ni-co

I'd love to question Klarman about his remarks. Two questions I'd ask him: [*] When doing it deliberately, why does he keep such large cash positions around? Is it merely a liquidity reserve to meet investor redemptions in the worst possible times? Or does he think rebalancing is going to improve his returns in the long run (without taking redemptions and other external factors into account)? "Don't lose money" is not the answer to this because you can provide for it with your security selection and a reasonable degree of diversification. After all, you are guaranteed to loose money on your cash positions, that's why you want to invest into productive assets in the first place. There is such a large opportunity cost for keeping 30 percent of your portfolio in cash knowing that, in real terms, you'll lose money on it most of the time. In the long run, it becomes significantly more difficult to beat the market with a large cash position. You can easily see this by looking at mutual funds. Holding a cash position is the second most important reason (cost beeing the most important one) why the average fund underperforms the indices. If you invest your personal portfolio with a 20, 30, 40 year horizon, without selling pressure and you can live with an intermediate 50% downturn in your personal wealth is it really worth it keeping a cash position around? [*] Klarman seems to think that the FED actions have a destabilizing and not a stabilizing effect. My second question would, therefore, be what he makes of Ray Dalio's argument that there has to be a balance between money supply and credit supply. Dalio argues that the FED has done a great job so far to avoid a depression scenario because they balanced the credit contraction by increasing the money supply. He argues further that as long as credit supply is heavily contracting central banks are not only able to increase money supply without causing inflation they have to do it to avoid a depression scenario. Dalio says that his biggest worries are whether the FED is able to keep this balance once the economy "hits an air pocket" because it might run out of tools to counterbalance it.

Great, thanks!

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/02/27/the-incredible-stock-picking-ability-of-sec-employees/ This makes me wonder why SEC employees are allowed to buy and keep individual stocks in their portfolios at all.

The title of this article is deliberately utterly misleading…

I highly recommend Joel Greenblatt's "[amazonsearch]You Can Be a Stock Market Genius[/amazonsearch]" and "[amazonsearch]The Little Book That Still Beats the Market[/amazonsearch]". Shameless cloning by reverse engineering investments of great investors is also a good starting point: http://basehitinvesting.com/mohnish-pabrai-lecture-at-columbia-university-my-notes/ You have to understand what you buy and why you're buying it, though.

I didn't say that, but that's beside the point. I think we are talking about the same thing: If one quarter's earnings have no relevance for subsequent earnings, an earnings miss won't affect the earnings power of the company. In other words, this hypothetical company can dividend out its earnings completely while keeping its economic size. In this simple case, the value of this company is exactly the sum of all of the future discounted earnings PLUS any excess cash on the balance sheet. If this hypothetical company misses one quarter completely, its value is reduced by this earnings miss (i.e. this quarter's earnings) only. Hence 2) is correct. in an efficient market, 1) can never be the right answer and 3) can't be true, unless future earnings were affected by the earnings miss (which, by definition, they are not).

To make it completely clear: and …can't be true at the same time. If the company's previous quarters have no effect whatsoever on future ones, the price does not only reflect future quarters but also excess cash earned in past quarters. It has to drop by the amount of the earnings miss, as shareholders won't get this dividend.

There seems to be a logic flaw in your assumptions. Either the company needs to reinvest those earnings to keep its earnings power, then future earnings have to be affected by this earnings miss. Or the company can dividend its earnings out, then the excess cash on the balance sheet is additional value, in other words: then the company's share price reflects not solely forward earnings, but also the excess cash. In both scenarios, the earnings miss has to affect the share price. How much the share price is affected depends on how much the earnings power/cash account is affected. You can't say that this generally has to be significant or insignificant for the share price.

+1

They don't appear to have had any legal advice in building their website – they might have copied their terms from another site. There might be a problem with their "trademark" ("SEC live"), too. After all, this is not the SEC… :D It's a nicely designed website, however. Thanks for sharing!

Designwise that's a hard nut to crack. You don't know how each thread develops. Sometimes it's more of a reference thread, sometimes more of a discussion. I also think the Sears thread is a anomaly as far as it's been going on for years and Sears being a very complex investment. Would be nice to be able to search single threads, though. And a responsive web design would also be great.

Agreed. At least Aldi and Zara (Inditex) have been built from the ground up as low cost retailers. It's difficult to change culture, for sure. At least it's a special situation at Sears as you effectively have a new owner controlling the company. I think that's very rare.

Great post, thank you for sharing, Liberty! Almost missed it. I fully agree with the media analysis part of it. However, the theme of retailing being a "lemon business" is so common sensical right now that I become more and more suspicious about it. It's true: it is a commodity business. Yet, the Walton family squeezed this lemon quite successfully, so did the Albrecht brothers (Aldi) in Germany (by far the richest Germans). The richest Spanish, Ortega (Inditex), is also retailer. What they all have in common is embracing low cost strategies – which makes perfect sense in a commodity business. It seems to me, that this exactly what ESL is aiming at, too.

How about Ackman's APD (Air Products & Chemicals)? They supply gas liquefaction equipment. It's not a pure play, but I think it is the main reason behind Ackman's bet, aside from the momentarily bad capital allocation that he tries to fix.

I agree with Heiko -- I'm not sure ETFs means crowded competitors -- perhaps it's just shifting mutual fund owners to ETF owners. Maybe if the total number of people investing in equity vehicles is increasing... This is a very interesting question. Until recently, I also recommended broad market ETFs to my friends/family. However, I started to wonder about the long term effects of this huge indexing/ETF movement. Compared to mutual funds, there is a difference: E.g. all S&P 500 index ETFs give their positions exactly the same weighting in their portfolios. There seems to be a potentially destabilizing element built into this provided more and more people are buying exactly the same portfolios. Then again, there has always been the tendency of most of the mutual fund managers to hug their benchmarks. What do you think? Is this increasing the systematic errors of market cap weighting? At least, the chance of outperforming the market with differing (value) strategies might increase as a result (which is what Greenblatt seems to be observing in his third book – which gets far to little credit, by the way).

I think this lawsuit is more about scaring people with insider knowledge not to blog about it and maybe also finding these leaks.

Listening to this interview, that's exactly what I was thinking, too. 1. Read/watch everything John Malone has said for the last 3-4 years. 2. Think about the telcos again under his perspective. 3. Think about your own data usage on mobile devices: How much of it is really over the mobile network - and why is it so?