StubbleJumper

ELF.to ???

Yeah, that was a neat situation where it was theoretically rational to buy all possible combinations with a view to making a profit. At the time I wondered to myself what they would do if they bought all 7 million combination and then they discovered to their horror that they would have to share their jackpot with 4 or 5 other winning tickets (it does happen from time to time that there's more than one winning ticket). Would one-fifth of the jackpot plus the subsidiary prizes have been adequate to offset the purchase of all those tickets? Thanks for the walk down memory lane! SJ

Yep, the old man's washed up.

Rule#1: Don't lose money. Rule#2: Never forget rule#1. Regime change is excellent for those who seek emancipation. It's less excellent for those who have capital at risk because there's a sea change in the political legal environment, and the possibility of a protracted civil war. Quick way to lose money.....just ask investors who had capital in Cuba. I'll take a pass, thanks. SJ

Stubble, I think you are making a mistake comparing a real yield with a nominal yield. I won't argue the 'realness' of the 13.3 PE which I think needs to be cyclically adjusted, but a true real yield of 7.5% is above the long run average for stocks, and needs to be compared with the real yield of bonds. It's a 500-600bps difference depending on what you think inflation will be. Not advocating the market is cheap, but by your data points I would say it's fair / decently cheap. Ben I'm not sure that I understand. I just compared a quick and dirty nominal earnings yield for the S&P to a nominal long bond yield, which gives a nominal spread that represents the equity risk premium. I am quite open to the argument that nominal S&P earnings should have some growth, but the notional spread that I eye-balled is about 65% of the historical equity risk premium. If you tack on Sanj's point about risk free rates being historically low, you might come to the conclusion that this is not the best time to jump into the broad market. Have I missed something? SJ

Well, that's exactly the rub. The broad market (S&P500) seems to be trading at a PE of around 13.3. I say "around" because it's never entirely clear to me whether they're using operating earnings or actual reported earnings which can be quite different. If you invert the broad market PE, you get an earnings yield of around 7.5% (assuming that you believe the earnings number to begin with!). That gives me a equity risk premium of about 300bps above a historically low risk-free rate. No, thanks. I'll continue to be very selective rather than just jumping on the broad market! SJ

Yep, if you look to the past for inspiration about growth rates, it's enough to make you drool at the current valuation!

I would concur with this view. Anyone who thinks that MSFT is a value stock should open up their Microsoft Excel spreadsheet and run a number of hypothetical discounted cashflow models. They really only take about 5 minutes to build a 10 year earnings forecast, apply growth rates and discount rates, and then see what you get. When you do this, think very carefully about what sort of discount rate that you would need to apply to MSFT's earnings after about year 5 or so. IMHO, those earnings are so uncertain that I'd want a 10-15% discount rate on anything past about year 5. To be comfortable with MSFT at $27, you need to either be very confident about the distant cashflows (and thus use a relatively modest discount rate) or you need to assume some healthy earnings growth. I'm not saying that MSFT will implode any time soon, but I just can't get comfortable with the numbers and uncertainty. SJ Did you incorporate the $6 in cash per share on the B/S? Nope, didn't go that far. Just discounted the earnings and assumed that they'd all eventually get back to shareholders (which is already a heroic assumption). Even chopping off the $6, you'd need to forecast some growth or use a charitable discount rate to hit $21. I refuse to forecast growth for MSFT, and I refuse to give them a pass by using a low discount rate. I love their monopolies on O/S and office software, but I really don't like the shifting sands upon which their edifice is built! SJ

I would concur with this view. Anyone who thinks that MSFT is a value stock should open up their Microsoft Excel spreadsheet and run a number of hypothetical discounted cashflow models. They really only take about 5 minutes to build a 10 year earnings forecast, apply growth rates and discount rates, and then see what you get. When you do this, think very carefully about what sort of discount rate that you would need to apply to MSFT's earnings after about year 5 or so. IMHO, those earnings are so uncertain that I'd want a 10-15% discount rate on anything past about year 5. To be comfortable with MSFT at $27, you need to either be very confident about the distant cashflows (and thus use a relatively modest discount rate) or you need to assume some healthy earnings growth. I'm not saying that MSFT will implode any time soon, but I just can't get comfortable with the numbers and uncertainty. SJ

Al, Sanj, I'd be surprised if there were any meaningful buybacks (ie, >5% of outstanding shares). FFH is on an acquisition binge, and it shows no signs of subsiding. At some point, they'll have to stop to digest, but my sense is that they're not done yet. SJ

No major shift in sentiment here. I don't normally have much to say about credit markets, unemployment, or GDP growth. But I do think about broad market valuation on an ongoing basis, and I continue to hold the view that the S&P500 is modestly overvalued. Based on Shiller's data, I'd be much more comfortable if the S&P500 were valued around 900. This type of modest over-valuation can persist for a very long time. The implication for me is that I'm not going to buy SPY. Given my views about valuation, I need to be selective about what I buy to ensure that there's a reasonable prospect of a fair return. SJ

I have almost entirely switched to Ubuntu Linux. It's an excellent product, stable, secure and FREE! I run a dual-boot Windows XP and Ubuntu system, but it's a rare week that I ever boot up the Windows side. It's much less hassle to simply surf away and ignore the plethora of windows viruses that seem to pop up every week. In my case, I use OpenOffice as my office suite. I would suggest that it's about 98% as good as Microsoft office, but if you use some of the very obscure power-user features of Excel, you will find the 2% that's missing (some of the data handling capacities are not as well developed). However, for the average Joe, the office packages are functionally equal, and it can open and save MS Office files in their native format. I believe that there is also a free imitation-Matlab program too, but I've never found a need to install it. Anyway, I like the MacBooks, but the price is just out of this world. If you buy a cheap-o desktop/laptop/netbook, you can install a free copy of Ubuntu Linux, and you're off to the races for $500. SJ P.S. Even if you ultimately decide to stick to Windows7 as your operating system, download a copy of OpenOffice and take it for a test drive. If you like it, then you'll save yourself hundreds of dollars by not having to purchase Microsoft Office.

FFH is swimming in statutory capital. The challenge will be to find enough business that's worth writing in this soft market.

A few months ago, we had had a few posts on this board about the risk of fraud when buying Chinese stocks that appear to be cheap. I always appreciate the benefit of smart, experienced investors who make those sorts of contributions with the goal of helping board members protect their capital. SJ

It would indeed cost a minor fortune to replicate their existing asset base. In fact, it did cost Viterra's predecessors a minor fortune to build out the asset base, which might be why they ran into financial difficulty. However, the original acquisition/construction cost is not really that relevant. What matters is the return that they are able to generate from that asset base. The only way I can come close to justifying the current market valuation is to ignore depreciation. However, I tend to be hesitant to focus on operating cashflow alone for a company like this because you can tighten up on maintenance capex for the short term, but it's hard to do forever....at some point depreciation becomes relevant. SJ

dazel, Given the tone of your post, I'm not too sure what to say. I suspect that I'm one of your "naysayers." The stock price of Viterra increased which is great for your portfolio. On the other hand, we're not right or wrong just because the price of a stock goes up or down....rather we're right or wrong because of the thought process underlying our investment decisions. Going forward, part of that thought process needs to include a sober reflection of whether VT's operating results on a fundamental basis justify a price of $11/sh (or even the $8 that it sold for in August)....and it is those operating results that would merit celebration more than the short-term movement in stock prices. From my perspective, the results are not yet compelling. TTM EPS was $0.30, and even if you take Q4 EPS of $0.14 and run-rate it for an entire year you still only get earnings of $0.56/sh. I'm from Missouri. As always, Mr. Market will do what he does in the short term. SJ

Yes, I too appreciate the post. I always read Van Hoisington, but rarely remember when it's due to be published. They're still bullish on bonds. Prem sometimes aligns FFH with the Hoisington view of the world. Wonder if FFH asset allocation will lighten up on (overvalued?) equities in favour of sovereign debt? SJ

What's most impressive is that HBC was sold earlier this decade at a valuation of about $1.5b and now the Zellers element alone is being hived off for $1.8B. IMO, there have been no notable improvements in the operations of HBC or its intrinsic value. I guess that pretty much confirms that Jerry Zucker was a pretty bright guy. SJ

This is a terrible disaster that will displace thousands of families for a number of months. It will be interesting to see how property owners will be indemnified. In North America, usually flooding damage is excluded from insurance policies and governments must step in to help out homeowners. Don't know what the practice typically is in australia.

Out of curiosity, it took a really quick look at WINN's balance sheet. That sucker looks like it's trading at liquidation value. Eye-balling the balance sheet, if you assume that inventories plus receivables will just offset current liabilities, then you're roughly left with ~$2/sh cash and $12/sh of PPE. If you give a 66% haircut to PPE, you'd be left with ~$4. Add the $2 cash to $4 PPE you end up with $6/sh which is where this beast trades. It's probably worth more dead than alive. Given the competitive landscape, I wouldn't buy WINN with the idea of keeping it as a going concern, but it might be an interesting purchase for SHLD to "run it off" and sell the real estate... SJ

Yeah, I've never quite understood why he hold that point of view, particularly given his typical candor. Effectively, he just needs to put out a press release announcing a normal course issuer bid with a paragraph stating that, "Management believes that shares are grossly undervalued and that it believes that it's no in the interest of existing shareholders to sell, but if any existing shareholders are dumb enough to sell then BRK will acquire and cancel their shares." If you tell people that they are dumb to act in a particular way, and then they go ahead and act that way despite your warning, then how are you taking advantage of them? SJ

The wisdom of crowds prevails. The dividend fell into the range most frequently selected by voters ($10-$12). Now I just need to decide what to do with the money in three weeks.... SJ

Hmmm.... FFH is up about $7 on the day that they will likely announce their dividend. Anyone still believe in efficient markets? SJ

I like to think that I know what I'm doing, but I try to remain objective enough about my own behaviour to recognize that it could be unwise. As Mark Twain once said, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." Being drastically overweight in insurance exposes me to the risk that I'm missing a critical detail that ultimately could result in a permanent loss of capital. I'm ok with that, but to add more capital to the insurance space I would need to have a super-cheap irresistible candidate. There are several good choices, but.... SJ

IMO, the broad market is modestly over-valued. There are some ok values for individual stocks, but I'm not finding many that I actually want to buy (as Packer noted, insurance is an area with a number of good choices, but when you are already drastically overweight with insurance......). For now, I'm building cash. SJ