Cigarbutt

Long term, things will tend to equilibrate. It is fair to agree though that the Market and individual firms market caps diverge from their intrinsic trend. Isn't this why we play this game? Stock picking, way to go. Market wise, this is another question, even if opportunities for stock picking or the absence thereof may help answer the question. Fully invested or market timing (or somewhere in between)? Who cares what I think? But, where does the Master stand on this question? What he says ("stocks are cheap") versus what he does may not be the same thing. The end points from 2003 to 2017 seem to indicate that he is relatively agnostic. If you look at the 2009-2017 period, there seems to be a particularly strong logarithmic taste for cash. http://www.investmentu.com/article/detail/54917/cotw-warren-buffett-cash-reserves-midcap-stocks#.WdZG5oWcHug If you look at the 1994-5-6 starting point, (time period chosen because then some were already alluding to an irrational exuberance era(!), a time period when wise heads should have considered fearfulness?) you find that the cash/eq to be much lower than the numbers mentioned for the most recent periods and you find that the CAGR of cash (1994-5-6) to now to be somewhat high. But then again, we may be in new era. The burning question remains: Why is he holding so much cash?

Interesting. The CAGR of the cash position at BH since 2009 has been higher than the CAGR of the S/P index. This brings up the concept of yardstick. If the yardstick is BH, then one will likely do well over time even if market price undershoots intrinsic value of BH at some point. If the yardstick is WB, then the reward is potentially larger. To enjoy a larger reward though, one has to do better than BH. Simple but not easy.

«Anyone who is not confused doesn’t really understand the situation.» Count me in the confused and unable to explain camp. As value investors, we are paid to take on uncertainty. What is the long term price/premium for uncertainty these days? Cumulative real growth, 2009-present US GDP: 16,70% S&P 500: 130,51% Fed balance sheet: 332,20% What, me worry?

So it boils down to bullshit avoidance, Seek out things that make a difference, Stay away from the toxic, Be unconventional and authentic. "Cultivate a habit of impatience about the things you most want to do" Sometimes, one wonders if writing on these boards makes a difference. Sometimes it does. Thank you dcollon

« Would like to know what caused the problems in US if it is not unfettered one way trade. Essentially the lot of an average person has improved in almost every country on the planet in the last two decades. » Out of respect shalab, here is a short response. Early this morning, I read something which summarizes this well. https://fee.org/articles/the-core-of-liberty-is-economic-liberty/?utm_source=FEE+Email+Subscriber+List&utm_campaign=aa901e1dfc-MC_FEE_DAILY_2017_09_07&utm_medium=email&utm_term=0_84cc8d089b-aa901e1dfc-107170297 Invariably, for these tough topics, there is a political component and maybe this is not the right forum for these discussions. I am really a fan of economic liberty and, possibly, you are right that some of it was taken away (by strangers through trade, large corporations and others) but I humbly submit that the « ordinary people » somehow have let it be taken away. I also hope that the « we » continues to be extended beyond the heartland. Obstacles, compromises and maybe some abnegation along the way but J curves up for grabs. Good luck to you.

I put a link that may be helpful for those who follow Irma and worry about Florida. Out of the 9 most powerful hurricanes that have hit continental US, 6 have hit Florida. Including Andrew in 1992. http://www.nhc.noaa.gov/1992andrew.html Good luck.

Shalab, Unnecessary clarification: i don't enjoy people losing their job or dignity. I read your opinion article. The author has ties with the Economic Policy Institute, which is related to unions and a "left" label. That's OK. We can still talk. The EPI seems to promote publicly financed infrastructure spending and increased taxation to the rich. Hey! This sounds like the political program in Canada! If you have in mind a balanced budget and sustainability, I may be in. SharperDingaan seems to evoke some kind of economic repression and perhaps even class clash. The rising income inequality, whichever its origin, is not healthy. Maybe I should spend more time reading financial statements these days but I suggest that the issue should not be overlooked. Fortunately, the Forefathers of your country put in place founding principles that, likely, will survive the next transition. We just need to come together around those principles and yes, like SD mentions, the majority may hold the balance of power. One or a few guiding lights may help. Where is your Mandela? I include a link which constitutes a form of rebuttal to yours. https://www.nytimes.com/2016/04/27/business/economy/the-mirage-of-a-return-to-manufacturing-greatness.html?mcubz=3 My opinion continues to be that free trade, globalization and the trade deficit with China are not responsible for your country's woes.

HJ, Fair enough. I respect your position. There are a lot of people in your camp. I too think/hope that the US will regain its foothold. The trajectory will lie between exceptionalism and cynicism. There is a lot of talk about disconnect these days and I don't like it. Participation to this Board is only one of the ways to "fight" this. And frankly, I don't know if the "elite" has disconnected from the common man or is it the other way around? Whatever the cause, I submit that we have to re-connect. Disclosure: Naturally born idealist.

Appreciate the link and response. Will eventually re-visit the issue. I am fairly new to this Board and have found that the search tool to be valuable. When you read something, think that it's dumb and realize it's you, well, may help in getting better going forward. For instance, profit margins and mean reversion have been discussed in the past. I would bet that the topic is bound for resurrection at some point.

By 'poker', you mean the game of playing with a metal rod to stir fire? Disclosure: no need to answer. writser, I am learning to respect you. I am not wired for poker. To get a high return on equity, prefer large margin and low turnover. I admire though players who succeed on the edge.

“Management” of the P+C underwriting cycle is fascinating. This topic is what introduced me to investing in the late 90’s and to a certain company based in Toronto that was in the difficult process of absorbing excesses of yesteryears. It is not of question of if. Hard markets do come and opportunistic players can dominate over the complete cycle. Raises the issue of timing and the value of dry powder. For those interested: https://www.casact.org/pubs/forum/90spforum/90sp063.pdf https://www.casact.org/pubs/forum/93sforum/93sf377.pdf http://media.genre.com/documents/chairmanuwcycles1503-en.pdf The first two references are dated but perhaps their substance resides in the fact that they are still relevant. Those who can’t stand fancy mathematical models will be rekindled by the cycle description coming from Paul Ingrey, an underwriting cycle master who was instrumental with Arch and who lent a hand to Canadian cousins during the “transition” period. Another interesting thing is that even rating agencies are pro-cyclical in a way. Then, who can you turn to, but yourself? The crowd thing. Tough. Science and Art. Enjoy the ride.

Thomas More, who was also into slogans as a Renaissance Man when he wrote Utopia, defined a semi-ideal society in a critical pamphlet disguised into a book. Henry VIII did not like it. He kind of liked the status quo. More was beheaded. My take: Henry should have looked into this utopia thing more carefully. Disclosure and relevance: I am trying to see how the US will regain global industrial and manufacturing predominance and trying to define prisms that will allow me to pick the winners before they reap the medals. "Sometimes there's no solution other than to slow down the leap into the utopia and take a step back." What is the game plan?

Came across this. http://www.cbc.ca/news/business/lego-job-cuts-1.4275744 Had done well with Mega Brands. At least to a moderate degree because shares and warrants had been bought with a margin of safety. Sold concurrent to the cashless exercise of warrants. Thought for a while that it was mistake to have sold when Mattel bought the company after. The link above shows evidence of a weakening competitor and a potential opportunity for the Mega Brands sub of Mattel. I realize though that the likely sub-par performance of Lego is related to poorer industry dynamics in the building block segment which I had failed to appreciate fully even if the long term challenges were well described at the time. Bias because I enjoyed Legos when I was young? Anyways, the toy business is and will continue to be challenging with the growing number of substitutes. I had looked at Mattel after the acquisition with interest. Notice now that they too seem to have a hard time.

The quote is about a time when the Market dominated the culture. https://www.bloomberg.com/news/articles/2017-09-05/med-school-grads-go-to-work-for-hedge-funds Either health care sucks or this is a new era in financialization. Perhaps detachment required.

Some US citizens are clearly struggling. Perhaps more so than usual. At the same time, I read this: http://www.realclearmarkets.com/articles/2017/09/05/the_underreported_story_of_middle-class_revival_102854.html Is this the eye of the storm? This concept of unfairness (inequality, inadequate governance (government and large firms), disconnect with the elite), I think, is not related to how the top (call them top 1% or top 10%) moved ahead, it is related to the fact that the poor or poorer segments have seen living conditions stagnate and their prospects deteriorate. A lot of finger pointing and resentment but perhaps not a lot of constructive action. :-\ There are many reasons for this new normal status and the main point of this post (my opinion anyways) is that the US-China trade dynamics have not contributed in a predominant way, even if the perception may be different by a segment of the US population. Whatever the true causes and even if the trade debt with China would explain this new era of stagnation, I would submit that people should look forward and find effective ways to win. http://www.pewinternet.org/files/2014/08/Future-of-AI-Robotics-and-Jobs.pdf The article likely overstates the issue. Still, I think SharperDingaan on a previous post of a different thread talked about the growing need for individuals to be able to bring a value proposition to the market and I would say that, as a country, policies and actions should focus on increasing productivity. That would go along way to balance trade. Do not underestimate the capacity of the forgotten man to react correctly to the right incentives? And this is not an ivory tower concept. Time to roll up our sleeves? Let's get to work.

shalab, The fact that I hold different or even opposing views does not mean that we are enemies. Thank you for the inputs as it incites to dig deeper. To get closer towards the light, maybe helpful to look at the other person's facts or line of reasoning. I read your posts and links and suggest that you do the same. In terms of trade balance, here are two links, chosen on basis of quality and objectivity. https://sites.hks.harvard.edu/fs/rlawrence/ShatteringMyths.pdf https://www.usitc.gov/publications/332/pub4614.pdf You focus a lot on the trade balance issue, attribute the trade deficits to trade agreements and allocate a lot of unilateral harm to this aspect. That opinion likely played a decisive role in the last election. The second link has a lot of pages and the authors used "models" that can be reasonably questioned. However, I submit that the report shows convincingly that the trade agreements have not contributed significantly and independently to trade deficits. The persisting trade deficits, especially with China, are significant. You can look at this from an "economist" point of view using the Kalecki equation (à la Montier/Hussman) or simply using common sense. Sharper Dingaan talks about the addictive buying behavior of America and high relative costs of production but it could very well be the savings glut behavior of export driven nations (you seem to favor the latter, with currency manipulation). But the deficits could also be due to Americans not saving enough themselves or the unusually low interest rates prevailing. There are many variables and the situation is dynamic. What do you think of the Triffin dilemma? Are you not worried that somehow unilaterally changing course on trade balance may precipitate a sharp fall of US firms profitability. http://www.oftwominds.com/blogaug13/trade8-13.html The Great Recession worked great in improving the USA trade deficit. Does it mean that we have to induce another Great Depression to normalize trade? Like said before, in business, you need trading partners. Accords are better negotiated, not imposed. No?

SharperDingaan, In some cases bilateral is better than no agreement or even disagreement. Don't you agree? ;) http://globalnews.ca/news/3711536/canada-mexico-will-stay-in-nafta/ Unilateral decisions can be good, if right. Partners can be useful. "After I'm gone, after we break up After I'm gone, you're gonna wake up You will find you were blind To let somebody come and change your mind" Ella Fitzgerald I don't spend much time on the horizon of the USD dollar relative strength, but I take in consideration that the US may have the cleanest dirty shirt. I also think that the US continues to have amazing attributes that may be masked now, and maybe for some time, by unusual expediency. I agree though that "adjustments" will come along the way (opportunities?). Downsizing can be difficult.

The present context related to the described need to at least re-work the trade agreements with China is based, at least in part, on the perceived notion that trade imbalances explain the anxiety and frustration of some voters who feel left behind. Wages are stagnant. Potentially useful link for constructive thought concerning this multi-variable equation. http://www.nationalreview.com/article/451059/growth-stagnant-economists-disagree-reasons-automation-offshoring-demographic-change I would submit that potential solutions mentioned (either market or government based) could give rise to investment opportunities.

Thank you for this first post mattee2264 and welcome. Agree in substance with the gist of your message. Animal Spirits are intangibles difficult to value. Questions: -When something is true most of the times, is there a risk that you end up thinking that it is true all the time? -Do you imply that we have reached some kind of plateau in terms of margins, multiples and interest rates? I personally know very little and am often wrong but I tend to think long term. I will keep the following quote: "And if the economy really takes off and people become very optimistic then we could easily see the market go up another 50% over the next 3-5 years which will be psychologically very difficult if you have a high cash allocation." and promise to re-engage this conversation (whatever the outcome).

In terms of the number of parties to an agreement, I would submit that the European Union was designed to fail eventually by design but its demise will likely be precipitated by the relatively high number of heterogeneous members. So your suggestion to simplify negotiations through bilateral agreements is reasonable. After all, Canada is only a negligible factor in this global game. ??? Concerning the link provided, I understand that most essential comments and references support the arguments detailed in previous posts. In 1918, Woodrow Wilson described 14 points that formed the backbone of the League of Nations. The League failed eventually in large part because President Wilson could not obtain support by the Senate, in the context of the primacy of domestic focus. The inability to deal with the global world order transition then did not help peace and trade, to say the least. The third point of his presentation: abolish economic barriers. Definition of a barrier: a circumstance or obstacle that keeps people or things apart or prevents communication or progress.

shalab, You are opening a breach (immigration, entitlement reform) that may lead to discussion gridlock (ideological contamination). Perhaps, we can stick to the issue at hand which is free trade and bilateral agreements that the USA has reached with Canada or else. This remains controversial and I will try to stick to objective data. For some time, I have carefully looked at several reports/analyses of the effects of NAFTA between the US and Canada. In the pile, you can find anything that you want. The most dogmatic reports are not terribly helpful. Out of the many that I dissected, I include one below. The report is balanced, is coming from the US and appears to be free of any specific agenda. The report is described as resulting from a bipartisan effort. Personal opinion: a lot of great things coming from the US are a consequence of constructive and respectful bipartisan work. https://cdn.bipartisanpolicy.org/wp-content/uploads/2017/06/BPC-North-American-Free-Trade-Agreement-Overview.pdf In the early part of this century, the US was in a very large trade surplus position. The pendulum does swing. Let's keep an open mind.

Thank you. Comments help to understand the notion of unfairness that is now labeled to NAFTA and to all other international trade agreements. Not much emphasis is put, it seems, on the gains. My humble Canadian impression is that most people remain in favor or free trade on this side of the border. Contentious aspects remain: lumber dispute, aspects of dairy/agricultural products and others. My conclusion was that the main parts of the agreements worked well and aspects were, are and will be a source of discussions. Maybe I am wrong. I continue to have difficulty internalize how the free trade agreement with Canada caused such harm to the USA. Successful agreements (whatever kind) work best when they are a win-win. Negotiation skills include empathy, something that is not taught in university. Hard to see a good outcome under present circumstances. Disclosure: long term optimist.

Glad that you appreciate John Hjorth, especially coming from somebody I perceive as one of the wise voices on this Board. “Keep them hungry and they will keep coming back”. Many valid points raised. Sorry, long post. 3 assumptions here 1-Politics is messy (perhaps especially American politics) 2-Free trade is the way to go 3-A segment of the American population is suffering through relative economic hardship. Obviously, political bickering over tariffs is not new. Wasn’t one of the triggers for the American Revolution the backlash against the tariffs and the mercantilist doctrine of the mother country, “no taxation without representation”? I recently visited a house where John A. MacDonald (our first prime minister, equivalent to your George Washington, in a way) lived for a while. Let me tell you that protective tariffs were high on the agenda and could mean victory or defeat at election time. In fact, it was a decisive factor that helped him and his Conservative Party win the 1878 election against the Liberals, who were in favor of free trade. This “protectionist” platform lasted several decades. Comments about President Trump being able to skillfully gather support are very relevant. But his victory may have something to do with other factors as well: weak opponent, union disaffection (many reasons for that) and many others. However, this time, as correctly mentioned, disgruntled voters, who felt that the trade deals were unfair, made the difference. The political wave now goes towards a protectionist attitude and various drifts are possible but I submit that, eventually, our institutions will take us back to its long term trend towards more liberalized trade. The USA may be the champion of political expediency and pork barreling but, somehow, its foundation allows adaptation and change. The US has not become the richest nation in the world by chance. The political system is messy but it works. Admittedly, to watch the process can be (extremely) painful. Looking back, as the 20th century progressed, despite a non-linear and sometimes contentious process (World Wars, Great depression with the Smoot-Hawley episode and others), I submit that institutions in advanced economies allowed for a progressive decrease of protectionist policies and that was a major factor behind the global improvement in living standards. This is clear in the aggregate and I submit that the USA, as a country, has greatly benefitted from free trade. https://www.winton.com/longer-view/us-protectionism-in-four-charts In the last 25 years, world trade volume has increased more than fivefold. No wonder, adjustments need to be made. Why would one consider going back? Please explain. I remember a lot of controversial discussions when the free trade agreement between the US and Canada was signed in 1992. I remember Ross Perot’s “giant sucking sound” argument. There were and there are still “issues” and obviously improvements and transition measures can be considered but my opinion is that the deal has been mutually beneficial for both countries. I think that a similar conclusion applies to Mexico and China. If you believe in the benefits free trade (that’s the underlying basic question), adjustments and improvements of the mechanisms to deal with disagreements should be sought for, not nullification of the entire deal. When you consider Mexico and China, a problem is clearly related to a major wage arbitrage that has occurred. Despite mutual benefits overall, segments of USA population have borne the brunt. This new Grapes of Wrath segment is identifiable, relatively concentrated in certain states and members of that segment have not been able to find equivalent jobs. That is the problem. This situation has been worsened by robotization (see recent post on tech replace jobs) and other factors that have nothing to do with free trade. Also, this segment does not “see” the gains that they had but clearly feel the disarray associated with job loss and difficulty to find an alternative. I submit that major and unilateral changes to international agreements may not achieve what is expected for this segment of the population and protectionist side effects may kick in. If you agree that free trade has been and will continue to be beneficial, this debate reminds me of the technology debate that displaces and perhaps even eliminates (on a net basis) jobs. Does that mean that we have to abandon technology, innovations and the implicit “progress” associated? So what to do? To deal with the Luddites, the British government used the army. Proponents of a “strong” government would propose “transition” measures. In one of his annual reports, Mr. Buffett suggested that the USA should do a better job with this transition. I don’t know about the way to achieve this. All I know is that going protectionist in order to try to “satisfy” a segment of the population will be a lose-lose proposition. Concerning the trade with China (main topic of this post), trade statistics are revealing. https://fas.org/sgp/crs/row/RL33536.pdf Even if there has been some questioning in the last years, free trade has provided tremendous advantages to both countries. The notions of intellectual property theft, persistent large trade imbalance and the considered unfair trade practices should continue to be part of ongoing discussions. Obviously the context is dynamic and “black swan” events can happen (interesting to remember that China has replaced Japan as the poster child of the cheap exporter, champion of unfair trade practices and currency manipulator) but I would venture to say that a relative stability/balance has been achieved in terms of trade between China and the USA. The geo-political relation between the two super-powers has remained relatively good and, so far, the Thucydides trap has been avoided largely, I think, because of the growing economic ties. Trade has become a force for stability and this should be remembered after going through a century devastated by two World Wars. Sometimes you have to be careful about what you wish for. With growth rates coming down, an aging population and many other challenges, China may also consider adjustments. Their central government may act differently than our Western ideology would suggest. I submit that an unbalanced and indelicate approach may cause China to turn inward. Aggressive outside pressures may cause China to become even more centralized as it may have to safeguard its political legitimacy. Handle with care. In the last few years, globally, the growth of world trade has slowed down and that may be due to decreasing domestic political support for such agreements. My opinion is that this trend should be reversed. Maybe, the recent rhetoric is just about simply negotiating better deals (maybe needed, for instance, concerning the specific examples mentioned in DTEJD1997 post). However, if this is about a Smoot-Hailey type strategy, I submit that this is a wrong turn. An obvious option for the counterparty is retaliation…We’ve seen the movie before. Historically, in terms of foreign policy, the US has alternatively used a flexible approach related to the classic guns versus butter tension (home versus abroad focus). Interestingly, now the guns and butter approach seem to be combined. Food for thought. Some may feel that this a peripheral issue but perhaps helpful to remember that investors have enjoyed abnormal returns in certain firms that profited from globalization and to keep in mind that, historically, the protectionist predicament has typically hurt animal spirits and expectations.

This kind of follow-up perhaps has little value as they just recorded man-made seismic activity near North Korea but the following recent link shows an interesting parallel to what Mr. Buffett did many years ago. http://www.businessinsider.com/beyonce-jay-z-new-house-los-angeles-mortgage-2017-8 This is not about envy and I think that both are artistically very talented but this is really a head scratcher for me. I doubt that they will do as well as the Oracle, financially speaking, and, worse comes to worse, even if they lose the house, it would not be the end of the world or a Johnny Depp moment but, still, I am amazed at the general complacency about debt and the reaching for yield with eyes wide shut mentality. My thinking (and biases) suggests that this has percolated down fairly deep. When we collectively look back at this period maybe we'll say: "It was the best of times. It was the worst of times". Maybe Dickens had something going then.

"...the US government deal with the resentment to free trade". Perhaps many options here. I like to think that best government policies are based on an net NPV type of philosophy, articulated on a clear vision combined with ways to mitigate transition effects. Isn't this what you expect of your favorite CEO when you invest in a company? "As with a lot of things in economics, the problems morph into a political one, and will be resolved, one way or another, at the whims of politicians rather than by some economic professor pontificating on the laws of comparative advantage." I agree but do you think that politicians have done this relatively well in the last decades and do you think that it is reasonable to suggest that global living standards (in advanced AND emerging economies) have improved substantially because of free trade? https://ourworldindata.org/international-trade Fair to say that we have to make sure we agree on destination before we discuss the mode of transportation or the itinerary.