Cardboard
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Posts posted by Cardboard
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Announcing that a company will explore strategic alternatives is often the best way to get a share price lower in coming weeks.
While there is a pop today and Friday on the rumour, it is quite probable that the shares will move lower for quite a while afterwards. I have seen this very often. The shares move sharply higher on the announcement, then keep retracing and even go lower sometimes than the price before the announcement.
I guess this is due to investors getting discouraged because no news gets announced quickly. The media then gets into it saying that there are few buyers interested and that it is a seller market. Since the process takes time, the stock market finds a way to get weaker during the period making investors think that it must be due to a coming weaker economy and combined with lower share prices of competitors, the thinking changes to: no deal will ever emerge. It is usually then that the opportunity arises to pick shares on the cheap and earn a true premium on the buyout.
Just my experience playing these "events" on stocks that I found truly cheap and subject to a buyout possibility.
Cardboard
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I like it... Guest house, heated pool, RV and saving on kwh all under the same post! LOL
Seriously, I do try to save as much bacon as well despite a home that is relatively large for my needs. I do the house keeping, flowers, grass, etc. It is kind of a way to keep somewhat busy physically and to leave the computer. I guess I am cheap too. ::)
I would recommend that you do not turn off your pool filter during the day since it is likely when it is most useful. I turn it off at night or when the weather cools down. Right now however, it runs 24 hours a day and I find that it helps keeping it cleaner. If I turn it off at night or when it is really warm, the water tends to get blurred. Doing quick regular backwash will also save you some power since you will see the pressure going down through your filter. Changing the sand every 7 year or so also helps a lot getting cleaner water and reducing pump pressure. I would guess that you probably need to change it every 3 years in California considering the higher usage.
Cardboard
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Giofranchi,
You are now up to 1,413 posts while being a relatively new board member and I would say that the vast majority has been about Fairfax. What is the point spending so much time discussing a name that you know inside and out, and also everyone here, instead of spending a bit of this time trying to learn the skills that you say you don't have that others have to compound money at 20% a year?
Honestly, I don't get it. You obviously have some time available. Multiple ideas are being discussed on this board daily. The method of Ben Graham, Buffett and other is well explained and you seem to understand it. You seem intelligent. So, I really don't understand why you resign yourself to 10 to 15% a year while you probably would achieve better by simply trying.
Cardboard
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Investor sentiment towards Canadian oil & gas producers is certainly negative with the continued delay by Obama to approve the Keystone XL pipeline and fears of decrease in global oil demand. The recent flooding in Alberta is also not helping.
On Keystone XL, I think it is just a matter of time for Canadians to develop western and even eastern oil pipelines to ship their oil globally. Once that happens, it will trade closer to Brent prices removing forever a key competitive advantage that the U.S. has currently or access to land-locked oil priced at WTI. I think it is also worth mentioning that Canada is a geopolitically stable country!
The other piece that people are missing is that light oil produced in Canada is currently priced slightly above WTI. One of the reasons is that Canada produces a lot more heavy oil than it used to mainly due to the oil sands. This heavy "stuff" is called Western Canadian Select or WCS. In order to be processed into refined products it takes more complex refineries and upgraders. Of course, these things are very expensive and take a long time to build. Another alternative that heavy oil producers have found is to blend their product with light oil to reduce refining costs and to make it refineable without upgraders.
I think that is where lies the opportunity currently or Canadian light oil producers. Many of them trade at half of book value and well below tangible book. They also trade well below their NAV and at a price to cash flow below 3 times. They have 10 to 15 years of reserve and growing is simply adding more wells in well known areas. There has been as well very interesting insider buying recently. Debts are quite manageable and these guys could survive a crash in oil and remain cash flow positive while their counterparts involved in natural gas, heavy oil and the oil sands would be facing financial distress. So I think that there is a certain floor for oil prices due to production and finding costs that have gone up a lot in the past decade while demand still appears strong looking at close to $100 oil despite all the talk about a slowdown and a so called "glut" due to new U.S. production from fracking.
Some that I am studying currently: ARN, LTS, LEG, LRE, PWT and SGY.
Cardboard
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I watched the first 3 periods and I am hoping for the Hawks to win. However, I was quite disappointed by how they played to be honest.
The way they played during the 2 men advantage was a disaster. Then lot's of lose passes, many turnovers. They were quite lucky not to see a 4th or 5th goal by the Bruins and also to score that 3rd goal.
I think that they need to re-organize and look at the way they are playing: how they are coming out of their zone, the importance of clearing the zone first and to break the Bruins well organized 5 men defense by outskating them, using shorter and precise passes (so many long ones, blind and backward) and quicker shot releases. By the way, I hate slap shots. By the time the puck is gone, you have one or two blockers in front of you and the goalie is ready to catch it.
Cardboard
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I don't know about you guys, but I am shocked by the current move in interest rates.
While I understand that they should be moving up with decent job numbers and improving economic performance, or a healthy thing, what I find shocking is that they are moving up despite the Fed buying $40 billion a month non stop or pretty much the entire new supply. It wasn't the entire new supply just 6 months ago. Then you have insurance companies, pension funds and other institutions buying treasuries to meet future obligations no matter what the rate is day in and day out. So who is selling to create such upward pressure on rates? And where are they going?
You may say that I exaggerate, but for the 10 year yield to move above 2.2% in about a month from 1.6% is a big percentage move. If you look at this chart you can also see the 1 year trend which is clearly upward.
If you get such move with investors "thinking" that the Fed "could be" considering tapering, then where are the rates going to go when they just take their buying down by say a quarter? Who is going to recommend stocks based on their yields once the 10 year treasury reaches just 3%?
Cash is starting to look like an awesome proposition since you will be able to earn a growing yield waiting for the carnage to play itself.
Cardboard
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Buffett makes money in large part by being leveraged and that has been going on for over 20 years now. His leverage costs him very little since it is insurance float that earns a little bit and borrowings done at very attractive rates. He is also making money by buying entire companies at low to fair prices with cash or sometimes using relatively expensive new shares.
If you look at the return on capital from his investments (Coke, Gillette and most others), you will be very disappointed and will think that buy and hold is a loser strategy. I believe indeed that it is unless you are in his situation managing 10's of billions and able to access capital for next to nothing. IMO, his investments are made more with the idea of earning a safe spread overtime than killing it in terms of returns like most of us are trying to do on this board. Like a bank if you will, but with a larger spread required and less risk than you would encounter normally for such differential. That is why he puts so much weight on being able to envision the business of the company 10 years from now.
Compare the growth in book value of Berkshire over the years with the individual returns on his investments then you should conclude that the differential is made up with his leverage and solid acquisitions made either at cheap prices or with a stock trading above book.
Cardboard
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Regarding Bernanke, I really don't understand this guy. I am not him, but if I was, I would certainly "test" the market by pulling a bit of QE now. Say move it down to $75 billion a month and see what happens. Then he could always readjust upwards or downwards as needed.
IMO, it would be quite healthy actually since the market would have to readjust for a less predictable Bernanke QE. The economy is undoubtedly doing better, so it could easily absorb a small tapering and the market would maybe avoid getting into hyper-drive and create a crash down the road that will render all this QE today a disastrous experiment. At least, they would gather data now on their true impact on the market and the economy before it creates major distortion.
Cardboard
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This is the second thread on the same topic in two weeks. What are you guys doing about it?
Many of you hold BAC, AIG, SD. What do you think is going to happen when the market starts going down for any reason? Do you truly believe that these stocks will stay flat while TSLA and all the other overvalued stocks will get pummelled?
The market is up big again today on Bernanke. The parabolic climb that I feared following Tepper last week is now in full swing. The P/E on the S&P is roughly 16 times earnings and there is really nothing to stop it from going to 20 or 25. They can always compare earnings yield to bonds and make a case for equity. Shorting in this environment is near suicidal.
I suggested buying calls on the market to "hedge" yourself while you may be trimming others, but I tell you it is gut wrenching since you never know when to pull the plug. There is no real measure of value and as it keeps climbing, the value of the calls rise quickly in dollar amount making you pretty nervous, pretty quick. The idea was to prevent underperformance since you are sitting more and more in cash and actually to increase your cash holding whenever the break finally occurs. The key is how to harvest this cash as the bubble evolves while always keeping a minimum amount of capital at work?
In terms of other strategies, have you sold your stocks or portions of them? Even if they remain cheap?
Have you sold covered calls in case you want to hold them longer term, but want some protection?
Have you bought puts on your stocks?
Unless we can turn these threads into action, then it is not worth the pixels being used!
Cardboard
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They are doing everything they can to push the S&P to bubble levels:
1- QE infinity that cannot stop since the economy is just limping.
2- All stock markets are bad, except the U.S. and Japan.
3- The dollar is rising, so you get a boost by just sitting on U.S. assets.
4- Comparison treasuries to earnings yield/dividends that favors stocks as far as the eye can see.
5- A market that remains at the average P/E looking at the past 100 years.
6- Commodity prices that are declining or helping U.S. consumers and profit margins and, shutting off another avenue for capital.
A prudent investor would stay away due to artificially low interest rates, bargains that are now just average and massive tail risks. I am more and more convinced that people on this board better be prepared to scratch their heads and maybe pull their hair as this thing evolves. Watsa could not believe that the bubble had reflated after the Internet pop only to reach a new high in 2007. Greenspan had engineered a massive reflation through housing. This time around, they are adding trillions of stimulus in the best self sufficient economy in the world.
Cardboard
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Yes and no. :)
I would not replace your common stocks with their derivatives. If a stock is expensive it should be sold and if cheap bought. I would not change anything that a disciplined value investor does currently.
It is more about opportunities vanishing on an absolute intrinsic value basis while the market keeps on rising and the distraction of a growing cash balance earning nothing. It is completely logical to sell your stocks as they become dear, but the psychological impact of seeing them continue to climb makes you regret somewhat your decision. It is just human nature. This whole thread is a bit about this issue I think.
I am sure that some people right now may be holding on to stocks or much larger positions relative to their portfolio due to appreciation than they should. This comes with the psychological impact of a rising market. They are afraid to miss out and since their stocks are not very expensive relative to the market or on another basis, they keep overweight positions to get this Alpha. It is not something done consciously, but I think that we all suffer a little bit from it. Continually winning makes you more confident.
So if you would be fully exposed to the market, but at a minimal cost, would you still keep your portfolio intact? Would you be in a better mood sitting in cash even if the market goes up like nuts? That is why I am exploring this strategy. It is also to protect from short positions that I thought made some sense, but are now and looking to hurt me even more in the short to medium run.
Cardboard
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I have been thinking a lot about what Tepper said this morning and I am starting to believe that we need a major blow-up top until this market corrects. It can't happen at these relatively low P/E's unless there is a shock and who knows what or when this will happen. You need to reach a point when everyone who "can" invest in the stock market is in. Defining "can" is tough, but I doubt that we will reach something like 1999/2000. Think of an Apple top kind of moment.
The Tepper impact today is remarkable and can be seen on the SPY chart. Basically, we have been in a well defined up channel since mid November or exactly 6 months. Today, we are breaching the upper line of this channel. I am not using technical analysis to buy or sell since I am a value investor, but so many are out there that it has an impact on the market. I am afraid that we are now entering some parabolic ascent.
The implications are that if you are short that the pain will become unbearable. That is actually exactly what is needed for this market to finally take a breather. You have short/long funds lagging the market, value funds that are raising cash or selling fairly valued holdings also lagging and anyone invested in some bonds also lagging. The pressure to join the crowd and close lagging or losing position will become very strong. Think of the pressure on Berkowitz or Paulson when it gets bad.
The other mechanism as described by Tepper is this incessant buying from the Fed or $85 billion a month. What he failed to mentioned is that the Fed now has its hands tied-up. The Fed is committed to help the economy and to reduce unemployment while keeping inflation below its target. Based on this, it cannot stop. This means that if an equity bubble truly starts that they will not stop QE or raise interest rates. Some economists, analysts and other wise people will ask for the Fed to intervene to cool things down in the stock market, but since it has little impact on the economy or Main Street as we have seen for over 4 years now, the Fed will ignore these calls and be forced to continue QE. It will be like adding dynamite on a magnesium fire.
So I am starting to change my view as to how one should properly hedge this market. I think that it remains fine and perfectly rational to buy and sell individual companies based on valuations. What should happen is that you will find yourself in a growing cash position as the market keeps going up. Some will find comfort getting more cash on their hands, but some will also dislike greatly parting with companies they know well at a fair price to only see them keep going up in price along with Mr. Market. So I think that with very low volatility or very low premium, that one should consider buying index calls to hedge themselves. Yes, I said calls.
The cost is very low and it may just prevent you from going insane as the market keeps going higher. I know how it feels being short some names right now and after selling some stocks. While logic should always prevail, we may be getting to a point where things get really out of hand. What I have not figured out yet with the calls approach is when to sell. Defining the "can" as I described above is near impossible. So you may have to "collect" every month or use some other discipline to sell them before reloading.
I know it will sound totally stupid to many, but it is not that different than buying puts on the market. You buy puts to hedge yourself or hopefully to get more cash down the road than you spent. You also never know when to cash in your puts. There is no bell that rings or a level that is more rational than another. The problem is with an ever rising market that you are wasting cash instead of accumulating it for the rainy days with puts. If this lasts 6 more months, a year, two years, you are very likely to lose a ton with puts. Buying and selling calls with discipline might instead be a cheaper alternative to stay in the market and to accumulate cash as things get crazier and crazier. And since you are doing this as an hedge, you should be able to detect more easily that the lemmings out there the break point or when the trend gets broken. Just look at AAPL or GLD. A cool head was able to see when it stopped going up or when the up trend got broken, but not the "participants". They kept hoping for it to go back up and stayed invested.
I am open for suggestions on this crazy idea...
Cardboard
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Tepper is talking his book as usual. He said very clearly in 2010 that QE would work. Well so far, it hasn't if you consider that growth remains very low. He also said very clearly at the time that a few QE's was fine, but not forever as it had been done in Japan. Now, he has invested massively in Japan and thinks that the current $85 billion a month of QE in the U.S. which is much bigger than it was in 2010 and which has no limit is just fine!
He just seems to go along with the momentum and to change his tune as things evolve. One thing that I agree with him is that QE should be curtailed because if not we will see a 2nd half of 1999 again.
Cardboard
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"Yes. If you want to see an example of both just flip between MSNBC and FOXNEWS. They are equally sickening."
I agree, although what I tend to do is to listen to Fox News during a Democratic led government and to MSNBC during a Republican led government. It seems to give me more information as to what could be going wrong or being hidden from public view. It prevents the brainwashing effect.
Cardboard
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Although, I will readily admit that I am more inclined towards the conservative view, I find that the far left is really pushing it nowadays to block anyone from publishing views and news contradictory of theirs.
http://www.cnbc.com/id/100722631
This attempt to block the Koch brothers to buy a newspaper is outrageous IMO and against free speech. Real threats are being made to prevent other opinions from being published. If anyone has seen: "The Rise of Evil" then you will recognize some similarities. Once this kind of behavior is allowed and a trend gets in place then it can go a very long way. What is also illogical is that the newspaper has declining readership so if the Koch want to blow their money away, go ahead and second if the so called far right views of the Koch don't please readers then you would expect subscriptions to decline even faster making it irrelevant pretty quickly.
http://www.cnbc.com/id/100721630
I also find outrageous the multiple and vicious attempts to discredit and ridicule Reinhart and Rogoff. Although, it is true that they have made a mistake in one of their calculations, it should be logical to anyone that their is a breakeven point when too much debt or leverage creates a downward spiral. We have all seen it during the financial crisis, so why this attempt to convince people that governments can go to infinite debt levels without any negative consequences in a competitive world? It is likely not right at 90% of GDP, but there must be some level where real issues arise. It seems to be once again the same gang or far left hiding under Keynes that wants to eliminate this notion.
I wish people would be able to listen to all points of view and decide on their own what makes the most sense to them. Blocking access to information and on various points of view weather it be from the right or the left is wrong IMO.
Cardboard
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I feel nervous as well, but I am not sure what to sell since my holdings are still all undervalued. It seems to be a perennial problem to a value investor. In 1999, I could not find any deal or making it easy to be mostly in cash but now, there are still cheap stocks. You can trim a bit, but it does not seem enough to move the needle in terms of cash raising, especially when your portfolio keeps moving up a little bit each day. Take-overs are a blessing at the moment since they give you a nice exit point.
Buying index puts is a losing strategy based on my own experience. I did buy some not that long ago and they are now way underwater or the index would need to fall by 8% just to reach strike. I guess it was a well calculated move back then, but now it looks foolish. Do I want to pay another premium at a strike closer to current index prices to be insured once again?
Shorting the index is also quite dangerous and you will have to pay a rental fee and the dividend. Lower cost than paying puts premiums, but you have to live with the liability.
The other issues that arise are psychological and imperfect hedging. In some ways, you root for the market to go down which feels odd since you still hold some stocks in your portfolio that you believe are undervalued and a rising market should help them somewhat to reach fair value. You also have no reference point whatsoever as to when or at what price to take the hedges off. Round trips are a strong possibility and missing out on the true bear if it comes also. Then the lack of correlation between your stocks and the hedges is often miscalculated when you get into these hedges. A 1% daily down move in the SPY while your stocks are going down 2 or 3% will drive you nuts and will show how little hedged you are with index puts. You can try the Russell ones, but it is a similar story. The volatility is higher so they charge you a higher premium.
In the mini correction in mid-April, I found how useful cash is. It always seems to be the beaten down stocks that get more pounded during a correction. Buying them with cold hard cash during these instances of panic driven by margin calls or just market devaluation provides probably the best hedge or defense. So now I am back to the beginning of my post or how to raise it? :-\
Cardboard
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I don't think that there was any smarter strategy than what Sanjeev has done or to sell these very short term options after a huge boost right after the earnings release. The stock went up 40%! You rarely see if ever a follow through the next day or this time up by almost 20%. It usually drifts down for days following such up day or until more buyers come in to revalue the story.
Just ask yourself, what is the stock going to do on Monday? If you can't answer that question, then there was no way to predict what could possibly have happened on Friday.
Congratulations Sanjeev!
Cardboard
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"We spend $285 a month on high-speed internet, the full-package of Telus Optik TV & a land-line with free international calling."
That sounds like a lot! I get high speed internet and cable (really good package, but not the full package) for $65 a month and that includes additional news channels such as CNBC, BNN, Fox news, CNN and all that. I no longer own any land line since I have my cell and any international phone call would be made through Wi-Fi at home.
Cardboard
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I was wondering if any of you has ever filed that tax election per filing T123 or related to article 39(4) from IT-479R. If you did, I would appreciate if you could provide your rationale and if you received any feedback from Canada Revenue Agency once they have received your election. If you are more comfortable discussing in private please feel free.
Thanks
Cardboard
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On the Japanese situation, he is talking about a trade that will deliver a 300 to 1 gain... Any idea what this could be? Something really far out of the money? A derivative on what factor, currency or instrument?
He mentioned that U.S. treasuries would likely rally on a JGB meltdown, but not as an endorsement, just as a place to hide. Could it be some inverse derivative U.S. treasuries vs JGB? In some ways, I am not sure that is what he is looking at since he would want to be absolutely certain to be in the right instrument to capture the move after discussing this issue in public for so long.
It has to be something pretty rock solid too since he has seen the benefit of collateralized CDS during the financial crisis. So no way that he would accept large counterparty risk.
The sad part is that I think he will be right and this would have major repercussions on things like on-going QE in the U.S., austerity and possibly accelerate deleveraging worldwide.
Cardboard
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"2, The IRA is an Individual Retirement Account - it is an account where the govt. relaxes its taxation to help individuals save for their retirement"
Exactly, so that one does not end up being a parasite of society. The question is why putting a cap at $3 million? Is that enough? Is that going to be properly adjusted for inflation? What about people that are single or that have a significant other with a very generous pension plan or one with none at all isn't that discriminatory? If you live longer isn't that cap creating issues in your late years to have enough funds left?
"3, Lets flip the question around. You are in Obama's shoes. You have to deal with the large debt load and the deficit. What would you do?"
Resign. Let someone in who can inspire and lead the country to greatness instead of taking it to pieces with such proposals. Do some common sense fixes such as eliminating real tax loopholes and raising the retirement age on safety net programs which are not earned by people but, given to them by the goodness of society and strangers. If they want more or better then they know what they have to do.
Cardboard
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"Be it in the form of higher taxes, reduced benefits/entitlements, reduced govt spending on public services, inflation, and other more direct means of confiscating ones wealth."
That is true, but I think that the way it is managed now or to only get money from the wealthier that this will lead to a very large power shift from countries that have very generous entitlement programs to those that have less or with better controls in place. It is very clear at this point, to me anyway, that entitlements are the root cause of most if not all of our fiscal and budget issues. These programs eliminate fear for individuals since they can always rely on that safety net for food, shelter, healthcare, etc. While it appears to be a good and charitable thing, this leads to higher costs overall, lack of incentives, abuse and lack of productivity which in the end is not without consequences in a competitive world. And once people feel entitled to something, it is really hard to take it back and near impossible with the power of votes.
Unless higher taxes/confiscation is done in a synchronized way on a global basis, which I think is impossible, the rich will move to places where their capital is sought after to create enterprises and invest and not to subsidize people who constantly blame them for all their woes. They will even accept a one time tax hit to get out. These countries will enjoy higher currencies, higher standard of living, less unemployment while the other ones will be in terminal decline. This takes a long time to play out or a few decades, but will be the end result.
Cardboard
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"So much for freedom... in order to have freedom (and liberty) you need personal responsibility. Personal Responsibility is something the government, schools, and the socialist are committed to eliminating."
The question is why are they so committed to doing this or to this ideology which has failed time and time again and is so illogical? To consolidate power?
Regarding schools, I have heard a few years ago that some of them wanted to eliminate scores since it was creating "discrimination" for the students having lower marks!!! So basically give a free pass to everyone! Where are left the incentives to perform, to learn, to be proud of yourself and of your achievements? I can understand that some want every one to be included and happy, but life just does not work that easily.
Cardboard
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I think that the best answer on the topic came from Dengyu who sadly does not post that much anymore.
Basically, he looks at his holdings in his portfolio and compares them on a price to value basis. So, you would allocate more capital or percentage of your portfolio in the holdings that have the largest discount to value. Not only that, but he would also compare his holdings continuously to whatever is available in the stock market. So every holding is competing to be in your portfolio along with every other opportunity out there.
On the price to value equation, I think that you have to be careful about how you determine when this value target will be attained or the certainty of it. Predicting the future of a JNJ is a lot easier than some net-net. So an honest target along with a discounted price to value works best IMO. I use 10% rate for simplicity. You also don't want to tweak your portfolio all the time so the difference in price to value between holdings has to be substantial before making adjustments. You also need to be very certain in your assessment when you decide to sell a holding to buy a new one since you are quite likely to know much more about the one that you carried for months or years than this newcomer. Taxation is also something to consider, so you may want to adjust the price to value for that fact.
Regarding JNJ, Buffett has been getting out of it since the 3rd quarter of 2011 and has been buying IBM and WFC. There is only one reason why is doing that and that must be because he sees more upside in IBM and WFC. He also knows that he will be paying taxes on any JNJ gain too, so the reason to sell must be pretty strong since this company pays a reliable dividend and he could have simply used cash or a bond to buy IBM and WFC instead of selling JNJ.
Cardboard
One of the Greatest Investment Opportunities...
in General Discussion
Posted
Glacier Media Inc.
Sanjeev said he was buying at the $1.55 level and maybe a bit higher. The stock is now down to $1.15 following negative comments from a BMO analyst who was previously a big supporter. Market cap is now $103 million and it is pretty illiquid.
Cardboard