scorpioncapital
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Posts posted by scorpioncapital
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More experience would have given me better insight into the nature of the bust-boom cycle, even if every situation only "rhymes" with the ones before. On the individual stock front, not realizing that every new investment should be carefully compared against every other investment owned or possibly considered with an eye not only for maximum gain but also for optimal safety in protecting *existing* wealth, not only in creating new wealth.
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Let's see if every company is downgraded in a proportional fashion from AAA to AA, from AA to A, etc..what does it mean - nothing! AA is the new AAA!
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Isn't there a risk with options that a company may distribute or "liquidate" value via special dividends which would catch the option holder or put seller without being able to participate in this?
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But that rally only came after a 90% fall. Even after the quadrupling between 32-35 most investors were still deeply in the red.
I think the idea behind this quote is not so much where the bottom is but that there IS a bottom and the rebound can be very strong (of course we'll only know in retrospect). Anybody who bought at the peak of anything is always going to lose. The question is if the person who bought at 25% below the peak, 50% below the peak (like now) is going to lose much MORE. A few % point more is no big deal and I don't think we're going to hit -89% this time around - no way.
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Because in the depth of the Great Depression (the worst financial disaster in modern times), the stock market also had the BIGGEST gain in stock market history. I found it interesting that in the worst of times, investors also made the most amount of money.
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"“Yet, just as the stock market had crashed when the economy was bountiful, the stock market soared when the economy was woeful. In the fiscal funk of 1932-1935, the papers were full of demoralizing tidbits…Wall Street then launched one of the most profitable rallies in its history….Courageous investors who had a tin ear for public opinion and spare cash to put into disparaged equities quadrupled their money in four years. The Dow rose from 41 to 160, and the S&P500 did even better. This unexpected bonanza was a good lesson for Davis. It reminded him that stocks don’t read the papers or swoon in response to scary headlines. When they’re priced for desperation, they can rally in the face of desperation, escaping the dumps while the companies to which they’re attached are still wallowing in the dumps.” – The Davis Dynasty- John Rothchild"
I think this is what Buffet meant in this years annual report when he wrote that a bad economy does not necessarily mean a bad stock market.
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"Quote
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We are now at 1996 levels on the S&P
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It's much worse than that. Consider the rate of inflation between 1996 and 2008. I believe the total is about 32%. This debacle highly suggests to me that we are in for a doozy of a bull market in the next decade.
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Well for this to be actual "news", we'd have to go through all the reports in the past and see if the word has always been emphasized. If it has, it means nothing. If this year is the only one where the word is emphasized, than you may have something.
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Interesting to see the BVPS around 11 (from 25 a year earlier). Probably down a bit more with ACF and JEF being significantly down YTD. I'd think the stock price will go down a bit more to reflect these numbers.
I don't think this is an accurate assessment of the situation. The $25 book price per share last year included a deferred tax asset of $1.6 billion or about $7.5/share. The $11/share book price of 2008, EXCLUDES this tax asset. So the comparable figures are:
2007 - $17.5 (adjusted to exclude the deferred tax asset)
2008 - $11.2
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36% drop in comparable book value.
Likewise, after year end, the net loss to JEF/ACF of about $230 million is somewhat offset by gains in Fortescue for a net futher loss of $52 million or $0.21/share.
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I wouldn't worry about 20% more or less money if in that period was one of the biggest depressions of the last 100 years. I'd take the money and run :)
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Take 50 years. If the S&P500 has 10 years of zero earnings and 40 years of $100 earnings the value of the S&P500 will be roughly equal to if it had 50 years of $100 earnings.
$5000 in earnings versus $4000. Difference? 20%. Valuation? 50,000 vs 40,000 over 10 years. Annual compound difference? 0.40% per year.
My point is this depression and the earning consequences are insignificant to the value of the S&P 500, or rather to your ability to get rich.
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It would seem that Warren's point of view is that anybody who opens their mouth about macroeconomics is playing the wrong game. They are playing a game, but it is not the 'investment in a business' game. Unfortunately, while waiting, people don't have anything else to talk about. But if the filler material impacts your investments or emotions, that is a bad thing.
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Soros runs Soros Fund Management with $4.5 billion invested in stocks, 30% in Petrobras and Potash. I do believe the fund is 12-20 billion so that is still about 25%, but if he thought the world was coming to an end, why own a single share? In fact, why not short everything?
In fact, he, like everyone else, doesn't know what the future holds.
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I'm not entirely sure that anybody knows anything about the S&P500's value or where it is going...In the near term, the economy has fallen off a cliff. As a result of that, people have dumped stocks. If the economy didn't go off a cliff, I'm sure we wouldn't be having this conversation and the index would be 50% higher and all the value justifications for it based on THAT economic state would be in order.
Yet, IV is far more complex. Given enough time, a few years, even of a Depression has a very small effect on the value of a business many years out (assuming it survives).
My opinion is that the world is not discounting properly because of emotion. People are projecting the current economic state for as long as the eye can see and that cannot be the case.
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There is no doubt, however, that Berkshire's record is superior to Loews as measured by growth in book value (not considering intrinsic value).
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I believe if WFC becomes a zero, considering dividends received by Berkshire over the years of ownership, the impact per 'B' share is less than $100. Now that to me sounds like a solidly built company.
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The spread has been ongoing for over 10 years. I see no reason why it would ever close. For example, according to Google Finance, A's returned 6.94% over the last 10 years, while B's returned -.75% over this period - a spread of almost 8%.
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"But even with the January increase, which was in line with economists' expectations, inflation for the 12 months ending in January was zero. That's the lowest reading since prices actually fell by 0.4 percent for a 12-month period ending in August 1955.
Core inflation, which excludes energy and food, showed a modest increase of 0.2 percent, slightly higher than the 0.1 percent gain economists expected. Over the past 12 months, core inflation rose 1.7 percent, the lowest reading since a similar increase for the 12 months ending in August 2004
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Does anyone understand this? Is the inflation rate 0% for the last 12 months or 1.7%?
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In the last 2 year annual reports, Buffet has shown how the growth of the private businesses has outstripped that of the public investments. Operating earnings from wholly owned private businesses bought by Berkshire have compounded at over 20% over the last decade while public equities have done a more modest 13% or so. That should suggest that the cash is being allocated to the private business and so buying Berkshire is probably the better deal. Likewise, Buffet needs only a 10-11% return on public equities to generate a 16% threshold using the float.
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It is interesting to note that some of the biggest yearly returns for the market ALSO occurred during the Great Depression (alongside some of the biggest yearly drops). It is not at all clear that large and mesmerizing crashes this time around won't be followed by just as mesmerizing gains.
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My thought is to not duplicate investments. That is to say, one investment should do instead of three, if they achieve the same aim.
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Does anyone know if the line on most balance sheets called 'common shares and paid in capital' represents the total money that shareholders have put into the business to get it started? Can it be inferred from this measure the returns and efficiency of the business? For example if a business had this capital as $1 billion and now the market cap is $3 billion that investors put in $1 billion and now that stake is worth $3 billion after x years?
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Check out this quote from Common Stocks and Uncommon Profits:
"As already explained, our laws, and more importantly our accepted beliefs of what should be done in a depression, make one of two courses seem inevitable. Either business will remain good, in which event outstanding stocks will continue to out-perform bonds, or a significant recession will occur. If this happens, bonds should temporarily out-perform the best stocks, but a train of major deficit-producing actions will then be triggered that will cause another major decline in the true purchasing power of bond-type investments. It is almost certain that a depression will produce further major inflation; the extreme difficulty of determining when in such a disturbing period bonds should be sold makes me believe that securities of this type are, in our complex economy, primarily suited either to banks, insurance companies, and other institutions that have dollar obligations to offset against them, or to individuals with short-term objectives. They do not provide for sufficient gain to the long-term investor to offset this probability of further depreciation in purchasing power."
Sundays CBS Ben Bernake Interview
in General Discussion
Posted
What's this thing about political will to fight the depression? I understand it to mean that unless we allow things like the AIG bonuses to occur, regardless of how much we hate it (I.e. the political will is to reverse it) the recession could go on a long time. I.e. we need the help of the criminals to get us out but the will of the people to allow this is very small.