Viking
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Posts posted by Viking
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Shalab, thanks for posting the article. Since it was posted on the Fool web site on May 30 Fairfax has fallen another $44/share (7.2%) from $609 on May 30 to $565 on June 16.
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It really is amazing to see the change that has taken place in the past 12 months. 12 short months ago 10 year Treasuries yielded 1.5%, there was lots of pessimism regarding the economy and Fed rate hikes were considered taboo (and financial markets were laser focussed on the Fed).
This year the Fed has already increase rates twice. They just communicated a 3rd increase this year and three more next year and also communicated plans for QE unwind. The financial markets seem ok with everything the Fed wants to do.
My point is look how wrong consensus opinion was 12 months ago. We may be equally 'wrong' today and 10 year Treasuries could be yielding 3% in 12 months. It looks to me like we are at an inflexion point and the lows in bond yields is behind us. At inflexion points most people will remain stuck in the past. I like listening to Gundlach to understand where we may be going; he is not perfect but he provides lots of details so an investor can make an informed decision.
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I read lots of newspapers and I think it does help me with investing (hard to say exactly how). :-) I read the Globe and Mail, New York Times and some others depending on what is going on (Der Spiegel English edition). For US economics I read Calculated Risk blog etc.
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Chesko, given quantitative easing resulted in higher stock prices and lower bond yields can we assume that as the Fed does the opposite (shrinks its balance sheet) that this will result in higher bond yields and be a headwind to the stock market? Gundlach of Doubline feels yields on 10 year US Treasuries may go as high as 6% in the next 4 years and I wonder if the Fed shrinking its balance sheet is part of his thesis; he is calling for a choppy summer market with yields on 10 year treasuries moving higher in the fall and increasing to as high as 2.75% by year end (based on commentary on his conference call yesterday).
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As the Fed continues to increase interest rates we will likely see more speculation regarding plans to shrink its balance sheet. Quantitative easing proved to be a huge benefit for financial assets (bonds and stocks). As the Fed shrinks its balance sheet will this be negative for financial markets?
https://www.brookings.edu/blog/ben-bernanke/2017/01/26/shrinking-the-feds-balance-sheet/
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I would like to invest in FFH with shares trading at CAN $585. My concern is how their investment portfolio will perform in the coming years - they have largely missed out on the bull market the past 7 years. With US 10 year treasuries at 2.2% and stocks trading at all time highs the easy money for both bonds and stocks has likely been made for this cycle. I likely will continue to raise cash, sit in the weeds and wait for the next market sell off.
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Liberty, thanks for posting the 'Mostly Money' link. Best rational and balanced discussion of where the housing market in Canada is currently at that I have come across in a while.
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People simply need to manage what they post (and their emotions). Politics, business and economics are different shades of grey. To try and carve 'politics' out makes no sense to me. When I see threads spiralling out of control I simply stop reading them.
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The challenge for Fairfax is bonds and stocks have been in a bull market since 2010 and the easy money in this cycle likely has been made. Bond yields appear headed higher in the coming years which will make it very difficult for bonds to drive investment results. Rising bond yields also will not be good for the stock market (already trading at s high PE, largely due to crazy low yield on bonds). Where are the investments that are going to help deliver 15% return in 2017 and 2018?
Now if we get a jump in 10 year bond yields (to over 3%) and a 10-20% stock market correction then FFH may look very appealing as they are mostly sitting on cash and will be in a position to benefit from the volatility.
FFH stock does look cheap today; I am just not sure what the catalyst is today that is going to drive decent results in the next year or two. One catalyst may be share repurchases.
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As measured by growth in a book value, Fairfax has really underperformed since 2010. That is a long time. The fundamental issue is they have made many very poor investment decisions over the past 7 years. I liked that they actually showed a couple of slides at the AGM that clearly demonstrated how poorly they have done. Given how bad the underperformance has been (and for how long) I think it is reasonable for investors to question just how good they are today at managing investments.
What do board members think? Is the last 7 years the start of a new trend at FFH where they continue to underperform on the investment side of things? Or do they honestly understand their errors and more importantly have the people in place today to get their investing mojo back?
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What I find very interesting is the abrupt change that has happened since the Trump election. The market is no longer focussed solely on the US Fed. This is a very good development. Interest rates need to normalize and it looks like this is now finally happening.
Where we go is anyone's guess. Personally I find Jeff Gundlach at Doubleline and his monthly podcasts required listening to help understand where interest rates might be going. I think his current forecast is for yields on the 10 year US bond to move higher later this year (to the 2.6% range and possibly as high as 3%). Looking out a few years he would not be surprised to see yields move to 4 to 6%.
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This certainly brings back a lot of memories. While very painful at the time for Fairfax Financial the wicked stock swings certainly benefitted some investors.
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nafregrum, I also tell my kids that even if you do all the right things bad outcomes can still happen. Nothing is guaranteed. Kind of like Greek Mythology; if the gods are having a bad day you could pay a big price that has nothing to do with what you 'deserve'. However, this does not mean you should not do everything you can to achieve your goals.
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Travis and longinvestor, I live in a pretty affluent area of greater Vancouver. I see many affluent kids who are likely going to struggle as they are growing up in a bubble (where mom and dad look after their every need). I see lots of affluent youth with little ambition, poor work ethic, an entitlement attitude living a life of liesure (living at home after graduation).
I have told my kids many times that I am likely going to screw their life up (joking but with a subtle message). Parents want to protect their kids and want them live a stress free life - in doing this many kids are set up for failure once they turn 18 as they are ill equipped to deal with the real world. I came from the 'poor' side of the tracks and was able to hit it out of the park (lots of drive and very good work ethic).
I think 100 years ago you could bell curve the youth population; 20% will do very well, 20% will fail and 60% will be somewhere in the middle. I think this is true for every generation. My goal with my kids is to do what I can to prepare them to be in the top 20% once they hit 18.
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I am a firm believer that you can create your own 'luck' and lots of it.
Simply by setting a goal (I want $1,000,000 in the bank by the time I am 40 years old) is a good example; your brain will start to figure it out (even when you sleep at night :-). You will also build and execute plans. When opportunities present themselves to partly achieve your goal you will be more likely to act decisively. People will call you lucky, when they see you achieving your goal.
Prepraration is also key. I am telling all three of my kids to fill up theit tool boxes when they are young. Play sports (lots of different ones, some rep some house). Work for good companies with good/great bosses and coworkers. Get good grades (my wife is on this one). Travel and learn about the world. No crappy attitude and work hard. They have all enjoyed more than their fair share of success already; I am sure their friends think they are 'lucky'.
Most people view success as luck because it conveniently gives them an out as to why they are not happy with their current lot in life; they were unlucky!
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Smallcap, one strategy is to talk to them about investing and value investing concepts in ways that are relevant to them (companies and products they like).
A little off topic but I started a Lego business with my kids to teach them the basics of running a business. My son was into Star Wars Lego and my daughter was into Harry Potter Lego; in the beginning the business funded their Lego purchases and over time got big enough to fund their phone purchase (when they hit grade 7). We purchased Lego collections off teenage kids (Craigslist, garage sales) and then sorted the bricks, picked the Lego sets and sold the sets we did not want to keep. It is time consuming (so you have to really like Lego to make it work). The key is to be patient on the buy side (only buy collections that are in great condition and loaded with the kinds of sets your kids are interested in). Bricklink is a great Lego resource (value of used sets etc).
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Timing the housing market does not work. Want proof? This thread was started five years ago. Think about it.
Had someone deferred buying in 2012 expecting a collapse, that same home could now be 50% more expensive.
Purchasing in 2012 instead of renting, one would would have by now:
1) paid down a percentage of his mortgage
2) experienced a substantial gain in the value of his equity
3) had a very nice tax free increase in his net worth
On the other hand, the renter would have:
1) helped his landlord pay off his mortgage
2) probably experienced, or will experience an increase in rent payments.
Yes this is hindsight. Yes housing prices may take a dip. But investing in a house cannot be compared to buying shares in the stock market.
A share is a share. A house is a home. If your shares drop 30% you just lost 30%. If the housing market drops 30% you still have 100% of your home.
Also. Comparing the 2007 American housing market with the Canadian housing market is not an equal comparison. There are major differences, and there is much more to the Canadian housing market than two or three cities.
You perfectly outline the dilemma facing first time buyers in Canada today. The recent past has taught that waiting was the wrong decision (and spectacularly so). The other side of the coin is 'if' we are in a bubble of historic proportions and it pops and prices move back to 2012 levels (not that crazy) first time buyers will be wiped out financially. Yes, if they remain in their house prices will rise over the following 10-20 years; however, they will be scarred financially.
I remember the dot com bubble in the late '90's. It was clearly a bubble in 1996 but it did not pop until 2000. I remember people being called stupid for being sceptical of the permanence of the gains in 1997, 1998, 1999 because the dot com stocks just kept going higher... in 2001 people had a very different view of reality.
The big difference between a stock bubble and a housing bubble is leverage. First time housing buyers today are highly leveraged. IF we get a correction of 20-30% first time buyers will get cleaned out.
Psychologically, investors react very differently to gains and losses. A 30% gain feels great; however a 30% loss feels much, much worse. My point is the two are not symmetric. Crazy times for those first time buyers itching to use real estate to get rich (like their parents did). Good luck!
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Savers in Canada today have many great options. RRSP's are great for high income earners. TFSA's are great for everyone. RESP's are a great way to save for kids post secondary education.
As an example, I have three kids. When the third was born I set up a group RESP and made an initial contribution of $2,000 for each child ($6,000 total). The government kicked in 20% ($1,200). My starting total was $7,200. Today (13 years later) the total is north of $75,000. The power of compounding over many years.
Each vehicle (RRSP, TFSA and RESP) has its strengths and weaknesses. I use all three vehicles and am very happy with them all.
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Real estate prices in Vancouver are clearly in bubble territory. Prices are up 50% in my area (Langley) in the past 6 years. A 2,400 square foot house (no basement) is worth about $900-$950,0000. This same house might rent for $2,500 per month.
Prices have been driven up primarily as interest rates have fallen to historic lows. It is possible to get a 5 year closed mortgage for 2.5%. If you have a $1 million dollar mortgage your interest costs are only $25,000 per year (about $2,000 per month); this is 'cheaper' than what it costs to rent ($2,500) per month. I think this is how many people do the math. My guess is until interest rates move higher (north of 4%) house prices will continue higher.
A second factor, especially in greater Vancouver, is the Chinese buyer. This has added to demand. However, with the new capital controls the Chinese government put in place in December it appears demand from offshore Chinese buyers has slowed.
Should interest rate jump higher at the same time demand from Offshore Chinses buyers contracts then Vancouver real estate will likely have a hard landing. As with any bubble popping it is impossible to predict the timing.
I would not want to be a first time buyer leveraged to the hilt today. Buffett has taught us that you get rich by buying when quality is out of favour (margin of safety); and when quality gets really cheap you lever up and concentrate. In Vancouver today first time buyers are buying at the extreme high and they are using maximum leverage. Sounds like a recipe for disaster to me.
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Mephistopheles, I agree with you that there will be wins that come from a Trump cabinet. I think the best thing about a Trump presidency is there will be a vigorous debate about the true benefits of 'globalization'. My read is economists are underestimating how mobile labour is, how difficult it is to retrain people as they age etc. This will allow programs to be put into place to improve people's lives. It also appears as though some countries are winning more than others and is not sustainable. With Trump the risk is the pendulum swings to far the other way (to protectionism).
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Sanjeev, over the past 18 months we all have enough information on Trump to understand exactly what his character is. Since he has become president elect we also have ample evidence that nothing has changed. To me the surprising thing is that people are actually surprised he is now saying that he will not release his tax returns. And complaining at first press conference about crowd size gave me some comfort that my read on he man and those around him is accurate.
It is clear to me that the Trump presidency is going to closely parallel many of the nationalist governments running European countries in the 30's. Those governments were welcomed by their people in the early years. He will implement policies in the coming weeks and months that will be supported by those who voted for him.
The really interesting thing to me is Trump has not actually done anything yet... wait until he actually starts running his government. And attacking those who oppose him. And attack the media. I don't think my comparisons to 1930's European governments is going to be too far off.
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Trump is not President yet so it is a little premature to compare him to other people who have actually served as President for 4 or 8 years terms. We can start in 4 years time. All we can really do at this point is look at what he has said and done up to now and try and project how he will do once in office.
Here is a link to 35 quotes from President elect Trump. Not very inspiring. http://www.marieclaire.co.uk/entertainment/people/donald-trump-quotes-57213
When I process everything that Mr Trump has said I come to the conclusion that he has the potential to be the most disruptive US president of my lifetime. He has no filter. He craves attention. He has poor judgement. He is a liar. He is an embellisher. He is brilliant. He is very smart. He is very vindictive.
Globalization is dead. Tariffs are on their way. Picking a fight with China alone would be enough. Russia is now our friend. Germany is now our enemy. The EU is a joke. My read is a Trump presidency will be totally unpredictable. The world order as we know it is in the process of being turned upside down and the S&P is in rally mode. Really? Trump is Clearly a change agent and there will be big winners and big losers. My answer in the short term is to raise cash and sit in the weeds for next few months and see how things play out.
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A shade under 15% on average over the past 15 years. 1.) buying out of favour companies. 2.) extreme concentration when valuations get crazy low (for short periods, once every couple of years) 3.) sell companies when they are no longer cheap 4.) continuous learning (tweaking strategy over the years)
The most important thing is developing a story for each purchase. If the story gets better you buy more. If Mr Market panics (the stock gets cheaper) you buy more. The key is the story that comes into focus over time (and changes over time). Price is there to serve you. What the experts/analysts are saying is often just noise (and often not a useful piece of information).
Cash is a beautiful thing. Sit on cash until you find great investments... they will happen. Don't feel compelled to 'put your money to work' - one of the dumbest sayings I have ever heard.
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Packer, I agree with what you say. My point is more for the US to win there will be an offsetting loser. And because the US is so big a small benefit for the US will be a massive loss for the other smaller country. Countries and certain industries and companies will lose benefits they have had for 50-60 years. This process will not be easy and i think the most likely outcome is that it results in a trade war, a rise in nationalism and conflict (hello 1930's?). I do not think global markets have priced in how difficult this adjustment process likely will be. Global markets are mostly all rallying after the Trump win indicating there are no losers.
I have learned managing people for many years that change is VERY hard. If something they are used to gets taken away they get very cranky (even if it is small). Telling people in Canada or Mexico that they have had an unfair trade advantage versus the US and that they need to make concessions so the US can put more people back to work will not be an easy sell for politicians in either country.
I just don't think this is the Disney type movie that financial markets are currently reflecting. It will really come down to just how serious Trump is about renegotiating deals. If it is all show then we will muddle through; if he is serious and wants meaningful changes and concessions then I think things get ugly fast.
Thorough analysis of performance of selling decisions
in General Discussion
Posted
Lopo, over the years I have tried to modify my sell strategy. I found that I was pretty good with the buy decision: buying well run companies when they were out of favour (due to company specific or industry issues). Sometimes they would run up 10, 20 or even 30% shortly after purchase and I would be happy to sell and book some nice decent sized profits; often the fundamentals were also improving. Sometimes the stock I sold would keep on going, rising 100 or 150% over a couple of years as the fundamentals were improving and/or the market fell back in love with it and gave it a higher PE ratio.
I like Peter Lynch's advice that you sell when the 'story' changes for the worse (not because you can book a quick profit). I tend to run a fairly concentrated portfolio; this is because I can only find a few stocks (or industries) that i really like and find cheap enough to invest in; selling my few good ideas early meant I was sitting in cash lots (earning nothing).
The change I have been making (starting with my Apple purchase 4 or so years ago) is if fundamentals are improving to not focus so much on my immediate % gain and instead let the story play out; as long as fundamentals are improving be patient and let the stock run higher. Time will tell if this is the right approach.
I have not done a detailed my sell decisions like you have. :-)