rpadebet
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Posts posted by rpadebet
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AMZN- Jeff Bezos
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Would this be a decent opportunity to purchase calls rather than the actual debt or equity? You mentioned it will likely be known within the next two quarters why not purchase some Jan 16 calls, just lazily looked at yahoo finance and they are going for around 1.25 for a 10$ strike. Just throwing the idea out there, haven't followed blackberry at all.
If you want the lottery ticket, it is better to buy OTM calls like $12-$14. If BBRY's hail mary works, then the stock can be significantly higher given the size of the industry they are playing in. If not, then why lose a lot of premium? Also I would look out further than Jan16. In the short medium term I feel they have to buy some small technology companies to improve their software offering, so cash balance which is source of comfort for many in the downside scenario will have to reduce significantly.
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1% lottery ticket for me personally as I really don't understand the legalese.
I however get that all shareholders need to be treated fairly and one large shareholder cannot take away all the profits for himself whatever be the circumstances. I also get that these are good necessary businesses and one way or the other the business will eventually shift to private hands. There is too much ideology and politics involved in this, but I can see that shutting these businesses down is not an option, given the number of employees associated with these companies, the popularity of 30Y mortgages and implicit promises made by US govt to Foreign Govts who hold Fannie/Freddie insured paper.
I don't know the outcome nor do I know when it will be resolved, so my position has to be small enough not to hurt me if it goes bad and also not to create too much opportunity cost while I wait.
That said, I have 25% of my 401K invested with Fairholme funds, so my actual exposure to this outcome is higher than 1%.
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“It’s not the end of the world if you’re not rich. Most people in the world aren’t rich."
I like this part of his philosophy....keeps you grounded and keeps investing unemotional.
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Buffett once talked about the cost of a bottle coke or pepsi in terms of pennies. Not sure where to find that but as in looking at the costs of Wells Fargo's deposits, looking at a product or service in this way may be more insightful in some ways than looking at reported corporate numbers and ratios.
"And that’s it. There simply are no other ways to increase returns on common equity." - Warren Buffett
Buffett: How inflation swindles the equity investor (Fortune Classics, 1977)
by Warren E. Buffett
excerpt:
"Five ways to improve earnings
Must we really view that 12% equity coupon as immutable? Is there any law that says the corporate return on equity capital cannot adjust itself upward in response to a permanently higher average rate of inflation? There is no such law, of course. On the other hand, corporate America cannot increase earnings by desire or decree. To raise that return on equity, corporations would need at least one of the following: (1) an increase in turnover, i.e., in the ratio between sales and total assets employed in the business; (2) cheaper leverage; (3) more leverage; (4) lower income taxes; (5) wider operating margins on sales.
And that’s it. There simply are no other ways to increase returns on common equity. Let’s see what can be done with these.
We’ll begin with turnover. The..."
Dupont Analysis. Very powerful. Helps give insight into the business if compared with competitors and when compared against own history. If you get nothing out of it, you at least go with eyes open on what is driving the company.
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If one is completely rational about this, the choice is between investing in your own business (share buy backs) and investing in an outside business (investing for new potential growth).
As always you should pick the one with best value (considering growth profile, market opportunity, cheapness, moat, operational improvements etc). Think of it like an outside investor choosing between the two businesses at the prevailing prices. You should pick the one which you think can do best for the portfolio in future. The only difference being you have operational control over the two businesses. Your existing business is probably a devil you know and the new business is a devil you don't know.
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I'd be happy to join. I work around that area.
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No offense to anyone,but as long as we have threads like this discussing euphoria, there won't be a market bubble. Honestly, I don't think we are going to hear shoe shine boys calling the top this time, it will most likely be the "value" investor who finally gets tired of waiting, sees the opportunity cost of sitting out, throws in the towel and decides to buy with both hands ( ignoring high valuation and reasoning he/she is investing for the long haul). Then we will have a top.
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People talking about peak profit margins are looking at a narrow set of SP500 stocks. Look further down below and you will see profit margins are around 5%-6% level in the midcap and small cap space. that's very normal
http://www.yardeni.com/Pub/peacockfeval.pdf See margins for SP400 and SP600
Now why is SP500 profit margin so high? Its simply because of the composition of that particular index. Companies such as MSFT, GOOG, AAPL etc are big chunks of this index and they have stupidly high profit margins that they distort the picture of the entire index. More and more large caps have built strong moats and pricing power into their business model. they are more and more service oriented rather than manufacturing or commodity companies like it was traditionally. These traditional businesses haven't gone extinct, they have either migrated down to the midcap and small cap space or have gone to other emerging market countries with a lower cost base as one would expect with average businesses.
Another reason profit margins appear to have risen recently is because some big financials as a whole were contributing negative amounts post the crisis for a long time. things have improved in that space recently so the profit margin trend appears to trend higher. If you believe AIG, BAC,IBM etc will have better normalized profit margins going forward, then you are also betting that SP500 profit margins will increase.
This is why I feel the argument that profit margins have peaked and will mean revert is flawed. They will probably turn down at some point (mostly when recessions inevitably happen), but people looking at this narrow index will be surprised at the levels these margins are going to stabilize at.
Margins are not peaking. Multiples are "okay" based on the markets probabilistic judgement of future interest rates and growth scenarios. Moving to cash just to reinvest in downturn is a form of market timing. If you have cash because you cant find enough good businesses meeting your criteria, then that's a rational argument.
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Janet Yellen: equities are high because rates are low. rates are low because fed kept the rates low. fed kept the rates low because economy was weak. It's simple actually, equities are high because economy is weak. The risk is if economy improves then stock market will tank and economy goes into recession....so on an so forth
Hello chicken...there is the egg.....
To summarize we are f**kd
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"The billionaire businessman also dismissed the notion of an near-term takeover of self-driving cars, saying he thought "I think it's a long way off and I don't think everybody will adopt it." He said that he would bet there is less than a 10 percent penetration rate for self-driving cars by 2030."
I will take that bet.
Me too. I think the adoption rate will be steep. I'll buy one asap and I'm not an early adopter. Technological breakthroughs are usually incremental; this is a big leap in productivity, like touch-screens.
I wonder how much he's prepared to bet? ;)
Consumer adoption wont be a problem. But I see regulation being a major roadblock. Imagine the complexity of allowing some self driving cars with other mostly regular cars... there will be all sorts of debates on safety,control and hacking etc. All it would take is one bad accident involving a self driving car (and we know initial softwares can be buggy) and it would immediately slow down everything.
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I typically search google for "sp500 earnings" and goto the yardeni link :). It has fwd earnings and fwd pe and all sorts of things.
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Its very tough to tell when a new cycle begins and when it ends i.e. tough to predict the duration and as well as the trough/peaks. Its almost as tough as timing the market.
This I know from experience though- its very easy to lose money by buying a cyclical businesses at cyclical peaks paying a market multiple for trailing earnings (or worse linearly extrapolated forward earnings).
Since we don't know where we are in the cycle at all times, it is always prudent to pay heavily discounted multiples for cyclical businesses (ideally below market multiples to where you expect the trough earnings could be - but even this is hard). Its especially difficult, because if it is a good business, at trough earnings it will trade at a high multiple and at peak earnings it will have a market multiple.
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Its quite obvious. Structure of nose definitely helps in smelling opportunity and blood on the street.
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Heres a question for the "theres no global warming people".
There are 2 options
1. The scientists are wrong on global warming and we spend a few trillion dollars (which is what is spent on weapons every few years on this planet trying to kill each other) trying to save the planet which didn't need saving.
2. The scientists are right and we need to work on global warming to save our planet.
Only morons would be willing to take the chance. Thankfully the majority of the world is not as dumb.
you are assuming if we start fighting global warming we will stop fighting each other. Mankind ever since it came into existence has constantly fought each other (mainly over limited resources). That's not about to change...(unless we have an alien attack)
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I can totally related to the disconnect between the sums I invest and what I spend on my daily life. I'll sometimes hesitate and agonize on whether I should be ordering a few more books or upgrading a computer and then turn around and invest 2 years' worth of expenses into a company...
This feels especially stupid if you just made a few thousand on a stock that you just bought and made a quick gain on by nothing more than pure luck (that it appreciated so quickly thus the much higher CAGR). On the other hand it's probably sensible to review all expenses versus what you make in your day job and not versus temporary portfolio successes or drawdowns.
But what Liberty does is totally normal. The fact that your account went up (or down) $20K a week does not mean that you should suddenly buy a new car or eat caviar at the restaurant.
If fact, there is a known psychological bias to "spend" any "bonus" money multiple times. "Oh, I got this money, so I can buy a computer" and then couple days ago "I can get a vacation", and so on where in the end the money spent is larger than the money received. So it's good to go against it.
That's true, but that's not what I was talking about. I wasn't even talking about spending money because my portfolio went up, just saying that it's weird that a hundred bucks can make me hesitate because it can feel like a lot, and then I turn around and invest 50k in a company that I like. Somehow the amounts feel different psychologically, and I understand why, but it still feels strange (it's like cognitive biases -- even when you know about them, you can't be free from them, like knowing how an optical illusion works yet still having your eyes-brain fooled by it).
It could be because you have compartmentalized "spending" and "investing" in your brain completely.
I am much the same...agonize over even $10 stuff sometimes (buy the kindle book or look for a free pdf somewhere) because I know it's not coming back, but invest with a totally different magnitude, because i know there is chance of keeping it or growing it.
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This is a great conversation and great to hear everybody's thoughts. I have certainly struggled with this through the years as well. I remember years ago seeing my portfolio fluctuate by a couple of thousand dollars a day sometimes, while on the other hand I would deny myself buying a new laptop for example for a year or two or more (or decide to buy the cheaper option at lunch which might save me $2 to $5). Making the connection between what you do in your portfolio and how much that really buys in the real world has always been a bit tough psychologically. I don't think I have much advice to provide on top of what people have already sent, but I will share a few experiences.
Strangely, I actually feel like I am less risk-averse than I used to be even though I am older. Basically after you have a certain cash cushion, say, a few years worth of living expenses, even if you took a 50% loss, hopefully temporarily, is basically has next to zero impact on your near to middle future.
One day I looked at my portfolio and I realized that I had double as much money as I had a few years ago, but my lifestyle really hadn't changed and other than an added sense of security, that much money, which was several years worth of living expenses/ annual salary, was having next zero impact on my day to day life.
One of the other things that you also start to appreciate is the power of compounding, and inertia. I put a small amount of money into a high growth compounder about 15 years ago, and now it's one of my biggest positions. Even though it may not be the correct financial thing to do, I find it's easier to hold stocks and not sell, when you acquire them for a pittance of their current value. So basically in some areas inertia has taken hold, and I just don't touch anything so I don't have to worry about the problem.
I'm not sure if that helps much. :)
+1
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NRCIB
It should be trading at 6x of A shares (NRCIA).. huge misprice.
Its been like this for a while now and for good reason...
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In my opinion, if you have 3-4 years of living expenses in cash + retirement savings (say in indexed funds)+salary you can reasonably count on, one should invest the rest (no matter the dollar amount) as if you had $100 to invest. If your downside is protected, the rest is just a number to keep score.
Anchoring yourself to a recovery value or thinking in terms of current salary, just introduce irrational biases and decisions. That being said, though I am pretty sure the most rational way to invest is to bet big on the most under valued stuff and pay no attention to short term volatility, I seem to be comfortable betting big only on the safest names.
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To quote Munger on the difference between the Chinese and the Japanese:
The Chinese are gamblers; the Japanese are not.I suspect that Americans are gamblers as well. The Japanese have played the role of Mark Twain's cat to a tee ("having sat on a hot stove, he never sat on a hot stove again, but he also never sat on a cold one").
We're probably a little different than that.
I think its more of an age/wealth thing rather than a cultural attribute. (though there are some cultural differences). Chinese society is on average younger and poorer than Japanese society. As they get older and richer, they might want to preserve and protect wealth rather than risk and build. Chinese future might resemble Japanese past. And American future need not resemble the American past .
I have experienced this cultural change in course of a couple of generations in the indian society i grew up in. My parents and grand parents generation was all for stable incomes, job security, savings and investing in govt bonds/cd's and gold (maybe cash real estate if you were relatively adventurous). We resembled the Japanese in our personal finance behavior until say early 1990s.
The current generation though is skewed towards risk, growth,consumption and debt. Stable incomes are not good enough for us and a lot of my smarter friends want to do a startup or some other such career move which would have been deemed very risky just a couple of decades ago. They buy stuff like we do in the US and are happy to do so with debt. They are yet to move as a society from investing in gold and real estate to equities big time, but I am sure that trend is pointing in the right direction as well.
In the US, the difference in attitude pre-2008 and post 2008 is quite remarkable. My friends and relatives here couldn't leverage enough pre-2008, but now even the well to do ones don't want debt, don't want equities and are quite happy with CD's earning 1% at most. Job security is now priced well above taking even moderate career risk if it can be avoided.
Point is societies and cultures change over time. Sometimes its fast and sometimes its slow.
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So basically what you are saying is 'We are Japan'.
I don't know. We could be in a similar situation to them. I don't think we are genetically that different from them. Japanese are smart people, and if they couldn't figure out how to get out of this rut in 2 decades, we must at least accept that it is a tough problem to solve.
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My challenge is that while I think the market as a whole is overpriced, I think most of the stocks I own are pretty fairly valued (but if the market goes down, they'll go down along with everything else). So need to decide whether to hold stocks through a possible correction, or sell some to free up some cash.
I think this is far more dangerous and difficult to do than withstanding the correction/slump when it comes. Personally timing isn't my forte (at least when it comes to selling) and I have had difficulty selling bad/average businesses when they reach close to my estimate of intrinsic value (things start to look very rosy even in a bad business when this happens usually and i typically make the mistake of staying in longer than i should have).
Many well known investors have been raising cash selling stuff awaiting the correction and have consequently missed out on a lot of return. Its one thing to hold cash because you cant find opportunities meeting your expectations and another thing to sell because you expect the market to correct at some point.
Regarding equity markets not realizing what the bond markets have figured out, is it possible that due to the deleveraging in the developed world, we get a revenue growth slowdown/recession, but because of globalization/technology/general productivity improvements businesses reduce costs much more and still show good earnings growth?
I believe this is what we have been experiencing over the last 3 years, at least after the post crisis snap back. Ray Dalio calls it beautiful deleveraging. I can kind of see how earnings growth of such quality might not be a long term sustainable thing, but it can go on longer and maybe we get to the end of deleveraging at that point and start seeing revenue/gdp growth again.
Bottom line, no one knows. its too difficult to figure out.
I just know, I can still find one or two businesses to my liking every now and then and that i can't time my buys or sells optimally. Personally, I am trying to get into businesses which I wouldn't want to sell even in a 50% correction....average businesses are out of my opportunity set for now. No matter the valuation gap, if I can't hold onto the businesses, then i figure, I am never going to earn that spread.
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also, regarding raising rates, i don't understand why they would rise signficantly. Most the the yield curve is very low, and the fed hasn't been buying for a bit. Is it possible that the market rate for money is very low because we are in a long term secular deleverging? businesses not borrowing, but instead paying back debt
I think people have bought into the "Fed is going to raise rate => rates are going to rise" idea so much that, its very possible that the 10Y actually collapses sub 1% after the first rate hike. Just look at the German 10Y Bunds (7bps), Japan 10Y (30bps).....the UST 10Y at 188bps looks artificially high! Fed doesn't control the 10Y, only the overnight rate.
I am in the camp that long term rates aren't going anywhere but down in near future absent a stupid US govt crisis.
Now, compare the SP500 index dividend yield against this rate backdrop. I don't understand how people are so confident about a general market overvaluation. Dividend yields have been rarely below 10Y rates and we are in an environment with one of the lowest dividend payout ratios...
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Like everything else, the answer here is "it depends"...
If the earnings can grow at 10% and I am targeting a 15% return over say 5 years, I need that 5% difference per year to come from multiple expansion+dividends. Dividends are pretty static in most cases over this time frame, so my margin of safety is determined by the amount of multiple expansion required and the likelihood of that happening. Say dividends are 2%, then I would be happy with a 15% discount to current value only if the business is a "sure thing" and things are 100% likely to normalize in my time frame.
As my estimate of that likelihood varies, I vary the discount I need higher.
What companies have the best management teams?
in General Discussion
Posted
The best management "team" in banking is Goldman Sachs. Their top performing culture has endured through multiple management teams. JPM on the other hand is the house of dimon.
I agree Jamie dimon is the banking god ... The guy helps build Citigroup from scratch, gets thrown out when he is at his peak, starts again and ends up leading jpm and navigates the biggest crisis of our generation without losing money in any quarter,buying competitors and saving the system to some extent . To just think what would have happened if he took up the Goldman Sachs job instead of joining Sandy weil in building citi is mind boggling.