Viking

The big US banks have sold off the past couple of weeks (with some down 6-8%) so part of the big move today may be because they were oversold. Regardless, they are still quite cheap. At current prices my favourite is Citi; they trade way below tangible book value and have a PE of about 9 (current year earnings). They are over capitalized and capital is growing faster than earnings (as they utilize their sizable DTA). Capital return will increase nicely this year. The next catalyst to the shares should be CCAR announcements in June. Hopefully Citi will be approved to return 12-15 billion over the next 12 months; if so, I expect the shares to pop.

Agreed that well researched stats are in short supply. I also agree that crazy low interest rates are the fundamental factor driving the market higher (although I am not sure that explains the 30% increase in prices we are seeing year over year as I think interest rates have been roughly flat over this period). On my street in Langley (30 minutes outside of Vancouver) 5 houses have sold in the last 24 months; 4 buyers were new to Canada from China. My neighbour who listed his house earlier this year had 40 people come through in 24 hours and told me 'the vast majority' were Chinese buyers. It may be that my neighbourhood is being targeted (as it has a reputation for having very good schools). Bottom line, I do think Chinese buyers are goosing prices in certain neighbourhoods in Greater Vancouver. Unfortunately, it is all happening 5 years too early for me (if my kids were out of the house I would be happy to sell, pocket the gains and rent or downsize (to a townhouse).

I think a key cause of the real estate popping in the US was they ran out of fresh meat. By 2007 if you had a pulse you 'owned' a home. Income did not matter. Job did not matter. The market simply exhausted itself.

I think it is pretty straight forward to identify a bubble. I think it is near impossible to predict when it will pop and what the cause of the 'pop' will be. It looks to me like Vancouver is in a housing bubble. Living here, it is taking on the feel of a game of monopoly. Prices up 20% over the last year in some neighbourhoods? Prices up 50% in 5 years? My neighbours sound like they are intoxicated when they talk about real estate. The one caveat I have is China. If demand from China continues at current levels (people wanting to get their money out) then the Vancouver market could stay elevated. It could even continue to go higher. Bizarre....

I live in greater Vancouver (Langley). 2,350 sq ft houses sold for $600,000 six years ago. Two years ago they sold for $700,00. Last year it was $750,000. This year a house was listed for $850 and it sold for $1,030 (it is now affectionately referred to as the 'million dollar house'). My neighbour recently listed their house at $938,000; they had 40 people though, multiple offers, and a final offer of $983,000. Most of buyers are Asian looking to get their $ out of China. Total blows me away to see prices going up one hunded thousand dollars each year for many years. Hard to see how this is not a bubble. The crazy thing is the flow of $ from China is expected to continue so we may very well see prices go even higher. Vancouver is such a small city it does not take much demand from China to cause prices to spike. Both of my new neighbours are from China (very nice families and great neighbours). :-)

listening to these are of high value for me. It normally takes me three conference calls to get a decent read on management (do they walk the talk). As an example, by my third RIM conference call I had no faith in management and exited my full position with a small haircut (and avoided getting scalped).

+19%; pretty much all due to CAN$ appreciation. I did OK with JPM, offset by being too early back in Apple (closing Dec 31 at 105 did not help). :-)

The price dipped below $10/unit this morning, which is about where it ipo'd at the beginning of the year. I like the idea of getting some exposure in my portfolio to India; can't think of a better way than Fairfax. The key will be to give FFH 3-5 years; I think it will take that long to build a very good portfolio of businesses. My guess is FFH will be focused on buying positions in quality businesses (given the other risks such as corruption etc). The stock market in India has also been on a tear the last few years. It looks to me like FFH will be making purchases at fair prices. This means the benefit to FIH shareholders will take years to show through earnings growth at the acquired companies. :-)

cash - fed raising rates further in 2016 likely means lots of volatility in equity markets; having some cash on hand will likely come in very handy

About 35% cash.... Wondering what happens when the fed actually raises rates.

I am happy the Liberals got a majority (not sure how long this feeling will last). I hate minority governments where the three parties make promise ($) after promise (more $) to build a large enough base to form the next government. After 10 years governing the Conservatives needed the boot; too arrogant, mean spirited and divisive (coming from a conservative). The NDP results (or lack of) were also a shocker. Interesting times...

So 3 of his top 5 holdings blew up. And the problem is concentration? Sounds like the real problem is picking the wrong stocks. If you are a poor investor and you concentrate, yes, you will lose your shirt. Concentration has made all the difference to my investment returns over the past 20 years. Sometimes that has meant 100% cash; 80% Fairfax; 80% Apple etc. I do not look to get concentrated; however, if Mr Market drives the price low enough I am happy to back up the truck for short periods of time.

Homestead, I just look for industry leaders that are out of favour. They may be out of favour for any number of reasons; some reasons are obvious and others are not. A good example are the large US banks. You can buy them right now for about 10 times 2015 earnings (Wells Fargo is 12 times) and 9 times 2016 earnings. Their 'temporary problem' is Mr. Market simply does not like the sector. This will correct itself over time; these stocks will be much higher the next couple of years. Another good example is Apple. A couple of weeks ago it was trading sub $105. The company will earn $9 this fiscal year and likely earn about $10 next fiscal year. The 'temporary problem?' Concerns over iPhone sales. My guess is iPhone sales will be fine and if I'm right the stock will be much higher in the coming years. My point is there are lots of different types of 'temporary problems', not just the type Volkswagon is currently experiencing that provide investors with opportunities to purchase industry leading companies at very good prices. I think Buffett would rather buy a great company at a fair price than a fair company at a great price (when your holding period is many years).

I am up about 13% year to date (in Canadian $). During this time my stocks are down about 2%. The gain is due solely to currency. All of my investments and cash are held in my US $ accounts. Starting about three years ago pretty much 100% of my portfolio has been held in my US$ account. When I sold US stocks I was happy to leave the cash in my US$ account until I found another good U.S. company to purchase. A year ago hen oil/commodity prices crated It was clear to me that economic growth in Canada would weaken (which it has) and the CAN $ has continued lower (versus the US$. At the same time the economic news out of the U.S. has been much better (compared to Canada). My guess is the current trend will hold for the next year or two so I am in no hurry to shift my cash to my CAN $ account). Needless to say, the currency gains the past three years have been very healthy. The crazy thing for me is I do not consider myself to be a currency investor. I am much more comfortable buying US companies; this year it has been Apple and the big U.S. banks (primarily JPM). I am not comfortable buying the commodity plays and, given I think Canada is in a housing bubble, I am not interested in Canadian financials. Those two sectors represent a big chunk of the Canadian market. I do really like some Canadian companies (CGI, Impact Financial, Saputo) but they are not 'cheap' enough yet for me to buy at current prices. The key learning for me over the years is to keep learning. Keep adding tools to your tool kit. One tool I have yet to add to my tool kit is buying leaps; if we get a big sell off in Sept or Oct I may buy some leaps in a few of my favourite large cap US stocks and start to figure out how it all works. :-)

I also read the calculated risk blog most days; great summaries and author is unbiased. Has a housing focus, which helped me a great deal in 2008-2009 (I have been reading it that long).

It looks to me like Mr Market is finally waking up to the end of QE in the U.S. and the Fed wanting to normalize interest rates. The first result, the past 18 months, was a rapid increase in the $US. This then lead to commodities tanking and economies of commodity producers tanking. The second result, China has now decided to unpeg their currency from the $US. Where does this take us? Currency wars and trade protectionism? Moving forward, I think the Fed and the China Central Bank are holding the keys as to where this goes from here (and how ugly it gets). Until we get further clarity from both parties we likely will see lots more volatility. Perhaps it is time to focus on return OF capital more than return ON capital.

We are in for some very interesting times. This kind of reminds me of a very public messy celebrity divorce. Both sides will lose. Greece's political culture is too far from Germany's and a majority of Greeks are not going to change that much that fast. At the same time Northern Europe is also not going to change and allow a Euro member to default. There is no middle ground on this one. The next couple of days and weeks will be very interesting as I expect the Greek government to continue to be very belligerent. How will markets react? We had a small sell off this past week. Now that No has won perhaps we get another small sell off. What would it take to get a larger sell off? I wonder if the crashing Shanghai stock market might impact world markets the next week or two more than Greece (should Shanghai continue to crash). I have largely ignored macro event the past 2.5 years or so and this has helped my investment returns in a big way. Paying attention to macro has also helped me at other times (I only owed FFH when the Great Recession hit the U.S. in 2009).

Personally, l love the fact that many (most?) people feel value investing is a mistake. This simply ensures a nice selection of securities over time for small investors to nibble on and earn better than market returns.

These is a great deal of noise right now when trying to understand the mega banks. What will litigation costs normalize to and when? What will the final regulations look like? How much capital will they be required to hold? The more interesting questions to me are: Will banks completely exit certain business lines? What banks will exit what business lines? For those who are left in a segment how will pricing change? Will we be left will oligopolies and if so will pricing decisions be rational? How will individual banks and the industry respond to the final capital requirements? Capital return is also a great unknown. Yes, the mega banks are not able to grow. So instead of using earnings to fund acquisitions they will instead have to return it to shareholders. This is not a bad thing in my mind as many large acquisitions are often not good for existing shareholders. In two years, JPM will likely be earning $27+ billion per year (and growing). They will need to build no more capital. They will not be allowed to make large acquisitions. They likely will pay out 75% to shareholders in regular dividends, share buyback so and perhaps a special dividend ($5 to $6 per share is possible). Over the next two years the narrative with the big banks is going to change in a major way; as people come to understand the size of how much capital is going to be returned to shareholders sentiment is going to shift (greed is a beautiful think to get interests aligned). The big banks are cash machines. All of the regulation is creating huge barriers to entry. The big banks are looking more and more like a regulated utility to me... with a yield (looking out 2 years) of better than 10% and growing. the risk of owning US large cap banks is likely the lowest it has been in decades. Low risk and high return... Not many opportunities like this available in the market today. My read is in the current environment (lots of important strategic decisions to be made) quality of management is going to be more important than normal. Banks that have been making and continue to make the best decisions are going to come through this period in very good shape: less competition, larger moat, more stable and predictable business results. The key for owners of bank shares is to simply do nothing...

I don't follow the regional chains in the U.S.; my understanding is the regional banks currently trade at a higher multiple than the large cap banks. My guess is the entire sector will do well. Regarding ranking the large U.S. banks currently I like JPM the best. I think they have the best management group. And each of their 4 businesses are solid franchises that will only get stronger from here. JPM looks like they are a few years ahead of Citi and especially BAC in executing their strategy to prosper in the current environment. If I had to own one name for the next 10 years I would pick JPM in a heartbeat. Looking a possible returns over the next 6-12 months it is really difficult to pick a clear favourite as each company offers something different. Citi looks quite cheap given earnings projections the next couple of years and they will be returning lots of excess capital (as they utilize their tax loss carry forwards). BAC looks the cheapest but it also looks like it has the most legacy issues to still work through and I have the least confidence in its leadership group. Bottom line, it looks like the headwinds are diminishing and the tailwinds are picking up some speed.

It looks like sentiment is slowly getting more positive in U.S. large cap banks, especially BAC, Citi and JPM. My thesis with large cap US bank stocks is over the next couple of years we are going to get 1.) increased earnings 2.) lower share count (as excess capital is used to buy back stock) 3.) sentiment change resulting in Mr Market paying higher PE multiple When these 3 things happen at the same time stocks often move 30-50% over 24-36 months. My guess is we are still in the early days in the increase in stock prices of companies in this sector. Over the past 8 years the vast majority of the coverage has focussed on issues: capital issues, credit losses, litigation losses and/or regulatory burden. All of these issues caused earnings to suffer, muted growth rates (top and bottom line) and this resulted in Mr Market valuing the sector with a below market PE multiple. Mike Mayo: "more positive on bank stocks than anytime in the past 16 years" A: asset quality is stronger than its been in the last decade B: balance sheets are stronger than they have been in two decades C: capital is stronger than it has been in 5 decades Litigation: in 8th or 9th inning Regulation: has hurt earnings growth but has also dramatically reduced risk; not a terrible trade off Earnings stability: much, much better than the past

I agree with Innerscorecard. I think the key factor for a lack of ideas is we have had a 5 year bull market (in U.S. Stocks anyways). While there are pockets of cheapness most sectors are fully valued to expensive. Really comes down to your perspective on interest rates. If US rates are headed materially higher then stocks are expensive and bonds are in a bubble about to pop. When the next correction in stocks comes (10-30%) I guarantee there will be many more more value investment ideas posted on the board. There is just not much that is out of favour. Earlier this year I thought the large cap US banks were pretty cheap; you could have purchased JPM in the $55-$58 range. With JPM now trading at $66 it is still on the cheap side but not as much as 3 months ago. There simply are not a lot of sectors or companies that are in a bear market right now. Circle of competence is also an important factor. Personally, I have had the best results buying best in class, large cap US stocks when they are out of favour. I have dabbled in Russian stocks, oil and gas stocks etc but I have learned that there are lots of other people who have a much better handle on currency markets and oil prices than me. I am happy to simply wait until the next bloodbath so I can find companies I understand trading crazy cheap. Not many of these around today.

If US interest rates are key then inflation expectations will be a good thing to monitor. Oil falling from $110 to $60 is very disinflationary as input costs fall. The U.S. dollar increasing 20% is also disinflationary as import costs fall. The U.S. is going to have very weak headline inflation numbers for another 6 months or so. However, as these two events calendarize then we should start to see an uptick in inflation. Another key will be if the U.S. labour market continues to tighten further. Labour costs have been increasing the past 4 years but the increase Has been small. Later this year or early next year we could see a scenario where the inflation rate starts to tick up. Should inflation expectations surprise to the upside we could see a bloodbath in the bond market. This fear will also hit the stock market and things would likely get ugly there as well. To me the bond market is the real risk right now. If things get ugly, cash will be king and those with cash will likely get another buying opportunity of a lifetime... Interesting how these 'buying opportunities of a lifetime' seem to be happening about every 8-10 years! To follow what is going on in the U.S. economy, with a focus on the housing market, I read the calculatedrisk blog, which is first class in its analysis.

Uccmal, I think interest rates are the key moving forward. If Mr. Market gets confident that the Fed is going to increase interest rates meaningfully then I think we will get a big sell off in all asset classes; bonds will get hit the hardest but the panic will hit all asset classes. Even if the Fed only tightens once or twice I think this will spook everyone and we could see a 20% correction in stocks and bonds. Perhaps this happens in Aug/Sept/Oct (if the data in the U.S. is decent over the summer and expectations of Fed tightening increases for the fall). What gives me confidence today is the U.S. economy continues to heal itself, but not too fast. My guess is interest rates in the U.S. continue to stay low for the rest of this year and perhaps next year too. The U.S. cannot increase rates as long as Europe is weak (another point made by Buffett). There is an old saying that the stock market does best when everyone is worried (it climbs a wall of worry).

I remember going into a Starbucks in Toronto on a Saturday morning in 1999 to read the Financial Post. On the front page (the lead story) was a graph showing the rise in the stock price of Nortel Networks from few dollars to over $120. Many, many companies were trading for billions of dollars and they had no little in the way of earnings. At the other end of the spectrum, government bonds were yielding 7% and Canadian bank stocks were hated (everything old economy was on sale, including Berkshire Hathaway). I remember going home that day and saying to my wife that we were living in a stock market bubble. My sales people were making more money off of their internet stocks than they were making in salary. The daily conversation in the office revolved around what hot stock they were currently riding. I do not see the comparisons to today; some sectors may be in nosebleed territory but not to the same extent as 1996-1999; back then tech stocks ruled the market. The subsequent correction killed tech but the old economy stocks that were cheap in 1999 weathered the storm fairly well. Today you can buy JPM for $65. It will earn about $5.85 this year, giving it a current year PE of about 11. Next year the bank will earn about $6.50. Dividend yield is just below 3% and growing nicely. It is buying back about $1.25 billion in shares per quarter. I am using JPM as an example of a stock that I think is valued very fairly today. I think Buffett has provided the best summary of the current situation. If interest rates stay at current levels for the next 5 years then stock averages are cheap today. If interest rates normalize in the next 5 years then stock averages are likely mildly expensive. The asset class that is in a clear bubble today are bonds; this is the asset class Buffett would like to short.