mvalue

I can't imagine HYG would have a comparable composition/price level of underlying holdings compared to 2011, so I think that doesn't have a great deal of meaning. Probably better to look at credit spreads and HYG holdings' prices relative to par.

Are you a lawyer? A fund salesman? Neither - just a person who knows how rare that kind of talent is. And also just making the point that looking at +20% as making decent money this year is a sort of crazy standard.

Anyone who thinks 20% regularly is no big deal with 1m+ and has the record please get in touch with me and I'll get your fund set up.

IBKR was my thought except that it's arguably been "proven" through a recession in contrast to his description...

I doubt he'd disagree with you that there are exceptions. I think his point is that majority of companies are borrowing money to buy back expensive shares. When downturn comes they might be hit with double whammy: stock drops but they don't have money to buy back cheap shares and they have to pay interest on debt. +1 Clearly some companies maybe borrowing prudently. By and large however, these companies are acting irresponsibly and will face consequences down the road. My guess is 2-3 years. Can someone here give example(s) of companies with low returns borrowing at high rates to buyback shares? Of course not - any company paying nominally high interest rates in this environment is distressed and not in a position to use those funds for buybacks. The question is how the prices being paid for repurchases will look a few years out. If you borrow at 2% and buy stock at trading at 20x it's ostensibly brilliant and highly accretive. It doesn't mean it will prove so later - it might or might not. Cheap funding is a boon if the prices being paid are good. If cheap funding just drives prices higher, it might not be such a blessing. On average are we clearly at least into a grey area if not worse. Ok let me rephrase. Can someone give example(s) of companies where 1/PE - i is dangerously small. where i is the borrowing interest rate. In other words, what companies will be the first to blow up in 2-3 years when it does happens as the OP predicted. I can't speak to companies going bust, only to the risk of aggressive/poor capital allocation going on. I don't think the spread between borrowing rates and 1/PE is going to be a very good way to identify those companies. It is more likely to me that cases where the spread looks most superficially appealing might be the most prone to overdo and overpay. Think of companies buying stock today at 20x on what might prove to be cyclically high earnings. Imagine in 2019-2020 that debt has to be rolled over at much higher rates, the stock is at 15x, and earnings growth over the full period has been modest or zilch.

I doubt he'd disagree with you that there are exceptions. I think his point is that majority of companies are borrowing money to buy back expensive shares. When downturn comes they might be hit with double whammy: stock drops but they don't have money to buy back cheap shares and they have to pay interest on debt. +1 Clearly some companies maybe borrowing prudently. By and large however, these companies are acting irresponsibly and will face consequences down the road. My guess is 2-3 years. Can someone here give example(s) of companies with low returns borrowing at high rates to buyback shares? Of course not - any company paying nominally high interest rates in this environment is distressed and not in a position to use those funds for buybacks. The question is how the prices being paid for repurchases will look a few years out. If you borrow at 2% and buy stock at trading at 20x it's ostensibly brilliant and highly accretive. It doesn't mean it will prove so later - it might or might not. Cheap funding is a boon if the prices being paid are good. If cheap funding just drives prices higher, it might not be such a blessing. On average are we clearly at least into a grey area if not worse.

Absolutely - not sure where people get the idea that everyone has to be out of their minds bullish for a downturn. I will never forget Bill Miller and Leon Cooperman near mocking the worriers in 07. On the other end, plenty of smart people knew the late 90s were nutty and said so.

I wouldn't fall in love with this thesis or work too hard on looking for anecdotal measures of euphoria - when we have viewpoints we tend to latch on to the confirming. Shark Tank has been on for several years, so I don't think that's instructive of anything. That being said, you will get a lot of pushback about valuations being reasonable. They aren't. Everyone and their uncle is trotting out a "reasonable" 17x forward, operating multiple on the S&P because 17 sounds ostensibly ok. They ignore the fact that forward operating multiples are not comparable to true PE multiples and should be very low. 17 for that multiple is a rare occurrence, even in the relatively high valuation period of the 90s and 2000s. This puts aside all issues with current earnings margins/ROC vs history - I don't think anyone has a firm grasp on whether or when those could revert. Worse than this is that unlike the late 90s/2000 it's just hard to put together a solid portfolio with disregard for overall market valuation. Low quality stocks have high multiples, too. What was once 9x "value" might be trading at 12, 14, or 16x. 2000 was much better in this regard, because small cap value was very cheap and ignored. You could easily put together a portfolio of decent quality companies at single digit multiples. The rub was you could easily turn in NEGATIVE performance in 1999 when the market was roaring. Analytical slam dunks were there but the psychological pain was immense. I also take issue that every analyst/publication justifies current valuations by comparing to 2000. Who cares? Of course valuations can be overdone without topping 2000. Just because we're nowhere near a once in a generation madhouse euphoria doesn't mean prices aren't high. People like Nate (oddball) will note you can always find deep value lurking. I completely respect this viewpoint but am speaking to stocks larger than that for those who won't or can't take meaningful positions in the super illiquid. I think once you move out of that realm it is very hard right now.

https://us.spindices.com/indices/equity/sp-500 Click on the "Additional Info" button and select "Index Earnings"

I remember how obvious it was in 2009 that higher inflation was an imminent unavoidable hangover from all the Fed juice. It was painfully obvious. Everyone smart you could look to said so, too. No one knows what will happen. It's true that all else equal if rates stay low for a very long period the market is not clearly overvalued, and certainly not relative to other asset prices. Unfortunately all else is never equal. Further, if you knew what rates were going to do you could make a ton of money on that information without having to bother with the stock market. Edit: to clarify, this means justifying 16.5x ebitda because of rates is questionable to me

Hmm.. Correct. Also Greece is not supported. Do you think Fidelity is ok for a hedge fund? I know fairholme fund uses Fidelity. I heard IB has an automated reporting sheets that makes hedge fund reporting to clients super easy. Not sure if it is true and not sure if Fidelity has that same thing. Why use Prime brokers? They will be much more expensive than discount brokers like Fidelity and IB. What kind of advantage are you expecting from them? IB has great functionality. I think the major reason is once you get into raising money many people will simply not accept IB. They want to see a big name custodian (Goldman, Pershing, etc), period. If you have an investor base of individuals who don't mind it's the cheapest and possibly best route, though.

I don't fully understand the buybacks->eps growth->valuation chain as presented here and recently on the Philosophical Economics blog. If all companies reinvest their profits into buybacks EPS growth will surely be higher than a historical figure, all else equal. But you're also not getting those dividends and therefore your theoretical discounted payouts from now to eternity are pushed further out. Say you own a widget making company that can reinvest profits in more widget making machines at 5% ROC. Also say you can find alternative investments that yield 5% if you receive dividends instead. Is the widget company worth a higher multiple because it decides to reinvest, grow earnings, and not pay out a dime (some tax efficiency aside)? Would it warrant a lower multiple if it retained no earnings and paid out all profits? In aggregate aren't buybacks essentially this - investments that produce returns that will just equate with what investors in aggregate could/would do with dividends?

Seems so odd to single out bloggers given that he was pretty unequivocal about that stuff.

"When my grandfather died, they used a trust to transfer the shares to Bill Gates." The human mind at work...

I was about to say the same. I think Klarman doesn't say anything revolutionary at all, and I think that is Nate's point. You read his book, and here his interviews, it's all basic stuff.... good but basic, for sure. But I'd argue that he is probably the most inventive manager I'm aware of. Foreign stuff, Russian stuff, direct ownership, private equity, joint ventures, credit default swaps, gold options, interest rate hedges and spread bets, on and on. And that's just the stuff we know of! I also respect him because he seems to be the most nervous / paranoid investor, as said above, with tons of cash, but he still finds enough stuff to make his returns good. I mean he's done this for 30 years, never down more than 5% in a year I think. His 1990 letters are amazing in how wrong / conservative he was and how much opportunity lost he had... yet still, the results were good over time (10+ years) beating any relative benchmark you want to use. But agree, what he says is simple, "obvious" stuff. I agree that his ability to produce results with extreme conservatism and macro gloom is unparalleled. One item to note is Baupost actually drastically underperformed the S&P from 1990-2001 - more than 10 years! He didn't waver one bit and obviously blew past it later, which is all the more remarkable, but his mindset definitely can lead to prolonged periods of relative underperformance.