scorpioncapital

How about taking a middle of the road approach? Hold a set of long term, internal compounding investments with 50% of your capital and give them a time limit of say 5 years to demonstrate moving in the right direction. If they don't, reduce the stake. Meanwhile, the other 50% you do the shorter term, event driven, taking a profit scenarios.

perhaps this forum is of help: financialwebring.com, look under 'taxing situations'. for the second question, in a corporate setting, you would most certainly have an unrealized gain or loss on foreign exchange necessary to produce balance sheets and income statements that balance. But for an individual, I have never seen any such reporting standard. It would seem that tax would be owing on such a gain even if technically unfair. However, you could use an average rate if there are many transactions, "Report your gains or losses in Canadian dollars. Use the exchange rate that was in effect on the day of the transaction or, if there were transactions at various times throughout the year, you can use the average annual exchange rate."

beginning of world war 3 with the players being russia, china, the middle east, and the west.

I think skipping the equities and looking at the debt is a first step. E.g. 2018 Exoc debt is currently yielding a whopping 20%. They are hedged for 1 year. True, low prices will require some deft management but if the debt is paid, then 20% is an amazing yield to maturity. Others, EROC - 11% yield for 5 years and fully hedged at $90 oil price until about 2018.

I was wondering if we might start a list of well covered, high yield bonds say minimum 8%+, with maturities up to 2020.

seekingalpha has a nice alert system you can add your stocks to the list and it'll notify with their android app.

Most value investors are good at asking why Mr. Market is wrong. But sometimes they forget to ask why Mr. Market is right. One would do best to read between the lines and act accordingly.

If it's still undervalued after 1.5 years, you would sell or accept a lower return. Time is ticking on these kind of stocks. If it doesn't reach your expected value in 'n' years, like an option, it's considered a loss even if you can hold it forever. I would think excel can produce the average, that seems the most automated. Least automated is having to pick and choose.

If you do Graham style P/BV, then the holding period is equal to your desired rate of return which is equal to the average undervaluation of the group of stocks divided by the number of years to return to book value. I'd add a fudge factor for perpetual discounts, which are common in these kinds of stocks. If you desire 15% per year and the undervaluation is 20%, then it would have to get there in about 1.5 years, otherwise, presumably you'd sell or lower your expectations.

I'm thinking about companies like Goldman, Brookfield, Leucadia, Harbinger, Loews, Ocwen as examples. Here you have a motley crowd of varying strategies. Brookfield and Ocwen have generally spun-off large portions of their assets and kept a small interest either directly or as founding shareholders. Companies like Loews, Berkshire, and Leucadia have generally - at best, held minority interests in public stock but for the most part have kept it all together. Goldman may be a conglomerate in financial services with asset management division, investment banking, etc...It really seems the spinoff crowd has some distinct valuation advantage in the market, perhaps with the exception of Berkshire. I can see one case where a conglomerate might work - as an incubator of growing new businesses to spin-off later.

I'm thinking insider ownership may have something to do with the decision to empire build vs split up. Suppose you own a large stake in a conglomerate, if you split it up, you keep a stake in each "child" co. but if you held virtually no shares, the management would just be splitting it to shareholders and possibly reducing their compensation at the parent level. On the other hand, you could make the case for the opposite scenario as well, getting a big payoff for splitting up.

Does anyone know if Buffett has ever weighed in on the argument of conglomerates vs spinoffs? I've seen several academic studies showing that conglomerates generally suppress maximum value (a discount) while spinoffs tend to release this value. Yet, there are still quite a few conglomerates and watching their spun-off brothers and sisters in the market go up in value more than the sum of the parts can make shareholders scratch their heads as to why conglomerates even exist. Is there a certain inertia to empire building that some managements strongly believe while other managements simply do not care if their assets are under one roof vs many independent ones?

I have a crazy rule - when times are hard, I spend money. When times are easy, I save money. While this may be against the grain, the reasoning is that in hard times you do best to focus inward and ignore the noise while waiting for things to turn, and when times are good, you best to be cautious. Not sure if this helps with your situation but I would almost always go for my own thing than the "default position" available in the general ocean of stocks.

Can you calculate EV without having market quotes? Can you calculate NCAV without having market quotes?

For what it's worth, I've done this analysis on several stocks I'm interested in, of varying business quality from average to great and the yield as you have mentioned for most of them is around 10-12%. This is despite some of them having internal rates of return of 16-20%+ and others having roughly 10-12%. Obviously one would prefer the quality business with the high internal return even if it returned the same as the "junkier" businesses. But still, 10-12% is not anything that cries out to be bought.

In this article, http://basehitinvesting.com/importance-of-roic-part-5-a-glance-at-the-last-42-years-of-wells-fargo/, he writes, "A business will compound value at a rate that approximates the following product: ROIC x Reinvestment Rate." He gives an example of Wells Fargo: "So as you can see: 15% ROE and 66% Reinvestment Rate = 10% Intrinsic Value (Book Value) CAGR. " The question I wasn't clear though was that there appears to be an underlying assumption here, or at least a tautology which is that the reinvestment % implies reinvestment at the original rate. If this investment is not met, then ROE will fall. So this % refers back to the original number. One would have to see somehow, perhaps by separating out the extra money added and the extra income generated the new return. In a way, this seems connected with growth rate but am a bit unclear how. One may also conclude that any management which pays a dividend is unsure or admitting to be unable to reinvest at the original high rate of capital. Dividend policy seems nebulous at best, sometimes it's follow the leader, sometimes it's just uncertainty.

Is the assumption of FCF that depreciation rate for financial reporting equals replacement capex for the same period? Any mismatch would seem to suggest some adjustments are in order.

Is the different multiplier due to investor certainty - or uncertainty of the stability of earnings in various industries? Or is the message that these multipliers are just tradition since a shoe company and a biotech company that have the same profitability for many years should technically be worth the same to an investor.

Does anybody know the pros and cons of using pre-tax vs after-tax operating income to calculate return on invested capital to determine quality of the business? I've seen some exciting numbers pre-tax but when you deduct the government's 35% take, sometimes it doesn't look so hot. I.e. it may be 15-16% pre-tax but a more sedate 10% after-tax. Does it make any difference? For example, Buffett has compounded book value at 20% per year on average, I assume this is after-tax.

Reasonably valued = in the middle of the zone?

So let's say a company has $1 in equity and $1 in debt. It earns 50 cents. Return is 25%. Can you ever know what the return would have been if they didn't employ the $1 in debt? If the debt earns at the same rate as equity, then it's 1:1. But what if the equity was earning far more than the new debt so that the incremental debt earns far less. Haven't ever seen a company break this down.

Sounds like you have to remove the % of income & interest due to the debt, if there is a way to separate this out.

I don't see how including debt can determine quality of business. It seems return on equity is the only measure of quality businesses. If a business earns high ROE due to debt, it's not due to the business quality but the leverage factor unless one condition is met - it can earn the same return on the debt which means incredible ability to scale up. This may be the case for the best of the best but most are just juicing the leverage factor at a much lower return than their core return.

It would seem both ROIC and EV are similar in that they include debt. As such, does it imply lowering return expectations since adding debt to the denominator would almost certainly reduce the return. I.e. If a company earns 20% on equity with no debt and then it adds debt equal to equity but does not increase earnings much, returns now go down to 10%.

Is there a list of high return on equity stocks at a reasonable price? I was reading that Buffett believes a good business is key. However, it seems some filters are in order - the high return is not due in large part to debt or if there is debt, if you divide by the debt, the ROE is still high. - the high ROE is not due to a cyclical business at a high point in the cycle. - the price is reasonable or in fact more than reasonable right now. - You or someone you respect understands the business well if it's in tech and you're pretty convinced of this assessment. - If ROE is not high now but is about to be high for many years due to key business trends.