thefatbaboon

Never do any technical analysis except that I will check where 200 and 50 day moving averages are and if my buy price is within 5% of a moving average I have been known to adjust my buy price up or down to get near it. Otherwise nothing. For example, if I were looking to buy IBM at $180 and the 200MA was at $184 I might increase my limit and start buying at $184.

What are your opinions on McKinsey vs. Damodaran (general differences)? If you had to pick one starting out which would you go with and why? Just by glancing over the contents I am getting a feeling that Damodaran lays out the different valuation models and where to use what. It also looks like McKinsey builds on the idea of value and then branches off from there. Did I get that about right? Also, what models do you use more often? Thanks in advance, trying to build a good reading list for my weekends during the semester. I go nuts if I don't read a couple hundred pages of something every week :) P.S. McKinsey's latest version is 2010 and Damodaran is 2012, I know the meat of the text probably hasn't changed much but maybe some of the post recession examples have. Has anyone read the most recent editions of each? Any notable differences? Keep in mind it is more than a decade since I looked at either book. Mckinsey, I only went through superficially as I found it was going over a lot of the same points. With Damodaran I spent about half a year going through it, working through examples, re-reading etc etc. I think either will suit you just fine....I focused on Damodaran but that was only because that was the book I had come across first. Perhaps give a couple of chapters of both a read and see who's style you prefer? I don't use any models anymore, but I spent nearly ten years doing so and the lessons were invaluable. If you love investing I recommend taking the time to learn the valuation models. You will learn a lot.

I studied Damodaran Investment Valuation when it first came out. I found it a very good study book. I came out of college with a math background and while I liked Graham's Intelligent Investor and Security Analysis for the "philosophy" I really struggled with the P/E and book value approaches he used. It all seemed so "rule of thumb" and derivative. I wanted to know WHY such and such P/E or such and such ratio to book value was or was not appropriate. Burr Williams "Theory of Investment Value" and Damodaran "Investment Valuation" were exactly what I wanted to show the actual link between a cash flow and a capitalized value. (I've also read McKinsey and I think it's interchangeable with Damodaran). But I would suggest reading Burr Williams first and then moving on to one of these study books. And take your time with the study books working through the examples. I don't use dividend discount or discounted cash flow models very often anymore but I learnt a lot during the years that I did.

Good point. There does seem to be some kind of acceleration of Fads. They are born and die quicker. Not sure why.... What I meant is that even if the internet removes shelf space limitations and you can now have 10,000 cola brands, most people won't keep track of many. They just don't have the attention/mindspace. They want to find a few things they like and trust, and then will probably stick to them. Brands are mental shortcuts; you know what you're going to get. Right now, where I'm seeing most of the change is in niche things (the long tail). If you really like some obscure thing and you're the only one in your town, you used to be on your own. Nobody would open a store just for you. But now, all the people who are into that obscure thing across the country and world can band together, and as a bloc they are worth feeding and can keep the niche thriving. So lots of niches are now commercially viable that weren't. But for the big, mass-market stuff that reaches lots of people everywhere (detergent, cars, cola, diapers, common foods, smartphones, etc), I think there will always be big dominant brands at the top, and no-name/store brand type stuff for more price-sensitive people. I live in a city and last year I started ordering my groceries and household stuff online and getting them delivered. Originally I thought this would make me more brand insensitive. I've found exactly the opposite. The more choice, the smaller the online photo, the more abstract and non-tactile the selection process....the more I depend on brands. It's further reinforced by the suggestions and "Your favorites" pages...where what I order most frequently is immediately infront of my eyes. Click, click, click, click...done! Agree with Liberty 100%.

Agree! Amazing book.

These two haven't been mentioned: Theory of Investment Value - Burr Williams Investment Valuation - A. Damodaran Personally found them very helpful when I was getting started.

I agree. Doesn't Gates' man Larsen have a big position there? Nearly 10% if memory serves.

My 2 cents. I think Buffett's handling of this was very clever.

My personal view is that it depends on the currency. Would you say the bolivar is going to be mean reverting against the dollar?

How do you come to that number? I can only "see" that it has a high chance of falling further, but i don`t "see" yet how far. At 20 there is a massive support, but that doesn`t mean it drops that low. I pulled the number out of my ass - where i find most of my best charting insights.

Confirmation bias endorphins kicking in! I'm stalking THRX, probably being greedy and will miss it (like i did with freaking K); but hoping to get it in the mid 20's. My amazing charting skills suggest that it should at least dip to 26 ;D

LMCA, THRX

Man uses first-class ticket to eat for free at airport's VIP lounge ... for almost a year By Mike Krumboltz, Yahoo News January 30, 2014 9:51 AM The Sideshow View photo . Free lunch (Thinkstock) In the grand tradition of the mad genius who bought mountains of Healthy Choice pudding so he could rack up millions of frequent flier miles on the cheap comes the story of a Chinese man who took advantage of a loophole to eat for free in an airport VIP lounge for nearly a year. The story was originally covered in the Chinese-language newspaper Kwong Wah Yit Poh in Malaysia, according to the New York Post. The man, who isn't named in the piece, purchased a refundable first-class ticket aboard China Eastern Airlines that came with a complimentary meal at the airline's VIP lounge. That was almost a year ago. Every day since the purchase (after eating his meal), the man would then rebook his ticket (for free) for a flight on the following day. Then he'd return to the airport, eat, change his flight and go home. Eventually, according to the Post, the airline grew wise to the man's ruse and confronted him. This was after officials noticed that his ticket had been canceled and rebooked an incredible 300 times over the course of one year. That's a lot of complimentary shrimp cocktails. Because the ticket was fully refundable, the man was able to turn it in and get all his money back. Apparently there is such a thing as a free lunch. You just have to be willing to hang out at the airport to eat it. Follow Mike Krumboltz on Twitter (@mikekrumboltz).

http://www.insurancejournal.com/news/east/2014/03/31/324441.htm

USG was great fun. Bankruptcy filing in summer '01. Stock was under $4, 50m shares outstanding. This was one of my first real investments. I remember studying thousands of pages of asbestos dockets. There was a wonderful group of very generous guys on yahoo message boards - and I learnt an enormous amount from them. I sold some at $12, most of the position at $20 and the little bit I had left at $30. I think it continued on to $120. USG will always be special to me.

I just can't for the life of me figure out what would make interest rates go up. >:( (USD, EUR, YEN). Spikes, sure, I can see some reasons, but sustained increases….? It's annoying. I feel it's blinding me to potential downsides in the market.

No, using today's earnings levels the market is not high at all. 15x forward earnings is completely normal. It's not 30%-50% overvalued unless you consider/believe that margins are abnormally high today. Using the Shiller P/E or Tobins Q suggests 30-50% overvaluation BEFORE considering that margins are above historical levels. You're using one year's earnings in a time when labor is slack and interest rates are low supporting historically high margins and high multiples. The beauty of Shiller's figure is hat it is intended to take the average over the cycle...not simply at its peak. Any long term indicator suggest that we are largely overvalued at this point. It's not an opinion that margins are high. It's a mathematical fact. Margins have traditionally reverted and have traditionally been lower than they are today. The questions isn't are margins elevated. The only question is when they will revert. 1 year? 5 years? It's really anyone's guess but I don't really think its up for debate about how richly valued the market is. It's really more of a question on how much more richly valued it could get and how long it will take to revert. The numbers simply don't lie. The simple answer is this: all investments are in competition with one another. If bond rates are low, people will bid up stocks until future stock returns are low too. We're in an environment with high stock multiples that were driven up by low interest rates. This would be fine if interest remain at 2.5% forever, or go lower, but we all know they'll have to rise at some point. No one really knows when that is but it will eventually happen and multiples will have to compress so the forward expected returns on stocks is comparable relative to the rising rate of forward returns in bonds. Compounded on this fact is that you have multiple potential causes for large, global economic shocks AND margins that are historically above average where reversion zone could lead to 20-30% declines. So to summarize: 1) historically expensive market with no clear driver of future multiple expansion 2) several mean reverting statistics that are above trend (multiples, margins, bond prices ) 3) potential of several large economic shocks that could quickly affect markets Against all of this you simply have the hope that people will continue paying higher and higher prices and multiples. Earnings aren't growing at 5-10% a year and the market returns can not continue to outpace earnings like they have done. It's not impossible to make money going forward, but I think that any reasonable person who knows math and history can see that returns will likely be disappointing going forward. I'm not sure I accept the premise that interest rates have to go up. Of course they do if inflation picks up. But that is precisely what is NOT going to happen in the Watsa deflation hypothesis. So, in a world of low interest rates which would only get lower in a deflationary environment, and accepting that one has to buy something with ones money (cash, re, stocks, bonds), how can one not choose reasonably valued large caps over any of the other alternatives? It has the additional benefit of working out nicely if the deflation hypothesis is wrong too. As for the argument about unreasonably fat margins - I am not smart enough to untangle the truth. The American economy is completely different today compared to 30, 50, 100 years ago. How does one compare a Nike that is based on outsourcing and branding to an old manufacturing company? How does one compare Google and Apple to the old IBM or Ford with there hundreds of thousand of employees? How does one compare a modern biotech company to the old chemical companies? The world changes, capital productivity changes. Modern companies split up their businesses and outsource their low returns to low income parts of the world and keep their high return parts. My guess would be that margins and the productivity of capital have been increasing since the Industrial Revolution. And since globalization this has been further exaggerated by the ability to farm out low return parts of businesses to developing countries. Like I said before I'm not talking about timing and trading here. Because we all agree that something bad might happen tomorrow in China, Ukraine or wherever and prices could come down 30%. I'm talking as if one had to buy something today to own for the next ten years.

Can someone help me understand this market over-valuation hypothesis because I'm really struggling. Here are the worlds biggest companies: Apple, Exxon, Microsoft, Google, Berkshire, General Electric, Johnson&Johnson, Walmart, Chevron, Wells Fargo Do you guys think they are expensive? (Out of the 10 names I'd say 1.5 are expensive.) Of course there are a bunch of go-go companies like Amazon, Facebook, Tesla, Twitter etc. But they do not dominate the overall market (a la 1999). And, even in healthy markets there have always been pockets of speculation. What do the bears imagine happens if they are right and the market declines? Will central banks raise interest rates?? I just don't follow the logic. Interest rates are essentially zero. How is it possible that shorting a bunch of debt-free large cap companies that are trading at 11-15 times earnings (6%-9% earnings yields) can ever be a sensible investment choice in a world of zero interest rates?? Even if the bears are right, China implodes, Europe deflates, and all the companies mentioned above lose 25% of their earning power…isn't one still better off holding companies with no debt, significant dividend capacity and 4%-7% earnings yields because the central banks are most certainly not going to greet such a crisis by raising interest rates? Listen, I understand that a broad collapse such as this would no doubt offer up better prices than today, perhaps significantly so. But the risk/reward doesn't seem right to me. Isn't it safer to buy some strong companies and if the global economies are ok you'll double your money over the next seven years, and if the economies collapse your companies will survive, pay you a dividend and stock prices will probably be marginally higher is seven years. Even in a bear scenario your return will be better than buying cash or investment grade bonds today. Personally, nothing makes me more nervous than speculating on Doom. I don't think I could sleep at night. Setting my sail against the immense tide of human history, a tide that only seems to have gotten stronger and quicker with every generation. We are living at a time of the most obscene progress. Jet airplanes, televisions, phones, computers, internet, globalized manufacture, a plethora of free and for fee entertainment, cheap furnishings, automobiles, statins, low child mortality, the longest life expectancy. I don't know how someone can short our economy and not spend every waking minute absolutely terrified.

Perhaps. But I think there are a couple good points raised against the As votes being significant. 1.) The Estate/Foundation will have control until 10 years after WEBs passing. If the estate finishes 14 years from today then it is likely that BRK is 4 times the size of today (10% cagr). Ie greater that $1trn 2.) Over this 14 year period there is likely to be dilution from purchases & and the occasional arbitrageur swapping As. By the time the foundation winds down the As will probably represent a voting interest between 30% and 40%. Furthermore the illiquidity compared to the Bs will be worse than today. It's true that a deep pocketed "Helper" with $20b-40b and a lot of patience might use the As to get 3%-6% of the vote. But I don't think the As could serve as a means to semi-control (30% votes), which would require two hundred billions and many years to get that many As. Even if one looks far out into the future I find it difficult to see how the voting privileges of the As are going to be significant.

I think of it the same way as you guys. I've always been a b share buyer as I prefer the little discount over the votes. Was just wondering if I was maybe being stupid and there was something I hadn't thought of.

Why a non-issue? In the absence of a controlling shareholder (Buffett) wouldn't the A shares start to command a material premium?

Apologies if this has been discussed before… Has WB ever mentioned whether there is an intention to normalize votes between the two classes at some point? All of his estate is getting converted in to Bs prior to gift/sale - that gets rid of about 40% of the A float. But that leaves about 500,000 remaining Class As…. enough that they would have a dominating vote. No one cares about these kinds of things while Buffett is around but it might become important down the road.

Don't disagree with anything you said and I didn't mean to kick Prem while he's down - maybe my joke was in bad taste. I just don't think FFH is a similar thing to BRK. FFH is an asset manager like quite a few others. Einhorn, Loeb, Paulson, Ackman, Lampert…etc…some have a bit of insurance, some control positions, some straight equities, some wholly owned stuff, some macro. Some got things right in the housing meltdown, others got things right in the aftermath. Everyone on this board will have their own opinions about which of these various managers they prefer and why.

0%, but never been an owner. First looked at FFH a couple years ago and initially put off by the equity hedges. But the more I've seen since the less I'm interested. FFH isn't a Berkshire-like vehicle. Berkshire is a collection of some of the world's prime assets and talent. FFH has more in common with a fund manager like Einhorn, Loeb etc. That's no bad thing - but I don't like FFH's assets (other than a couple of the bits they did in Greece and a couple large cap equity positions I can easily put on myself) and if I were looking for a manager there are quite a few I'd pick over FFH. The FFH lovers will hate me for this, but I always found the board's title amusing, like an O&G board calling itself Corner of Exxon and Sandridge !

I'm looking primarily at IBM, Oracle, SAP…but I'd also be interested in understanding how some of the others fit like Microsoft, HP, Dell, Cisco, Juniper, Red Hat, VMWare, EMC. Over the last year I've listened to tons of Analyst Days, read tons of 10Ks but I've found it really tough going. There is so much spin. All of them claim to be "Number 1" in the same areas. All the jargon is incredibly tiring: Pure, Exadata, Exalogic, Smarter this Smarter that. Ultimately I hope to understand the overall structure of the industry well enough to have an opinion about competitive advantage. Unfortunately this is proving much trickier than anything else I've done. I don't think I've ever invested so much time for so little knowledge in my investing career!