StevieV

Eh, I got a kick out of this.

Is Fairfax cheap today? I think it still is, but it's up 37% in the last 3-months, so not nearly as cheap as it was. I don't think anything too surprising company-specific has happened in the last 3 months - just the market waking up.

I'm not either. Fairfax is going to trade opposite the market? I wouldn't think so. Like last year, Fairfax may be able to break free from trading with the market, but I don't see why it would trade opposite.

I'm definitely for safety, but I think this can be a really high bar for someone starting out. If you wait until you have several years of expenses saved up, that might take someone out of investing in their 20s.

Almost every year there are reasons to be bearish. Usually pretty good reasons. Probably ones that could persuade me. I pretty much have to put that aside and acknowledge that an investor should have a bullish bias. US companies want to make money and I think they will likely make money over time. Are public US companies going to be worth more or less in 5-years, 10-years, 20-years? Well, then, is the S&P 500 index going to be up or down in 5-years, 10-years, 20-years? It's fine to be cautious. It's fine to be bearish. It's just that being bearish is swimming against the tide over longer timeframes IMHO. So, the average bull will do better than the average bear. If you want to be a bear, you have to overcome that. At least that's how I see it.

dealraker - can you expand on this? Is it that you think most of these won't do well from today's level? A few will drag things down? Some of each? MSFT at 25x still too expensive to do great? I think that's a fair thought.

I don't know. I feel like this could have been and probably has been said lots of times over the last couple decades. Look at SPY's top holdings today. Apple, Microsoft, Amazon, Facebook, Google, BRK, TSLA, NVDA, JPM in the top 10. TSLA's in a tough spot valuation-wise, but overall I think those things provide a return.

I read that Powell claims +$10 oil = +0.2% inflation. WTI increased about $25 from '21 to '23, which would equate to about 0.5% contribution. So, not huge on a pretty decent increase in oil prices. Last year WTI was about $95. WTI could average $105 this year and it's impact on inflation would be a negligible contribution + 0.2%. That's assuming Powell's rule of thumb is accurate. In any event, I don't think $100 or a bit $100+ oil would be inconsistent with inflation coming down fast this year.

Multiple expansion will be gravy. That's always a nice setup. If you get just the growth of the company, that's a nice double-digit return. Buying at a multiple where the most likely scenarios should be at least a stable multiple and a good chance of multiple expansion. "Dec 31, 2023 BV = $855/share" - Small typo here. I believe you meant 2024. I only mention it because it tripped me up for a second.

I think you have to call PCP bad rather than just mixed at this point. Buffett called it a mistake at the price paid. There was certainly some bad luck.

Anybody want to argue that BRK is a buy here? I don't think it is. I like BRK. It offers about the steadiest equities return I know of. But, as with most stocks, you need to be careful about purchase price. Call it overly simplistic if you like, but I like to buy at 1.3x book or less. At that price, I think you've got a very good chance of getting at least the growth in book value as your return + some potential multiple expansion. Investors have been given the chance to buy at 1.3 book or less pretty regularly. As of right now, BRK has outperformed the S&P 500 by almost 30% over the last two years and is trading a 1.5x. I'm holding onto the position I have, but don't think this is an attractive time to buy.

KKR out with a new "teach-in" presentation this week. I have to take a closer look as I am not entirely clear what is going into their valuation frameworks ($7+ of DE in 2026 - slide 8; $6 of "earnings power" today - slide 131). For the DE, they suggest DE x multiple. I usually see people value KKR as DE x multiple + book value or some % of book. Off to a quick start - Up 15% YTD. https://irpages2.eqs.com/download/companies/kkrinc/Presentations/KKR Teach-In - January 2023.pdf

If the Fed's goal was to cool things down, then they've already made a lot of progress. We already had 2 quarters of negative GDP. The fed is estimating an anemic 0.5% GDP growth in 2023. Some excesses have been taken out of the stock market, not to mention the crypto market. Housing prices have definitely cooled. I'm as skeptical of the system as anyone else, but the Fed may actually be just trying to calm inflation. Will the overshoot or undershoot? I don't know. I also don't know what tradeoffs they are willing to accept. If combating inflation means some increased unemployment, I think the Fed is ok with that. Where the line is and when they decide they've accomplished their mission, I don't know.

Buybacks done well are great. Unfortunately, most buybacks aren't done well. BBBY is a good example - heavy buybacks, then collapse. In practice, I think dividends are different than buybacks. Companies just use them differently. Typically a company wants to offer a stable and growing dividend. They'll be cautious to raise and even more cautious to cut. It can also be different to an investor. I understand investors are often told they can just sell, but you have way more volatility in share prices. If you have a big bear market sell-off, but earnings hold up, an investor still gets their dividend and can use that rather than selling stock at a depressed price. Sure, preferably an investor has cash and doesn't have to fire sale, but I don't think a reliable stream of dividends can't hurt. Basically, a dividend investor isn't as reliant on share price for realizing some funds.

Well, I'm fully invested and prefer it when the economy is doing well. So, I hope you've got it right Greg.

It does seem like the Fed may fight any rally. Sort of an opposite of how they've been seen in the recent past.

I would think the current bear case is that we haven't yet seen the full effects of the rise in interest rates and the rate increases will hit everything - housing, auto sales, company profitability. Then you get some knock-on effects with employment. Bull is that inflation is locked into coming down. Employment is good. Fed will pause. No hard landing (or no soft landing).

I like OBE and WCP, but I don't see it with GXE. They just started the dividend. Not too long in and it is more than they can afford. If the opportunities are to do some type of growth/acquisition/deal, then they shouldn't have instituted the dividend. What should make one think they'd pivot so quickly away from dividend and instead to growth/deal?

That's a single backward-looking data point and the 15 threshold picked with the benefit of hindsight. Even if you use the whole history, there are just very, very few data points. 2009 was very close to not hitting 15 and triggering the "buy". There is no guarantee that the next low will hit the 15 threshold. We could go another 20, 30, 40 years without hitting 15 again. That's just way, way, way too long of a timeframe to be of any use. I can't imagine someone deciding they were going to wait to invest in stocks until a Shiller PE 15 signal hits when it could be literally decades. Investing at that price is probably great. Waiting for it to happen is tremendously risky IMHO.

That would seem like an extremely unattractive way to use the metric. Per the linked chart, I'd be out of the market now waiting for a drop to 15. A drop to 15 that may not happen in my lifetime. I don't think anybody would want to use the metric that way. If anything, maybe someone can look at the graph, decide the market isn't cheap, and not get over-exuberant/over-extended.

What? Really? It is January 7th. There have been 4 trading days.

I don't understand why more companies in the O&G space don't adopt that model if they want to pay a big dividend. With the volatility in oil prices, it only makes sense to have a variable dividend. I actually think characterizing the dividend as fully variable is most prudent and sensible, but understand the desire for a base dividend. Presumably investors like a fixed dividend or companies think that investors like a fixed dividend. Of course, at the end of the day, if oil prices drop enough the "base" will turn out to be variable (gone) as well.

$500 million of Q4 monetizations as of their recent update. That's not bad in a slowing monetization environment, but I don't have a good idea for '23. For comparison, monetizations peaked at $1.15B in Q4 '21. Been trending down since. As you know RL, that's one component of the value. They also have the significant book value and the more stable FRE. Not really paying much for the incentive fees (monetizations) if you believe in some multiple of FRE and the book value is worth something.

Maybe this is a dumb question, but what is this BOL + ODET as BRK substitute? What a boring portfolio. Maybe time to rethink the whole thing? Nothing at all wrong with boring. I believe ELF = ELF.to. All 4 in insurance is what sticks out.

I like Fairfax's outperformance to continue for a bit. I like JOE longer term, but I'm not sure it will be a great '23 calendar year performer. (Of course, I'm not sure about any particular stock being a great calendar year performer). I like Canadian E&P OBE as a bigger upside performer. If oil prices cooperate, they should hit their long-term debt target sometime in '23. Highly levered to the price of oil and WCS differentials and so highly dependent on pricing. I think at current WTI ($80), they have significant upside from today's price. I still like APO, but if I had to pick an alt today, I think I'd go with KKR. I expect both to do well over the medium/longer term, but I'm not sure about '23. KKR in particular I expect to bounce fast if the market rallies, but I have no idea when that will be.