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It is due to only small portion or weighted portion having a high yields but many larger or larger weighted firm having lower yields. Averages are useful but also can be misleading if you don't understand their composition. Packer

My point and Greenblatt's as well is there is a disconnect between the micro (high bottom's up FCF yields) and the macro (the average or weighted average earnings yield being low). I think you and others are more than 50 to 75% right? That would imply that you believe the micro over the macro. If both were occurring (low FCF yields and low average earnings yields), then there would be an issue. As a to margins regressing to the mean, there again I think you have a micro (firms with alot of IP, defendable positions and not much fixed assets) versus the macro (averages). I think averages can be useful but also misleading. Packer

I think using since 1980 is not misleading because it includes both inflation and declining inflation periods and increasing (1982 to 2000) and flatline periods (2000 to 2012). If we have a large amount of inflation the period does not make sense but I think the deflationary forces are such that inflation will not become an issue for awhile. The only other issue is that if you think flatline will continue but I think at some point flatline will breakout to the upside I just don't know when and his period includes both periods. I think Greenblatt's observation is what many of us have seen here. There are alot of undervalued securities folks have found despite the market averages appearing to be high. Packer

I think the best bull bottoms up argument is from Joel Greenblatt below: http://video.ca.msn.com/watch/video/joel-greenblatt-says-apple-google-are-bargains/2h9oou9r4 Packer

An interesting chart for all the current bears: http://www.multpl.com/s-p-500-price/ It shows the inflation adjusted S&P and doesn't appear to show overvaluation in real terms. Packer

But the performance of his mutual fund is a different story. He has underperformed for 1, 3 and 5 year periods by large amounts. He reminds me of Hagstrom a good journalist and not so good investor. Packer

I guess my take is I don't buy the market. I try to buy undervalued equities. Even though delfation is a risk, I think at its first wiff you will see QE ramped up like crazy which should keep equities at least fairly valued so I think the deflation scenario is very unliklely unless our monetary policy changes. I think you could see it in Europe but it looks like Europe is following the US & Japan so delfation may be muted there also. Packer

My concern about deflation and tolerance of it depends upon a stable store of value (via the money supply). In the past times when there was a good amount of deflation there was stable money. As soon as stable money was turned into increasing the money supply to monetize the debt, there was modest inflation and subsequent financial repression. The US was the first to go off stable money, Japan followed and now Europe is following. Going off stable money may not be a bad thing as long as you have a debt deflation that is keeping market prices down. In essence, we are experiencing real deflation from the debt but nominal inflation. This is the scenario where I think equities do well but bonds and cash lose real purchasing power versus these assets. Packer

Oui! Oui! There are some cheap French and Italian firms out there. In the TV space there is M6 Metropole, Francais Television and Mediaset and in the radio space there is NRJ. In Autos, there is Fiat, Renault and Peugeot. In Telecom, there is Telecom Italia and France Telecom. I took a look at Natuzzi (that owned about 10 years ago) and it appears a shadow of its former self at a $60 million market cap net cash. Have folks given up on France and Italy??? Packer

Wegmans is by far the best. It appeals to many different types of folks and has developed a culture of customer service and employee appreciation bar non in the grocery business. They are always in the top 5 best places to work (which is quite a feet for a grocer). They have a great selection and are always willing to adapt to local tastes. For example, when I moved back to Rochester, NY from SoCal I really missed Tri-Tip (a type of steak that originated in Central California (Santa Maria area)). I had to go to a meat market to get these before Wegmans started to carry them. No other grocer in the area even knows what Tri-Tip is. They provide alot of training (sort of like the Disneyland of grocers) before employees can interact with customers and have the food lay-out thing down cold. The food is also not expensive. For example, my wife picked up some awesome fish $6 dollar meals that would have cost multiple times the price at a restaurant. There may be a reason WFM can't be found around many Wegmans. With the decline of Kodak and Xerox, Wegmans is by far the fastest growing company out of Rochester. Packer

You are correct for the most part but their are niches like radio, TV and cable where there are a good amount of NOLs which will be used in the next few years to significantly reduce taxes. Packer

For US GAAP, it is my understanding that DTAs on most balance sheets include a reserve to account for the portion that will not be used. This reserve is re-estimated every Q by management. I also think they include the tax effecting. The footnote disclosure should tell you this. It does not include a PV factor so you will have to make an adjustment there. Packer

For what its worth, if you read the article Buffet's view is on the shipbuilding industry not the shipping industry. Packer

Bob had the same company recommendation at the pre-Fairfax meeting seminar. At least he was consistent. Packer

I think a better way to think about Russia and China is in terms of totalitarianism versus democracy. In Russia and China you had one despot replaced by another. I don't know if it was worth the slaughter perpetrated by the despots (Mao and Stalin) to provide some financial benefit to a few. Once the despots were gone there was some improvement but the real strides took place once the market (i.e. capitalism) was allowed to exist as the real winner in the capitalist system in the consumer. I think the real in inequality that no one is talking about is the knowledge inequality which I believe leads to income inequality. This is further complicated by the fact that for the most part knowledge marries and associates with knowledge which leads to a virtuous increase in wealth amongst the "knowledge" class. Packer

If you don't mind me asking what are some of the cheap stock you like in Spain? Packer

I think the article missed the largest and best highlights for me: The pre-conf dinner, the pre-Sanjeev drinks, Sanjeev's dinner and MPIC annual meeting. I get lost in these large events and get better insight with one on a few at these other events. Packer

bookie, It sounds like you are from Alaska. What are your impressions of GCI versus ACS in terms of service and offerings? TIA. Packer

I think "old TV" actually has a nice future as an additional distribution channel for content beyond the current level of network content. I think you you will see the cable cos buy OTA companies to expand distribution of the content into different channels. You have already seen the consolidation in Alaska with GNMCA buying 2 OTA players. Packer

Following on what does deflation cause in the absence of QE? The reduction and liquidation of debts. The real question is does QE allow this process to happen so the growth and the credit cycle can begin again? It does if the velocity of money doesn't drop like a rock causing relative devaluation to real assets. Up to today, we do have declining velocity as the consumer has delevered. Gary Schilling has stated we are about half-way through the delelvering cycle. Another five years of delevering may cause enough debt to be removed from the system to create normalized growth. Once we see velocity increasing then we can see what shape we are in in terms of debt and will be able to see the positive or negative aspects of QE. One aspect of this is the corporate sector appears to be the best off in terms of debt. Who would be the winners and losers at the end of delevering? Winners corporations and losers debt holders (as the asset they hold would be in depreciated currency). We have already seen some devaluation versus real assets as their prices have increased. The question is do real asset prices go up causing relative devaluation and reduced debt levels in real asset terms or do they go down increasing debt levels? Packer

I must be the contrarian to the experts and attendees, I am 100% invested as are some of my fellow attendees. As some of my stock rise I want to be prepared to redeploy. FFH and LUK sound like good alternatives to cash. Packer

Based upon the BV metric the "best buys" today are: FFH, TPOU and LUK. How do determine a FV for OAK as it is a high premium to BV? A percentage of AUM? Thx. Packer

In theory this sounds good but how do you know when the undervaluation will be realized. I'll give you an example. Lin TV is has about an 81% appreciation potential to reach my target of current EBITDA multiple of 9.0. However, it has grown its cash flow about 54% over the past 6 years. Do I use 80% or more for the growth and over what period? The past growth has been good but I think the growth may decline in the future. Do I need to come up with a growth forecast to use this? If so, I may have a hard time. For the BV compounders, I can see how the metric can make sense. So lets say the typical compounder (FFH) can make 15% so you buy only under book? What if nothing is under book (like now) would you be all in cash? Are these only buy target numbers or sell targets also? Packer

You guys do a great job. I find it one of the best times of the year to learn more about value investing. Packer

Thanks for the tip. I currently use the AAII screens on the AAII site to screen for high FCF yielding firms. Packer