Sharad
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Posts posted by Sharad
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A pretty negative article on Buffett was recently published. I'm only going to read Market Watch's analysis of said publication. Here is Market Watch's take:
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I wonder about whether the energy stocks are buggy-whip companies. It feels like we're on the edge of a pretty fast transformation to environmentally-friendly energy sources (e.g. the economics of solar and wind, the move to electric vehicles, the move to autonomous vehicles).
I wonder what will happen if, for instance, demand falls by 5M barrels over the course of a couple of years and then keeps declining. With a commodity like oil, I feel a 5% drop in demand could nuke prices. Thus, it seems to me that energy doesn't have much margin of safety when the demand is uncertain.
I'm curious what perspectives other people have on this.
I think many folks forget that oil and gas is used in plastics, fertilizers, jet fuel (doubt this will be changing anytime soon), and, outside of developed nations + China, for nearly all vehicles. It will take a long time for that to change, given that the cost of alternatives and reliability of the electric grid are prohibitive to those industries and countries that are currently reliant on O&G. Given that many developing countries are only started to enter the hockey stick/S curve for demand, they could easily supplant demand that is reduced in developed nations and China. I think most market participants confuse cyclical shifts with secular trends.
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"If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x."
i would say FC adversely affected multiple years past 2008 but i take your point.
That is likely true, but a CAPE is intended to adjust for the economic highs and lows. I'm sure 2001-2003 had an effect on the CAPE at that time, 1990 around its timeframe, etc.
all correct. it's just that if i think the economy in the next 5 years will more closely resemble the economy of the last 5 years than the 5 years previous to that, then i use a different analytic tool
Given I'm taking the opposite point of view, and see the next 5 years as being more rocky than the last 5 (similar to the 1987 to 1992), I'd like to understand your arguments (I need to be able to understand all points of view to remove all bias I have). I have been reviewing margin levels, the amount of unwinding the Federal Reserve would like to do simultaneously to the Treasury increasing new debt auctions, and I feel that the market will continue to correct when the 10 year hits 3%, and then will do another round of corrections as the 10 year moves up to 3.25%, etc. With the amount of debt already in the system, and the central banks all trying to let their toddler economies ride their bicycles on their own, I think there will be a number of bumps and bruises on the way, even if GDP remains strong. To me, the equities market will have a much more difficult time, even if the economy does well.
I am more than willing to hear all counterarguments, because my opinion and thoughts are always malleable.
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I bought UVXY because I want to see what Cramer says tonight. 8)
In all seriousness, I'm buying some BTI.
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"If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x."
i would say FC adversely affected multiple years past 2008 but i take your point.
That is likely true, but a CAPE is intended to adjust for the economic highs and lows. I'm sure 2001-2003 had an effect on the CAPE at that time, 1990 around its timeframe, etc.
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Niall Ferguson's documentary on his book, "The Ascent of Money". Really good.
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https://www.cnbc.com/2018/02/08/cramer-blames-this-weeks-crazy-market-on-a-group-of-morons.html
This guy always makes me laugh. The first level thinking CNBC presents is beyond me. I'm still a believer that we are basically replaying the 1987 playbook, except we are in the early years of a secular bear market for bonds. The market shrugged off the Friday through Tuesday morning drop, and who would blame them? It was barely 10%. But markets are very expensive, and we don't need an economic decline or disappointment for stocks to fall. 1987 is the proof of that. Bear markets in stocks happen more often than recessions. It's just something people haven't seen in 30+ years.
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For me, the best part of what's going on right now, is that I've finally managed to get mentally free and detached to these swings. They don't bother me one whit any longer. A condition for taking advantage of them.
John, take a deep breath, and make sure to ask yourself if this is because you yourself are ready to take advantage of them, or is it because the market has shown little to no volatility (beyond a week or two) over the last 6 years (since the 2011 drop)? I'm only asking you to take a moment because I respect your insight, and the help you've given me on many Danish names that popped up for me in the past, and I want to know your thoughts tomorrow and beyond as we find a floor or continue to build a top. :)
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The S&P had lost 8.1% at the low this afternoon from its recent high. The VIX has spiked from around 12 to 33! Even the long term treasuries are now catching a bid and are up after quite a beating.
I would say that this qualifies as a correction even if it did not reach the 10% threshold. We may have seen the low for now. Fear has now returned to the market and with it a potential return to value from momo.
Cardboard
I've been following the 1987 playbook since two weeks ago, when El-Erian and Shiller (he also said it this morning) both said it's conceivable the market can keep going up. I don't think we're done here. I honestly feel all institutions were reaching for the same investments, and building the same framework. If that framework is broken, then we're not done falling. 1987 did not precede a recession. The economy weathered a 30%+ drop from its highs. I see at least a 10% correction here overall, but it will feel a lot worse because of all the money in the market, and all of the leverage applied. We only saw the PPT (aka the Treasury) get involved to stem the outflow at 3:00pm.
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This is probably the most welcome, dumbest corporate decision in history. A 2nd corporate HQ... Really?
I know plenty of companies who have multiple research centers but, could you please name one U.S. company that has two HQ in the U.S.?
Cardboard
What happens if one HQ decides one thing, and the other decides something else?
Will the AMZN empire split in two?
Will there be an Eastern AMZN and a Western AMZN?
What happens if one of them is overrun?
There's still a commander in chief over the entire company regardless of how many "HQ's" there are.
This is why I think that Toronto would be a wise choice. The HQ2 is just a "name" (not an actual, serious HQ2), and I feel like AMZN will be looking for a research arm and a way to consolidate its burgeoning global presence in a tax efficient manner (though the tax changes in the US give me pause now). A Canadian division could own all of the non-US subsidiaries (running a very efficient transfer pricing program to manage international taxes), drive the profit back into Canada, offset it against its R&D costs, which will already receive massive credits from the SR&ED program. Then, either cross-list AMZN shares on the TSX (via an acquisition or the like), so that the shares outstanding can be driven down via share purchases in Canada, side-stepping repatriation to the US (when they start to really push profitability), or directly pay dividends from the Canadian arm into Seattle HQ in a more efficient manner (I've spent too much time being involved in these types of structures in the past).
I know, I know...it's a very convoluted theory. I'll likely be wrong, and this move will likely be more like Boeing's exodus from Seattle, which really meant having massive presence in both Chicago and Seattle.
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Mistakes to avoid in the future - If you've been sleep deprived for a week due to the birth of your son, don't buy anything. As time goes on, I have a longer list of "don'ts" on my wall.
Congratulations! Also, I am guilty as charged, in 2017. :P
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Return of 43%.
Made a lot of mental mistakes, notably:
1. Selling Fastenal (Nasdaq: FAST), which is supposed to be a long-term holding, in favour of quick trades (moving away from my circle of competence), and
2. yield-chasing, which is just stupid on my part.
For me, the return isn't the important result, it is learning from my mistakes, and trying to avoid them in the future. Hopefully, I'll learn to be more patient, and wait for investments to "come to me" instead of chasing returns. I'm hoping to become a better at stretching my holding period to 5-7 years for any "trades", and fish into polluted ponds of value (companies with good balance sheets in downtrodden industries).
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I'd pick MO or BTI. Tobacco just tends to do well over time. I don't think the four choices were ideal. I'm not looking for a money manager (I'll try to do that myself).
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Ensco (ESV)
Teva Pharmaceuticals (TEVA)
Cathedral Energy Services Ltd (CET.TO)
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I am hoping a Bitcoin expert or two can answer a couple of questions for me:
1. Currently, my understanding is that Bitcoin can be broken down to 8 decimal points (0.000 000 01), meaning there will be 2.1 quadrillion individual subunits of Bitcoin. Does the program allow for further fractionalization of Bitcoin (i.e. 9 decimal points and so on)? Also, with so many cryptocurrencies out there, why it Bitcoin the anointed one?
2. I'd like to understand cryptocurrencies more, and I will find a copy of Friedrich Hayek's "Denationalisation of Money" to start my journey. What other reading materials do you recommend for the average investor to read?
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I have convinced myself that Altria could in fact be an anti-fragile stock. The free cash flow generated combined with its highly leveraged position provide it with optionality in good times and bad. When the market punishes the stock (as it seems to do every 9-10 years), the company simply uses more of its free cash flows to buy back shares, or pay down debt at significant discount to its face value. When the market rewards the stock with a premium price, it borrows again at attractive rates (for the next rainy day), increases the dividend, or uses its stock as currency for acquisitions. As smoking rates have fallen in the United States, Altria shareholders have continued to see outsized gains on their investment...for more than 50 years, even after the publication of the first studies that showed smoking was harmful, an investment in Altria has averaged around 20%/year. I suppose being forever unloved by half of investors helps them too. Considering the company's performance since the legal settlements in the late 1990's/early 2000's and as smoking rates have collapsed in the United States, I think Altria (as an equity investment) has shown that it can become stronger after periods of deep stress, and they didn't really change that much over that period of time.
so, most of these comments do not reflect taleb's view on what would constitute an anti-fragile portfolio. you really should read his book if you have an interest.
antifragility as taleb defines it means that stress strengthens rather than weakens. really, only biological systems display antifragility (stress a muscle and it gets stronger). most physical objects either simply resist stress, or weaken under stress; they dont get stonger.
taleb rejects the notion that shorting adds to antifragility in your portfolio for the simple reason that a rising market stresses the short and value is destroyed not created.
he says that no portfolio can become truly antifragile, but i think for taleb a portfolio of say 90% treasuries/cash and 10% leaps gets at his objective. i havent rechecked his book but i seem to recall that this is what he put forth in the book as the closest thing to an antifragile portfolio.
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$55 WTI and financing renewals without dilution (larger ABL too for growth) means the beginning of the ascent to $2+ for Bri-Chem! ;D
http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aBRY-2523472&symbol=BRY®ion=C
Cardboard
I hope you're right, Cardboard. I also think you should strongly review TSX:CET, again. I would imagine the billionaire brothers from Texas (Wilks Brothers LLC) know a thing or two about the oil markets, and they continue to accumulate shares (http://www.newswire.ca/news-releases/wilks-brothers-llc-acquires-common-shares-of-cathedral-energy-services-ltd-653691783.html), even though they are causing the price of the stock to rise by themselves. I know it's small potatoes to them, but I don't think anyone in their right mind would push a stock price up by themselves unless they see plenty more upside. Cathedral, currently sporting a $75m CAD market cap, should be worth at least $110m CAD (just to reach book value), and likely a lot more, as they are now showing signs of profitability and market share capture. Should oil maintain its footing, I'd think this company still has a chance for a significant gain from here.
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Building a position in TSX: SXP (Supremex Inc.).
From Google Finance (I need to find an alternative website once the portfolio feature goes away):
Supremex Inc. is a manufacturer and marketer of a range of stock and custom envelopes, and a provider of packaging and specialty products. The Company operates through manufacturing and sale of envelopes and packaging and specialty products segment. It offers translucent envelopes, digital window envelopes, EnviroSafe and self seal envelopes. Its packaging products include Conformer Corrugate Mailers, Auto Boxes, Tear Resistant PaperTyger Mailers, Board Mailers, Conformer Presentation Folders, Poly Mailers and Enviro-logiX Bubble Mailers. Its labels include custom labels, repositionable labels and affixing. Its specialist products include repositionable notes, membership cards, photo packaging, file folders, radio-frequency identification (RFID) ProteXion envelopes, Extended Envelope and integrated envelopes. It manufactures and distributes products to corporations, national resellers, government entities, as well as paper merchants, statement processors and solutions providers.
The company is a bit of a proxy on the growth of e-commerce, at a very compelling valuation. The company has seen growth to its top line revenues and bottom line over the last several years, is providing a dividend yield of about 6% at this level, has a P/E of 8, $30m of debt but averages about $20m of operating cash flows over the last 3 years. I feel that there is some margin of safety at its current low valuation.
My analysis is fairly simple, so if anyone has been following this company, please provide any insight for or against this investment.
What is organic growth (or decline) after you account for all of the acquisitions? Is this really a proxy for e-commerce or, instead, a proxy for direct mail and the types of mailings that need letter-sized envelopes with little plastic windows? There is a two-year old short thesis on VIC that may interest you.
I'm finishing up quarter-end reporting for my client and then my small business' taxes. Once done, I'll revisit this discussion, and do a little more digging into the organic space (I don't think they have organic growth in the envelopes business, but are seeing some in the corrugated cardboard space (which is a spall portion of the business right now). At 8 P/E, I think the terminal value is greater than Mr. Market's valuation.
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1996 @ the age of 13. Was a great ride until it wasn't. Then I found religion. (Graham/Buffett)
1994 @ the age of 14. Have to confess I was a chartist, made 10x during dot com mania, lost it all and just in 2006/2007 I finally became a value investor.
I think there are a lot of us that jumped on the dot com bandwagon, lost nearly everything, and became more conservative, value investors (although everyone in the market claims to be a value investor). I started investing in high school in the 90s, but didn't put serious cash into it until 1998/99. Lost almost everything except a few purchases after the bubble burst. Those few taught me the value of patience and long-term (10+ year holdings) investing.
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Building a position in TSX: SXP (Supremex Inc.).
From Google Finance (I need to find an alternative website once the portfolio feature goes away):
Supremex Inc. is a manufacturer and marketer of a range of stock and custom envelopes, and a provider of packaging and specialty products. The Company operates through manufacturing and sale of envelopes and packaging and specialty products segment. It offers translucent envelopes, digital window envelopes, EnviroSafe and self seal envelopes. Its packaging products include Conformer Corrugate Mailers, Auto Boxes, Tear Resistant PaperTyger Mailers, Board Mailers, Conformer Presentation Folders, Poly Mailers and Enviro-logiX Bubble Mailers. Its labels include custom labels, repositionable labels and affixing. Its specialist products include repositionable notes, membership cards, photo packaging, file folders, radio-frequency identification (RFID) ProteXion envelopes, Extended Envelope and integrated envelopes. It manufactures and distributes products to corporations, national resellers, government entities, as well as paper merchants, statement processors and solutions providers.
The company is a bit of a proxy on the growth of e-commerce, at a very compelling valuation. The company has seen growth to its top line revenues and bottom line over the last several years, is providing a dividend yield of about 6% at this level, has a P/E of 8, $30m of debt but averages about $20m of operating cash flows over the last 3 years. I feel that there is some margin of safety at its current low valuation.
My analysis is fairly simple, so if anyone has been following this company, please provide any insight for or against this investment.
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He would do much better if he simply hedged himself by holding 30% cash. His problem seems to be that he needs to show the appearance of doing "something" to hedge out performance. A 30% cash anchor would have been much better at allowing him to be ready for the big drop he's been waiting for since 2010. He's too professorial for me - the academic bubble got him stuck in a theoretical world. The economics vacuum works in the lab or in the mind but not with animals, like humans, with our desires and wants. Too bad. He's extremely intelligent and has many great ideas, but gets stuck defending himself rather than thinking like the average investor or group of investors.
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https://www.gurufocus.com/news/580392/john-hussman-hedging-and-opportunity-costs
It appears to me that you have to assume much more frequent corrections than history provides to do well with excessive hedging. At least his AUM has been killed, if I was him, I'd feel horrible. Alternatively, I'd write weekly letters to keep my delusion alive. He could create two separate funds, one long, one short, and give options. However if he did this, he'd have to come to grips with reality, that evidently wouldn't do.
Absent the value nirvana period of out performance during the dot com bust, his ex hedge results would be quite mediocre although above average.
I don't want to be negative but he holds a unique space in which he's frequently referenced/held in high esteem yet steals money from his mystified investors..... I don't think that's too strong a word. It's difficult to find greater atrocities even if his hedges created a 50% out performance next year, excluding those temporarily lucky fresh investors.
Finally, he could offer a t-bill fund in which the mgmt fee is = to the t-bill return and give his investors some relief. Hopefully, he wouldn't hedge the US govt...... one can dream.
If he quits, I think that would be one of the greatest indicators to hedge or raise cash in one's portfolio.
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biaggio - I was thinking that too, but they do lose customers with the higher prices.
Maybe a niche - cigars?
Spirits and Wine?
Still think you are looking at "luxury", high end goods. Like caviar and Flyers tickets (which only a true epicurean can appreciate)
I think a business with pure pricing power isn't concerned about losing customers, and is looking to maximize profits, and by that definition, NFLX, AAPL and GOOGL should be considered companies with strong pricing power, as should tobacco companies (losing 75% of your market to smokers quitting and still achieving higher EPS are good characteristics of a company with pricing power). I think elevator companies have pricing power (on maintenance of the elevators themselves), enzyme companies (small input cost in the production of yogurt, cheese, wines, beers and other fermented products), and some drug companies have pricing power (I'm invested in NVO on that very thesis). A good sign of a company with pricing power is one that has a high ROA (ROE can more easily be manipulated through financial engineering) and it remains so over the years. I think a decade of high ROA means a good chance of pricing power.
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British American Tobacco (BTI)
Great Canada based companies
in General Discussion
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CCL Industries
Premium Brands Holdings
Savaria Corporation