scorpioncapital
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Posts posted by scorpioncapital
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Is there any other strategy besides these?
- concentrated investment in a single company well researched and meeting Fisher's GARP (growth at a reasonable price) criteria.
- statistical value investing where many bargins are bought with a net positive expectation but any which may blow-up.
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One might argue if GE was properly diversified when the financial product division began to overshadow the industrial business. If you strip the financial business of GE from the industrial business, I would argue the latter would have been fairly well diversified and is as low-risk as you can find short of some fixed income investments yielding next to nothing. The moral of the story, if you mix a good business with a bad one, the bad one can taint the whole company.
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Keep in mind that you can diversify across several stocks OR you can buy a conglomerate stock which itself is somewhat diversified. To combine the two, you are getting a double whammy of diversification, which doesn't sound too hot.
E.g. say you own Berkshire Hathaway, you already own a very diversified stock, so if you now go out and buy 10 other stocks, you have really way too much diversification.
On the other hand if you buy a "single" service or product business, then you could buy 3-5 of them to be diversified. I think owning more than about 3 stocks is silly, but those 3 have to be VERY carefully selected.
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I love it, I've positioned myself to take advantage of the strengthening CDN$ and my US$ debts are melting away every single day!
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My thoughts are that hedging is a waste of time. It's like buying insurance and paying a premium to insure against a "bad thing" that isn't really bad. Who would pay for that, it's just money down the drain.
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Why is everyone obsessed with the 'aggregate'? All these news reports are the polar opposite of value investing, which is a form of focus investing. Yes, maybe on average you have this phenomenon reported, but value investors invest in individual businesses using reason and analysis to pick better businesses for better returns. It is clear as day that a concentrated portfolio of the right businesses will blow bonds AND the averages out of the water.
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So some stocks have doubled and tripled from the recent lows. Big deal, some of these stocks will be up *another* 5-10 times over the next 5-10 years. I am not selling a single share bought recently.
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As a quick aside, it is a good bet that the Fortescue royalty will turn out to be undervalued in LUK's accounting. The undervaluation could be as much as $4/share. To some extent valuation starts with tangible book value at year-end and adjustments made for various investments & options. Taxes - every company pays them and in the world we are moving into, taxes could go higher as governments must do something to prevent very high inflation due to deficits. Also crack-down on offshore tax havens has been in the news lately. LUK's tax benefit could be another $4/share. So far, we are at about $20/share. Jefferies contributes about $1/share more to LUK than at year end. ACF about $0.50/share. FMG shares another $0.75/share, Inmet shares another $0.75, total say $3/share. So far we are at $23/share. To some extent, the company's future value hinges on a better economic environment than the disaster of last year. Overall, I'd say its trading at a fair price with some additional upside to these values going forward, but in no case is IV $8/share as predicted by the calculator (which probably extrapolated the one time $11/share loss in 2008) into the future. Likewise, the management of the company probably has another 10 good years left in which to further add on to these numbers. There are quite a few other options in Leucadia: several energy projects that could increase value in the billion dollar range, a new business that is buying car dealerships across the country, and some medical products that could do the same. If they all turn out to be a Zero, there may be some wind-up cost but no big deal.
Leucadia has many problems, management has made many mistakes recently and there are great unknowns about the future. A deflationary environment would be a disaster leading to further losses to investors.
Disclosure: LUK accounts for over 50% of my net worth, I hope this doesn't cause me to be too biased. I am neither happy or unhappy about the investment, but there is a reasonable chance of an acceptable outcome.
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Also shows the limits of using formulas for valuation. For example, type 'LUK', Leucadia, it has a IV of $8.25/share which is maybe 30-40% below tangible book value. Nothing can replace thinking, although some companies are easily valued based on a DCF formula.
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Probably the attendance would drop significantly if it was web-streamed. Still great transcripts pop up anyway in a few days. Tilson had a good one last year.
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Do you think there will be any real-time voice-to-print transcripts, basically a rolling transcript of the event this year or it will take a few days for a printed transcript to be available?
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Mungerville, in my original post I said from the "lows" not from the beginning of the year. That would put it from March when the S&P was hovering just over 600. It's true that from the beginning of the year the market is roughly unchanged so far.
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"The current enthusiasm for equities and feel good predictions are typical of rallies"
They are also typical of bull markets.
What you say is true, but as has been demonstrated many times in the past, a bad economy does not mean the stock market can't do well.
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It will take years and years to rebuild asset bases and allow the average consumer to build enough equity to start spending freely.
Things could turn around much quicker than people think. 2009 so far has been one of the best years in stock market history. Many stocks have gone up 100% from their lows. It would take 5-6 years of 15% annual returns to achieve what has been achieved this year.
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link please!
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He'll probably answer some of that next week at the AGM, I can only speculate, but the comparison with WFC and AXP is not the same. Those companies have an economic moat (at least in AXP's case). Banking is a commodity but has some network effects. Oil is a commodity therefore it is more valued on supply and demand as well as resources in the ground, nobody cares where they get their gas.
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"I wanted to know WHY he invested in the first place "
But he stated that too in the annual, he said he thought oil prices weren't going to go down from $140/barrel to $50/barrel.
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That still doesn't really answer the question. I mean why Conoco? Why not Chevron, Exxon, etc.
What is special about Conoco?
But it answers the question precisely: He said he made a mistake.
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#8 is also good. He invested in COP at a price that is some $3 billion higher than today's price. That's a lot of money or 2.3% of Berkshire's market cap. Based on what I've read about Buffet, if he was willing to invest in oil at the peak, he must be pretty bullish on energy prices over time.
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If from 1999-2006 the return was 28% per year and it dropped 60% in 2008 and let's say it stayed flat in 2007, the return drops to 21% per year, still pretty good.
Well, from 99-2006 (7 years) the return is 28% CAGR. If it was flat in 2007, CAGR would drop to 24.1% . In 2008, with a 60% drop, CAGR would have dropped SUBSTANTIALLY. His returns, based on your assumptions, would now be a little over 9.4% CAGR. Nowhere near 21% CAGR.
BTW, 9.4% is nothing to scoff at. In a time where the S&P has broke even for 13 years, and even the best have whittled their returns to just 1-2 percentage points above bonds, I'd take 9.4% any day.
You're right, I forgot to deduct the 60% loss!
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If from 1999-2006 the return was 28% per year and it dropped 60% in 2008 and let's say it stayed flat in 2007, the return drops to 21% per year, still pretty good.
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It never ceases to amaze me how many smart people and economists are always referring to the history as a justification for the future. I mean I believe in that article there are direct comparisons between the Great Depression, Japan and today. BUT, comparison is not proof. And it does not necessarily follow logically that if some event happened in the past in a particular way it will happen again in the same way.
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I'm going if anyone wants to meetup at or before the meeting. I remember from last year it is difficult to take accurate notes, but am unsure if a recording device is allowed. How hard is it to have a MP3 recorder in your pocket? There is no screening except to enter the building I think.
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"Leucadia lost more than half of their book value in 2008"
This is a misleading statement. $1.8 billion of the loss was almost entirely a tax asset. If you exclude it in 2008 you must exclude it in every year before as well. You can't lose what you never had or what is usually in the footnotes. A more accurate statement would be that they lost 25% of their book value (850 million or 1-2.6b/3.45b) which is still scary but far less than the loss in the S&P 500.
Thoughts on Diversification
in General Discussion
Posted
What he probably means is that a startup can have 1000% returns in a very short period of time, very unlikely to find that in the stock market in a short period of time. On the other hand, it is said 95% of small businesses fail so 1000% * 95% failure rate = 50% return which may be comparable to buying a big public company that has a failure rate close to zero.