Jump to content

BPCAP

Member
  • Posts

    68
  • Joined

  • Last visited

Recent Profile Visitors

The recent visitors block is disabled and is not being shown to other users.

BPCAP's Achievements

Newbie

Newbie (1/14)

0

Reputation

  1. I'm neither optimistic nor pessimistic, just acknowledging that it's perhaps not smart to either panic or totally dismiss the debt and money printing issue. I, too, believe in buying quality, cash generating businesses with competitive advantages. I don't like the idea that one needs bonds, gold, bitcoin, etc. to get them where they want to go. Underlying the buy and hold thesis (and putting one's head in the sand when it comes to bigger picture analysis) is the assumption that stocks, etc. can only go up over time. That's been the case in the U.S. for quite sometime,;but worldwide and over time, we have been quite the exception rather than the rule. There's no guarantee our good fortune is permanent or unbreakable. Countries of prosperity and law often found themselves in a very different system. I was told two stories, of investors in France in 1939 and Shanghai in 1949. Both never thought they had to do much differently as there would be a return to the mean and things would blow over. The only investment decision for both investors was to get out of town, forever, in retrospect. Those stories and others like it have stuck with me (talk to an immigrant, especially ones from SE Asia, Africa, Eastern Europe and you'll have a greater appreciation and definition of risk). They have made me grateful for the time and place I was born. They also make me realize nothing is certain, despite what Bogle and Buffett say. But, of course, I hope (and still think), these wisemen are more likely than not to be right.
  2. All of that is the exit of course, but it's also the optimistic (maybe overly optimistic case) scenario, one that is fragile to adverse contingencies (war, demographics, pandemic, real socialism, etc.). An exit and plan/strategy are two different things, especially when people in control at any given point in time have 1) short term incentives vs. large, and 2) no skin in the game. The necessary exit for someone in deep credit card debt is somewhat obvious, but he has no real chance of reform if he doesn't do anything differently. I agree we can amass debts and print money for quite some time. Probably much longer than anyone thinks. Or how or when exactly that manifests itself beyond deflationary forces, greater share of public vs private when it comes to balance sheet and the economy, lower real returns, etc.--is anyone's guess. Something could break, hard. When? Who knows. Thinking of all this makes me a little more understanding when it comes to those dabbling in gold or Bitcoin. Who am I to say their fears are wrongheaded or that what yhey're doing isn't appropriate?
  3. There is no exit strategy for the debt. No plan or easy answers, especially in a democracy. We will borrow and print money--until we can't. At least we enjoy being in the brick house in the Pigs' neighborhood, with Europe and Japan (and many "emerging" countries) in the houses made of stick and straw. We'll see the Big Bad Wolf get others before us. But...you know in the real story, the Big Bad Wolf really did get the Pigs eventually in the brick house. He smoked them out, or remembered wolves live in packs, called his friends over, and they eventually found a way to gut the Pigs.
  4. So happy to apply this concept today with my daughter's "lemonade" stand (but with vegetables she has grown). We set up in front of the driveway, and I put in a few bucks into her empty mason jar. She looked at me puzzled and asked why I did that. "Let me tell you a bit about social proof..." She's 10, and she got it. Warms the rational heart.
  5. I admire Klarman a lot, but rarely do I think much of his equity holdings. But that doesn't matter. Stocks didn't make Seth Klarman; shrewdly finding distressed bonds and loans, workouts, and bespoke or one-off deals have been his thing. He has been value investing--and successfully over time--but he hasn't done it in the securities most value investors operate in.
  6. Value investing is maligned because of the many "value investors" who do it wrong and poorly. A major of self-identified "value investors" either think it means buying turnarounds, low quality businesses (at perceived low prices), and/or extremely contrarian stocks. This leads to portfolios with companies with tons of debt where management must truly thread a needle to stem the tide or avoid bankruptcy. Moreover, these folks significantly underestimate (1) what they don't know, or (2) the numerous contingencies that could appear and derail things. This leads to positions in Sears, JC Penneys, GM, Howard Hughes, etc.without even the acknowledgement that there is a good chance each can (or deserve) to trade lower or even go bust. Just as many dumb businesses justify folly with spreadsheets, value investors often do with specious fundamentals and stats: low P/E, P/B, etc. Or my favorite: EV to adjusted Ebitda. I'm a value investor, but in most conversations with other value investors, I find myself first challenging their "It's only 8x earnings" assertions. I almost never get a good answer when I ask someone "Why does this business deserve to thrive or exist?"
  7. One of the biggest reasons I left out was because it was maybe obvious: We still don't know about what's really going on in the loan books. Some or many could be dumpster fires now or over time should the covid crisis last awhile and/or people internalize and forecast a longer, more painful economic slide.
  8. Last thing and I'll shut up. Watch excess reserves. At some point there is a good chance the Fed starts to CHARGE for excess reserves rather than paying interest on it. Makes too much sense if you have the beliefs Fed leaders have and your mission is what it is: full employment, modest inflation, etc. --and soon to be income equality. Paying interest could be deemed inappropriate or worse, a sin.
  9. Can't overestimate the concept of governments using banks for policy. Notice how over time, in good economic periods, CEOs being dragged to testify to a hostile Congress that asks: "Why aren't you lending to poor people?!" Then in recessions and busts, the same CEOs get dragged to hearings again to be asked (by the very same legislators): "Why did you lend to poor people?! You ruined their lives!" This mentality has only grown and taken more forms. Left and Right will be hostile to banks actually making money. Especially the Left. If the Dems sweep in November, do you think banks' will find it easier or harder when Elizabeth Warren is in charge? Will most banks find it easier or harder to make profits? Will markets' be more or less optimistic about the future for banks? I'm no supporter of Trump, mind you, but I don't think the Dems' impact on banks requires a partisan take. It's just arithmetic and common sense. People have always hated and resented banks anyway. I don't think they change their mind on that. With higher wealth and income inequality, the people will speak through their leaders, many of whom really think banks (and Wall Street and capitalism) are the devil.
  10. BPCAP, would it be possible to share your reasoning behind this so that we can learn from your perspective? I could write 5000 words on this, but I'll try to be brief. In short, the answers lie in 1) governments, and 2) technology Banks are increasingly becoming wards and agents of government. Debt, deflation, and a unified belief among central bankers and politicians (left and right) that more government borrowing and money printing is necessary to cure our ills means banks will see low and lower returns on capital. Most are holding out on the belief that banks can return to a "normal" 1% return on assets/10% return on equity. Won't happen without a lasting steepening of the yield curve. Governments can't let that happen. Japan and Europe are bust if borrowing rates even double to 2%. And governments won't let that happen, especially if a rise in rates is due to inflation. Debt and deflation (which are rising) also lower the odds over time of a meaningful rise in real interest rates. And with low rates around the world, U.S. rates can't meaningfully rise. Why would they in a global marketplace with companies with global operations and individuals with high speed internet? The market will naturally just get loans outside the US if the US is too expensive. The money printing means an abundance of capital. Banks' position as a supplier of capital is being diminished. That shouldn't change. European companies which have relied extensively on bank financing more so than American companies (which borrow directly from markets more), are finding it easier and easier to seek capital in public markets and non-bank institutions like their American counterparts. The supply of loanable funds is rising as the demand (the good, productive kind) is not. Or at least the supply is rising much faster than demand. Should stay this way for awhile. Bank regulations are mounting to the point where the lines between bank operations and government policies are blurring. Like many industries, banks are quickly becoming winner take all (or most). Loans that have become all but standardized and regulated by government (along with all the money sloshing around the world) means that banks lose their regional or local competitive advantages. With commoditized loans, people are already finding out the advantage of looking nationally and globally for the best deals. Then among big banks, we find that there really is no difference between a Bank of America, Chase, Wells Fargo, US Bank, Goldman Sachs, etc. The bank or two or three that succeed in creating relative scale, technology, etc. will "win" at the expense of others. So maybe a JP Morgan, which is looking to be a software or platform company as much as a bank, can surge past others. You and I won't see a difference if 800 banks go to 20. But then, even the winners will find they will be winning on fewer fronts than they anticipated. Which turns us to technology. Disruption is happening, allowing non-bank lenders to lend and customers to cut out a lot of traditional middlemen. Banks' moats are narrowing tremendously. Tech is pecking away at margins and creating new competition on every front. As we know, tech means it's never been easier to start a business (even big ones when capital is so cheap); it is also becoming harder to build a business or even maintain largess. Tech and competition means you really have to be good at something to stay relevant and grow. Banks are finding that they are not as good as they thought they were in almost every line of business they have. Banks have now gotten religion on the need for fee based income rather on relying on balance sheet income (borrow at X short term, lend at Y long term). For many, however, it's too late. And more bankers will realize that banking is a very different business than investment management or payments or insurance, etc. They think that because all services involve money (and the fact they have a lot of customers) means they can cross sell and offer competitive services. But as the department stores realized, capable focused companies will win customers for each niche. (Look at how customers today buy clothes, jewelry, makeup, washing machines, etc. Not at JC Penney or Macy's). Banks will increasing find it hard to compete with their equivalents of Home Depot, TJ Maxx, Best Buy, Ulta Beauty, Amazon, etc. To outperform by buying and holding banks overtime requires the yield curve to steepen and stay that way. That's the bet one's making. That isn't to say there can't be trading opportunities. Surely, even as profitability dwindles, the market can rotate and a 9x earnings bank can find itself at 13x earnings, and there will be a nice pop in the stock. But I imagine that win will be erased as investors swarm in or double up on their position, only to find the stocks going back down to 8x earnings (and at a lower level of EPS). Some banks may succeed on a relative basis by embracing focus and cutting uncompetitive lines and shrinking their business and really focus on increasing PER SHARE net worth. But that's not the banker's mindset. That's not his training or culture. Ok, I'll stop here...I'd like to buy banks, but in so many ways they look like value traps. Governments and Technology will see to it.
  11. The Japanese investment was pretty simple: The five are quants that are statistically cheap and way below replacement value. The Japanese investment release was simply a "I mean to do no harm or dishonor anyone." Re the Wells Fargo selling, I'm looking forward to not seeing so many WFC buys posted on this board. Banks are dead and Wells Fargo can't get out of its own way. The (overrated) CEO in NY can't change that.
  12. Klarman recently referred to the relentless lagging of stocks (presumably large cap ones) that are not included in prominent indexes. Any large names that come to mind not in the S&P? Thanks
  13. Thanks everyone for the advice. Seems to confirm some ideas; happily there seems to be multiple choices and be approximately right.
  14. What’s a good car choice for the value investor? Not looking for the car equivalent of a cigar butt stock. Looking for value, not cheap. Obviously looking used. Appreciate quality. Thanks for the help!
  15. In bad haiku: It makes no money selling things to you and yet profits more each day
×
×
  • Create New...