KinAlberta
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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.
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Buffett's Record Gain on Kraft Heinz Masks Stock Market Lapses
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.”
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Maybe this thingy on Bloomberg?
http://www.bloomberg.com/bw/articles/2013-08-27/read-and-think-like-mr-dot-buffett
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
Warren Buffett's Right-Hand Man Reveals the Oracle's Secrets for Success
"Instead he's continuously dedicated to learning and gaining greater knowledge:
Warren is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you. Warren was lucky that he could still learn effectively and build his skills, even after he reached retirement age. Warren's investing skills have markedly increased since he turned 65."
Budding Buffetts: Where to begin?
"The question is, "What should I do to become a great investor?" and it is asked for the first time by an earnest 17-year- old from San Francisco who says he is attending his tenth consecutive meeting.
Buffett's emphatic answer is simple and straightforward: "Read everything you can," he says with finality.
This is advice that Buffett has been giving for years, and it is advice that he will give in different ways throughout the morning and afternoon, for he strongly believes - and Munger concurs, calling Buffett "a learning machine" - that it was the reading he did in his formative years that shaped his approach to investing and prepared the groundwork for the next 50 unprecedented successful years.
And Buffett isn't kidding ..."
"By the age of 10," he goes on, "I'd read every book in the Omaha Public Library with the word finance in the title, some twice."
Buffett's reading habits did not stop when he was 10. He still reads literally thousands of financial statements and annual reports each year - as he has done for each of the last 50 or more years that he's been investing. Friends and acquaintances who are invited to share a jet with Buffett report that he'll chitchat briefly and then start reading. Andrew Kilpatrick, author of the massive Buffett hagiography - Of Permanent Value -- reported that Buffett once mentioned, while the two were at a book signing, that he had 50 books at home, waiting to be read.
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I haven't sold nor have I added but I've certainly taken a shellacking. I'm not near as convinced about this company as I use to be but the stock price is probably just too low to start selling. It's by far my largest holding but I'm very disillusioned with their stock picking. Some are simply inexplicable. As far as the Macro bets go, it is what it is. I agreed with their logic but let's face it, so far, it hasn't worked out. Time will tell. Hopefully, they'll prove to be visionaries.
Insurance is clearly doing much better and I like the India play. They just seem to take too many BIG gambles on companies with bad fundamentals or dying prospects. What happened to Rule#1: Don't lose money! SD, among a few others, is beyond my scope of comprehension. IMO, they need to become better capital allocators and more protective of the "ball" before I invest more cash. Sure wish I would have just bought an SP 500 index fund and went fishing back in 09. I'll get em next time.
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.
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What I am getting at is that this market is insanely manipulated. As StevieV pointed out, the amount planned to be released over 7 or 8 years is immaterial and this is only starting in over 2 years.
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.
:-)
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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.
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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.
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BTW - This is me (Albertasunwapta)...
Lol wait a second. I remember something from this weekend. Stupid coincidence but still...
15. AlbertaSunwapta says on Sep 23, 2011 at 3:47 PM:Only twice in 14 or 15 yrs with my current brokerage have I ever been put on a long hold. So it's a funny coincidence here: On a Friday in March of 1999 at the very height of the internet bubble when people were dumping quality companies to buy crap, I went to buy BRK.B shares and for the first time was put on hold - a long hold. It was those pesky speculators taking up time. I gave up waiting and decided to call back on the next Monday. That weekend Buffett announced that he'd consider buying back shares. I missed by a day, getting BRK at that great low point.
Well, today, I again went to buy BRK.B shares and for the first time in since 1999, I was again put on hold. :-) I hope Buffett is on vacation. I have a limit order in for Monday.
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Lol, what are the odds, poor guy. :D
(It was 2000 btw and not 1999 but oke.)
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I don't think KinAlberta is suggesting gaming the buybacks, I think he/she is asking whether the market price will reflect the ability for Berkshire to buy at 1.2x book. Given the age of WEB, it impacts how much or when you want to buy the stock regardless of the long-term. Unless of course you just buy it at a fair price and care less about the volatility of seeing the stock fall under $120 in short order. And KinAlberta even references how much better it is to see Berkshire buy more shares even more cheaply.
It's like how I think of IBM. If Berkshire sells their stock in IBM, I don't think traditional valuation metrics or buybacks will really matter. The stock is going to take it in the chin, no? That kind of impact whether I want to buy at 1.2x book or 10x EPS, or whatever.
The last time Berkshire announced a buyback plan the shares shot up and they weren't able to buy any shares (or maybe a few I can't remember). If Berkshire goes down a lot I suspect we have a market where WEB is finding ways to increase intrinsic value to Berkshire much better than buying shares of BRK. So I don't put much faith in the buyback floor other than it's WEB saying that what he thinks the low side of intrinsic value is.
Based on what I gathered from his personality from reading Snowball, maybe it gives him pleasure to say "we'll buy the stock at 1.2x" and see the stock stay above those levels. A bit of an ego thing that highlights the quality of his investor base to trust his judgement and ability to access value. That's speculative but based on his focus outside of share buybacks I think it's a possibility.
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.
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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.
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How much cash do people have at this point? Anyone selling to increase cash or is it not wise to do it after today's plunge? After today plunge, it brings up my cash level to around 10%.
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.
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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...
To avoid the development of crises, you need a plentiful supply of foresight, imagination, and competence. A few quarters ago I likened our financial system to an elaborate suspension bridge, hopefully built with some good, old-fashioned Victorian over-engineering. Well, it wasn’t over-engineered! It was built to do just one under favorable conditions. Now with hurricanes blowing, the Corps of Engineers, as it were, are working around the clock to prop up a suspiciously jerry-built edifice. When a crisis occurs, you need competence and courage to deal with it. The bitterest disappointment of this crisis has been how completely the build-up of the bubbles in asset prices and risk-taking was rationalized and ignored by the authorities, especially the formerly esteemed Chairman of the Fed. ...[9]
”
“ I ask myself, ‘Why is it that several dozen people saw this crisis coming for years?’ I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even U.S. Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke — none of them seemed to see it coming.
I have a theory that people who find themselves running major-league companies are real organization-management types who focus on what they are doing this quarter or this annual budget. They are somewhat impatient, and focused on the present. Seeing these things requires more people with a historical perspective who are more thoughtful and more right-brained — but we end up with an army of left-brained immediate doers.
So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it. And the three or four-dozen-odd characters screaming about it are always going to be ignored. . . .
So we kept putting organization people — people who can influence and persuade and cajole — into top jobs that once-in-a-blue-moon take great creativity and historical insight. But they don’t have those skills.[10]
https://en.wikipedia.org/wiki/Jeremy_Grantham
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.
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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
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Are these hedges are like lottery tickets? The prospect of winning big time means that they attract more attention than they deserve?
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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.
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In case anyone's interested.
From page 20, 2014AR... (More discussion on page 59)
"These losses are significant but they are mostly unrealized, and we expect both of them to reverse when the ‘‘grand disconnect’’ disappears – perhaps sooner than you think! In a declining market, like 2008 – 2009, we expect our common stock portfolio to come down much less than the indices, thus reversing most of the net losses resulting from our hedges. As I said last year, we are focused on protecting our company on the downside against permanent capital loss from the many potential unintended consequences that abound in the world economy. In our 2008 Annual Report, we showed you the table below, that quantified our unrealized losses in the 2003 – 2006 period and their reversal in 2007 and 2008:..."
http://www.fairfax.ca/files/doc_financials/Final-2014-Annual-Report-for-website_v002_q64b02.pdf
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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.
...
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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.
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Barrons has a PICO write-up out.
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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?
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The punch line for me was how he, David Winters, all by himself, called for and forced the hand of Coke management to change the compensation plan. With the full might of his 0.0000018% ownership stake in KO. Now, that KO saw their mistake and fixed it, Winters should return to his investors his egregious 1.9% fund fees he collected per year since inception in 2005. That would keep intact the high fiduciary responsibility he so valiantly stood and fought for.
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?
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Warren Buffett letter to Leon Cooperman - Business Insider
http://www.businessinsider.com/warren-buffett-letter-to-leon-cooperman-2015-7
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The punch line for me was how he, David Winters, all by himself, called for and forced the hand of Coke management to change the compensation plan. With the full might of his 0.0000018% ownership stake in KO. Now, that KO saw their mistake and fixed it, Winters should return to his investors his egregious 1.9% fund fees he collected per year since inception in 2005. That would keep intact the high fiduciary responsibility he so valiantly stood and fought for.
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.
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While you do make some interesting points I would encourage you to think about one thing. Over the past few decades has demand for computers decreased or increased. Obviously increased, right. Yet prices have steadily declined. So deflation can occur even when demand is increasing. This is totally counter to your earlier point that people don't wait for a cheaper tomorrow. Perhaps demand has nothing to do with falling prices?
I'm no expert when it comes to deflation but I don't understand why you would bet on it happening to a great extent. The definition of deflation is if prices drop, people will stop buying, as they will see that prices will be lower in the future and thus delay purchases. But do consumers think this way? No. Who here has ever delayed a purchase because they think prices will be cheaper tomorrow?
I never have. For example, if you're hungry and in a grocery store and want to buy a sandwich, would you say, I'm not buying this because it will be cheaper tomorrow? Nobody would do that.
People buy cars, washing machines, refrigerators, computers, iphones, clothing, shoes because their existing ones have worn out. They don't sit around like economists and make predictions about the prices of products. The avg. consumers has no idea where prices are trending.
Also, the world's population is still growing, so wouldn't there be more demand for products thus, increasing prices? Why would prices go down if the population is growing? Doesn't make much sense to me.
Just think about the computer business. How much did a computer cost in 1985? I don't have exact $ amounts in front of me but I would guess it was a few thousand. That computer was crap compared to a laptop today which you can buy for $500. A million times faster than the computer we all bought in 1985. Who in 1985 said, I'm not buying a computer for $2000 today, when I can wait until 1990 and buy one that is way faster and for half the price? Nobody does that because consumers don't think that way.
The PC market today is mature and prices are flat. How much lower can you go for a $500 laptop? Again, who here will delay purchasing a computer because I thought, well, if I wait another year, prices will be lower and the features will be better! Even though I know this would be the case.
Same thing with a video game system. I bought Nitendo, sega, playstation, and xbox growing up as a kid. Who here knows anybody that didn't buy a console because the next one would be cheaper and way better than the current system? Again. I know this is the case but it doesn't make me not purchase today's new console.
Maybe I'm wrong but betting on deflation happening to a great extent doesn't make much sense to me.
50cent
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.
What is the extent of the 'opportunity' in the oil market?
in General Discussion
Posted
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.