vinod1
-
Posts
1,667 -
Joined
-
Last visited
-
Days Won
4
Content Type
Profiles
Forums
Events
Posts posted by vinod1
-
-
Read "Four Pillars of Investing" by William Bernstein.
I spent ungodly amount of time from 2001 to 2006 reading up on indexing, including the vast majority of the academic finance papers and every single book published on indexing upto that point in time. This is by far the best book you would find that appeals to the common man and provides the right level of information.
Vinod
-
14 hours ago, Thrifty3000 said:
A trick that has been incredibly helpful for me… I created a spreadsheet where I track MY portion of the look through earnings from my equity investments. So, for example, If I have 100 shares of Fairfax and I estimate the normal earnings to be $150 per share then in my spreadsheet I would show MY total Fairfax earnings as $15,000. If I have 1,000 shares of BRK and assume $25 per share of look through earnings then I would add $25,000 to my spreadsheet. With Fairfax and BRK combined I would have $40,000 of earnings. (I look at those earnings almost like my salary. I want my “salary” to be big, steady and growing over time.) Notice I haven’t mentioned stock price, because my number one priority is the quality and growth potential of MY earnings. With that mentality, if I can at anytime sell all my Fairfax and BRK shares to buy assets producing significantly more than that $40,000 of look through earnings then I am happy to do it. I treat that like getting a pay raise - which is fun and motivating. This approach helps ensure that the only way I can confidently sell one asset for another is if I’m confident in my analysis and able to transact at attractive prices.
This is exactly what I do. Buffett talked about this several times as well but very few people seem to have paid attention to it.
In addition, I have a 10 year expected earnings number as well. While I look at current earnings as my salary, I try to put together a portfolio that gives me the highest 10 year salary possible. If I had only current normalized earnings, there is a psychological pressure to juice it via a tendency to buy cheap stocks with high earnings yield like GM or banks.
This forces me 1) to avoid melting ice cubes 2) focus on business quality 3) reduces impact of stock price fluctuations - I worry less about why isnt it going up? As long as earnings keep growing up I am happy.
Vinod
-
I would think the natural tendency of market would be slightly overvalued. People who are bearish would avoid stocks most of the time anyway. So we have a market which ordinarily would be dominated by optimists (bulls, else they would not be investing) and that should lead to higher than what a totally unemotional investor would pay. So market and many stocks would be perpetually be slightly higher than what we as valuation sensitive investors would be willing to pay. If this causes us to keep a lower allocation to stocks it would undo any stock picking skills we might accidentally exhibit
This is just a wild thought that I have been thinking for a while and I might be entirely mistaken.
-
Historical comparisons are not valid for a lots of reasons. Valuation levels need to reflect that. A few of the most important changes
1. In the past say 1880 or 1900 or 1920 or 1940... no one can put together a diversified portfolio of stocks at a cost less than 2% per year in expenses. That is direct expenses. Then you have insufficient information, risk with paper stock certificates, fraud, etc in buying stocks. Even if you ignore these indirect expenses, at a minimum you are paying 2% fees annually (brokerage costs, bid ask spreads, over the typical holding period) and unit trusts had loads and annual fees that averaged these as well. So if stocks returned 6.5% real, you still ended up with 4.5% returns and at best not in a very diversified way.
Now an investor can buy total stock market fund at 3 bps. To get the same returns as in the past in a much more convenient way, investors can pay a lot more due to lower costs.
2. As much as many look down at economists and central bankers, they did learn a lot. The great depression - the bogeyman for many stock investors, is not going to happen again. We had a good practice run in COVID. Should something really bad happen short of a worldwide annihilation event (when your portfolio would be of little value/use anyway) you can predict what Fed would do. No points for guessing. You should be able to guess what politicians would do (Trump to Biden and everyone in between) - spend and spend some more. And they wont be wrong.
This takes away the greatest risk to stock markets - that aggregate spending would fall i.e. consumers would not be able to spend money. Thus companies revenues are protected. This is a dramatic change from the past.
If risk is lower, it is only natural to expect higher valuations and lower returns in future.
3. People also have wised up. They are not stupid. They do have 150 years of data that shows, every single time the stocks crashed, it was a buying opportunity. Short of a revolution (Russia, Germany, Japan...) when it does not matter what you hold (ok gold to some extent) everything is going to be worthless. Short of that, it is clear to anyone and their dog, that buying when stocks are down is a no-brainer.
4. In the past people worked until they dropped dead. Now people spend several years in retirement. For that they save (not everyone, but anyone who has wealth) and invest in the stock market. 401k, ira, etc. Everyone paycheck vast sums get deposited into these and they are automatically invested in markets.
To expect stocks to get to a PE of 7 or 10 is stupid. Not going to happen except for very very brief amount of time - a few days at most. So valuations are going to average much higher in future.
Vinod
-
1
-
-
50 minutes ago, Haryana said:
Wondering if you might be exhibiting some Wall of Worry phase type symptoms.
Are you feeling some fears/worries that you are avoiding either side of the bet?
(as all can see and for those who are yet to notice, this poll is nonanonymous)
Even the No team members are estimating a price point of 1800/1850.
The movements based on history are expected to be volatile/lumpy.
Touching 2000 intraday is only a ~10% volatility from 1800/1850.
I am completely kidding of course.
I go a long way back with Fairfax. First purchase at $106 in 2006. Very small purchase as I did not know much. Second stock I bought after Berkshire. Added and reduced several times all the way until 2011 when I exited the investment completely at $418 when it is pretty obvious that returns are going to be poor.
Got back in at scale at various price points between $450 to $485 in the last couple of years.
To me it meets the minimum return requirements with a high degree of certainty with possibility of higher returns. I intent to hold it for a long time as conditions have changed and it has become just as obvious now that returns are going to be very satisfactory as it was in 2011 that returns would be unsatisfactory. No need to nail down a specific price. I am not selling even if it reaches some arbitrary price point as long as my return expectations meet my minimum requirements and/or other opportunities show up.
The moment we make an investment part of our rationality goes out. When we comment on it, more rationality goes out. When we start putting price estimates with dates, we all tend to start exhibiting various forms of bias. That is the only reason I did not vote and do not comment too much on this topic.
-
Guys answering yes, please tell me what you are inhaling!
This is a large, very large part of my portfolio and dont need you guys angering the market gods!!!
-
I analyzed historical Fairfax investment returns and compared to what their return would have been if they invested in index funds both with CDS gains and excluding CDS gains. This is way back in 2015 and I posted this on my blog but when I moved my website to another provider, I did not move the blog and dont have it online.
I was doing this because I wanted to see if I should get back in FFH after selling it off in 2011.
Vinod
-
I bought $1000 of EGAN and and $1000 of VIAD sometime in 1999. I had no idea what those companies did, just read an article online and bought them. The value jumped to $7000 at dot com peak and then became worthless.
That started my investment journey as I was trying to figure out if I am an idiot for buying those stocks (I am) or if there is someway to actually invest systematically.
The first time I picked up an investment book, it was like fish to water for me. Next two years I would not be able to sleep well on Friday nights. I was too excited about the investment books I got from library that I used to wake up by 3 or 4 AM. I must have gone through the library finance book section twice over. Did not understand a lot of it but I just kept reading.
If not for these stocks, I might not have become interested in investing.
-
It is okay to enjoy the rally guys
As value investors we might want to invest to this song
But we would enjoy life more if we lived by
-
Really sad.
One of the rarest people who if you disagree with him, it is safe to assume you are very likely wrong.
-
30 minutes ago, whatstheofficerproblem said:
The Aussies won the match, but we won the hearts.
Yup! India has a history of winning hearts. Again and again.
2014 T20 WC Final: Lost
2015 WC Semis: Lost
2016 T20 WC Semis: Lost
2017 CT final: Lost
2019 WC Semis: Lost
2021 WTC final: Lost
2022 T20 WC Semis: Lost
2023 WTC final: Lost
2023 WC Final: LostCopied this from twitter. Just thought it is funny.
-
Next time there is a serious recession. Expect trillions in fiscal spending. Who is afraid of double digit percentage deficits, especially if it is for short duration? That is one big lesson learned from the pandemic.
Who is going to be against it? Not politicians. Not Fed. Not people.
Only bears who are preparing for a recession/redemption in markets since 2008 would be against it.
That is my quota of Macro for this year
Vinod
-
8 hours ago, Thrifty3000 said:
^ here is a post from August where I provided a table with about as conservative of a forecast possible of the earning power of each category in the investment portfolio in 2027.You can see it’s by no means a stretch for the investment portfolio alone to earn $140+ per share. You can then add to that whatever number you want for underwriting earnings (say $0 to $50 per share) and for any opportunistic surprises (like pet insurance subsidiary sales), etc.
The most important number is the earning power of the bonds. My table shows a 4% interest rate. I follow the same logic as Leon Cooperman on this front. In a world with at least 2% inflation and 1.5% GDP growth it’s hard to envision a long term scenario where bonds don’t yield at least 4%.
Long story short, people worrying about FFH earnings falling off a cliff in 4 years are likely overweighting the significance of underwriting earnings and underweighting the power of a huge investment portfolio that can produce solid earnings per share without any heroics from the FFH investment team.
You need to account for about $1 billion in other expenses (interest costs, corporate expenses) and a tax rate of 20%.
Rates could and would be influenced by the Fed, we had 12-13 years of that in US. Longer in Japan. So I would not base interest rate expectations on what we think should happen. If not for Covid, we might be sitting at pretty low rates even now. But who the hell knows. Not Fairfax or Cooperman.
Vinod
-
On 11/11/2023 at 3:27 PM, Jaygo said:
I agree that life is much better today but when the improvements slow down it feels like reverse. From 1900 - 1930 we went from shit ridden city streets rife with pestilence to inexpensive cars, penicillin, aircraft, electricity and a whole host of incredible things.
I have a theory that is hard to quantify but I dont think our culture is producing truly individual people and I think that it will have negative long term consequences, maybe depression maybe suicide maybe just far lower productivity and inventiveness. The way mid twenty year old's act these days is truly baffling to me, they want everything, whine when they can have it then ask mom if the laundry is done. I'm all for tight families and my time with my parents was precious but i really cant understand why so many still live at home. The general thought is to save money but give me a break, how do you learn anything on your own. Why not rent a shit hole? work your ass off and get out of it to better digs.
My theory is that the above is a result of a slow mental training of inadequacy and needing protection by having bylaws and rules for everything imaginable to keep us safe. My kids cant wear sleeveless shirts at school, Why? At every assembly we recognise some Indian tribe as the original owners of the land, That's f....cked? why? I did not, nor did my kids take anyone's land. My kids hockey team is not allowed to change in the change room. why does he go home in sweaty clothing? Just because of a one in 100,000 pervert? Why do I do 4 hours of safety training for some jobs that take me 10-15 minutes to complete. No wonder transmountain cost 30 billion. Imagine we tried to rebuild the CPR today.
Today we have so many small rules that probably have good intentions but really make it kind of shitty when looking back to times with more freedoms. My dad in the 70's spent a year working on and off in a logging camp in northern Vancouver island. He made a bunch of cash then lived on the beach in Tofino for 3 months, it got too cold and he and two friends drove to grassy key in Florida and camped on the beach for the winter. Two summers ago we went to Tofino and as beautiful as it is the beaches are now controlled ( no fires, no camping, no parking, dont even dream of drinking a cold one) Sure, we dont want vagabonds everywhere but we are also kind of making life miserable for the young and stupid. This rules upon rules kind of mentality is doing damage. I just cant really explain it, I just feel it.
So yes we live longer today but were hooked to the internet and afraid of everything, most are too poor to really live and the ones who cast aside the rules are considered weird and antisocial.
I'm in the camp of no boom till we let people be individuals, make mistakes, get hurt, go broke and fight back swinging.
You might be absolutely right, but the following is what gives me pause.
For the last 2000 years people always thought the next generation is going to hell. It is actually quite funny if you research the different things people worried about in the past. Books, bicycles, cars, landline phones at homes. Look up the stories behind these and we now see how the fears are beyond ridiculous. Would future generations look at what we worry about in similar way?
The baseline for what is acceptable/normal/good/right is what we have experienced in our childhood. Anything before is too primitive, anything after is coddling. We long for, back in the day...
The story of human progress can be summed up in one word: conquest of risks.
So not sure what is going on is bad.
Vinod
-
4 hours ago, glider3834 said:
I wrote a bit a long winded reply but main point I would say is that we have to give Fairfax credit for their fixed income mgmt - luck plays a role but you have to put yourself in a position to take advantage - they saw more value in the optionality of holding cash over stretching for the limited yield on offer.
Absolutely, Fairfax deserves credit. They behaved exactly what I thought many others should have behaved.
My point is the returns were helped by luck. Pandemic had been a huge boon. So dont just bake "normalized luck" into earnings figures into the future.
Vinod
-
15 hours ago, SafetyinNumbers said:
I did the math and it’s just under $2000/sh after accounting for the dividend unless I screwed it up.@vinod1 where would you set the odds on book value being > $2777 (current BV + 2000 - dividends) in exactly 10 years and where would you set the over/under on BV in 10 years?
The way I see it, for the first time in more than a decade, Fairfax has a path to 10% book value growth doing nothing much or anything risky. Anytime you have such a path, there would be an improvement in P/BV. So there you have a high probability of good returns.
There might be some opportunities, good luck, etc. that could more than balance out any negative shocks, bad luck, etc.
No need to go Cathy Woodish on Fairfax assuming everything that can go right would do so and then some. This is P&C business at heart, not a wide moat business. So competitive pressures would have an impact. When, how, etc. are hard to foresee but reasonable to assume there would be some.
Vinod
-
3 hours ago, Viking said:
@vinod1 with earnings growth of 5% are you not essentially saying Fairfax’s capital allocation will be poor moving forward?
Part of the reason I am so optimistic on Fairfax today is:
1.) the cash flows are front loaded. We know with a fairly high confidence level that they are going to deliver record operating earnings 2023-2025. Buffett teaches us when valuing a company the TIMING of future cash flows is exceptionally important (the sooner the better - the higher the valuation a company should get).
2.) the opportunity set to deploy capital is very good today and i suspect is about to get even better: and Fairfax has +$3.5 billion that will be re-invested each year moving forward in a very good investment environment. Bond yields are at 15 year highs. Small cap stocks are trading at bear market lows. If we get a recession all equities will go on sale (and already cheap equities will get stupid cheap). When it comes to capital allocation today, Fairfax is like a major league hitter getting lobbed softballs.
As a result, I will be surprised if earnings growth is 5% per year moving forward.
You also bring up ‘one time’ losses. Fairfax’s results will be volatile. Especially if we get a recession (no idea if this happens). My view is volatility is a good thing for Fairfax - smoothing results out over a couple of years.
- The TRS-FFH purchase in late 2020/early 2021 is a great example. They masterfully took advantage of extreme volatility in Fairfax shares - extreme pessimism.
- Another great example was selling corporate bonds and shifting to government bonds and shortening duration to 1.2 years in late 2021. They sold at the top of the fixed income bubble.
- The extension of their fixed income portfolio to 3.1 years in October looks exceptionally well timed.
- Selling Resolute at the top of the lumber cycle? Brilliant.
- Selling pet insurance for $1.4 billion…. Nuts. Lots of these decisions are $1 billion decisions… they are ‘needle movers’ for Fairfax and its shareholders.
Fairfax investors fear volatility. I think they might have it backwards. Especially given how Fairfax is positioned today (strong balance sheet and record operating earnings). Investors in Fairfax should be praying for volatility. With both insurance and financial markets. Thriving in volatile markets - this looks to me like it is likely a significant competitive advantage for Fairfax today compared to peers.
1. Regarding 5% annual growth in earnings, I low balled this on purpose to show how much earnings have to be over the next decade even at such a low growth rate. If I assume 15% growth rate, they would have to generate earnings of about $3500 in the next 10 years if normalized earnings are $150 today and they can reinvest these earnings at returns comparable to what they get on current book.
Looking at earnings from associates, they are carried around $5.5 billion and earnings to Fairfax right now are $1.1 billion. 20% earnings yield. I truly did not dig deep into any of these associates to form a strong view, but to me they are more likely cyclical highs.
2) I do not disagree with any of your other arguments. Yes they did good.
But.
I suspect almost everyone on this board would disagree with this: the role of luck. Assume covid never happened, where do you think Fairfax would have been? It would still be doing much better than in the past. Nearly half of the earnings power increase was from the side effects of Covid - the shock, monetary response, the inflationary follow up and the interest rate response. If instead, let us say Covid did not happen, we still have zero interest rates, then where would Fairfax earnings power have been? Many of the things you mentioned as brilliant would not have occurred. We would still be bitching about Prem.
StubbleJumper wrote better than anything I could write, but my view is almost identical.
These couple of years are the confluence of almost everything that can go right going right. I suspect that would not be a good baseline to hang our hat on for the next 10 years.
This is my largest holding by far, I had to break every self imposed maximum position limits to avoid selling. I wish nothing more than for you to be right!
3) Volatility is good for Fairfax, always has been, and for us. No disagreement there.
Vinod
-
18 hours ago, Viking said:
@Spekulatius i think the fundamental problem for Fairfax is there is no consensus among analysts/investors of what the normalized earnings power is for Fairfax today. This in turn makes it impossible to come up with an intrinsic value.
I think normalized earnings for Fairfax is about $150/share. And this should grow nicely in the coming years.
Lots of people on this board think earnings this year at Fairfax are unsustainably high (and my $150 estimate is ‘peak earnings’). Lots of analysts agree - some are forecasting EPS to fall at Fairfax in 2024. Do they think Fairfax is going to destroy capital moving forward (mal-invest record earnings)?
I think the biggest issue with valuing Fairfax today is the historical numbers are grossly understated and full of noise. 2023 is the first year where we are getting an accurate picture of what the different income streams at Fairfax can generate moving forward. It makes sense investors will need to see 2 or perhaps 3 years of growing earnings to ‘believe’ they are real and sustainable.
Over time, as more investors come to understand the true earnings power of Fairfax the stock will get valued more appropriately. I suspect the narrative (story) will also continue to improve moving forward.
When Fairfax stock is trading at 1.1 x BV, my guess is the analyst at RBC will increase his target to 1.1 or perhaps even 1.2 x BV. And he will have a couple of really good reasons justifying the re-rating…
If normalized earnings for Fairfax this year are $150 per share. Then these earnings must be growing at least at about 5% annually. That means, Fairfax should be able to easily earn $2000 per share in aggregate over the next 10 years. You cannot exclude any "one time" losses, this would be all in.
That would be the definition of what normalized earnings would mean.
Personally, I would be thrilled if this happens, but I think this is unlikely.
-
Investors are in this because they are expecting 15%+ returns. Prem himself mentioned I think they would not be investing in India if they did not think they can make 20% (OK, that is Prem being Prem
).
Paying 1.5% + 20% performance over 5%, would seem perfectly reasonable for most of these investors when returns are north of 15%.
Realized returns are 8.5%. Worse, these are investors who went to emerging markets seeking higher returns and they find S&P 500 had much higher returns.
Now, they feel stupid for paying the performance fee. So they are going to capitalize the costs and discount it. Hence, the discount to BV.
I dont think the discount would close unless
1) Fairfax India starts generating 15% annual returns, or
2) Fairfax India vastly outperforms US stocks, even if absolute performance does not reach 15%. Investors would be flocking to these non-US alternatives in that case.
Vinod
-
1
-
-
You guys are seriously bitching that market is not recognizing Fairfax after a 100% run up in an year?
Have patience!
Give the market some time. It needs 3 dots (3 years earnings data) to then put a line to extrapolate to infinity. Then we might get BV multiple that makes us blush!
In the meantime enjoy! (I am sure you guys are smiling ear to ear looking at the share price
)
Vinod
-
1
-
-
3 hours ago, TwoCitiesCapital said:
I also wish the repurchases were bigger, but understand this was intended to be a permanent vehicle and quickly taking it under my be counter productive.
But even 2.5% annual rate @ a 35% discount to NAV results in near 4% annual BV growth solely from the repurchases w/o considering the investments so in generally good with a +4% spread of alpha to the underlying investments.
Don't see how you are getting a 4% BV growth. If 2.5% of the shares are reduced each year at 0.65x BV, then you are gaining IV of about 0.35 per share of BV x 2.5% of shares. This should result in about a 0.9% gain in BV (0.35 x 2.5) for remaining shares.
Vinod -
29 minutes ago, UK said:
I am not sure I understand his comment either, but this logic you have described I think would work only for insurers with short duration bond portfolios. It would be interesting to know what is the average duration of bond portfolios of the whole insurance industry, but assuming some other companies own much more longer term bonds, increase in yields would not do much good for them for quite a while?
Not Fairfax, but most insurers do asset liability matching. So for current book of business changes to interest rates, does not matter all that much.
But for writing any new business, the cash coming in on that would be invested at higher rates. So they can afford to write at a higher CR.
-
I missed this the first time you posted. You should be calling this "Security I Like Best"
Fantastic job! Thank you for posting.
Vinod
-
1 hour ago, Gregmal said:
Offer you a trade; your NW will increase 40-50% over 5 years with minimal effort….
Ok great, sign me up.
But it will pull back 10-20% from the peak at some point….
Nah bro I’m good.
Like I can’t even believe this crap is floating around on an investment forum.
The amount of money that is forgone to avoid that 10-20% drawdown is just insane.
I think most investors would be better served if they put 100% of their capital into an index fund. And then when they find an investment that is offering better returns, just sell some index and put that money in that investment. So instead of using cash as the default, use market index.
Index Investing
in General Discussion
Posted
If you believe in addition, subtraction, multiplication and division, indexing is going to beat the vast majority of the investors over long periods of time. Using elementary math you can deduce that.
Assume companies make $2 trillion of profits per year. These are at the end of the day what investors return would be in the long term. Index investors get their proportion of profits without any costs. But there are about $300 billion to $400 billion in costs incurred by active investors and their share of the profits would be after this and would in aggregate would always be less than index investors.
Do this math over 20 years and it is no surprise index beats 95-99% of investors.
Markets can be utterly inefficient and still the above holds true.