dealraker

A counter to: Inflation means panic from equities. Not my work, but I've debated/sponsored the model with the author. Conversely, when you get a certain earnings yield from equities, it tends to be inflation adjusted on average over time. If nominal earnings are rising at 5%/year in a 2% inflation environment, you can generally expect nominal earnings to rise at 7%/year in a 4%/year inflation environment. To a first approximation, equity earnings yields are on average inflation adjusted: changes in inflation do not hurt your wealth. That's assuming you are using a cyclical adjustment--obviously both earnings and prices do go up and down in the short term. The exceptions are * when inflation is so high that the economy breaks, but that's pretty rare. * Some specific firms are unusually sensitive to inflation, and others are unusually resilient or even "antifragile". But on average it's a wash. If there is any inflation over ~2% in future, a 5% earnings yield from a slate of equities is much more valuable than a 7% coupon from a fixed income instrument, whether bond or preferred. Value Line currently covers around 240 stocks with P/E under 20, projected EPS growth rate over 10%/year, and projected annual total returns over 15%/year. I would not put much faith in any of those numbers, but it seems not too hard to put together a broad portfolio with an earnings yield over 5%. Your slate might not beat the broad market, but you'd be relatively immune from the risk of permanent capital loss from having a wildly overvalued portfolio--and the risk of inflation. Inflation will drive down the apparent book value of physical earning assets in real terms, but that is no reason to suppose that those assets will have any lower real return. In effect, inflation will (on average) cause reported ROE and ROA to rise. (same real return on same real assets, but understated asset value). If a machine makes 20 widgets an hour, then the price of everything (including new widget machines) doubles due to inflation, it can still produce 20 widgets, not 10. The real return on that asset is unchanged. The apparent return (naively calculated ROE in nominal dollars) doubles. A much better line of reasoning goes like this: assume we have broadly-based inflation of (say) 10%. The purchasing value of a currency unit falls. Everything goes up in nominal price, but the real price of everything stays the same. All salaries go up a nominal 10%. All product and service selling prices go up a nominal 10%. All energy and material input prices go up a nominal 10%. The inevitable consequence is that profits will go up a nominal 10%, and margin percentages will remain unchanged. So, it is clear than in the case of evenly distributed inflation, real profits will be unaffected. So the things to concern yourself about are only the company specific exceptions, and the smaller effects. The main company specific exception is debt, which is fixed in nominal terms. Companies with net debt will benefit from the erosion of the real value of their debts, and companies with (say) bond ownership will take a hit. There are also effects because changes in inflation hit different companies at different speeds, which mean inputs and revenues may mismatch for a while. This is largely a function of pricing power...everybody will raise their prices, but some companies will feel free to do it sooner than others. Some companies will have distortions in their reported earnings, quite separate from possible distortions in their real earnings. Railroads are the usual example: they have massive long-lived assets requiring maintenance capex, so their accounting depreciation will substantially understate their real economic depreciation: the replacement cost of a worn-out piece of track might be a big multiple of its old depreciating book value in current nominal dollars. In other words, reported profits will be higher than true profits (owner earnings). A lot of what looks like expansion capex will really be maintenance capex. Another accounting quirk is the book value of real estate, which will cause firms with land to have book assets lower than their true real value. But, the base line situation is inflation is pretty much a wash for real corporate profits, with the caveats mentioned above. (on average across the economy but not every specific firm, after cyclical adjustment, and not inflation so high that the economy fails) A rise in inflation often coincides with or precedes an earnings recession, but that will pass. Once the dust settles, companies in general keep on making real profits on about the same old trend. This makes sense in theory--if everything else goes up in price the profits will too--and matches the historical data.

We've survived Waldenstrom's thus far and other health excitements what would have ended us long ago without the evolution of science. To say the least I differ from my favorite poster on COBF, that's Greg, as to the Covid vaccines. I'm first in line, I probably would last all of 1 day if I got Covid w/o the vac.

Angela is quite good, I think, in photoshopping the wrinkles...particularly with herself and sometimes even with me! I am the age I am, I promise. She spent some time with this photo because it was sent to all her social media places. Working on the big 70 now. Ouch!

Parsad nailed it. Mosey on over to an East West financial statement and check the returns on assets- over 2% is shockingly high- and whatnot. Tempered down the food chain of course by excess equity. Kind of like being the child of a high earning surgeon...who has 10 offspring. Your lifestyle ain't what you'd expect and neither is the inheritance. But the doc's earnings are superb.

South west England coastal path this and last year. Best photo though was from last year. Somehow we keep getting near ideal weather with just a couple of days with drizzle - the rest partly sunny as high 40's to low 70's F temps.

change, in the late 1990's we had a connection such that we got little Jimmy Rogers formerly of Quantum/Soros to come right on down here to little Lexington, NC to our investment club meeting/seminar (we had others too). Jimmy was big into commodities, he'd just set up his own commodity index fund. Riding that motorcycle all over the world too...he was hot! On CNBC...again from all over the world once a week or so. The global thing was on his mind. We, the club that is, were towards the end of a 10-year run of holding almost all tech stocks...so you can guess how much attention we paid to Jimmy or anybody else. Baby, we were crusin' high...and getting kind of well-known around these parts, you know the Beardstown Ladies type fame. By 2000 our ten year annual was 35%, yep thirty-five percent a year for a full decade! By 2001, later on in 2001, you probably guessed correctly that we'd blown-up our portfolio, ended up barely beating Mr. Market. Jimmy had too blew a fuse I think. Jimmy today? He's out selliing that commodity thing again! He's old school now, not in the high profile CNBC guest mode/status any longer. Hotshots all around, interesting to me as to which ones you choose to post about and follow. What's making the ones you follow and post about more attractive than others? We had a guy (we have some mega wealthy club members) associated with Dalio come to the club a couple of years ago. Of course you know that story, it was China. But we only had a couple of members with any interest in that - at least for the club.

While I think Markel will do relatively better in the future than it has recently (not sure how long) I considered Markel the most over-rated value investor obsession for many years. I didn't sell the stock based on that, but naive investors simply extrapolated aged and irrational figures to get their story and they held to it like a cult. Worked exactly as it should have, not well. That said, I messed a bit recently buying a bit in the $1250 average price range. I originally bought MKL at the IPO in 86 or 87 or somewhere in there. My wife worked for Markel when she lived in Richmond where she grew up. 03/10/2023 Buy 12 MKLPopup MARKEL CORP @ $1,273.6999 -$15,284.40 03/22/2023 Buy 3 MKLPopup MARKEL CORP @ $1,238.8799 -$3,716.64 03/22/2023 Buy 15 MKLPopup MARKEL CORP @ $1,231.7390 -$18,476.09

Hmm...I'll just plug in a tad of "it ain't this easy" to the who-will-do-the-best case closed discussion. Been around a while in this business, bunches of variables involved that sneak in endlessly. Too many to mention, the ones that end up counting probably wouldn't be the ones mentioned. Owner of Fairfax and Markel for many decades. Small owner of Berkley for 15 or so years.

I remember watching Buffett walk at annual meetings when he was in his early 60's then way up until his mid 70's (my last attendance). He had a powerful energetic style of movement for his age. That's gone now. But damn it lasted a long time.

I think I could very easily go 'ungovernable emotional excess' (hysteria) with extrapolating economic data as an investment model. I do enjoy typing, my dad ya know...the newspaper part-owner and editor thing.

I'll send a peronal note on this.

One thing's for certain, if you are obsessed with finite win/lose figures you will never-ever get bored, the micro focus will mandate all the upkeep and awareness you can possibly muster. It would be exhausting to me, but others may find it exhiliarating.

Munger saying Ben Graham made half his money on one stock, Geico, was quite special to hear.

I'm forecasting a recession sometime late this year. And many more in the future.

+1

I sway back and forth on banking but it is meaningless now that I have about 1/10th of 1% there. It was just such an easy cyclical growth sector to make money in for so many years...and I mean years, years, and more years. It is like a sector that has changed so much that you can't even invest in a bank like East West without thinking you are the clueless idiot of the bunch.

The comment that most entertained me was when Buffett referring to commercial real estate quoted someone from the past saying, "It is worth what someone will lend on it without the borrower putting his name on it (the loan)." I couldn't help but think about my favorite punching bag Brookfield, how much more fragile their relayed story is than some believe.

Yep, thank gfp.

I had to leave the house for a couple hours today. I'm assuming there was no specific discussion about Bank of America. Is this correct?

Added to LHX. After selling out of EWBC a short time ago to buy land I bought a tad today.

Yes I would guess high probability too that some retail and bank stocks will be significantly higher a year from now.

High probability this is correct.

Yep.

Spek, particularly at my age now, you run circles around me as to mental energy and awareness. Sideline: You can imagine what I think of our presidential candidates! In late March I sold out of EWBC and CATY when selling other things to fund a land purchase. I'd held EWBC for 23 years and CATY for 30. They were not relative big holdings but had grown into some significance. I hold BAC and a tad of WFC and that's it. I was a bank analyst (for a few years in early life), the fragile nature of banks just doesn't interest me and I'm not energized enough to spend time with it. But it seems to me, and maybe you can elaborate, that if all these banks are in a state of total confusion it would have some significant effect on business and the economy. How much? How much do you think the banks are in guarded mode with little new business being accepted?

So for years, years, and years over on the Berk Manlobbi (old TMF) board all I hear is the S & P is hyper-incredibly-stupidly over-valued and Berkshire is a screaming burn-down-the-barn bargain. And the posters...what do they promote as their favorites other than their Berkshire? Always a randon assortment of APPL, MSFT, AMZN, GOOG, META, TSLA, NVDA... And I'm like, "What the hell?"