scorpioncapital

I guess the two questions I have are Why are profit margins so much higher now than historical averages of 6% on the high end , and even lower on the low end? And can it last ? And if we should look to the future of rates, while we never know, would someone invest at high pe now because rates are going to be lower for longer or , if they double , then it's likely at today's prices an Investor gets no return . Buffet doesn't seem to be buying at these prices, except a few value stocks and maybe his own stock. Seems he fears higher rates to come, even though he says not to predict rates he isn't selling public stocks or buying them (except banks which do well with higher rates potentially and are value stocks atm) some counter arguments - https://www.bloomberg.com/news/articles/2019-03-07/fed-and-ecb-confront-a-new-normal-that-looks-a-lot-like-japan-s https://www.businessinsider.com/james-bullard-fed-zero-interest-rates-forever-japan-growth-2015-9

https://money.cnn.com/magazines/fortune/fortune_archive/1999/11/22/269071/ http://fortune.com/2017/12/07/corporate-earnings-profit-boom-end/ http://www.thelatremoillebegggroup.advisor.news/say-goodbye-to-the-stock-markets-secret-sauce/?c=eyJ0eXAiOiJKV1QiLCJhbGciOiJIUzI1NiJ9.eyJub2RlX2lkIjoxMjcwLCJwcmV2aWV3IjpmYWxzZSwiY29tbV9pZCI6MTAyNjAxNiwiZGVzdF9pZCI6MTQ2MTgxNn0.WRb9-ttgdUxehrodcEhRoGMC8eBFprnIMgH7eIXjpdo&fbclid=IwAR3k7trLBMiBJK7xIv6DGCNg0q0CzLH9FAs0-qRM0gT3uo8w958HKlMmwzY Friedman and Buffett both say you can't have corporate profits growing so much faster than GDP. Check, happening now. 9%-10% (way above average) versus gdp growth of at best 2-3%. Rates are ultra low still at 2.5 to 3%. This is obviously different than 1999 when rates were 6% and PE on SP was 30x. But today it's around 20x and profit margins are huge. But it could all be due to low rates and tax breaks. Sure, the bubble could double before the next 10 to 20 years of 0% return. A big difference is the chronically low rates and high debts. Does this mean financial repression and low rates is a scenario unlike any other in history and likely to persist?

Europe is not one country. There are many countries that operate differently and would have no problem doing independent deals with UK. Europe, in terms of EU policy, is essentially Germany, Scandinavia, France, Netherlands, Belgium (Western Europe). Already everyone center-east is already not complying or loathing many EU policies. Italy has also sort of pivoted East. EU is 2-track, although it appears as a unified voice. The only reason the center-east countries like EU is a) freedom of movement and b) lots of cash going to them in exchange for using their lands and labour.

UK is a hostage of geography. I read a book once that explained how each country in the world is highly influenced by its physical location on the planet. The EU is a continental club. If they decide they don't want to trade with UK and instead pivot east say toward balkans, ukraine, they have far more resources. So unless entire armies of ships will sail to UK to provide them with 'stuff' from around the world and they in turn send ships with their 'stuff', I don't really see the UK as having almost any bargaining power here.

What I don't like about the Canadian system is the 'hoops' and 'bureaucracy' you have to jump through to get a tax benefit. There are countries where the system is much simpler. If a tax does not exit, there is no records to collect and no hoops to jump. This begging the state for a benefit freely available elsewhere smacks of asking if you can breath a little more oxygen, pretty please. ;D

10k boost to 35k? It's peanuts. Even if prices where half. With tightened mortgage restrictions what is given with one hand is taken with the other. I see this is as a gimmick, a bit of a joke. 10k? It's like almost 1 year of interest on a 250k property. Maybe if you live in middle of nowhere or a shoe box. You can buy 6 apartments for this price in Eastern Europe. I think I rather take that even without the 10k inducement.

As a percent of my portfolio ~ - Liberty Broadband - Formula 1 - Liberty Global - Discovery Communications - Expedia And I've decided to divest Discovery and Expedia completely over the next little while, but not sure how yet, probably replace it with Airbnb or Google depending on market prices at the time. Discovery I'm re-distributing into Formula 1 and any new Malone deal announced if it looks good. There is a decent probability Discovery gets bought out after the merger 'house cleaning'.

When he said he bought a test position in Oracle, then upon contemplation realized he didn't really understand the long term dynamics I got two impressions, one good and one bad. Good impression: He asks himself on every investment if he really understands the business model and dynamics. He only invests in what he feels he understands so that there are no really bad surprises at Berkshire. Bad impression: He is unable to expand his circle of competence. This last point I find potentially problematic if Berkshire requires some new big deals to boost gains on top of the existing businesses. I do believe there are other areas of competence other investors have and have done very well. But of course they could in time be wrong as well. Many investors think they know something very well but in the end find out they are just buying something they know maybe 60% or 70% and that part they don't know reduces long term return. To me it's crucial that Berskshire can expand it's circle of competence as the world changes. Maybe the new blood will help with this. And hopefully Apple is an example of a successful expansion of the competence circle.

"5. The Dow gained 38 points in the 1970s See above." Didn't do very well for the 1960s either (600 to 800) though the economy was booming. But in the 1950's it tripled (200 to 600) I hope the current decade is not a playbook run-up similar to what might await us in the 2020s and 2030s!

Reading this article makes me thing we are in some alternative universe with yearly rises of growth well above 5% for the last few years for many companies. I am almost not aware of any stocks I own or follow that has posted negative growth in the last few years (except a few contracting or broken situations). This seems to be quite strange given the long term historical record. I'm also reminded when he says "The value of a stock is nothing more than the value of the future cash flows that the company will produce," what Philip Fischer said that this may be so but that the price of a stock is almost always based on expectations. Which is why a great company with a good value can swing very savagely when these expectations change. This may be rare , but can happen anytime. I've also noticed that PE ratio and growth rate have an intangible component which is the belief in the moat of that business. While I don't necessarily agree that say Verisign or Lindt Chocolate should have 30 to 40x p/e ratios for their quite modest growth rates, I do agree that the franchise and moat are incredibly strong, producing a higher valuation for the same growth rate as another company having the same metrics. In a market crash, smart people still tend to go for the quality business, or sell out an inferior business to move up the quality chain. Just like going for the US dollar or gold. These assets tend to have an unfair advantage above and beyond their absolute potential.

You could also apply your own chain of logic or reasoning. Sure if you live in a bubble you might not have much actual data but logic - like mathematics requires very little real world data. You can ask high level questions about the nature of steel perhaps, or value added. or distribution. or demand or pricing models...you can then try to see if your no data chain of logic then matches some facts you can ferret out. But you don't have to start with the gym industry. You can look at it from tangents that don't have to do with the industry specifically but impact it, perhaps health trends, social dynamics. You could even not know the answer at all, but if investing is a relative art, then you can ask what other fields give you the same outcome or result. I have sometimes excluded a field not because i knew anything about it but that I found an outcome that matched my goals could be achieved without needing to get into the field I was contemplating.

I guess the irony is the human nature can't even counter human nature by following a pension plan.

Hmm..is part of this capex like data center REITs? or even more granular such as server and motherboard makers? I guess in this space I'm either going with the top dog of the abstract layer like Google, or going with the battery pack makers ala the Matrix )

I just did the opposite ;D

The one question I have but first a compliment. An incredible dedication to circle of competence. But what happens when that circle gets old due to disruption? Shouldn't Buffett start to improve his circle of competence? Ok Apple, a little. Only he knows how much he really gets that. If more businesses are getting disrupted it would seem Berkshire needs new competence in new kinds of businesses?

"If things just go churning on upwards and Berkshire underperforms the S&P by a few points each year, then yeah." If this happens, Berkshire will continue to chug along and outperform S&P upward too - and with 25% cash. From what I've seen it has kept up with SP and a little bit plus. On the other hand if things go down, it has huge buying power. Whatever happened to the idea of patience? And no it won't do what a biotech stock or IT stock is doing right now. But then again it won't do what those stocks will do when things go in reverse either.

Also notice the 8 year period of zero return before the shoot-up. People want constantly up. They will be disappointed (unless it's some sort of inflationary snowball, but then up will be just keeping up)

short letter, for a non-year. nothing much to say...as for not pulling the trigger in december, less than 2 months ago, what makes people so absolutely certain this was the deal of a lifetime? Even in the 2007 major recession, the purchases didn't come out in force for a while. I think there is seldom a need to hurry in markets. Things will develop in time. There may be a time but a small correction and buying or not buying, to me isn't necessarily proof of anything one way or the other. He did buy alot before the dip so maybe he was just waiting for the large purchase of 20 billion in 2018 to digest itself. It's a game of time in the game, not pouncing here and there on every correction. That is fine but I don't see it necessary for success.

So Buffett blundered, perhaps investing with his dietary preferences in a food stock that no longer has the moat it once had and not very internationally portable, but we see the strength of Berkshire being so diversified it can easily take a hit like this and brush it off.

IB charged me $500 usd.

I question the concept of allegiance or patriotism to debt payback. I mean, I can move now to a small European country with no to little income tax and no tax on capital. They don't go to wars, they don't have to deal with so many people. Things run just fine. Is there a reason I should take the higher American taxes just because I should help the country out?

That's a good plan. I do that too, although.. When I'm in a debt position I do DCA but only when I sell equal dollar amount of stock. That way I force myself to add new funds only if I've deleveraged somewhat. If market tanks, I never add for a few months or get back to a previous market value.

why not both? steady DCA plus a sprinkle of lump sum during a downturn. Watching Berkshire he seems to be doing this too, regular small buying plus major buying at pivotal moments.

I use the training wheels model. I was at like 80% brk for equity portfolio, now down to 40%. The 40% that went down was put into other high quality companies at what hopefully was a decent price that didn't overlap with anything held inside brk equity portfolio. I don't see BRk doubling quite as fast as other potential opportunities. No fault to berkshire! But what can one do? it's a good but difficult problem.

Depends who you are...Are you the median? If you are trying to do better there are more headwinds due to confiscation via taxation compared to other countries. An investor in Netherlands pays 1.35% of their total capital a year. You will see this comes out to far less than Canada's top 20 to 24% capital gains tax on 1/2 capital gains. In Belgium, there is no capital gains tax. In UK or Ireland, a foreigner can for 7-12 years pay 20% of their domestic living expenses (like a HST tax) instead of any tax at all. So depends who you are. If you are naturally high income earner or investor and not the median, it is not so hot. If you are median or below it sure beats say Iraq or Ukraine as the transfers are more generous and corruption less. Red tape is middle of the road but not the lowest. I think part of the gains you mention are due to a closed system, partially protectionist. However like China's 50k capital controls, you cannot always control around the edges, especially if there is discontent that can go in reverse. Personally I think the stats will change by a devaluation of the currency. I don't see any other way given the highest public and private debt in the developed world. Who will take on more debt? And if there is deleveraging, while other nations can still leverage or grow, that would also impact the currency. Some have argued for deflation but I don't see that except as a temporary situation.