scorpioncapital

The problem with his thesis is he says the 10x revenue club is evidence of those moats. But they could just be - most likely are, some sort of gross enthusiasm and overvaluation. Some may have some of those moat effects but it isn't any proof. High revenue multiples can also mean startup growth and burning capital and in no way implies any sort of moat - or at least - not enough time has passed to pass a verdict yet.

If Berkshire can replace all its debt and insurance float with negative rate debt why even be in the insurance business? You can shut it down for a few years or decades. But I suspect the problem is volume. No corporation is going to raise negative debt of 70 billion in Europe or anywhere anytime soon.

I'm not so certain. Sure most people don't use debt to buy equities, but the equities themselves have every opportunity to to lever up, refinance at lower rates, acquire competitors, fund capital projects, etc to grow revenues and earnings. I agree the effects might become more apparent more quickly in mortgages, but to have the evidence in one area of the market and not another that should be similarly impacted calls into question the assumptions that it's interest rates driving that. Particularly where the only place globally upholding the "low interest rates = high equity multiples" mantra seems to be the U.S. What's the end game to free money?

What difference if you buy value or overpriced growth in a crash ? Didn't Berkshire get cut in half even In 99? Graham said during the great depression everything went down, even cash was worth less than cash . The best time to buy anything is when nothing is particularly inflated ?

Anyone look at LONE? It's trading for a very small fraction of the oil in the ground. But their production is a bit slow in getting going at a reasonable cost. Although it is moving...

So maybe euphoria in any market can lead to crashes in another. Mortage bubble of 2008 had alot of leverage and money tied up indirectly to banks , which were publicly trsded and some even failed.

Perhaps people should read Philip Fischer's path to wealth through common stocks..the seeds of (hyper) inflation are sewn in major depressions..buffet said the hangover will be proportional to the binge. Fisher also said the way the American culture works they will not accept Japan or German style deflationary economics . Also he said war is always inflationary after the initial scare (and trade wars are still wars) Put it all together and we are In one of the acts (who knows which one) until the grand finale. But it is not unusual to have higher stock markets if the value of money is debased.

I don't see high valuations. Quite low if rates stay where they are. There are a few no income tech and biotech stocks but in the great boom wasn't coke like 50x earnings ? With 2 percent inflation and 4.5 rates. Where are the nifty fifties trading up there? Even if they were, rates are so low why aren't stocks at 100x earnings if rates are going to be 1 to 2 percent for decades ?

Srg?

How do we know he doesn't Invest via an offshore structure with no tax ? You can do alot of things when you don't pay capital gains tax (eg a private investor in Belgium) or the rate is very low like averaging a few points in several offshore countries and EU . I guess that's what helps the rich get richer , being based in the right country, if in name and formalities only.

We are in fact , as of right now anyway, in a global recession.

I find in several cc transcripts of many industrial companies saying they will offset tariffs with price increases..I'm also reminded of Buffetts essay on how inflation swindles the equity investor and am not sure how your run of the mill industrial companies can so freely raise prices without volume decreases. Perhaps these are great companies but not all of them should be able to pass through 25 percent tariffs to customers. Either management is being disingenuous or I'm missing something.

They keep saying their investment process is proprietary, thats probably because if people knew it revolved around a one sentence thesis , with a little bit of experience and an acute sense of mental models ,people might be abhorred how little goes behind moving billons. Or perhaps they might be amazed how easy it is when you have a few simple principles and avoid big mistakes . It would show anyone can do this , on a certain level If they have good temperament , are patient and think of a few big things. you probably don't need to crunch any numbers much greater than 3 x 4 and so forth.

In 1999, interest rates were about 6% and inflation around 2%. That's a real rate of 4% and you had this bubble. Today real rates are barely above 0% and there are trillions in negative rate debt. It is quite conceivable that the most loss-making businesses trade for a fortune in this environment. If 1999 was a bubble , this environment could be bubble squared. Only gravity of higher real rates can perhaps rein in the madness but only if the escape velocity isn't reached before. Who knows. Maybe rates will have to jump in 1/2 or 1% increments at some point. However the party could continue onward for a while, after all pensions, insurers and citizens are in desperate need of return, even if that return is nominal and not a real one.

These words are a distraction. Another company JEF, the management keeps saying the long term performance but they've underperformed for 15 years + now. What matters is the nature of the business and the quality of the management - how well they 'get' the investment and business 'game'. A stubborn or unskilled manager can very easily delude themselves while pay lip service to 'value investing mantra'

Looking at part 2 again , the chart at the bottom, his 'required fcf yield seems way too low. I mean he starts with required yield of 4% at 5% growth and goes to 8% at 1% growth. That means FCF multiples range from 25x to 12x. I have seen several dynamic companies at 25x FCF with growth rates higher than 5%. It's true he is assuming perpetual growth rates but between now and perpetual can be a a decade or two before the higher growth rate meets the perpetual rate. That period of time is one where the stock price would be growing not contracting.

Bam went to $8.49 in 2008. Anti-fragile it is not. It is also a lesson in debt with a cost (as opposed to say float with no cost if done well). Even Berkshire can drop 50% even though it has a war chest in the subsequent recovery to pounce. Well, it's not a straight line to riches. You can go down 30% and up 300% several years after that. I am not as extreme as buffett with debt since he was always rich, even when he started , or could at least get a million bucks from friends. But I think anything above max 1.5x leverage is very very risky.

If this comes to pass it pays to be reckless, 2x margin, hold for a while longer. If it doesn't and stays flattish, also might be worth to be semi-reckless. If there is some crashes ahead, pays to be prudent. So take an average...but if you have a margin account an argument for 'fully invested' 100% can be made under the above uncertainties. If there is a crash you dip into your borrowing power (at lower rates). If there is a melt-up boom you can always sell on the way up. If there is just chiseling away at carrying cost , you can just collect dividends and have some prudent ratio of stocks to cash.

Do lower prices immediately result in bankruptcies? I would imagine it's higher rates and can't pay the mortgage relative to Income.

Some argue that Japan and Europe have policies that are anti-growth and deflationary therefore rates can be at 0 or negative and it wouldn't really work. In the end it becomes the policies that unleash the animal spirits and human potential that matter.

But is it possible to do both at once? If rates are high enough that you want to buy treasuries and sell stocks, wouldn't your stocks be somewhat depressed by that point? catch 22?

I think CBs don't want to play the bubble game but the politicians - on purpose or unwittingly, as well as continued lowflation are doing everything possible to generate one. Why do we always say after something like a Great recession we will never blow bubbles again, and yet we always keep doing it?

A good article by Martin Feldstein, https://www.nber.org/feldstein/projectsyndicateaug282018.pdf

I guess Buffett was looking at historical margins which pre-dated many IP and internet businesses. But I get his argument that the growth rate of profit margins as a % of GDP cannot exceed the growth rate of GDP over the long term which includes the aforementioned companies plus much more.

I vote Yes, if they lower taxes by the same percentage and for capital gains too.