ExpectedValue
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Posts posted by ExpectedValue
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Capital allocation at Apple isn't as bad as the value crowd makes it out to be. Unlike most tech companies which typically get involved in high valuation M&A, Apple has for the most part sidestepped bidding wars and instead has built a pretty big mountain of cash.
I actually think the cash is pretty important for giving them a moat, because it means if they ever need to, they can fund suppliers and monopolize key aspects of the supply chain. Maybe there's too much cash sitting there, but I'd rather it sit there than go to buy something be used to bid on Yahoo or Facebook.
My guess is that if we were back in 2000, most of the people on this board would be demanding that Apple go into runoff and liquidate its business (back then it was a net-net).
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It's a lot of money, but Tim Cook is pretty much -the- reason why Apple is where it is today. Before he arrived their supply chain was in shambles and all the great designs in the world weren't going to help them dig themselves out of that mess.
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Article on Ted Weschler in the WSJ.
I think Berkshire's CIO pool is shaping up to be pretty good. My guess is that Todd Combs will focus on financials (insurance/banks) which should be useful since those businesses are going to exist in all markets globally and tend to be the biggest businesses in most countries (providing ample liquidity for investors).
Weschler seems to be fitting a different niche which should be useful. His background in PE should help with acquisitions of entire companies and he has a good amount of experience working in a large industrial that has a bunch of different product lines.
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I thought this was a fantastic little movie. I thought it captured a lot of the Wall Street culture properly and didn't over-glamorize anything like you usually see in these types of movies.
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Do local small banks face higher severity floods? Meaning, didn't the local small banks in the oil patch fare the worst vs the large and geographically diversified?
I think when looking at banks, it's really a matter of trade offs.
A big bank can be great because you have the benefits of geographical diversification. A bank like Wells Fargo can generate income from all over the US which can be used to pay for losses in states that were particularly hurt by the housing crisis.
At the same time though, you can sometimes find small banks that are really conservatively run by bright capital allocators. These are going to be easier to understand but the trade off is you'll have to really know the geography well. It becomes a matter of whether or not they can grow loans at reasonable prices, which will usually be a function of the competition for overall loans and the macro within that market.
I see some small banks that trade at heavy discounts to TBV. The fact of the matter is that most of those guys are simply going to trade sideways. Their geographies are weak/to negative, with a lack of real loan demand and they are too small and removed from branch networks to really make themselves worth of acquisitions. You see this with a lot of thrifts, especially on the smaller micro/nano-cap side of the market. I don't really think these are great buys.
These days I find myself more sympathetic to big US banks that are cheap. Position sizing and overall portfolio diversification should limit the effects of their black box nature.
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That said, I don't know why he keeps saying Paypal is just a portal for credit card, which it clearly is not. PayPal added the functionality of processing credit cards , but it is a payment network.
Not according to Paypal.
In a letter to the Fed, PayPal takes the position that – not only is it not a debit card or payment network – it is a large merchant of sorts. Like merchants, PayPal pays credit card companies a fee whenever it processes a transaction where the PayPal account is tied to an underlying debit or credit card. PayPal also pays banks fees for processing credit card transactions, said a spokesperson.
“The networks consider us a large merchant,” said Sara Gorman, a spokesperson with PayPal. “We pay the same fees that merchants do.”
However, like a payment processor, PayPal makes money by charging merchants fees on each transaction. Fees very from 1.9% to 2.9% of the entire transaction, depending on the volume of business a merchant does with PayPal, and a $0.30 flat fee per transaction.
via: http://www.cnbc.com/id/42916668/
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Glad I am not a shareholder. If I was, I would sell.
Really? I don't think this is a big deal. Most boards will usually have one or two people who bring significant political connections which can be pretty helpful, especially if you have to do anything abroad. Political capital can be valuable.
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Hi guys, I wanted to know how you guys tackle Rate of returns between different companies in the same field. For example, the Modigliani–Miller theorem states that two companies with different capital structures should trade at the same level. Are you guys using ROA instead of ROE? Or are you factoring the leverage in another variable?
BeerBaron
I don't think ROE or ROA would be good metrics to look at in this case because you can have sub-optimal cap structures which would lead to widely different numbers (e.g.: sitting on too much cash or if you buy back a ton of stock your equity base will be low making ROE appear super high).
Probably better off looking at a more cap structure neutral metric, EV/EBITDA or similar.
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Hey I just saw this. Thanks for letting me know. Not too sure what's going on, must be related to my web host. I'll check out what happened tomorrow morning.
Just a heads up though: I would not expect any new content from me. I might do some book reviews or interviews down the line, but I recently joined a great team http://www.gmo.com/America/About/People/_Departments/AssetAllocation.htm so my work leaves pretty much no time for blogging.
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or you could just read the comments and see:
"I highly doubt this is true. There is one thing not being considered in the study, and that is facebook now uses HTTPS, which doesn’t pass referral information to the target site."
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CV Starr had a China office, a lot of help that did.
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What don't you understand about muni bonds? Look one up and start thinking like an owner.
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Shouldnt you have an idea of what a company's fair value is before you buy it? Your question is akin to asking other people to do your own homework. How can you improve as an investor by doing that?
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I still stand by my original argument, which is investors should all but completely ignore market/asset-class valuations, as long as they find a company with a margin of safety.
I don't disagree with your argument of looking at individual stocks within overvalued asset classes. What I disagree with is using Warren Buffett's investment in REITs at a time when the NASDAQ was overvalued to prove your point, because that does not prove your point. Rather, it confuses different asset classes.
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Hi TariqAli, I am a big fan of your blog http://streetcapitalist.com/, I appreciate the reply to the thread.
I got to be honest, I don't think I understand your criticism. Are you saying that, using my Buffett factoid was a misinterpretation of buying cheap stocks irrelevant of overall market valuations because REITs are assets that don't follow the overall index? Therefore, Buffett only bought those REITs in 2000 because he thought they wouldn't be dragged down when the overall market got re-priced?
Right, REITs are a separate asset class. Small cap stocks might be one asset class. REITs might be another. You might compare the returns offerered by both to make decisions on where to allocate capital, but it would be incorrect to use the valuation of an equity index, such as the nasdaq, to tell you whether or not REITs are cheap or expensive.
So using Buffett, he was not choosing to ignore the market. Instead he ignored the market for one asset class in favor of the market for another asset class.
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Actually you are making a mistake, REITs are not the same as ordinary stocks, so the index that you would value them against would be different.
See the following post:
In January 2002, Inker had 8.7% of the fund's assets in REITs, because the firm estimated that the asset class would return about 9.1% per year in real terms over the next seven years. By Dec. 31, 2005, however, the fund's real estate exposure was less than 1%, when the firm estimated that the asset class would return negative 0.6% per year for the next seven years. The GMO fund had less real estate exposure than did the PIMCO fund in the spring of 2004, but they both cut their exposure dramatically at roughly the same time. The GMO fund currently has no real estate exposure.
http://advisor.morningstar.com/articles/printfriendly.asp?s=&docId=20355&print=yes
So they are actually considering them an entirely different asset class.
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How important do you all think that modeling skills are? Or should I say, how advanced should modeling skills be? The advice that I have gotten from several value investors that I highly respect is that the modeling is probably where I should focus the least amount of my time. The majority of my time should be spent reading (both books and financials) and getting a better understanding of businesses. I'm under the impression that the "valuation" should be a fairly simple process and most of the folks that I talk to don't put a lot of weight on complex dcf models. I have a Wall Street Prep program but didn't finish as I felt my time was better spent elsewhere.
What are the thoughts around here?
Most value investors, especially experienced, veteran investors profess to spend almost no time modeling. And I think that’s true. But just because they don’t spend time modeling, does not mean you should not spend time modeling. I think everyone should do it, just to learn it because its one of the easier aspects of investment analysis to pick up. You can literally put in a few hours and practice to get good at it and then move on to the harder stuff.
I think there’s a few good reasons in its favor.
1. It teaches you the dynamics of accounting and finance:
Putting together LBO models or 3 statement models can be really really helpful. You basically end up learning the dynamics of a company’s capital structure (especially diverse, more complicated structures) and how the cash flows of a business move through the different line items on the financial statements. This is incredibly helpful. It’s one thing to read the 10K of AutoZone, it’s entirely another thing to spend time where you play around with different projections in the line items of the business and see how they affect the end result. You end up learning about how to really quantify the different aspects of the business and once you’ve modeled a lot, you can start doing much of the work in your head and outside of excel.
Everyone talks about how they don't use DCFs and really, a DCF can kind of be done in your head via multiples. The thing though is that the CF in DCF is derived from what's going on with the business. Simply taking current FCF x 10 might not tell you too much. Think about what Eddie Lampert did with AZO, where he pushed the company to extend AP out to increase cash flow (since working capital was decreasing) and use the proceeds to buyback stock. This is the sort of situation where a rear view look at what is happening with just 1 year's number does not really help, but being able to model it out and project this sort of possibility can help out tremendously.
I honestly think modeling is a lot like a hands on way to learn accounting. The biggest thing is to just not get any false confidence in your models. Understanding their limitations is a big part of this.
2. It allows you to analyze complicated situations:
A lot of guys on here are fine sticking with small, easy to understand companies. But if you ever have aspirations to really make it big and invest in areas that cannot be supported on small sums of capital, you’ll likely need to start analyzing complicated situations. Again, here, modeling helps because you end up taking something which might look complicated and hard to analyze and break it down into understandable pieces.
I’m reminded of the time Michael Burry spent analyzing mortgage backed securities and the great opportunities he found in CDSs (which were later used by Fairfax). That’s a case where it really paid off to go and spend time on things that are more complicated. I think as time goes on, the easy value plays are going to be arbed away as more and more automated trading systems hit the market. As a result, being able to properly analyze a special situation would be really helpful and might necessitate some modeling or at least an ability to analyze complicated corporate events.
3. It makes you more employable:
For people who are hoping to break into the investment business, modeling skills can be pretty key. There’s a reason that a lot of the top value funds end up making new hires folks with backgrounds in investment banking -- it’s partly because those guys already know how to model really really well. At most funds the jr analysts do more number crunching while Portfolio Managers focus on big picture thing/qualitative analysis of companies.
I don’t really think there is anything wrong with this approach. I know some of you disagree and think it’s a waste of time, but if it gives you the chance to get to work closely with great investors, who have been in the field for a long time, why not do it? Being the number cruncher gives you an opportunity to add value to them and you are getting a lot of value by being able to work closely with experienced investors.
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Ultimately Shane it's a numbers game. Breaking in requires just a bunch of interviews and a good dose of luck. In the meantime, work on beefing up your analytical/accounting/financial modeling skills.
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Newsletters as an amateur are bad ideas, you should not want ideas to be spoon fed to you, you should actively seek to improve your own knowledge and process when it comes to investing so that you can generate and evaluate ideas on your own.
You're much better off spending the money that you would spend on a newsletter on some excel financial modeling courses.
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Elliott Associates. By a wide margin.
http://en.wikipedia.org/wiki/Elliott_Management_Corporation
"NEWS CLIPPINGS ABOUT Elliott Associates suggest that it is a super-aggressive vulture investor. It picks fights with major corporations (Procter & Gamble), US federal court judges (in a high-profile asbestos case), and even entire nations (Peru). Anne Krueger, the first deputy managing director of the IMF, has denounced the fund, alleging that it has undermined the entire structure of sovereign finance.
Ask its investors about Elliott, though, and you'll get a very different story. Over the course of its 27 years of managing money, Elliott has never returned more than 25% in any given year; its compound annual return is a respectable 14.1%. The fund is so cautious that some investors left during the stock market bubble, seeking higher returns from more aggressive managers. They generally returned, chastened, after the bubble burst."
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The professor does make an error in saying that Greenblatt uses P/E (he doesn't)
The professor uses low P/E which is basically the same thing.
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Funny, just browsing this at b&n
Rank stocks on 1) earnings yield and 2) return on equity.
Ranking of 1 is highest.
Add both rankings together, take top lowest scores (I believe 30 stocks)
Can anyone do this quickly and post some names?
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Trenta looks like a good option for unsweet iced tea drinkers such as myself.
No calories, fats, sugars to worry about with a drink like that.
New Steak'n Shake Prototype Store
in General Discussion
Posted
really positive review of the new Steak N Shake in NYC:
http://aht.seriouseats.com/archives/2012/01/new-yorks-first-steak-n-shake-opens-tomorrow.html
If this is true, they might be onto something -- basically leveraging the brand to come out with a Shack Shack competitor, seems like a good idea.