Packer16

The additional dynamic you have to consider if an asset purchase occurs the seller has to pay taxes on the gain in asset value. Depending upon the sellers tax basis, this may require the seller to pay more for an asset purchase to the seller. In some cases sellers don't want to pay a higher price for an uncertain tax benefit so they will structure the deal as a stock deal for tax purposes. Most all deals are asset deals for financial reporting. For most public companies the tax amoritzation is not disclosed only the financial reporting amortization is disclosed. The difference is captured (along with other tax items) is the deferred tax assets/liabilities. Packer

Yes for tax purposes it is either all intangibles are amortized or none are. However, for a stock purchase, you could have continued amortization from a previous asset purchase. In your example, either all intangibles will be amortized or not for tax purposes. The tradename will be recognized for financial reporting purposes as an identifiable asset. The life will be based upon management's estimate of either a fixed life (for most tradenames) or an idefinite life (for classic names - like Coca Cola). Packer

Either total intangibles are amortized for tax purposes or nothing is amortized. Identifiable intangibles is only applicable to financial reporting not taxes. Packer

Goodwill is amortizable for tax purposes if the acquisition is an asset acquisition for tax purposes. If it is a stock purchase for tax purposes then it is not. There is a difference between tax amortization goodwill (all intangibles) and financial reporting intangibles (total intangibles less indentifiable intangibles - things like customers, technology which is amortizable over the asset expected life). Packer

Are you guys open to having like a goto meeting or internet access for those not in Seattle? If you need $s I am willing to chip in. Thanks. Packer

I agree with your conclusion but the flow to stocks has only just begun (the flow of funds tells us that) that is why I think in the short/intermediate term therw will be a tailwind for stocks. Packer

I am not sure I agree that QE induces stock buying in practice. In theory that is the case but what has happened is people have purchased more bonds versus stocks. Just look at the fund flows for the last five years and the spread between bond yields and dividend yields. My observation is that Sweden was able to stop deflation with massive printing of money. This makes sense as the debt incurred was paid off in cheaper kroner. The deflation folks don't seem to have noticed this. They all go back to examples where the money supply was fixed oe declining (gold standard) - depression, 1890s, etc.. In Japan the chnaged thier policy back and forth so I think this is a bad exmaple also. Packer

Personally I think most people are fighting the last battle/crisis. As to your specific points: - profit margins are extremely high. Why can't they continue to stay high given the main contributor to lower profits in the past has been high labor costs/labor shortages. Do you think we are going to have labor shortages? I don't think so unless we have a world war or an uncurable plague. - interest rates are at historical lows. This is true but we also have low inflation caused by de-leveraging so there is no need for high interest rates - we have QE. This is a measure to offset deflation. Without this and low interest rates we would have deflation. Hoisington and Prem are right about this but have discounted QE as the response. Sweden in the depression is the example that folks don't want to pay attention to that where this has worked in the past. - growth is slow and we have de-leveraging. This is what we would expect as growth was brought forward with the debt incurred. We are about 50% through with this now so we have another 5 years or so to bring debt levels down further. - mkts are fairly valued Does this matter for individual stock pickers? Are you buying the market? - govt debt levels are high This is true and something that has to be worked on but in the US this has not crowded out investment to this point - The govts are involved in something they haven't done before. What hasn't gov't done before? QE? look at Sweden. I cant come up with many bullish arguments even though this run up might continue for a while. But, that also happened in 99 and 06. Bullish arguments: - Large amounts of cash on the sidelines - High demand for income producing securities - Safe assets have high prices (low yields) - Lots of skeptisism in the market (look at what happened to FB IPO) - Fair number of individual stock selling for discount prices - Many people cautious on economic outlook Unless these factors change I don't see a bear market. I could be wrong but just a few observations. Packer

I continue to think it is extremely dangerous to make the assumption that something that has worked in the past for Sweden (very very little), will also work today for the US + Europe + Japan (very very big)… They are just orders of magnitudes away! Someone can do something, if nobody else is following suit… But what happens when everybody in the developed world is trying to do the same thing at once? Well, that’s when bubbles are formed! And bubbles end badly. On the other hand, I agree with Packer that cheap stocks are cheap stocks, and you should always look for them! giofranchi I guess the question is what other data points do we have and are they more analgous? I haven't found any. So at this point this is the best guess I can find. If you have found any I would like to hear them. Thanks. Packer

I think that there will modest inflation (less than 4%). The Fed is following the a policy similar to Sweden in the depression where Sweden was able to prevent the deflation in the rest of the world by letting the money supply grow to offset the deflation. High inflation is driven by wage inflation which I think will not occur for years. Fortunately, this does not affect that cheap stocks will outperform the market. Packer

Agreed Packer I dont know about that. Since the financial crisis we have had JPM get hammered down by the Whale, BP get killed by the gulf leak. These are only two examples I can think of in 5 minutes. Buffett bought General Dynamics stock in the 90s when war was never going to happen again. These seem to happen frequently, though perhaps not predictably, in the absence of a "global" meltdown. I am not saying that these bargains are not available all the time just that for large caps you need to be more careful because your competition is much higher. For every JPM and BP there are Dells and HPs. Smart value investors have invested in both it is just harder to outperfrom with large cos. What advantage do any of us have over sellers of JPM, BP, Dell or HP versus the advantage we can have over sellers of Saga Communication, Salem Communications, Lin TV or Alliance Healthcare or even in the extreme some of the microcaps mentioned here. As to Buffet, I think he tries to leap the 1 foot fence before the 10 foot one but as his assets have gotten larger the fence has gotten higher so he has had no choice. In my mind these smaller situations are lower fences because the competition is less. Packer

I think buying high quality companies at fire sale prices occurs maybe once every 25 to 50 years. If you have cash for these they are the safest investments but if you purchased less quality companies at the same time I think the upside would be greater in the US. Packer

Interesting observation. It sounds like buying cheap "good enough" companies will not work in less developed marketr like Japan and India. Packer

You can buy some of the recommended stocks here that are in EM countries (LUKOY - Russia) or (OIBR - Brazil) or if you want a fund there is Tempelton Emerging Markets (EMF) run by Mark Mobius which is selling at about a 5% discount to NAV. Packer

This business will get squeezwed between rising wages and declining reimbursement (as most of the reimbursement is via Medicare). Add in the debt and not a very good combo unless you think reimbursement is going up. Packer

Is the gonna turn these firms into promotional machines likes some of the junior resource companies? Packer

Speaking of Shanghai rivaling Hong Kong: http://www.bloomberg.com/news/2013-09-17/li-ka-shing-says-hong-kong-may-lose-out-to-shanghai-rthk.html Packer

Thanks for asking the question about China. Interesting response. Packer

What are his views on Chinese real estate given his holding in Lai Sun Garment, Wheelock and other RE holding companies. How does he get comfortable with management's reported NAV value for these firms. Thanks. Packer

It depends upon what they are when you sell. If they become compounders you treat them as such if they are ordinary businesses then you sell when they approach $1. Packer

There are two filters I apply to invest in these types of situations: (1) trend of cash flow up and (2) equity management/control incentives. I also use coverage ratios to see if the debt is sustainable and can be paid off in 10 years with FCF (unless the other businesses in industry can support high debt loads). Of your list, the only one I would look at is OIBR. I have done a top level review of the others and have passed because the CF trend was down, the debt was too large or management incentives were not there. I would be careful of the situations where an investor holds the common and debt because depending upon how much they hold of each, they may not be averse to a BK filing and it may turn out to a LVLT situation where the debt holders get a majority of the CFs and the equity is just an option. Packer

I think you saw this in the tech bust where value managers of most stripes were able to outperform the S&P 500 for 3 years. Packer

You can look at the CFA web site and at local chapter web sites. Packer

We are definately not at the beginning. To me it appears that leverage is appearing in RE financings, credit standards are being lowered and LBO shops are selling investments. This may be the beginning of the end (last 3 innings) as even now sentiment towards stock is not positive. Once the sentiment becomes more positive and bargains become harder to find then it may make sense to watch out. Packer

This appears to be an interesting space given the long-term deflationary trends in the system and these are yielding 7 to 8% tax-free (tough to beat those type of yields for fixed income). These funds but LT munis financed with short-term borrowings. Given that short rates won't increase until inflation is high and unemployment low, this looks like an interesting area. Many of these funds are approaching 2008 yields. Some interesting names are PMF and PNF (for NY residents). Packer