Patmo
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Posts posted by Patmo
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Fondle it. ;)
Are we still talking about cash? ::)
Why not both?
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Also I highly doubt this ever goes through revenue, it should be a separate line item. Maybe there's exceptions, like maybe if it's the business' primary operation to hold FI's or something, I don't know.
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Sorry to ask this seemingly dumb question. I did a bunch of Google search but can't find the answer.
Does anyone know if Mark to Market account impact revenues in anyway? I read a few explanations and none mentioned revenue impact. :-[
Is there any entry like "trading losses" or "trading gains" on the income statement?
See IAS 39 for rules on recognition of financial instruments for IFRS. http://www.iasplus.com/en/standards/ias/ias39
The following two sections are probably the most relevant to you:
Financial assets at fair value through profit or loss. This category has two subcategories:Designated. The first includes any financial asset that is designated on initial recognition as one to be measured at fair value with fair value changes in profit or loss. Held for trading. The second category includes financial assets that are held for trading. All derivatives (except those designated hedging instruments) and financial assets acquired or held for the purpose of selling in the short term or for which there is a recent pattern of short-term profit taking are held for trading. [iAS 39.9]
Available-for-sale financial assets (AFS) are any non-derivative financial assets designated on initial recognition as available for sale or any other instruments that are not classified as as (a) loans and receivables, (b) held-to-maturity investments or © financial assets at fair value through profit or loss. [iAS 39.9] AFS assets are measured at fair value in the balance sheet. Fair value changes on AFS assets are recognised directly in equity, through the statement of changes in equity, except for interest on AFS assets (which is recognised in income on an effective yield basis), impairment losses and (for interest-bearing AFS debt instruments) foreign exchange gains or losses. The cumulative gain or loss that was recognised in equity is recognised in profit or loss when an available-for-sale financial asset is derecognised. [iAS 39.55(b)]
There are other classifications and naturally, millions of rules/exceptions, but these should be most relevant to your question. IFRS 9 will replace IAS39 in 2018, and makes things a little simpler (See http://www.iasplus.com/en/standards/ifrs/ifrs9 for full standard):
Equity instrumentsAll equity investments in scope of IFRS 9 are to be measured at fair value in the statement of financial position, with value changes recognised in profit or loss, except for those equity investments for which the entity has elected to present value changes in 'other comprehensive income'. There is no 'cost exception' for unquoted equities.
'Other comprehensive income' option
If an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at FVTOCI with only dividend income recognised in profit or loss. [iFRS 9, paragraph 5.7.5]
And then FASB (GAAP) JUST issued an update effective sometime in 2017 in relation to this topic. I'm tired of writing this post so here are just some quick links:
http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498 for a list of ASU's (accounting standard updates), the one you are looking for is the only one issued in 2016.
http://www.pwc.com/us/en/cfodirect/publications/in-brief/fasb-classification-measurement-final-standard.html An explanation of this update by PWC.
And then https://asc.fasb.org/ for the current standards, you can create a free account and access all of the FASB standards. For Financial Instruments go Broad Transactions -> 825 -> 10.
The GAAP standards seem rough to make sense of... See this PWC quote for what it appears will happen with this new update:
All equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. -
Cash is king, winner takes all!
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Here's a basket of commodity-influenced picks ranging from extreme cheap to pretty cheap, I own at least a little of all of them:
CNX CONSOL Energy Coal/Gas Coattail Einhorn, see presentation
SXC SunCoke Energy Metal Coattail COBF, see forum topic
INP Input Capital Canola Reasonable price, promising business model means strong upside/low risk, well capitalized (Coattail many sources)
MND Mandalay Resources Gold/Silver Value-style + low cost operation, safe, 3x EBITDA near low end of cycle
KRN Karnalyte Resources Potash EXTREMELY cheap, slightly better than average project, needs large development financing (in discussions + rumored offer on the table)
MCR Macro Enterprises O&G pipes Safe, growing business trading at 50% liquidation value
I have a couple more but this board would be even less interested in them ideas than those in this post. Hope you guys like
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In general, I am sympathetic to some of the views shared by others in this thread - that things are getting cheaper; that you are massively net long; that you don't short, etc. I respect that, especially if you're investing your own money, not other people's money. If you've been tasked with managing other people's money and are paid for doing so, then I would say that it behooves you to spend some time thinking about how to position to address the significant probability of a bear market up ahead. Everything else is just lazy.
I manage some family members' money, I just do the plain old vanilla value portfolio management strategy of allocating cash to equities if I think the market price is dislocated from underlying value, holding cash otherwise. It's a natural hedge against bear markets, as in an overvalued market there will be less money allocated, etc etc you know the idea. Maybe it's lazy but it works, and why not KISS. Working hard makes you look good but doesn't bring any other value as far as this topic goes imo
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Its a lot harder to pick tops/bottoms then it is to find good companies priced at fair to (getting to good) prices. Im 100% net long and adding every month but also have ~30 years to retirement age.
I find it a lot less complicated to do this then figure out all the working parts of an economy and where it is going. How do you guys get to the point where you think you are able to predict/estimate this with a reasonable degree of certainty?
Don't predict anything, just study companies and buy things when they are clearly too cheap compared to their value. If stock goes down you get the option of buying more if you feel like it, simple process but not easy. An already cheap company could still go down 75%, that could mess with your head but that is why value investing is successful in the long run, it is very hard emotionally and lots of work if you are sharp/not lazy
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I would invest with Michael Burry/Scion or Seth Klarman/Baupost
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I own what now amounts to somewhat of a basket of commodities or commodity related companies:
-A gold/silver/antimony producer
-An O&G service business
-A Natgas/coal producer
-A canola farm financing company
-A potash project
-An appliance recycler (dependant on scrap metal prices)
-A Mongolian RE company (indirectly dependant on Mongolian mining)
I have no illusion that everything will work out but those that do should more than make up for those that don't. No special detailed analysis like the WS experts on this board, I just look at the big picture and the price I pay, if I feel comfortable with the risks in place versus potential rewards, I spare a few $ for the cause
My largest commodity position (and overall) is the O&G service business so that's where my oil allocation mostly is at. 20% of portfolio, a little too heavy for my liking but I had to average down because it got nonsensically cheap and is relatively safe (a growing, well managed business trading at 1/3 of liquidation value lol)
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This company is now trading at 1/3 book value and 4x the average earnings of the past 4 years, as well as near all time low territory. This business is a bit of a crapshoot, it randomly posts amazing and shit years over time. Since 2007 the company averages $450k in net income, but swings from -4mil to +4mil. At any rate, the business grew pretty well under Jack Cameron, so it might be a positive catalyst that he got the retirement jitters and threw his hat back in the ring.
Reasonably positive developments would make it a 4-5bagger within the next few years. Given the risks involved I'm ready to throw the dice at this juncture, a small ball size. I may attempt to trade around on it if I see an opportunity, I've been meaning to try that out.
Anybody else?
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When analysing oil producer, I always come back to this same question? Is amortization and depreciation a good proxy for maintenance capex (i.e. Capex required to maintain production rate in the long run)?
Yes it's a good proxy, but it's only a proxy. Still, chances are really high that d+a will be closer to true maintenance capex than what management might tell you or what you can conjure up with homemade gimmicks...
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Hey guys,
I have hit an accounting roadblock that I can't seem to get my head around. Can someone help?
If we have a company that provide long term services to customers (say 3 or 10 years) which are paid upfront in cash, but recognize the revenue and incur expenses ratably over the life of the services....how should one think about the cash balance? Say the company operates in a 90% tax regime (always good to push theory to the limit to test it).
I would think the EV of the company is artificially low because that cash in the balance sheet is needed in the future for expenses and tax outflow. If the company has a 100% margin...dont we have to cut that cash balance by 90% (tax) as that cash is not actually excess and is required?
How would it impact the 3 statements? Is it sort of like an off balance sheet liability?
I would really appreciate some insights as there is this company that has such a characteristic and I can't seem to crack it.
I think about it like this. I count cash collected as real cash. The company can spend it or do whatever it wants with it. Then when I look at deferred revenue, I almost ignore it. While it is a liability because the future services are owed to the customer, It's not like debt where it has to be paid off with cash. Owing services and owing interest and principal are very different. For example, take Rosetta stone. It has deferred revenue from it's software and recognizes the revenues with the memberships expiring. If the company you're talking about isn't as asset light as a software company and has service contracts that require expenses, i would probably adjust for future earnings to be lower to account for the added costs required to provide the owed services. Either way, cash up front is great for the business.
For fair comparison wouldn't you have to also adjust your denominator to add the revs and remove the exps that this cash will incur? Otherwise it's like comparing apples to oranges, kind of like comparing EV to NI. It would get pretty complex when you can just add back unearned revs to your EV and call it a day, no?
Then you would have to also treat prepaid expenses in opposite fashion, I guess? Probably not, for conservatism purposes?
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West Coast IPA with Citra Dry Hop
Double Stout infused with vanilla
All homebrewed.
BeerBaron
I see you chose your name meticulously. Sounds very yummy. I tried brewing out in my teenage years, I was so bad at it the beer was nearly undrinkable. Obviously being teens we didn't waste a single drop anyway...
Might I suggest you try out a Tankhouse Ale, from Mill St Brewery out of Toronto. So far I've only ever met 1 person at a beer festival who enjoyed it, like me he'd have everyone he knows try it out. It turns out nobody likes it but the both of us who think it is nature's greatest gift to the world. A very polarizing beer I guess, might be worth trying if you ever come across it.
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FASB is comprised of a highly intelligent group of accountants who have to come up with accrual based accounting for tons of scenarios and if you have ever read any of their proposals/rules you would be very careful to challenge them. They are independent and have deep accounting knowledge (unlike mgmt) so don't write off the GAAP rules quickly.
The obvious challenge is that FASB tries to make accounting objective when it is actually subjective:
“…accounting [is] the language of practical business life. It was a very useful thing to deliver to civilization. I’ve heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double-entry bookkeeping was a hell of an invention. And it’s not that hard to understand. But you have to know enough about it to understand its limitations - because although accounting is the starting place, it’s only a crude approximation. And it’s not very hard to understand its limitations. For example, everyone can see that you have to more or less just guess at the useful life of a jet airplane or anything like that. Just because you express the depreciation rate in neat numbers doesn’t make it anything you really know
-- Charlie Munger
The more relevant you make your depreciation info source, the more costly and/or unreliable it becomes. Accounting bodies are just trying to make the best of an imperfect world, often having to choose the lesser of two craps. Munger's quote is an appreciation of that fact, not an attack on accounting bodies' competency.
A little bit less relevance of information (not even that much, really, SL depreciation has been shown to be a pretty sturdy proxy in general AFAIK) is a small price to pay for a cheap, simple and reliable process. Keep in mind USGAAP also allows the depreciation of cap assets by units of production, which is a halfway-type compromise, but nobody uses it, and there's a reason for that.
How would you personally improve on FASB's standards?
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patmo, I get that you don't like hearing quotes from Warren Buffett, but you surely must know how to spell his name by now.
Did you see the fees they charge? Dang!
What do you mean? Bufet only takes one F?
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Another problem with going from close to 100% invested to 80% cash and back to 100% invested is taxes that are incurred in the process by the investors. I would like to see the after tax returns of this fund vs. an appropriate index.
In addition to the tax implications of going from invested back to 80% cash, is that for the first 8 years they invested mostly in T-bills so most of their returns in those years would be ordinary income (based on US tax rules).
It is hard for me to understand why someone who is primarily focused on preservation of capital would choose Patient Capital over BRK. While BRK has had greater volatility, it has meaningfully outperformed PC, and after taxes would have materially outperformed. Obviously it must be the unwillingness to stomach volatility.
Some very good points---tax efficiency of any fund certainly needs to be considered however perhaps this is less of an issue if the fund is held within a tax deferred account of some sort.
As for simply going with BRK over the PC fund--- this is a possibilty however being a Canadian resident the added issue of the FX exposure (which I briefly touched upon earlier in this thread) adds a level of complexity that needs to be taken into consideration when considering BRK. Perhaps for a US based resident the "go with BRK" decision is much clearer.
As for the ability to stomach volatilty---a very valid concern---I currently self manage my family's portfolio (my wife and me) and I can safely say it is VERY concentrated in a few select names. Volatility is truly something I do not concern myself with. Nonetheless---I raised the possibilty of potentially having my wife use Patient Capital as her investment manager should something unexpected happen to me because of that firm's focus on capital preservation and the low volatlity of its results.
I help out a couple family members and a friend and I essentially have them on the same book as mine, only they are thinner. I really don't want to build up 20%+ positions on anything at all for them. I wouldn't even do that on a name like BRK. I know I can stomach the ups and downs and I know that they trust me and can handle tough roads themselves, but I would feel irresponsible to do it. The risk of my being wrong on a big position and taking a dump on their future is not worth the potential gain. It's just a different thing to handle someone else's money vs. your own, at least that's my opinion.
Not that I condone hoarding 80% cash for a decade straight though....
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How much do they charge?
5/44 from the wikipedia page, but the source link doesn't work so take that with a grain of salt
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Maida's profile from Feb 2009:
http://www.macleans.ca/economy/business/patience-pays-off/
Vito Maida is arguably the most stubborn money manager on Bay Street, and he has paid dearly for it. A decade ago, when he was lead Canadian portfolio manager at mutual fund giant Trimark Financial Corp., he insisted soaring Canadian bank stocks were overvalued and stayed away from then-hot Nortel Networks. Instead, he invested in unpopular commodity stocks and gold. Investment advisers called for his head and pulled their clients’ money from his funds, and he was fired. Then the Internet bubble burst, Nortel crashed and commodities soared in value.
So Maida started his own money management firm, Patient Capital Management, based on the premise you should never, ever lose your clients’ money. For more than eight years, he kept 80 per cent of assets in government treasury bills, holding steady to the belief everything else was overvalued. As the TSX posted double-digit returns from 2004 through 2007, Maida earned between three per cent and seven per cent a year. Business was depressingly slow. “It was tough to sell a product that was 80 per cent cash,” Maida says.
80% cash is nothing new for him.
Damn! Can't say he didn't earn his name!
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Did you see the fees they charge? Dang!
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I think Tim is correct and Patient Capital is using the wrong benchmark. If Patient Capital were 100% invested in large cap stocks over the period of investment, then his record would be outstanding. However, he was not. The correct benchmark is closer to a balanced fund. In that case, Vanguard Wellington with a expense ratio of 26bp returned 314% vs. Patient's 305%. The 1.25% of fees per year turned this from a slight outperformer @ 320% (with the same fees as Wellington) to a laggard (where more than the excess return went to the manager). The 1% fee difference compounded is about 15.5%. Given that we are all know that value funds on average outperform the market, you could have bought Vanguard SCV and had a return of 446% over the same period. For most US value funds, I think this is the best benchmark, since we can all invest in it with a cost of only 8bp. In this case, it is great for the manager not so good for the investor.
Packer
I would be more confident putting my money into Patient Capital though. If I am a forced hand when the crap hits the fan, I will not have tanked with PC. If anything they exhibit exemplary fiduciary behavior. I'm not one who shies from variance but I think it matters a great deal when you're managing OPM.
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Thank you, I've had too many discussions these past few months where success is always discounted to luck. It's pretty aggravating that so many people refuse to acknowledge success of any kind anymore...
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Dimon said on the Q&A a couple of days ago he thinks JPM within 2 years will see better environment with regulators and they have have a premium PE in 4 years.
He sounds exhausted with Justice Department.
Do the government a favor and then take a pound of flesh for 6 years.
Hopefully he is right and in 2017 the taking of flesh will be largely done.
Banks will definitely have vastly higher P/E ratios in 2-4 years but we have to keep in mind the ROE the regulators will allow them to earn. If one forecasts an ROE higher than the low to mid teens, I think will be overly optimistic.
They'll keep going after him as long as Jamie Dimon acts like Jamie Dimon imo...
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I'm not exposed to enough accounting and (somewhat unbiased) economic news as I'd like. Inevitably, the way we record financial information and general economic trends affect our rough estimate of intrinsic value for most companies. This board has several great discussions about some of these topics but I'm looking for a news source that comes out periodically. I read Bloomberg Businessweek on a weekly basis but it doesn't cover those topics as much as I'd like. So sum up here's what I'm looking for:
Accounting
-What new standards and rules are coming out?
-What rules/standards are being proposed and how far long are they in the process?
-Are there any major shifts in recording data under the current rules? For example, are lots of companies in industry "x" going from LIFO to FIFO?
Economics/Broad Finance
-Reader's digest version of BLS, Fed, and ECB releases.
-What's going on in banking that matters? New rules, regulations, structural shifts, etc.
-What's going on with LBOs, M&As, VC firms, bankruptcies and other financial transactions? Are they moving to larger or smaller companies? Are they moving into specific industries?
I know that some of these points are pretty broad. I'm not looking for just two periodical information sources. I want things that will hit on these main points but won't be 500+ pages of reading per week. Right now I'm finding bits of pieces of information on these from various major sources (WSJ, Businessweek, Economist, FT, etc.) but I have no stable news sources that repeatedly hit on these points.
Thank you!
That depends what standards you're looking for... iasplus.com is what I would recommend...
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Karnalyte Resources
ARCI - Appliance Recycling Centers of America
in General Discussion
Posted
This company keeps putting out press releases just to say that business is going real well. A while ago they were talking about picking up a defunct competitor's customers, now they're saying they straight up can't keep up with demand. The market believes 0 of it, could be a solid buying opportunity. What do you guys think?