vinod1

I spent 45 minutes taking Trump's side in a debate with my wife. After that I tried to find out a little bit more that would support him. What I found repulsed me away from him. So I can honestly say I was pretty open minded going in, but even the most basic research suggests that Trump is not a person fit for any public office, must less POTUS. Vinod

This is why I am skeptical of the press reporting anything. If you read the article is says it appears that the group did not provide an invitation but later said the group would not respond to the direct question of whether an invitation was given. No direct facts but speculation. Call me from Missouri but I see there is as much possibility of Trump being right versus what the article appears to imply. Packer I don't know. There might be a lot of cases where it is speculation. But, if you spend an hour critically looking at Trump, it seems obvious that he lies pretty often. I can only assume that his supporters ignore that part as they care more about some of the stands he has taken. So how can you trust a person who lies so easily and so often? I would rather not vote for Mrs. Clinton, but Trump seems to be worse than her in nearly every respect - including trustworthiness. Vinod

What I find difficult to understand is it looks like Trump seems to have utterly low opinion of his own supporters. He must be assuming they are some of the dumbest idiots in the world. I tried to honestly see if I can vote for him, given my preference for someone other than Mrs. Clinton as I do not like the dynastic aspect of it. Even if he has extreme views that conflict my own, if he behaved/talked in a manner that makes sense I would have supported him. Take for example his comments on meeting with Koch Brothers: http://blogs.wsj.com/washwire/2016/07/30/koch-brothers-network-of-donors-meets-without-donald-trump/ Mr. Trump tweeted on Saturday “I turned down a meeting with Charles and David Koch. Much better for them to meet with the puppets of politics, they will do much better!” It seems more likely that they have not invited him but he outright lies about it. Now I am not sure about this particular one, but if you have looked at his comments over the last few months, there are so many instances where they are unbelievable and objectionable. So why does he do that? Why does those who support him dont seem to care? If a person can lie so easily and repeatedly, how can one believe that he is even remotely telling the truth on the positions that are popular with his supporters (trade, immigration, etc)? Vinod

I think there are two different things (a) A decision to buy or rent (b) A decision to buy or pass on an investment property. For (b), you only want to buy property cheap at low rate or else pass up on it. But if you are looking to buy or rent, then if you are going to stay for a long time, the relevant calculation is versus the rent. Vinod

I have been tracking the performance - both operating and price - of the companies that I follow since mid 2011. Basically I do a write up of the company I am researching - I lay out the operating performance I am expecting in my conservative case, base case and optimistic case over next 3 years and 5 years (5 years part was added only later) and also the PE or BV multiple that I expect it to trade. Nearly always quality stocks (my "Exceptionals", "Compounders", "Blue Chip" categories) that I track tend to reach or beat my optimistic estimates of operating performance. PE or BV multiple most of the time exceeds my estimates by some margin. My "Deep Value" category of stocks however mostly tend to reach the base or conservative case and sometimes even undershoot on operating performance. Multiples are a mixed bag and also varies a lot more. So I have learned to be a bit more optimistic on the quality companies and be positively brooding on the deep value type companies. Vinod

Agree a lot with what oddballstocks is saying. One additional way to reduce reading time is to defer the reading material. Say you have a bunch of videos or audio that you want to listen to, just bookmark them, put them in a playlist if on youtube. If you wait a few months, it is amazing how much of that material seems less useful. Same way with newspapers or magazines, dont read when you get them. Read a couple of weeks WSJ in one shot. You end up reading only material that is useful long term. Vinod

I should probably try to tilt towards that as well since gains in my pension account are taxed 15 pct. whether I realize them or not, so holding short/long term doesn't matter. Still, why is it more import to limit downside risk in your taxable account? Can't you offset future gains with old losses? You can offset gains with losses in the current year, but I don't sell often enough. So that means losses would need to carry-forward, and you can only use $3k of carry-forwards per year. I used to be very conscious of taxes and had been very careful to minimize them. Not anymore. I replicate pretty much the same set of investments in both my taxable and non-taxable account. The only change is that in my non-taxable account I try to trade a bit more, buying more on dips and selling on significant run ups. The same set of stocks, produced roughly about 10% more in my non-taxable account compared to taxable over a five year period. So a couple of years back I figured, I might be better off just paying the taxes. Not a whole lot of data, and it might be that my specific set of investments (heavily concentrated in financials) have been volatile and in future might lead to opposite being true. But I think the markets are volatile enough that there is opportunity around trading around a core position that adds to investment returns. Being too focused on taxes might cause one to miss these returns. Vinod

I used to think that those supporting Trump were out of their mind. Although I still do not support Trump, I understand those who do. I found the following three articles very helpful in understanding the rise of Trump. First two have been referenced in this weekend's Mauldin letter. 1. Trump and the Rise of the Unprotected http://www.wsj.com/articles/trump-and-the-rise-of-the-unprotected-1456448550 2. The Secret Shame of Middle-Class Americans http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/ 3. The re-emergence of the Jacksonians http://blog.mpettis.com/2016/03/the-re-emergence-of-the-jacksonians/ Vinod

Here is the latest from Grantham. He acknowledges the mistakes made in his 2011 commodities call. I was shocked and disappointed when Grantham has written in 2011 about commodities entering a new paradigm. I thought he has lost it. Welcome back Grantham to reality! Also attached is the original 2011 letter. Vinod JGLetterALL_1Q11.pdf keeping-the-faith-and-part-1-always-cry-over-spilt-milk-and-part-2-updates.pdf

ETF business has pretty attractive economics and starting it now is like starting a .com in 1999 - lot of easy money to be made from selling overpriced companies to shareholders willing to buy any company with a .com in their name. So this is just take advantage of the current rush to ETF's. No need for any competitive advantage, even if by just luck the ETF performs well, it would attract assets that pay fees for a long time. Heads I win.... (from Dhandho Holdings perspective, not the ETF investors). I would think a strategy like this would depend on diversification to some extent, say top 5 holdings to be about 15% to 20% or so. But given the concentration it looks more like a straight up coin toss - performance would be either be good or bad and unlikely to be close to indexes, regardless of "patent pending algorithms". Vinod

Constellation software. Especially the income statement. Lots of companies stuff everything into SG&A. They guys neatly breakdown the main expenses. Vinod

From meetings etc. I think that's about right. He's well aware the world might muddle through. He just wants to make 100% sure that Fairfax survives if it does not. I dont think the implications of a great depression scenario have been thought through by Prem, or the posters here. Fairfax would not survive a great depression on the scale of the 1930s - It simply wouldn't. Blackberry would cease to exist in days, the entire restaurant business would collapse, the Greek Banks would shut, insurance sales would stop... most of the insurance business would close. The least of his problems would be collecting on his negative bets. All of the money, if it could be collected, would be eaten up to pay back the float due to shrinking premiums. Never mind the civil disruption, violence etc - The property/casualty business would be sunk under massive, continuous claims. This would not be a gentle, civil 1930s depression - the world has changed and gotten more crowded. Prem keeps stating that governments have used up their ammunition to fight another financial crisis/recession. I disagree. Governments, excepting China and India, have done very little infrastructure spending, above the normal run rate. Much of the world could easily ramp this up to fend off a great depression. All they have to do is print money - in a deflation that should not be a problem. The US could have done it in 2009, but for the gridlock in congress. It was easier to let the fed lead the way. FiNally, and perhaps most telling is that FFH keeps on investing in its future. Prem hasn't even skipped a beat. This is contrary to the way the press gloms onto the negative bets. He is not a pessimistic as everyone thinks by the way the letter reads. Look at the actions of FFH. Not a month goes by without an announcement of another aquisition or deal. +1 That makes a lot of sense. Vinod

Yeah, as the contracts are marked to market each quarter, collateral is passed from one party to the other. There are many ways to mark (to model) the contracts, and I'm sure any bank selling these would value them more conservatively than Fairfax if times get rough so as to post as little collateral as reasonable (without being called out for having a lack of collateral to post...), but with each measurement period, the bank would have to post collateral to back the net change to Fairfax if the contracts start moving in Fairfax's favor. Certainly, a 40% deflation like the GD would be a long drawn out affair, but the valuation change in contracts like these would move slowly each quarter to suck collateral in from the IB to Fairfax. A 1 quarter valuation change + the difference in valuation methodology would be the only thing at risk even if Fairfax held the contracts for massive gains over 5 years (as an example only). Hope that helps. Thanks! That is how I was thinking too although I did not factor in the valuation methodology. Vinod

These are collateralized contracts, so unless Citi goes under in one quarter, it seems nearly certain, they will in fact collect. Not defending the position itself, only the mechanics of posting collateral on a derivative contract... I would ascribe minute risk, and only to the last quarterly portion of value accrual. Good point. I did not realize that. I would think that the gains would not really show up in one quarter. Deflation would be a long drawn out process so the gains would have be to realized over many years. Again I could be wrong. Vinod

The implication seems to be that you had to wait 25 years to break even! But adjusting for dividends and inflation, it only took 7 years for investors to break even!! The dividend yield at the stock market bottom in 1933 was close to 14% !!! http://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html?_r=0 !!!! A better measure of market performance would be from Shiller data or even simulated S&P 500 numbers, since Dow is not a good representation of the market and it was unduly impacted by its decision in the late 1930's to drop IBM from its index! Thank you! Vinod! Vinod! There is a problem with thinking people can just sit through a downturn. In the 1930s many people lost their jobs and had to liquidate all investments just to pay mortgage and groceries! Even successful professionals like doctors/lawyers that didn't lose their jobs, couldn't collect their receivables because all of their customers were broke. There was simply no money around! But they still had to pay their overhead. "The Great Depression: a Diary" by Benjamin Roth is a great insight into this (it has one or two entries per week). He was a lawyer living in a steel town and his town may have been worse off than some places. He continuously complains "if only he had a few spare dollars to invest" and how cheaply priced the stocks are. He barely had a spare nickel. My point is: if we do see a repeat of the Great Depression some day I think just about everyone will be surprised at how bad things can get! :-\ I agree with pretty much everything you said. I did read that book. If we do get another GD, I doubt if Fairfax would be able to collect its gains on deflation hedges. My point is, reading Prem Watsa's letters, I get the feeling that the likelihood of another GD is something of order of 20% or 30% or something like that. He never mentioned the probabilities, but just reading between the lines that is what I would infer - maybe not the right interpretation. I think the odds are an order of magnitude lower. Vinod

Over those 25 years (using year-end dates not peak), your annualized return was 7%! Do you have the dataset for this? I find this quite useful http://dqydj.net/sp-500-return-calculator/ Vinod

The implication seems to be that you had to wait 25 years to break even! But adjusting for dividends and inflation, it only took 7 years for investors to break even!! The dividend yield at the stock market bottom in 1933 was close to 14% !!! http://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html?_r=0 !!!! A better measure of market performance would be from Shiller data or even simulated S&P 500 numbers, since Dow is not a good representation of the market and it was unduly impacted by its decision in the late 1930's to drop IBM from its index! Thank you! Vinod!

I think when we are talking about negative interest rates, we are talking about negative rates on sovereign debt, not on consumer or commercial debt. There is a credit premium as well that would make interest rates positive for non-sovereign debt. So credit card debt, mortgage debt, auto, vast majority of the commercial lending are going to be at positive interest rates. Interest rates are negative real rates for some of sovereign debt for a long time. So I do not see what the fuss is all about going a bit deeper into negative territory. Wealthy landlords used to keep their gold at goldsmiths and pay them for safe keeping. So negative rates on deposits is just going back to basics :) Negative rates if they do push down all other rates even more lower (assuming they stay that way for a very long time) should support much higher equity valuations. So even though cash flows are going to be lower in an environment of weak growth and very low interest rates, equity valuations can rationally be much higher due to lower discount rate. Vinod

I dont think you have met Amazon or Facebook investors. :) Vinod

Do you have concrete examples of this or are we talking completely abstractly? Without examples, my reaction is that it might be obvious to you what x is, but it is not necessarily obvious to everyone and especially not necessarily at the time when stock is bought or sold. Assuming that x is obvious, people would not buy it at 2x, but they might sell at 0.5x if they believe that price is going to 0.2x or if they are scared or they see other opportunities at 0.3y or they need money for something else (like covering margin, paying mortgage, etc.). One example is just the entire S&P 500 - think late 2008 when Buffett said to buy and people kept selling. The S&P 500 is super safe and in early 09 was cheap. Clearly a lot of people sold at less than X. 2000 is another example where good safe businesses were available cheap while internet companies sold for 20x+. I am trying to better understand why people sell when stuff is actually cheap - for the irrational reasons. One can learn a lot just looking at this picture. I am not able to get a high quality image of this or else I would frame this in my room. Vinod

One man's debt is another man's asset. Well that is $59,000 of assets per each US citizen. I know some of it is held by foreigners. Then look at this this way, US mostly makes direct investments (equity) whereas foreigners own US debt. The return that US gets on their equity investments (FDI) is much higher than the interest paid on the debt. Vinod

There is a lot of talk here of supply being reduced and oil rebounding, but wouldn't that just bring a bunch of supply back on line? Just because it is currently off the market doesn't mean that the excess supply doesn't exist. Wouldn't demand have to pick up drastically to raise the prices significantly for more than a short amount of time? Or is this a simplistic view? I'm not sure I understand the oil market all that well. Theoretically, the price should rise to the marginal cost of producing the last barrel of oil that the market demands. The price of producing that 93rd millionth barrel for that highest cost producer in my opinion is closer to $80 per barrel than $30 per barrel. The current price seems to be a medium-term side effect of oil that was $100+ per barrel. Drilling and investment from earlier price assumptions drove the oversupply, while today's prices might be pushing the market toward a deficit. The 'correct' price though should be the cost of that last barrel of oil. It looks like the marginal cost of producing the last barrel also seems to decline along with the oil price. Something I did not realize before - at least not as much as they seem to be dropping. So I would not put much confidence in $80 per barrel marginal cost. FWIW - This is way outside my circle of competence and just parroting what I read. Vinod

Actually, given Bridgewater's Pure Alpha performance in 2008 was near +10% while global equities were significantly negative (S&P at -38.5%), I think it's fair to say Dalio's model did predict the crisis and profited from it... I'm also not sure whether White and Dalio are using the same analogy here. Does Dalio really say that the machine "can be closely controlled"? – I always pictured this more as an autonomous machine, though he definitely does say that it can be understood. I understood White's general drift is that economy is too complex to be understood in terms of a machine as in "If A then B" (for example, reduce interest rate and "X" happens) and hence his reference to complex adaptive system. Dalio repeatedly uses this logic throughout his 300+ page document. I really do not know if he believes that or if he does it to make it more understandable for others. Vinod

William White probably wrote it best about Macro and specifically NOT to think of economy as a machine like Dalio: The fundamental problem is that modern macroeconomics is based upon a false belief: namely, that the workings of the economy can be understood and therefore closely controlled, as though a machine in the competent hands of its operator. A philosopher would say that we have made a profound ontological error. We have failed to realise that what one can know about a system depends upon its very nature. And the nature of our economies is simply too complex to be understood, much less controlled. Consider that the analytical frameworks generally accepted by central banks totally failed to see the crisis coming or, despite concerted and persistent action, the weakness of the subsequent recovery. That alone should have been sufficient to raise some fundamental analytical questions. Moreover, support for scepticism is provided by reviewing the actual practice of monetary policy over the last 50 years. Every aspect of it–including its objectives, instruments and indicators–¬has been subject to repeated change. Generally these changes have been in response to previous policies failing to deliver the intended results, or producing unintended and unwarranted side effects. In short, monetary policy has systematically got it wrong. There would then be nothing unwarranted about another fundamental rethink in response to recent events. One approach with promise is to think of the economy not as a machine, but as “a complex adaptive system” with millions of interactive and adaptive agents following simple behavioural rules. Such systems characterise car traffic, movements of crowds, the spread of crime and disease, social networks, etc. These kinds of systems are everywhere in both nature and society, and exhibit recurrent instability and highly nonlinear outcomes. Does it make sense to assume that the economy, with all its flows and myriad interactions, should almost uniquely fail to exhibit these traits? Vinod

They might not last forever, but they might last long enough that betting on reversion to mean in profit margins might be an expensive mistake. Vinod