ValueArb

Down -2.7% in 2023 over all accounts, since I restarted active investing June 1, 2021 up +32%. I didn't return to full time investing until June of last year, and with new client accounts I had a lot of cash to deploy and I think rushed the process. Specifically I tried a new net-net approach that focused too much on balance sheet cheapness and too little on shareholder composition and motivation. Q3 was ok, about +5%, then the bottom dropped out in Q4. I finally pulled the plug on the new approach end of November, and accounts are up 7% since so despite the awful year I'm feeling pretty confident going into 2024. Was my first negative year since 2008 and might be first active year I've trailed the market.

Thats true too but passive investors in SP500 have to take the expensive with the cheap and are still paying a pretty high price. More than ever total stock market index FTW for passive investors.

Sure if you are subject to the NIIT, its higher (which the bulk of individual capital gains are likely to be given the low income threshold). And state taxes also have an impact if you live in a state with an income tax, which again the bulk of individual capital gains likely do (given how many high net worth individuals live in NY and CA). Again more evidence for why the real world is a lot messier than a simple equation can model. But I think it's still clear that overall tax rates on capital have dropped significantly between 1986 and now, and that is one part of the reason for higher PE ratio of the market today.

Shiller PE is 32 and has been 25+ for almost the last entire decade. https://www.multpl.com/shiller-pe I prefer it to using raw PE from TTM because it should smooth out cyclicality. But as I said it doesn't adjust for changes in risk free interest and tax rates (but claims to adjust for inflation). I've always wanted to take the time to try to make those adjustments to see if with those adjustments match market prices to valuation better, but I suspect it won't make a huge difference as the market is a very complex beast that defies description by formula. Momentum is just one example. Let's assume the markets fair value PE should always be 19. But anyone who bought and held in the period from 2009 to 2022 made out like bandits from increasing PE ratios. So even if they now think it is overvalued at a 26 PE, why would they sell and abandon what has worked so well? Who is to say it won't trade well above a 30 PE in a few years? And if the overwhelming sentiment remains to buy dips and hold, no matter what a DCF valuation says, then this pattern can't break until a long bear market. Nine months in 2022 wasn't enough to break the majority belief built over the previous 144 months that dip buying will always pay. Its exactly why Ben Graham told that old joke to describe how powerful momentum is in the market:

The 10 year Treasury Rate in January 1989 was 9%, and has been on a long downward trend since then, reaching near half percent in 2020. The corporate income tax rate was 46% from 1979-1986, and dropped to 35% in 1988. In 2018 it was reduced to 21%. Individual capital gains rates were 30-35% in 70s, dropped to 28% in 1987, then 20% in 1997, 15% in 2003, and back to 20% in 2013. Individual dividend rates were same as earned income until 2003, then became 15%. As a thought experiment, lets assume that with "normal" interest and tax rates (7% interest rate, 46% corporate income tax rate, 30% individual capital gains/dividend rates) and the market should trade at 15x PE. A DCF Calculator will tell you with the same growth assumptions (4%/year for 20 years) reducing the risk free rate from 7% to 4% doubles the value of those future cash flow streams, so the market's PE should roughly double. Cutting corporate tax rates doesn't increase PEs, but it increases earnings growth rates. A business making $2,000 pre tax will earn $1,080 after tax at 46% rates, but a 35% rate increases after tax earnings to $1,300, 21% rates increase after tax earnings to $1,580. Overall lowering corporate tax rates from 46% to 21% increases after tax earnings by 46%. Over 34 years that increases earnings growth by a little over 1% annually, which increases our DCF value by 15%, so market PE should be roughly 15% higher. Individual rates don't directly affect PE, but should affect how much investors are wiling to pay for earnings. Decreasing capital gains/dividend rates from 30% to 15% increases investor net gains by 21%, so theoretically they should be willing to pay 21% higher PEs. Obviously the real world isn't so clean. There are a lot of tax deferred monies invested in the market for one example, non one cares about capital gains or dividend rates for their IRAs. The ten year rate isn't necessarily the "risk free" rate, it's not clear how many were treating it as such when rates were below 1%. Anyone who was would raise their valuations by 9X when rates dropped from 7% to 1%, but the market PE didn't shoot to 140. Its likely that most investors viewed the lowest rates as temporary, but might still have been using 3 or 4%. Also actual tax rates are affected by brackets, allowable write-offs, etc. That said my point is that market PE is heavily influenced by interest and tax rates. Even the Shiller PE doesn't adjust for either, making it nearly as wrong as the current market PE. If we want to believe the market PE in the next few decades will continue to average in the 19-20 range we need to also assume that corporate and individual tax rates won't increase significantly, and that interest rates won't increase much either. Those seem like pretty speculative assumptions to me given our current federal deficits and debt levels.

Turns out that some of the AMC menu is serve yourself, there are refrigerators full of water and candy displays that you are supposed to just grab from after paying from the touchscreen. But not only does the touchscreen not tell you this, it asks for your theatre and seat numbers telling you it will be delivered. Super confusing, and one other nit, no reclining seats. The dine in model has to be very costly, as it requires a lot of labor to provide service to your seat. I’ve noticed existing chains (roadhouse, touchstar) that I frequent have cut back on menu size over time. But they still offer wait service and call buttons. So I get why AMC would want to do more self serve and not provide wait staff. But it didn’t make AMC food any cheaper, burgers were $15+. Maybe this is too new and they haven’t developed the right signage, as I left I noticed they had someone working the touchscreen lines to help people. And the food was good. If I was CEO of AMC I’d be spending half my time observing at dine in theatres, mine and competitors, and not rolling out more than a handful until we got service and economics right. In a world of cheap 60 inch TVs streaming new release movies without rowdy crowds kicking the back of your seat AMC has to raise the bar to provide a relevant product or go the way of buggy whips.

Trying an AMC dine in experience and it makes me want to short them. Worst dine in experience ever at a theatre. You have to order on a touch screen the lobby, which crashes occasionally and loses your order so you have to start over. Then a stoned employee comes to your seat with some of your drinks, no straws and never brings the missing drinks. the guy who delivers food can’t help you with drinks. No call buttons to get help. And $8 for a Coke, or $7 for a water. how many billions did they suck out of retail investors and they can’t use it to provide a minimally acceptable experience.

To clarify, the discounted value of future cash flows is absolutely the value of any investment and he's the best at teaching it, and should be praised for doing so. I always recommend new investors always learn by running sample DCFs to see how different growth rates, growth periods and risk free rates affect valuations. But that said I also think the proper DCF inputs for any specific investment are unknowable, as is it's exact valuation. As @Gregmal said, its a fat test. If its not obviously fat (like me where I look nearly not fat from some angles) then its not a great investment. My favorite investments are where any aspects of its value that are unclear are just frosting on a cake. If I'm right on them it's a fantastic investment, but even if I'm wrong on the frosting the cake makes it clearly a very good investment.

Years not over yet. i need just one massive single day rally to get back to even.

His returns don't matter. What I take exception to is the idea that what he's teaching is useful for investing. DCFs are great fun to play with, but tweaking inputs in a minor amount can give you massively different valuations. They aren't useful for investing, they are useful for investment banking where you need a complex model you can tweak to generate a valuation that gets clients to give you money. I agree with Munger and Buffett that if you have to build a complex model to value something, that is telling you it should be a pass.

To me it seemed a lot easier to predict the fed would raise rates than to predict a recession, for the simple fact the fed was telling you they would be raising rates. And if the fed is raising rates why would you want to own treasuries of any significant duration?

Wasn't Monish Pabria practically booed off CNBC over a decade ago when he refused to share what he was buying? My memory is that he didn't want to pump his positions and didn't think retail investors should buy random recommendations from talking heads, and all the other talking heads on that show were angrily offended. If Cramer offered nothing but great investing advice he would have been canceled after a month.

Its a sad fact but sometimes to end a war you have to bring the consequences to the home front.

Was actually a terrible outcome. Position was tiny because I was way too slow to do my homework, and by the time I did it price was too high to build a large position. Its one of those wins that exposes me for a poor process.

Their foreign currency reserves will pay for all of that, and much much more. Owning all the Starbucks in the larger of the hermit kingdoms isn't going to make up for costs of losing trade.

YELLQ. It's up 250% in a few weeks, and I no longer have a great deal of confidence the risk/reward is in my favor enough to offer a big margin of safety.

Godspeed my friend, may you dodge all rocks, hidden reefs, and snarling musk monsters to sail far and deep into the money. Unfortunately mine hit a reef in mid 2021 with the loss of all premiums, if only I had provisioned for another 6 months we would have made port with huge profits.

I wonder how many Russian troops really know what is going on as they just get fed into the meat-grinder. Was reading a news story about a small town that was held hostage in a basement for months at the beginning of the war. When the hiding civilians were first discovered by Russians the soldiers told them "we are here to liberate you from the Nazis!" and couldn't believe the civilians when they said there were no Nazis.

Looks like a Ukrainian strike all the way down in Feodosia hit the Novocherkassk while it was loaded with munitions. The ship basically disintegrated and large pieces landed all over town, including nearly taking out the rail station.

Happy Festivus! Time for the airing of grievances!

They just added another SU-34 and a SU-30 in last 24 hours. That’s now five of Russia’s best shot down this week. Those crews and jets are going to be very hard to replace.

I don’t think you have to reduce Puyin to a caricature to know he was always seeking to rebuild the Russian empire, regardless of what politicians in Ukraine did.

I started to sell at $4.09 a share but then stopped when I dug into the CVR. As usual it's extremely hard to value, but it's unlike almost all of the CVRs I've seen. Typically you get a percentage of IP sales of dubious marketability, or payouts based on successful test results years in the future, and we got the first case here. But they also added a payout for 50% of some undescribed cost savings in the first 6 months. That seems to me to be a clause that THRX management only would negotiate for if they thought it was low hanging fruit that was very likely to happen. But again, I can't value it, I'm just not going to give it up without a substantial premium to the $4.05 I'm increasingly regarding as the minimum payout. Otherwise I expect them to close in February and only have to wait until September to find out if it was a worthwhile gamble.

France called up nearly 8M men in WW1 (not including colonials), despite having a population smaller than Ukraine. Ukraine has about 800,000 active personnel and 900,000 reserves, out of a pool of at least 11M men aged 16-49, more if we include women. So the question is, is Ukraine really struggling to get conscripts or is this just anecdotal or disinformation? And if they are struggling, why was it easier for the French to conscript troops? It's hard to imagine the French "esprit de corp" was higher than it is in the Ukraine, as the first year of WW1 was a complete disaster for them. They lost half of France, had Germans camped within artillery range of Paris, and took well over 1M casualties. They even had widespread mutinies in 1917 after losing faith in their generals after yet another failed offensive. And Crimea is hanging by a thread. Russia couldn't hold it if we provided enough HIMARS/ATACMS to suppress their rail lines or if Ukraine gets another 20 miles or so to put them under artillery bombardment. Donbas is a really tough nut, even post Crimea collapse there is no easy way to roll that back up against Russia's superior manpower and ability to quickly build defensive fortifications and massive minefields. Personally I'd attack through Russia itself at that point, but if its in the second Biden term they'll never allow that to happen. But everyone misses that Russia is suffering just as badly. Its already suffered through its first troop rebellion and it was a doozy. Traditionally Russian armies pour massive amounts of untrained troops at the enemy to overwhelm with numbers, and use blocking battalions to keep the front line troops fighting despite terrible morale. Also traditionally eventually some rebel leading to massive retreats, even regime change. I predict more are coming.

Emptying out our lockers? We have nearly 4,000 Abrams M1A1 and over 2,800 Bradleys in storage that the US isn't supplying. I don't know how many older leopards, challengers, are in European and UK storage, but I'd bet at least a thousand. And its not as simple as saying 100 tanks > 28 tanks. Sure the Russians still have more equipment and more men but on the left side of the graphic and you see significantly more lethal and valuable weapons. On the right side you see mostly death traps like T-72s, T-80s, T-90s and BMPs, while the Ukrainians are getting far more survivable armor. And while the chart lists far less accurate Russian MLRS, it doesn't acknowledge the existence of HIMARS. Or Javelins. Or GLSDB (when it finally gets there). What the chart tells us is that we can help Ukraine very inexpensively by actually digging into our massive stores of equipment that is obsolete for our military requirements, but significantly better than anything the Russians have. Will we do it? Hard for me to be optimistic about it given the Biden administration has consistently only given Ukraine enough help to survive, not to win. They appear to be terrified by the prospect of Russia actually losing. And Republicans are knee jerk anti-Biden on every topic, so unless we get a Republican president who is a strong supporter of Ukraine, there is no clear path to giving Ukraine the support they need. And as far as Russia mounting new offensives, they've tried a couple this year and mostly failed. As they grind through their few remaining experienced troops its going to get tougher and tougher to mount any sophisticated campaigns. Especially when they need to keep blocking battalions to ensure the front line doesn't flee. Where Russia is still strong is in their generalship, you can see this in their brilliant defensive operations this year where they flooded massive areas before the Ukraine offensive, and built strong defensive barriers in depth across the entire front. They know they don't have offensive capable troops anymore, all their paratroops and other elite units have been annihilated. Over the winter both sides will use it to rebuild forces as much as possible and both will attempt new offensives and then we'll find out who can get it done.