mvalue

I would love any other input on guys like Tepper and also Larry Robbins of Glenview using S&P operating earnings for PE multiples to justify being bullish. Regardless of where these guys diverge from classic value investing, they clearly have fantastic track records. In my experience forward operating earnings are almost ALWAYS mid-teens and don't mean shit. Yet, Tepper seems to play the market like a fiddle. Is it because they know the crowd goes for forward operating PEs and will trade based on their view of that?

Looks awesome! It looks like for the companies I tried it's available through Q3 2013 filings - how long is the lag to be able to access current data (through Q1 2014)? Thanks!

1x in the last seven years is trouncing all benchmarks by an insane margin - I don't know many over $1b funds that don't short that did better.

At the end of the day you can argue polar opposite answers to this question with a lot of intellectual underpinning for either side. I'm someone who believes the markets would probably be just as good at turning the wheels of capitalism with a lot less liquidity/volume and that a marginal value investor (or marginal 10,000 value investors) should probably not credit themselves for being responsible for more efficient pricing. I do it because I like it, but I believe it doesn't add a damn thing to society. You can believe something different and rationalize it all kinds of intelligent ways. To each their own.

My personal impression of the psychology of the past few years (including some of my own!): 2009: Stocks were incredibly cheap, especially my picks. It was inevitable. 2010: Nice gains, but the pace has to slow and macro risks remain. Look at what smart guys like Klarman say. 2011: A new crisis. Just like Einhorn says, value investors can't just ignore macro. 2012: The market is looking expensive, but there are still bargains if you look hard enough. 2013: First half: The market is looking expensive. Second half: Bull markets can keep going longer than the typical myopic curmudgeon expects. 2014: Seth Klarman sure has flimsy logic. Why would anyone be so dogmatic? Cash is a headwind, just like Buffett says. Maybe the actual letter has more insights than the summary, I can't comment on it since I haven't seen it, but pointing out a bunch of business trading at very high valuations doesn't really draw a convincing parallel with, for example, the dot-com bubble, IMO. To be clear: I'm not saying these companies aren't overvalued and that you should invest in them. Just that the parallel he seems to be making isn't that obvious to me. Back in dot-com days, you had a whole index trading sky-high, and even old-economy companies were trading super high (Coca-Cola at 50x). But another important difference is that a lot of the dot-com companies were not real businesses. They had no customers and nobody had made money on the things they were doing before. They were truly tulip bulbs. A lot of the current high flyers have actual businesses and real customers. Maybe they are very overvalued, but if the price of Netflix or Tesla drops by 50% or 75%, the business will keep going, or others will take their place because what they're doing is meeting real needs and providing real value. Maybe they'd have to cut R&D and fire employees if they couldn't raise as much equity, but they can be profitable. Most of the dot-com companies had no other reason to exist than to IPO and extract money from delirious investors. Nobody had shown you could make money with what they were doing before, and after the crash, they almost all disappeared. Twitter might be very overvalued, I don't know, but it has real users and could make real money selling ads and sponsored content and such. If there's a big correction, it won't just disappear as if it had been just a mirage all this time. And if you aren't investing in these high-flyers, I'm not sure they have such a big impact on the rest of the economy that you should worry.. I guess if we invert, we could ask: Is there any period over the past 100 years when there wasn't a bunch of high-flying stocks? Probably a few, but I doubt the rest of the time it always meant we were on the edge of the precipice. A correction? Sure. A bubble bursting, leaving rubble in its wake? I don't really see it, IMO. There can always be big external shocks (a big war, whatever), but I don't think valuation alone is bubbly overall. Not that all this is worth much, but it's my 2 cents. +100 very insightful. I completely agree. Yes maybe Twitter and Facebook and LinkedIn are overvalued, but they have real users and have a viable business model. They are providing value to users and making money themselves. Everyone is so quick to make a comparison to the dot-com bubble, why is that? Why is it bad if we're in a plain old bull market? Why is everyone always so quick to call everything a bubble?

A farm purchased that long ago should have reached excess earnings way above 2% of that purchase price years ago

+1 on consistency and comparing to McDonald's. You walk into a random coffee shop anywhere and it's hit or miss on the product, experience, and speed. You know exactly what Starbucks will be and it's solid enough on all those to trump taking a risk on the unknown.

If working part time, consider forgoing carried interest - that's a high price to help run a friend's portfolio. If working full time towards establishing a business, eat the cost to have a securities lawyer help in structuring a formal partnership - it's not only good for your investors but you as well. Handshake deals are nice, but when things get rough it's best to have a written understanding of your professional role and terms.

Thanks for this info! Looks like it's a 1.5% management fee - is Li Lu using the Buffett Partnership fee structure...?

Success in one area leading to a propensity for grand wise man prognosticating... shoe-button complex! Peter Thiel isn't right, and neither is Ray Kurzweil.

From his 11-03-06 Columbia lecture (courtesy of John Chew) the longest period of underperformance vs. the market was 46 months. The second longest period was 39 months. He starts talking about it an hour and fourty minutes in if you have the video. If not, you may want to meander over to csinvesting.org :). I'm still not convinced on using the strategy blind at this point myself. And I've got about two and a half years worth of data now... http://www.formulainvesting.com/Results/US_Strategy/ shows it running behind after 44 months as of Dec 31, and likely almost 47 based on what I've seen of the portfolios YTD that isn't in that data (this strategy is much closer to the Little Book than the mutual funds). So looks like it's going to surpass that model losing period...

Yes! Very much so!

This is a different 3G, unrelated.

http://www.calculatedriskblog.com/2012/10/sam-zells-poor-forecasting-record.html

Chanos is saying that Dell has plowed billions into acquisitions to end up with the same level of earnings where it was before (which looking back is basically true) - which implies that from an earnings standpoint its high M&A spend is almost equivalent to huge hidden maintenance capex rather than growth capex as its legacy business gets less and less profitable. If it needed the same level of M&A to maintain the same results forever he might have a point. I am inclined to take the other side of that view, but it's worth thinking about.

Ford's IPO was in 1956

A business in runoff mode by definition is shrinking. MSFT has kept growing FCF and maintains supernormal returns on invested capital. Everything else about what can eventually displace Windows, Office, etc and by how much should be a top concern of management, but the magnitude and outcome at this point is only conjecture - it hasn't impacted the bottom line. When and if it does, whether you have a value trap or an opportunity might be harder to determine.

I think that was probably a joke that didn't get conveyed very well by article

Hey Myth I am with you that Amazon could do a lot with its stock, I just don't think what they are doing so far is along those lines - for example a big cash deal (Quidsi) or stock deals that are probably at very high implied multiples (Zappos)

I posted a message on this very issue on the other Amazon thread and was disappointed not to get any direct push-back there. The question is not only just staying in the game with books and other media, of course, it is how good that business will be relative to the current model. I think I disagree on the speed with which DVDs will disappear, but that's debatable. More importantly is whether under a new model or in new verticals Amazon has competitive advantage and consequently excess profits. Of course, if an acquisition has some sustainable advantage, the question becomes the price you're paying relative the value of that advantage. As for the article, I have never heard of buying up assets to keep them out of rivals' hands ending up as a winning strategy. If everything is loosely integrated that's great, but what is the advantage? Why will the return on capital for acquisitions be excellent? Being the Woolworth's or Sears of the Internet is a questionable goal, and I don't see the edge even if you pull it off in an elegant way with autonomous and creative divisions. For department stores and big box retailers, the advantage has always been more about local presence than buying power. True for Wal-Mart, too, although obviously buying power does matter somewhat there. That advantage is tougher to recreate on the Internet. We have seen fierce and ultra-rapid price competition (competitors matching prices within minutes), most recently with Amazon, drugstore.com and soap.com. When there was one Woolworth's in an area or one Wal-Mart, local advantage as a retailer was much more achievable. So maybe Zappos remains superb, but if everything is fairly loosely integrated I'm not sure how you arrive at having a dozen or more such successes, or why it's productive in the long run if you end up in bidding wars for any promising new competitor or niche operation. Think of it this way - imagine I'm starting Internet Retail Dominance Inc and raise $30 billion to do so. My strategy is to acquire any private well-run Internet retailers focused on particular niches, and to basically try to use good judgment to buy any and every excellent business in this area. Since I have so much capital, I can pay whatever I need to to make VCs and founders take my bid over others'. Where are the excess profits here, and why is it a good plan?

The short thesis on Amazon, beyond valuation, is about the media hole - their operating excellence has always been about media - books, DVDs, and CDs, and those are where they still consistently beat competitors on prices and earn outsize profits, too. The business of selling those in physical form is going away. More important than whether Amazon can grow and have significant share in digital sales is whether it will be a good business. Consider one of the biggest successes in this area so far, iTunes. It is not a significant money maker for Apple, and not just in relative terms - it is apparently just not the high margin business one might expect. For now, Amazon loses money for each digital purchase of TV shows they sell. How they will take share in this kind of business and also turn it into a great business from an owner's perspective is not clear. Apple doesn't have a problem with not making much money from this kind of thing. For Amazon, that model would be a big problem long term. Transforming the model of your core business quickly is heroic. Many "smart" teams have failed at it. The logic of simply transferring a competitive advantage is flimsy, and of course making a new one in a new space is always difficult, and Amazon should be on a near-level playing field there, its early start with Kindle notwithstanding. AWS might be growing its top line at 50%, but it is basically not significant anytime soon. If it is lucrative to the bottom line, there seem to be a large handful of competitors that could offer similar services just as well sooner or later. It does seem smart and could remain unique, but again, not meaningful. Beyond that - for apparel, international, and other tangible goods retailing - they should not be as good as Amazon's core media business has been, even if they're good for consumers. Buying Quidsi could be a great move, but Amazon already sells diapers, and with a "subscription" option. Maybe they can apply some buying power for diapers.com now, but Amazon's excellence in logistics wasn't enough to beat a fledgling competitor. Put another way, if Amazon could apply logistics and scale to new verticals and build a strong advantage in a variety of new areas consistently, they wouldn't need something like Quidsi. At a more granular level, the company whiffed on summer earnings, guided way down, and would have missed again in their third quarter if not for an equity gain recognized when they acquired the remainder of a partially owned business (Woot). Analysts all believe the earnings weakness is driven by "investments in the future from a position of strength" - this is partly true, as the top line was still growing at a blistering 39% in Q3. It remains to be seen what the real return on this spending will be, though, and the company guided Q4 sales growth between 26% and 40% and operating income between -24% and +18%. The huge spread on the latter was not widely criticized, but clearly it is not just driven by investing in the future (big, planned investments would be easier to build in to estimates for the forward quarter - probably not an explanation for such wide breathing room).

Without addressing whether Fairholme in particular is a good fit here or a good choice in general going forward, this kind of performance (-7% since Oct 07) relative to the S&P is far and away better than you can possibly expect from a relatively static plan for heirs. A minimal-effort absolute performance strategy is not so realistic, unless you happen to go all-in with one of the best investors of the coming decades, before the fact. If you pick out one or several good managers (be it via mutual funds or otherwise), the best you should really hope or plan for is net relative performance a few percentage points better than the S&P - and that's with the right picks for managers. That may not bring the same riches it has over the past several decades, but it should produce results that are just fine, all the same.

I think they are different - interesting to know about those though. 2012's CUSIP 8124JFAG1 I see offer with YTM about 24.5% 2012's CUSIP 812404BJ9 offer with YTM 24.9% and some others

Not a preferred, but has anyone dug up the gritty on Sears Acceptance notes? Any links or info would be appreciated.