]. To determine a run rate of near-term earnings potential, we calculated the pro-forma trailing 12-month earnings of CB&I and Shaw combined, and added some savings from synergies and the increase in Lummus earnings. That leads to $4.60 a share in after-tax free cash flow, supporting a price for CB&I at least 25% higher than the current one. If the stock were to trade at 13 times our earnings estimate, it would be about $60 a share. If you add CB&I's earnings projections, and Shaw's, all listed in the merger proxy filing, you get $8 a share of forecast earnings in 2016. We see the stock trading at about $100 at the end of 2015.
Hickey: How big a piece of CB&I will Shaw be? Shaw is struggling with two major nuclear power plants, which are experiencing delays.
Witmer: Shaw has an issue in Georgia. If it lost on every issue involving that plant, we estimate it would have a negative effect of $3 a share, versus what it would otherwise earn on the project. But it has a cost-sharing arrangement with Westinghouse on that plant, so things look OK. Shaw has already disclosed some information on its liability. Shaw is well regarded as a servicer of nuclear-power plants, and has a 40% market share, which has grown dramatically. Also, there is a labor shortage among sophisticated engineers.
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Link: http://www4.gsb.columbia.edu/filemgr?&file_id=7222906
Interviews are Preston Athey of TRowe Small Cap Value, Li Lu of Himalaya Capital, and Paul Isaac of Arbiter Partners. Plus the student pitches are back. I've skipped ahead and only read Li Lu's interview thus far which was fantastic. Some gems.
Over time, you can accumulate a huge advantage if it comes naturally to you like this. The ones who really figure out their own style and stick to it and let their natural temperament take over will have a big advantage.Three things about shorting make it a miserable business. On the long side, you have 100% downside but unlimited upside. On the short side, you have 100% upside and unlimited downside. I do not like that math. Second, the best short has some element of fraud. However, a fraud can be perpetrated for a long time. Of course you borrow to short, so they could really just wear you down. That’s why I could be 100% right and bankrupt at the same time. But, you know what, you go bankrupt first! Lastly, it screws up your mind. Shorts just grab your mind and take away from the concentrated effort that is required to do proper long investing. So, those are the three reasons why I just stay away from shorting.Intelligent investors are the ones who are always intellectually honest. They can distinctly know whether they know or they don’t know, and know what they don’t have to know, and that there exist unknown unknowns. If you can really put things into those categories correctly, you will pass the test. Otherwise, you will have gotten yourself in trouble.There are plenty more but I'd probably end up just copying and pasting the whole text if I continue.
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Found this piece interesting where he actually referenced Graham and Dodd as influences. Also attached are a few old articles and the Lazard presentation on the case to break up TimeWarner via CSInvesting which I highly recommend reading if you don't already. I don't admire him as a person but I can't argue with his track record.
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Was watching near mile 25 when it went off. So far haven't heard of anyone I know injured but we're all very lucky. The explosions were on the same block as my office and favorite watering hole. Unreal.
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I've read several articles over the last month or so pointing out the current Schiller PE along with its flaws and have a couple of thoughts.
1) The corporate margins at historical highs has been discussed at length but I haven't really seen an analysis of what's driving the historical highs. Is it record low interest rates? Because then we have a serious problem if / when they rise (lowering corporate profits while increasing required earnings yields yikes!). Is it a improvements in tech / efficiency that have allowed laying off workers? If so we might have a serious structural employment problem meaning unemployment isn't going to get much better. Is it taxes? I mean were looking at after tax profits when our tax rate has gone from 53% (1946) to where it is now. Or is it something else and is it sustainable?
I started to think about any sustainable reasons for the margin expansion. Other than the tax rate (which I think is a big factor when we're talking about a 2% deviation from the long term average and a tax rate that is probably at least 7-8% lower than the long term average) one thing that jumps out is the changes to GAAP accounting over the years and whether or not its even worth comparing "Earnings" now to historical data. I mean a few things off the top of my head I can think of that could skew the data includes Taxes, amortization of intangibles, accounting for leases, stock compensation, inventory / cogs reporting, etc. There are examples that would raise reported earnings and others that would lower them and frankly I don't know if it's a wash or whether or not it explains the margin expansion. I just think it merits pointing out that the "earnings" in 1939 are very different from the "earnings" today.
2) Are the piles of cash sitting on corporate balance sheets right now being accounted for in Schiller PE (I don't think it does)? I've been looking for historical data on cash as a % of market cap and haven't found anything recent. It seems to me that corporations are sitting on a ton of cash as a % of market cap vs historical but I may be wrong. I suppose you could also make the case that much of this cash is parked overseas and needs to be discounted for taxes but again how much vs the historical data.
I think having some sort of a EV / EBITDA ratio would be best but there'd still be a lot of flaws. Along with the accounting which I mentioned you've got to also look at how leveraged companies have been over years which is a factor of availability of financing, trends in D/E ratios, and interest rates. I'm saying this as someone who is a big fan of history and a big believer that history repeats itself but I think when it comes to numbers in a dynamic changing field(financial reporting) its extraordinarily difficult to compare over a long period of time and sometimes even in a short period of time (like the tumultuous 2 decades we've had). And eventually it all comes back to risk free interest rates (if such a thing still exists) which is the almighty anchor on all other financial assets. At these rates what's an acceptable earnings yield? 5%? 10%?
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I like the way Tweedy Browne thinks about it starting on pg 37 of the attached document.
"At Tweedy, Browne, we generally sell a stock when its price reaches our estimate of intrinsic value, or sooner if we have a better investment to replace the investment that we have decided to sell. In considering the possible sale of a stock, we calculate the effect of capital gains taxes that would be paid if the stock were sold, and consider the net valuation that would be received for the stock after the payment of capital gains taxes. This net-of-tax valuation for the stock that we are thinking of selling is compared to the valuation of the prospective new investment that may replace it."
Of course this methodology applies only to taxable accounts.
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Link?
http://www.pimco.com/EN/Insights/Pages/A-Man-In-The-Mirror.aspx
Was in his monthly outlook. Personally can't stand listening to him or El-Erian but CNBC doesn't seem to mind...
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Government only has til July to flip Martoma before the statute of limitations expires and his defense is being paid for by SAC. Doesn't seem like he's gonna flip but we can always hope. Anyway that's only one of many insider trades I'm sure the guy hass made so hopefully they'll be able to get something soon.
One of the Greatest Investment Opportunities...
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Same guy who gave Bradley a win over Pacquiao. What a joke.