KinAlberta

Heavily indebted governments around the world will see various global warming pacts and low prices as an opportunity to pile on carbon taxes and use the proceeds for all kinds of other spending. So don't count on great margins for oil in the future. Natural gas as a lessor of two evils, might be another thing.

It used to be a wonderful publication but I bailed on it years ago as other sites provided much the same 'guru' viewpoints and information for free - with some work and searching.

Cliff sounds like an amateur - that's not good for Cliff. “For a guy whose reputation rests on his investing in the stock market, that’s not good,” said Cliff Gallant, an analyst at Nomura Holdings Inc. “It’s been a tough year.”

from the link above: "I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life." —Warren Buffett, from goodreads.com. Can you keep up with five-hours-a-day reader Warren Buffett? Published: May 14, 2015 http://www.marketwatch.com/story/can-you-keep-up-with-five-hours-a-day-reader-warren-buffett-2015-05-14

I don't think they've changed their style very much over the years so you shouldn't be surprised at not seeing value where they see value. Moreover, not being happy with a company that has a falling share price is a very, very common condition - unless you are a value investor. So like you say, indexing may be the way to go in your case.

This market, and every other market since the beginning of mankind, has been manipulated in some fashion by market participants. In the case of oil, I don't think it is that hard to forecast the trajectory. Overproduction leads to lower prices, lower prices lead to reduced production and increased demand, demand begins to increase along with corresponding declines in production which causes tightening of supplies, and tightening of supplies eventually yields increased production. Although the pricing and volume may change, this cycle occurs consistently. So who gives a crap if Goldman starts pumping and dumping, or if the United States starts releasing oil from the SPR, or if a bunch of monkeys in suits get on CNBC and start prognosticating about the price of oil, or if Elon Musk blatantly and frequently manipulates his stock price through Tweets and other social media...this is just noise. The real question is whether or not you can make money in a manipulated market. As a small player with a flexible time horizon, I have a pretty good idea of when to put money to work in the oil cycle, and when to start taking it off the table. My timing is far from perfect (as evident by some of the red in my brokerage account from getting into certain names a bit too early in the cycle), but in general, I think I can use the bulls**t described above to benefit myself, and I think you can do the same. So instead of getting frustrated by the bulls**t manipulation, use it to your advantage to make some money. Well said. Both Cardboard and myself were real early in the oil game (see pwt/pwe thread). Actually a surprising lack of red in my holdings. It can be frustrating getting in too early - value investors curse, as you know. The cycle is normally shorter for oil - at least it seems that way but the view, here, in the fishbowl, may be obscured. I'm way in the red. I very often get in 'too early' and exit 'too late'. Beyond any kind of manipulation people underestimate the systemic forces driving down costs and so, competitive prices. The beauty of distress and bankruptcy sales of productive plant is that today's gone concern, can become tomorrow's "going concern". Then there's the effect that Buffett talked of with airlines, where bankruptcy protection allowed companies to undercut the pricing of previously soundly managed companies offering competitively priced seats. Bad money driving out good, I guess. Or, the good old deflationary death spiral. :-)

Three plus years on, Hussman continues his table pounding. (For many, many years now I've tried not to miss a weekly edition. I figure there's great lessons to be learned here for fund managers, investors, EMH believers alike regarding market forecasting and timing - and the disasterous results that hedging can heap on one. :-) ) Anyway... his latest commentary is interesting. It also highlights the time scales involved with any macro analysis. September 28, 2015 Valuations Not Only Mean-Revert; They Mean-Invert John P. Hussman, Ph.D. http://www.hussmanfunds.com/wmc/wmc150928.htm

In these discussions I think it would help if people explained what they see as IV and "worth". If holdings are market priced at some level above or below their own IV, then to some extent that market price is realizable value to BRK, if the holdings that can be sold at that market value. Otherwise that holding's earnings based value (and possibly a PC of estimated balance sheet value) should be used to value those permanent holdings and added to the IVs of other such permanent holdings.

BTW - This is me (Albertasunwapta)... http://www.gurufocus.com/news/146183/berkshire-hathaway-is-now-traded-at-the-lowest-valuation-in-decades#146504 Lol, what are the odds, poor guy. :D (It was 2000 btw and not 1999 but oke.) http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/brk-buying-back-stock-110-of-bv!!/20/

Thanks for coming to my defence. My talk of price floors and ceilings isn't my invention. At the time of the buyback, discussion boards and media alike talked about the 1.1 creating a price floor suggesting that BRK was a 'safe' buy at that price. Since people's idea of the long run is often at most only 5 or 6 years, falling for the idea that the price couldn't fall much further below IV seemed misguided. Basically, one reason Buffett has been successful is because of market pricing inefficiencies. So, while buying safely below IV should be the main consideration, non-believers in the EMH count on fear and greed swinging prices above and below IV. So at times some pretty pessimistic scenarios become more probable and some irrational pricing can thus become more probable. That said, people have to ask themselves now, why on earth is BRK pricing close to 1.2 vs fair estimates of IV? To me, there's a possibility that people are treating the 1.2 as a price ceiling and more like IV than a price with a good margin of safety built in.

Any thoughts on this: When Buffett first announced that BRK would buy back shares, people were saying that he was putting a floor under the price. My immediate argument was that that may still not be a great time to buy because sellers could overwhelm any amount of buying by Berkshire Hathaway. (Which would be a great thing as Buffett would be getting an even better deal on his buybacks.). Then Buffett came out and said* he'd be buying "aggressively" if the price fell below the criteria (whether it was 1.1 or 1.2 I can't remember). That statement had me thinking that he was deliberately putting a much firmer floor under the price. So now I wonder what it might take for any buyback floor to collapse under selling pressure. For instance, right now the price has fallen, and Buffett is still going strong. Should Buffett suddenly drop dead in a market like we had last week how far could it fall... * in term of why he'd have said "aggressively", I think this is in keeping with Buffett's practice of hinting to shareholders when BRK is too highly or too lowly valued. Knowing that he might drop dead, he's deliberately trying to put a floor under the price to limit volatility and harm to existing shareholders. Otherwise, let it collapse to the benefit of future shareholders.

If you weren't bearish before today, then I don't see why you would increase your cash position after today. Your portfolio positioning should probably be made independent of the daily market gyrations. The only information we should take from any day's market movements is the price available to enter/exit positions and how attractive that is on an absolute basis. I'm sure there are exceptions, but in general that's how I would look at it. Totally agree, however, like the proverbial slap on the face, sometimes it takes some close calls to correct or clarify people's thinking.

Sorry - I didn't mean that the contracts themselves were like lottery tickets - but that the investor interest in the potential payout is like dreaming of a lottery win in that the great potential coming out of a win receives undue attention compared to other aspects of their business. (Much like Buffett's derivatives did in early 2009 - in the opposite direction creating undue fear). Or the way investors view micro-cap emerging companies with promising new technologies (where such companies have very long odds of success but the promise of the technology attracts all the attention). It's just that I've noticed all the posts to this thread and possibly even a bit of excitement about Fairfax / Watsa being right - again. As for the contracts and cycles - I think Fairfax was intelligent taking out such insurance if that's an appropriate term for it. I've long been interested in such macro cycles like Kondratieff's Long Wave, Jay Forester's study (at MIT Sloan) of system dynamics (technological and business cycles), etc. BTW - Back in 2003 I was circulating Watsa's 2002 AR "perfect storm" quote to people managing money in the billions. Along with Buffett's daisy chain WMD article, the BofE governor's fears on derivatives, Grantham's multiple pre 2008 warnings, etc. Moreover, I created the Jeremy Grantham page on Wikipedia and later added these quotes... One last thing - I'm an Albertan and saw the 1970s oil driven boom followed by the 1980s bust and how it affected nearly everything. Consequently I saw a lot of parallels between Alberta's boom and various subsequent market bubbles over the years in various sectors. It seems that the bubbles only get bigger, broader and potentially more scary - as is the case now with the bond market.

I posted this to a site back in June 2012 - trying to get Albertans to prepare for a price drop... It's a good read... try pages 15, 17, 63, 64, 66 to start with. http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.pdf

Are these hedges are like lottery tickets? The prospect of winning big time means that they attract more attention than they deserve?

On the whole issue of "surprise". I've noted in other posts (somewhere on other sites likely) that the retail investor thinking these days seems to have shifted towards thinking that the market(s) has to reach bubble proportions before a significant downturn can occur. As if the latter can't occur without the former occurring first as a pre-condition. This style of thinking just seems to limit the possible market outcomes, if not become self-reinforcing and driving markets ever higher. (I worry that it's been a re-emergence of a late 1920s thinking with the benefit of hindsight - that once a pattern seems confirmed - people will REALLY pile in / pile out.) In the 70s, 80s and 90s I just don't recall much investor thinking along those terms for markets in general. (it was there for sectors like oil, gold, bonds...) Maybe because people thought that the possibility of a 1929 style collapse had been banished from the markets, or a legacy of the 60s-70s more frequent cycling between growth and recession, or a legacy of the 70s various inflations. Today though, people seem to expect prices will, or MUST, climb to some outlandish, extreme valuations before a retraction can occur, and if it occurs, it must then "crash". Bottom line - it seems investor expectations of the range of possible outcomes has narrowed. That's never good as surprise can lead to knee-jerk behaviour and this self-reinforcing spiral.

In case anyone's interested. From page 20, 2014AR... (More discussion on page 59)

First stocks in the late 70s in high school, but not meaningful amounts due to a lack of meaningful amounts. Shortly after more meaningful amounts went into bonds since interest rates were in the double digits and economies were tanking. Then from 1983/4 on almost exclusively invested in equities. Note: I'd be substantially wealthier today had I: - not bought a house by selling securities - not paid off renovation loans by selling securities (at the worst times in terms of market cycles) - not lived a fairly high lifestyle for my income (saved a lot when young and then very little as aged) - not avoided investment debt (always thought I should be borrowing and buying more BRK), and all other debt (could have mortgaged my house years ago and invested the proceeds) - moved a lot less money to cash well in advance of market collapses - kept working at my old job rather than quitting to work for non-profits, etc. ...

Wasn't Berkshire among those buying oil companies? Additionally, the oil price drop may have been due to fundamentals, however it sure seemed like a change in Saudi policy drove the price down. Lastly, who's to say that oil companies weren't on sale at last year's prices and now represent deep value.

Barrons has a PICO write-up out.

The joy in generalizations... The following statement is somewhat true in the short run for 90-95%+ of mutual funds, so is it also true for 90-95%+ of stocks? Is this statement true in the longer run for either stocks or mutual funds? "past performance is not an indication of future results." Also, on a similar note, is your approach to value investing based on that regression to the mean where past performance is an indicator of future results (overcoming temporary resolvable problems), or some other approach value approach?

It takes a thief to know one. So, few discuss the merits (or lack of them) in Winters' concerns about KO. Was he potentially right or not? It seems that Buffett and everyone else attacked the messenger - in the end successfully so. what do u mean? there was plenty of discussion at the time.. basically he took the number of shares the options were on and claimed that as the percentage dilution, which was wrong since he didn't account for the strike price! basically it was an obvious publicity stunt. plus it didn't make his fund perform any better! the only reason to go all activist is to perform! It's not a goal to be activist in and of itself! That was last year. Isn't this year about disclosure of bonus shares?

Warren Buffett letter to Leon Cooperman - Business Insider http://www.businessinsider.com/warren-buffett-letter-to-leon-cooperman-2015-7

It takes a thief to know one. So, few discuss the merits (or lack of them) in Winters' concerns about KO. Was he potentially right or not? It seems that Buffett and everyone else attacked the messenger - in the end successfully so.

It would be very item specific. You aren't going to wait to buy food even if you think prices will be down 50% next year. Computers -- it will cost you in other ways if you try to go without one. So I don't know how good that example is. I'm not sure if anything I buy is driven by the expectation that the price will be higher or lower -- unless it's an investment item. However if my income was suffering and I was budgeting I would be thinking different. So perhaps during times like that (The Great Depression) people are closely watching prices. So maybe it's a combination of weak buying power as well as oversupply that is necessary to drive deflation that leads to people putting off purchases. Somebody flush with excess income isn't in the mindset to pay close attention. Basic economics. Lower the price and sell more. That's bad for business though if you buy at a higher price and your inventory's market value falls before you sell it. So with investments and investment like assets (homes etc) if you lower the price people hesitate to buy and banks hesitate to lend since someone is going to loose in the process.