Packer16

Long-term short selling only is like investing in phone directory firms or paging firms. You may be able to do better than the decline rates they experience due to changes in valuation but LT your performance will follow the economics - down. How would you rate a paging or phone directory investor? I would compare him to the other alternatives (the S&P 500) and he would do poorly but may do well if I compare him to paging or directory decline rates. I think Chanos should be compared to all the alternatives available not just shorts. Packer

The last example makes it clear and easy to calculate. Thanks. Packer

I calculate EV FCF as equity cash flows plus interest payments. I leave the tax shield and the changes in WC in the calculation. Packer

I think you can use all three in addition to P/FCF you just need to understand the advantages and disadvantages of each. I rarely use P/E as the E has alot of noise in it. FCF can be lumpy so I calculate assuming "normalized assumptions". I also use EV/FCF (Enterprise) - a Graham favorite that not many folks use today. EV/EBITDA is used because it provides the lowest number but also allows you to compare firms using different accounting and tax conventions across countries. Packer

The approach I took was to say the value above the intrinsic value of the option was the equivalent of interest payments for the borrowed strike price. This can be compared to other borrowing rates to see if it is cheap. Others such as Greenblatt describe it this way in his book "You Can Be a Stock Market Genius" for LEAP calculations. I think the results will be similar on a relative basis which is how I use it (in combination with option expected value calculations) and it is easier to calculate. The calculation does not include the opportunity cost of investing in the stock but that is not what I use it for, I calculate the upside of the option and stock separately in a different calculation. This requires 2 calculations but for me it is easier to see opportunities if I perform a separate calculations to estimate upside/downside. Packer

You bring up a good point a current example are the FTR options as they have a high dividend. The Jan 15s with a 4.50 SP are 40 cents. The current price in $4.56. You will miss out in 45 dividends so the real cost is 79 cents (40+45-6 (in the moneyness)) divided by the SP ($4.50) is close to 18%. Packer

I think the results will be the same but my simple mind can't deal with more than one thing at a time. That is why I marvel at ERICOPOLY's and others option calculations. It reminds me when I was an undergrad EE and some folks could understand the wave theories and such as I was good at digital 1s and 0s but no much beyond that. Packer

I am comparing it to cash. I calculate a return on both the common stock and warrant seperately to determine the differing expected returns. I assume a value of 1x BV as fair value and a 9% RoE going forward for BAC. So for the BAC warrants I calculate an annual RoR of 25% versus 12% for the common. So the bridge is I am borrowing the strike price at 5.6% and investing the proceeds at 12%. Packer

I think the real question is while many decry the inequality how many are will to do something about it that effects them personally. Many want the other guy to fix/pay for the problem. Income inequality becomes an issue if there is a consumption difference. It should be called consumption inequality because that is what it is. What about this proposal: If the folks that call for the higher minimum wage would spend less and put into a fund for the folks who get paid minimum wage. That is putting money where your mouth is. Packer

The way I look at call option is you are buying the stock in part by borrowing the strike price until expiration. So I calculate the value above intrinsic value as the cost to borrow the strike price until expiration where I will have to pay it to get the stock. I have not accounted for dividends but I have a version where you include a lower strike price (lower cost). In this case it has a lower borrowing rate of 3.2%. Which intuitively makes sense as the cost to borrow should go down if you have a value-added feature. Packer

I annuallize the (strike price + warrant price - stock price) / strike price over the remaining period of the warrant (5.12 years). Packer

The GM's leverage is alot cheaper than BAC's leverage. By my calc the cost of GM leverage is 0.6% per year while BAC's is closer to 5.6% per year. Packer

Ben Graham does discuss net nets on pages 587 to 590 of SE 2nd edition and pages 485 to 490 and 713 to 714 in the 3rd edition. He appears to include only those firms that do not have declining asset values over time and discusses that you need to be selective in purchasing these. As another reference point, Monish Pabrai has abandoned his Japanese net-net basket. Packer

Bloomberg does scrub their data. They are also stronger than Capital IQ for international securities and fixed income securities, real estate and they have some pretty good industry analytics as they have industry analysts on staff to put together stories and industry data. Packer

The segmentation concept for commodity businesses is a good selection model for commodities based businesses. I have always had a hard time trying to come up with a good selection tool other than large amounts of resources and qualitatively included low-cost production. Low cost can provide a pretty nice moat if you don't have overfinanced marginal competitors. Packer

Another nice shout out to CoBF. Did you notice two of Monish's goto sources for additional information about ideas is Value Investors Club and this site? Sanjeev has created a world class investment site for sure. Packer

The comment about how GAAP earnings have gone down due to write- offs over the past 10 years is true. I perform these write-off analyses for a job and before 12 years ago these for the most part did not exist. Operating earnings accounts for these write-offs so you can compare to history, GAAP does not. Comparing GAAP now to GAAP in history is like comparing apples and oranges. My question is who buys the whole market? So unless you are buying index funds how relevant is the S&P 500 PE ratio? Packer

As some of us have been talking about previously education is a great hand-up. I think you should give to a local school or organization that can provide help. Some great examples from above. A great school in Rochester that provides scholarships for kids who can attend and tries to keep tuition low so as others can attend also. It has a good mix of both city and suburban kids that is hard to find in the Rochester area. I am on their finance committee and have seen how it has helped many kids. www.finneyschool.org Packer

The way I look at is to give away 10% of the increase in net worth plus salary per year to charitable causes. I have been blessed with these gains (which to some extent are provided by events beyond my control) at minimum I can provide 10% to others. Depending upon your salary you can give more or less. You can start with a small amount. The one thing I have noticed is I like to give to causes that help folks today and provide a hand-up like scholarships for kids that go to my kids school and relief work. Packer

Secondarily great capital allocators and value investors have a tendency to live below their means and want their children to live modestly also. This leads to excess capital which can be provided to benevolent purposes. This is a more direct influence of secondary market capital allocation on the world. Packer

Has anyone been looking into these lately? I saw a video where Laurence Tisch was bullish on munis. Some of these have pretty good tax-free yields like MHI at almost 8.3%. Packer

Part of it is much of Russia is a kleptocracy led by the government. There are some good cheap companies there like Lukoil but firms like Gazprom are tied into the government with product pricing determined by Putin et al. If you can seperate out the good from the bad, there are some bargains there. Packer

Try this: http://www.stockspinoffs.com/ It has a nice list and analysis. Packer

You are correct about Grantham, he did pretty good coming out of the telecom crash but has lagged since the financial crisis. He also has large money constraints but he also gets paid pretty well for those constraints and he has definately developed a large library of value oriented financial books/articles. Packer

All I really need answered is if Grantham and Hussman are right so often, where are their returns? Not market beating like Buffett, Marks and Tepper. They are playing a fools game in which no one has the right answer because the economy is not machine and is run by people who are not always rationale. I have been tempted to invest based upon some of Gratham's ideas then I look at his returns and caution comes to mind. What am I missing? Packer