claphands22
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Posts posted by claphands22
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Therefore he could most certainly have sold KO. He even says he should have sold it. It is one of his mistakes.
I've heard this before, that Buffett regretted not selling KO when it was selling in the 80's. Yet, I've never seen the source. Can anyone source where he said he should have sold KO?
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Ericopoly,
What do you think of the cost of living in Australia? On of my good friends from Melbourne constantly complains about the high cost of living. He said housing prices are absurd because of land constraints, Australians fascination with real estate and first time home buyer subsidies. Also, he said most Australians tend to buy variable interest rates on their mortgage loans instead of fixed rates; and people are constantly aware of the interest rate. I'd image some major issues if interest rates rise from their current historic lows
I would be keen to move to Australia for all the reasons you provided. Yet, from what I understand (at least in Melbourne) urban sprawl is intense, there are heavy water restrictions and public education is really bad unless your child goes to a proper private school or one of the few good public schools.
Also, Australia seems to be highly dependent on their resources. If China's economy stops demanding all of Australia's metals because their current infrastructure bubble pops - things could get very ugly there.
Any thoughts on Australia?
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I have a small problem with his man of leisure idea if it is taken too far.
Even if the markets are fairly valued or overvalued it doesn't mean you don't have any work to do. Companies can still be analyzed and researched, in fact, I would spend even more time analyzing companies when the markets are expensive because I'd want to be fully prepared to take advantage of the opportunity when the inevitable downfall occurs. When the markets collapse, that's when prepackaged research is the most valuable. Pabrai is a smart guy and I'd bet he isn't playing racquetball and bridge all day but I hope people don't get the wrong idea and think "oh, the markets are fairly valued so I'll take a respite and analyze again once the markets fall"
He said he doesn't short sell because his upside is limited and his downside is infinite. I know his upside is limited, but the downside could also be limited by buying call options. Personally I've never short sold or bought options, so maybe I'm being naive (usually am) but I just don't fully buy his argument.
Also, I really really like the idea of short selling. It makes you a skeptic and helps fine tune your bulls**t meter. Optimism kills in investing, so having an incentive to be pessimistic seems like a good way to balance out our human capacity for optimism.
Thanks for posting the Pabrai interview!
edit: my grammar is terrible
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Read the "Coming Collapse of China" written in 2000 by Gordon Chang last week (+10 for hyperbolic title & poor timing ), the author continuously mentioned how horrible run the big 4 banks are. They have a history of writing bad loans during good times and having to be bailed out during the bad times.
With current infrastructure over capacity and the government demanding the banks to write loans to stimulate the economy - I imagine we are only starting to see the nakedness of the Chinese big 4.
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Greenspan is a tragic hero.
I look at Greenspan and wonder, could it happen to me? Could I spend my whole life building an intellectual framework, become famous for it, forgo children for my career and then, in my twilight years, see my whole entire intellectual framework collapse?
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Does Overstock compete directly with Amazon in terms of their fulfillment business?
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I got bored today and started to try to find publicly listed companies in exotic countries. Maybe someone here will find this interesting, because my girlfriend didn't find it interesting at all.
National Foods Limited
68,379,000 shares outstanding
Market capitalization 75,216,000
high 1.1
low 0.05
share price $1.1 [at the end of the report]
67.07 net assets a share
basic earnings per share 9.53
"The local currency disappeared and the environment became free to trade in"
"Due to the unique circumstances prevailing in the Zimbabwean economy during the financial year and its consequent effect on theGroup's ability to report accurately for a large portion of this period, the Directors advise caution in the use of the income statement,cash flow statement, statement of changes in shareholders equity and the opening balance sheet for analysis and decision makingpurposes. The Directors are however satisfied that the balance sheet as at 30 June 2009 forms the correct base for reporting results for future periods."
References to the nominal share price in ZWD are prior to the slashing of 10 zeros from the Zimbabwe dollar in August 2008
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This is how I think of resource companies.
four main factors
1. price of the commodity
2. yearly production capabilities
3. size/life of the reserves
4. cost of extraction
Also be aware, most if not all oil wells have peak production early in their lives than later, and production costs generally are higher towards the tail. The same thing is true with mining, but there isn't much of a peak-factor as there is with oil.
All companies require a margin of safety but I tend to lay it on thick with resource companies. Lots of things can go wrong. These industries are accident prone, management tends to acquire too much debt, resources in unstable countries and of course, the price of commodities can fluctuated deeply.
Most of the time resource companies are either too hard to value or the margin of safety isn't there. Yet sometimes you can find resource companies where Mr. Market isn't valuing the company rationally. Some examples are (1) company with hedged commodities, but the market doesn't price in the hedge (2) increased production capacity not being priced in the market (3) companies with great balance sheets, cheap extraction costs and the market believing low commodity prices are the indefinite future "cheaper to drill on wall street" - this happened earlier with MCF.
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The FairFax team reads Hoisington & Grantham - do they read anyone else?
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With the price of gold these days, and the number of value managers buying gold for their portfolios, and commercials I see on television, I think any investment in gold is a poor speculative bet. I just saw an ad today for Money Mart, where they are now buying scrap gold...not just cashing checks anymore...but actually buying gold from the general public. Nuts! Cheers!
The Daily Show had a funny piece on Glenn Beck and his golden investment advice. http://www.thedailyshow.com/watch/thu-december-10-2009/beck---not-so-mellow-gold
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I've looked at SYTE before, but the issue over buying customer lists and then retaining customers bothered me. Also, I was quite concerned with the viability of this business model going forward.The company depends on buying cheap customer lists for future profitability.
What also annoys me about SYTE is that it's annoyingly difficult to trade when you're dealing with tenth's of a cent! If Mr. Dash is reading this, he should start pushing the board to institute a 100-to-1 split!
Jack Erhartic, the CEO of SYTE, has thought about doing a reverse-split but hasn't made any decision about it yet. If you want, you can send him an e-mail at frank[at]sitestar(.)com and explain your concerns. Jack does a good job responding to e-mails.
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Hey Packer, if you are interested in ELNK and UNTD, I would definitely suggest taking a look at SYTE.
SYTE mrkt cap 3.9M
09/30/09 9-month cash opex was 1.5M
The CEO is shareholder friendly, has made intelligent share repurchases in the past. CEO owns (I think) over 10% of the company, and dash owns 10% of the company as well. The company depends on buying cheap customer lists for future profitability. CEO is very selectively, he declines 90% of the deals that come up because he doesn't like the price.
That being said, I haven't bought a share but I still think the company is interesting.
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A rough approach is to apply Purchasing Power Parity theory when valuing currencies. These models would suggest that the Canadian dollar might be about 15% overvalued vis-a-vis the US dollar..... For Canadians thinking about buying US blue chips like JNJ, PG, WMT, or PFE it might be somewhat reassuring that there is some prospect of currency reversion that might slightly juice the returns. For those interested, this is a good site on PPP:
http://fx.sauder.ubc.ca/PPP.html
SJ
SJ,
Using PPP as a tool to value currencies makes a lot of sense to me, in fact I like this idea lot. Yet, their valuations don't take into account the amount of currency held outside the country (which if sold would flood the market with dollars), debt/GDP or other countries destroying their own currencies.
Great link. Do you know if using PPP as valuation tool has worked in the past? Like if PPP was used a valuation tool 10 years ago, how well the results matched the valuation prediction?
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Best way to value a currency is in relation to how many ounces of gold it will buy. Gold isn't perfect but its own supply/demand characteristics are so stable that any change in gold's price is more a function of changes in the underlying value of the currency gold's price is quoted in than changes to the demand/supply of gold itself.
A corollary to this point is that if you take currency out of the equation -- you can also get an insight into the "barter" price of other commodities in relation to gold. For example, the relationship of a barrel of oil to an ounce of gold has been more stable (with some volatility) than the price of oil expressed in US dollars. This helps one to understand how much of oil's rise in the last decade has been to a fall in the value of the US dollar than to any increasing scarcity in the supply of oil. (hint -- mostly due to the fall of the US dollar).
Again -- measuring stuff by using gold as a "currency" isn't perfect and you have to look at longer-term trends rather than daily or monthly relationships. Gold is as close to a North Star as you can get in this imperfect world, though even the North Star has a "wiggle" in its position in the sky.
A final point about taking the US dollar out of the equation. Another interesting viewpoint is measuring the price of "stuff" not by the price measured in a particular currency, but rather than a unit of labor (eg, what an hour of labor will buy). By this measure, you can get a sense of the growing standard of living over time that becomes obvious when you measure what an hour of labor buys these days vs 20, 50 years ago. It'll be interesting to see if this trend continues or not in the future. I sure hope it does.
http://www.dallasfed.org/fed/annual/1999p/ar97.pdf
wabuffo
Do you know any good books that explain the supply and demand characteristics of gold? I have no idea what those would be.
I really like your idea of using gold as a north star in terms of valuing currencies. I never thought about using gold as a test, in terms of, crude's rise in price. Very interesting. Yet, if you are using gold as a valuation tool of the dollar - how do you know gold isn't overvalued?
I read the Time Well Spent article this morning. It was great article and now I believe Goods/time-work is a great metric for the rising standard of living. I enjoyed the part about education and medical costs currently outpacing inflation, and that was written in 1997! I wonder if education/medical care are another asset bubble waiting to burst.
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I think that valuing currencies is pretty tough... There are a couple books by Rosenberg, FX Determination and Currency Forecasting that deal with fundamental analysis of currencies. The fact is, you're going to be trying to figure out how two economies will be performing in the medium to long term, which is pretty difficult.
Most successful global macro guys don't only take long term positions but are rather in the markets day in day out, trading daily. What that allows them to do is constantly test their opinions so that they can change their positions if their hypothesis turns out to be incorrect.
TariqAli,
Yes, I absolutely agree. Currency seems be one of those complex-adaptive systems in which predicting the currency prices is extremely difficult. Thanks for the book recommendation - hopefully I can pick up the book next time I'm in the states. I'm really interested in an intelligent way to understand currency price. At the moment, I just take whatever Mr. Market feeds me.
What hypothesis exactly would a global macro guy be testing, in which he goes in and out of currency trade in a day?
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How do you value currency?
I read that the Canadian dollar is strong and the US dollar is weak and I understand why. The US government has a large amount of debt, large trade deficit, increased amount of dollars in the money supply....I get that. Yet, how do you intrinsically value currency? Is it just whatever Mr. Market says it is? A_Basic_Bag_of_Groceries is worth 100USD and A_Basic_Bag_of_Groceries is worth 200XYZ. Therefore the intrinsic value of every USD is 2 XYZ? No?
I feel like I am asking a dumb question, so if it is, just say so.
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0% - broke evenHow did you do in the downturn?
This board, this board and this board.What helped performance? -
Interesting FLIPPED New York Time's piece on private equity.
http://graphics8.nytimes.com/packages/html/business/2009-private-equity/index.html#
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I've lived in Taiwan for 15 years and can offer you some insight as to why Taiwan and China are such huge markets for luxury goods. Most (not all) children live with their parents until they get married. If they don't get married or get married very late, they stay in the same house with their parents. I have two sister in-laws and a brother in-law all in their thirties who still live in the same house as their parents (this is common). None of them make very much money (at most $1200US) a month, however this is completely disposable (especially for the girls). They need to save almost nothing and have almost no expenses, so this means that they spend a huge amount of money on luxury accessories. They're quite happy to go and spend their entire months salary on a bag from Louis Vuitton, Prada or Gucci. Many asian women fall into this kind of situation and riding a bus here, it's crazy how many women in their twenties or thirties are walking around with handbags representing at least a months salary. Watches and high-end cellphones do well for the same reasons.
Sogo and Mitsukoshi whole heartily agree with you.
I live in Taiwan as well, (Taipei-Muzha area) meeting fellow value investors is always a blast. Send me an e-mail if you want to met up. claphands22@gmail.com
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I use this to look for old posts on the MSN board http://brk.visualhash.com/search/index.cgi
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Gold.
Right now it is still summer time, volatility is low and the market is slowly going higher. Few care about these huge forecasted U.S. deficits (shall we say done deals) and these mysterious treasury issues that are always well received. Why worry, be happy!
At some point, this will become front and center. There is just no way around it with the sheer magnitude of this problem. I don't think that we have repelled yet the law of supply and demand. By the way, I have never seen Warren Buffett discussing publicly about a potential issue that has not become a "real" one at some point down the road.
It will matter big time some day. When exactly? I don't know for sure, but I have a feeling that following Labour Day that this feel good perception may start to change.
If you don't like gold or can't understand its fundamentals, short the dollar some way or treasuries.
Cardboard
Great post Cardboard, I fear the same thing. I've increased my margin of safety for companies with USD revenues for similar reasons. Just wondering, why gold and why not high inventory turnover/high profit margin*toll booth like*/multinational businesses selling at a reasonable price like JNJ/KO/PM?
Are you buying physical gold or gold securities and if so, are you worried about counter party risk?
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Contango has some terrific webcasts and presentations on their investor relations page. I found them fairly absorbing to listen and read.
http://www.contango.com/investor/events.htm
From the presentations you get the impression the CEO is aware of capital allocation and psychological failures of human decision making. He kind of reminds me of the Henry Singleton of natural gas.
I have attached 2 presentations. One was given on 2007, where MCF talks about the effect of Black Swans and hunting for Black Swans. The other was given in 2001 where MCF gives the "101" of exploration and production companies.
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Charlie Munger's Daily Journal Corporation loaded up on equities a few months ago....and he did well.
"Company purchased marketable securities of $20,424,000 and had an unrealized gain on its investments of $25,898,000. All the marketable securities are common stocks and bonds, and almost all of the unrealized appreciation was in the common stocks."
10Q http://www.sec.gov/Archives/edgar/data/783412/000114036109018729/form10q.htm
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Wabuffo, I am too young to remember Teledyne, but someone else recently suggested that I read about it. Can you suggest a decent book or source of information. It sounds like an interesting saga.
I think this book provides a good history of Singleton/Teledyne:
IMHO, one of the greatest titans of American business (yet least well-known) was Henry Singleton of Teledyne. He was an engineer by training and had several patents so he was self-taught when it came to business and capital allocation. Growing up he won the 1939 Putnam Intercollegiate Mathematics Competition Award (folks who win this thing are off the charts in terms of IQ and smarts).
What made his operating style exceptional was that he ran hundreds of companies under the Teledyne conglomerate structure -- many of which were industrial companies -- yet Teledyne was extremely stingy with capital spending. His approach was to tax subsidiaries for their capital at high rates. Yet Singleton's industrial group often earned 60-90% returns on net assets employed. I truly believe this operating model can be very successful and yet is almost completely ignored in the corporate world. From what I've seen the impulse/desire to grow is too strong to be overcome by business managers (no matter how poor the returns delivered on incremental capital spending turn out to be).
Buffett admired him a lot and declared that Singleton had the best operating record in American business at the time. Its unfortunate that Henry Singleton is so misunderstood, is not followed widely and the only reference in modern business literature is in the "Good to Great" book as an example of "bad business leadership" due to the issues Teledyne had after Singleton stepped down. Not only was Singleton an excellent operational executive, he was a self-taught capital allocator (Buffett's methods weren't widely known and he hadn't started to write his letters to shareholders). He wisely used his high-flying stock in the go-go sixties as currency to make hundreds of acquisitions before turning around in the 1970s and buying insurance companies for their investable float (sound familiar?). When conglomerates like his sold at a huge discount to tangible equity value, he dumped bonds from his insurance companies and tendered multiple times to buyback his stock. I can't remember the exact percentage but I think he bought back something like 80% of Teledyne's common stock outstanding from 1974 through the mid-1980s via serial share repurchases/tenders often borrowing money when the tenders to sell to him were oversubscribed heavily.
I wish business schools would study Henry Singleton a lot more and Jack Welch a lot less....
I've attached a pdf of a contemporary profile article of Singleton from Forbes in 1979 when he was in his prime (back when Forbes was actually a great business magazine). Sorry for the quality but its a scan of a hard-copy photocopy that I have in my files -- I think its still pretty readable though. Its probably the most thorough profile that I ever came across and the author had access to Singleton's ideas about business strategy and capital allocation.
wabuffo
Wabuffu,
Thanks for the PDF - that was a terrific article. Forbes doesn't make them like they used to.
Here is my favorite quote from Henry Singleton
"I believe in maximum flexibility, so I reserve the right to change my position on any subject when the external environment relating to any topic changes, too."
I love this type of thinking.
Great find Wabufu!
Hoisington Q1 Letter
in General Discussion
Posted
Can anyone explain the money/tax multiples? I am not entirely understanding (1) how they are computed (2) how they are used (3) the significance of them.