txlaw

I'm sure many of you have already read this, but just in case you haven't, here it is: http://www.vanityfair.com/politics/2012/10/michael-lewis-profile-barack-obama As you might expect, it's a pretty good read.

I agree that the "financial repression" concept is messed up. Who is more likely to have negative net worths due to debt or really feel the effects of having to service their debt? Low income and middle income folks, of course. As the JPM presentation that Ericopoly posted a while back indicates, about half of the reduction in consumers' debt service ratios have come from lower interest rates and refinancing, which has actually lead to quicker deleveraging. So these folks -- many, if not most, of whom are savers -- have been helped out by low interest rates, including low mortgage rates thanks to QE. More importantly, it appears to be Bernanke's belief that QE will increase lending and, therefore, will help with growth and reduce unemployment. He also seems to be thinking that a wealth effect from reflation will potentially make people less afraid to invest and hire labor. So whatever you may say about the efficacy of QE, it should be clear that Bernanke is focusing on the employment side of the Fed's dual mandate, which negatively affects investors depending on income, but not necessarily savers, many of whom are deleveraging while working for their income. Now, I happen to be a Keynesian that is very skeptical of the benefits of QE. I tend to gravitate towards the Richard Koo view that monetary policy (and particularly extraordinary monetary policy) is almost ineffective in spurring growth in a balance sheet recession, and it is really fiscal policy that we must turn to because of the lack of loan demand from the private sector. Bob Rodriguez probably cannot comprehend (or at least refuses to recognize) that such a view could exist. So I'm not sure that QE3 is a good idea. However, I believe Bernanke has been forced to take this action because Congress refuses to take action on the economy -- fixing the fiscal cliff scenario and coming to some real solutions that will help out the economy -- before the election is over. Finally, I would note that a lot of money managers love to use terms like "financial repression" because it allows them to demonstrate to their clients how they are sooooo responsible and looking out for their client's interests. Just another trick that folks like Bob Rodriguez have up their sleeves to draw attention away from their investment selection.

Here are historic ASPs of Apple products many of which have had "me too" competitive products that sometimes offered even more features than Apple's. These are average selling prices, not margins. ASPs also vary by product mix. If ASPs are constant, margins may even increase if costs decline due to economies of scale, newness of technologies used, etc. Other Apple products have been through similar cycles as what the iPhone and iPad are going through. http://www.asymco.com/2012/09/14/are-iphone-average-sales-prices-increasing/ Here is their historic overall GM: http://www.gurufocus.com/financials/AAPL Past performance is not necessarily indicative of future results. I find it highly unlikely that ASP will stay stable for the iPhone, and I don't think it would be wise to assume that in any projections you are making. It's all about being conservative in projections in order to figure out the MOS. Ultimately, the risk we're talking about is that because the innovation gap (as Val has put it) is closing, and because the business models for many successful competitors are not reliant on making huge profits on the OS/device (think GOOG and AMZN), there could be pressure on Apple's gross margins going forward. Carriers also could put pressure on gross margins because, ultimately, it sucks for them to have to subsidize high priced devices in order to keep/gain customers because they can only make so much on the financing aspect of the two-year contracts. Now gross margin declines could very well be offset by revenue per share increases, both from increasing unit sales and the sales of services tied to the ecosystem. However, you have to ask yourself what do earnings potentially look like based on variability in revenue increases and gross margin declines. And is the market fairly pricing Apple in light of the range of outcomes? So why didn't GMs decrease in the past when the innovation gap closed? Apple certainly hasn't done anything mindblowing with iPods or Macs. How do you know that GMs did not decrease for the iPod or Mac lines? And are you factoring in GM maintenance as an accepted trade-off for unit sale decline? The iPhone and iPad distort any sense of whether there would have been gross margin decline absent their introduction. Because those products' gross margins are very high and may have even increased as Apple has dominated the market in those products and extracted great terms from manufacturers and carriers.

Here are historic ASPs of Apple products many of which have had "me too" competitive products that sometimes offered even more features than Apple's. These are average selling prices, not margins. ASPs also vary by product mix. If ASPs are constant, margins may even increase if costs decline due to economies of scale, newness of technologies used, etc. Other Apple products have been through similar cycles as what the iPhone and iPad are going through. http://www.asymco.com/2012/09/14/are-iphone-average-sales-prices-increasing/ Here is their historic overall GM: http://www.gurufocus.com/financials/AAPL Past performance is not necessarily indicative of future results. I find it highly unlikely that ASP will stay stable for the iPhone, and I don't think it would be wise to assume that in any projections you are making. It's all about being conservative in projections in order to figure out the MOS. Ultimately, the risk we're talking about is that because the innovation gap (as Val has put it) is closing, and because the business models for many successful competitors are not reliant on making huge profits on the OS/device (think GOOG and AMZN), there could be pressure on Apple's gross margins going forward. Carriers also could put pressure on gross margins because, ultimately, it sucks for them to have to subsidize high priced devices in order to keep/gain customers because they can only make so much on the financing aspect of the two-year contracts. Now gross margin declines could very well be offset by revenue per share increases, both from increasing unit sales and the sales of services tied to the ecosystem. However, you have to ask yourself what do earnings potentially look like based on variability in revenue increases and gross margin declines. And is the market fairly pricing Apple in light of the range of outcomes?

This article was written two years ago: http://www.macworld.com/article/1151235/apple_rolls.html Apple is still doing the same thing, people are saying the same thing. Wanna guess what the sales are going to be/ I agree. Apple is doing the same thing it always does with its product lines. It's iterating. I mentioned the word Kaizen a couple of posts ago. What Apple hasn't done is release something magical, like with the first iterations of the iPhone or iPad. That's why I said that Techcrunch article was dumb. There's no need to buy into the Apple spin regarding the new device. Let's just be real about it. They released a nice update that probably keeps the iPhone 5 the king of the pack, but that doesn't refute the notion that the gap is closing between Apple and the Others. Sales will be good -- I don't dispute that. We'll see what gross margins look like over the next few years, though. I think Apple needs to focus more on its services tied to the iOS ecosystem. The metric that is important is FCF/share, wouldn't you agree? I would say FCF per share would be an important metric, though it would not necessarily be the same as estimated owner earnings per share. (Of course, one would also have to take into account sustainability of owner earnings in valuing a company based on earnings.) For example, let's say that Apple gross margins decline but sales increase such that owner earnings go up. Well, then, you might have yourself a decent investment despite gross margin decline, especially if you think that the company will be able to keep a moat such that earnings will not decline.

This article was written two years ago: http://www.macworld.com/article/1151235/apple_rolls.html Apple is still doing the same thing, people are saying the same thing. Wanna guess what the sales are going to be/ I agree. Apple is doing the same thing it always does with its product lines. It's iterating. I mentioned the word Kaizen a couple of posts ago. What Apple hasn't done is release something magical, like with the first iterations of the iPhone or iPad. That's why I said that Techcrunch article was dumb. There's no need to buy into the Apple spin regarding the new device. Let's just be real about it. They released a nice update that probably keeps the iPhone 5 the king of the pack, but that doesn't refute the notion that the gap is closing between Apple and the Others. Sales will be good -- I don't dispute that. We'll see what gross margins look like over the next few years, though. I think Apple needs to focus more on its services tied to the iOS ecosystem.

Haha, nice :D

Why? Do you think it will destroy the credibility of my posts that are tech-related? I'm an attorney. My bad - I should have looked at your profile name. I like figuring out how and why perceptions are formed. I'm sure, I'm sure. What's your diagnosis, professor?

Well, next time well tell Cook to make it more "entertaining" for you. ;) Time to buy more RIMM, txlaw? I've got plenty of RIM right now, thanks. ;) It's okay if Tim Cook is boring -- which he is. That's not what made this release so disappointing. I wish that Apple had been more forward thinking so that the iPhone update would have had more new useful features in it. The bigger screen was a necessary update -- they had no choice given how people are loving it in their non-Apple phones. Thinner? Big deal. LTE? Also necessary. The new dock connector bit is crappy, but it doesn't affect me personally as much as it will other people. Not having NFC is much worse to me, and could potentially make me go with Android. Also would have loved to see new cloud services rolled out to make the iPhone more useful, but they're probably still working on all that. I find there's no compelling reason to upgrade, and this is the first time I'm contemplating switching from an iPhone to another device. It looks like we may not see any real magic from Apple again until they release their iTV. Apple is in this for the long haul, and has a history of not throwing in features just for the hell of it. We are still some time away from retailers adapting NFC payments on a large scale, and on a global scale (remember, this phone is sold everywhere..this isn't Samsung or HTC who release 25 phones a year spread out all over the world). In a year or two, when NFC has more real uses (rather than being a extra line manufacturers throw in their list of specs), I'm sure it'll be added to the iPhone. I understand that nf has other uses than payments, but they're mostly gimmicks at is point. They build a great product, and are constantly refining it. Would you rather them follow all of the android manufacturers and release 22 different iPhones a year? And people seem to sometimes forget that the iPhone is the combination of software and hardware. The refinements of iOS are arguably more important than tech-spec improvements that people often fixate over. Regarding the phone design, why make huge changes to something that works very well already? Android phones with large screens usually pixallate the OS and look awful. Who wants to carry a 6" phone in their pocket? Would a trackball that changes colors (RIMM shot) be a useful and magical feature? :P That's the Apple fanboy line you're touting. Apple never puts in features for the hell of it, or they don't put stuff in that's not ready for prime time. Not sure if it's true. Siri was not ready for prime time. Yet they put it in, probably because of their ongoing war against GOOG. NFC in the iPhone would be awesome, and there already are uses for it that are being tested right now. In Austin, they're testing Isis, for example. But the industry needs Apple to get on board to drive adoption of NFC. They failed the industry. Probably because there are negotiations going on behind the scenes regarding how Apple is gonna get paid off of NFC in relation to the carriers, payment processors, and other interested parties. Not because NFC shouldn't be put into devices now. iOS 6 is fine. They're doing a good job incorporating catch up features that Android has. But I'm not hugely impressed with the updates. It's incremental improvement I see -- kaizen, if you will. Nothing wrong with that. You won't hear any arguments from me that the iPhone 5 is not a great phone. It could very well be the best on the market. The only phones I am aware of that are even in the ballpark with the iPhone are the Samsung Galaxy S3 and the new Razr HDs. I guess I just agree with Bezos and am getting tired of the upgrade hamster wheel. Apple may make a lot of money on the iPhone 5, but do they really deserve to?

Why? Do you think it will destroy the credibility of my posts that are tech-related? I'm an attorney.

Well, next time well tell Cook to make it more "entertaining" for you. ;) Time to buy more RIMM, txlaw? I've got plenty of RIM right now, thanks. ;) It's okay if Tim Cook is boring -- which he is. That's not what made this release so disappointing. I wish that Apple had been more forward thinking so that the iPhone update would have had more new useful features in it. The bigger screen was a necessary update -- they had no choice given how people are loving it in their non-Apple phones. Thinner? Big deal. LTE? Also necessary. The new dock connector bit is crappy, but it doesn't affect me personally as much as it will other people. Not having NFC is much worse to me, and could potentially make me go with Android. Also would have loved to see new cloud services rolled out to make the iPhone more useful, but they're probably still working on all that. I find there's no compelling reason to upgrade, and this is the first time I'm contemplating switching from an iPhone to another device. It looks like we may not see any real magic from Apple again until they release their iTV.

Is any other board member who has loved using their iPhone just bored with the whole product line? I don't know if that's the techie in me, but I'm really bored with my iPhone, and I kind of want to try something new. Maybe it's because I have had the iPhone 4 for a while now. That Techcrunch article about the "turn" and the "prestige" is dumb. There's nothing extraordinary about the iPhone. There's nothing magical about the iPhone 5. I don't think it's just me: http://www.slate.com/articles/technology/technology/2012/09/iphone_5_dock_connector_the_one_incredibly_irksome_feature_that_will_leave_you_cursing_apple_.html http://www.readwriteweb.com/archives/live-blog-apples-iphone-announcement-plus-itunes-11-ios-6-new-ipods.php

Looks to be a decent upgrade. LTE, bigger screen (which is a necessity given the competition), and a bit thinner. I bet typing will actually be a bit better in landscape mode because of the elongated screen. I've never used Siri before, but it sounds like it may be more useful now. Pretty disappointed that there is no NFC support. No big deal, though. I find it a bit weird that they're marketing this as the biggest thing to happen to iPhone since iPhone. (I get the playful reference to the bigger screen but . . . ) I suspect most consumers aren't going to buy that line -- though that won't stop many of us from buying the damn thing. I'm probably going to wait to upgrade until I get a chance to play around with the new Razrs. Mostly I just want to get on an LTE network.

Actually Moore, I think the circumstances change dramatically when you manage other people's money as well. Probably far greater difficulties arise from that than actual portfolio size...especially if you have short lockups or no lockups. Managing your own portfolio, you can easily take bigger swings at ideas, because you know only you will redeem the capital. You suffer volatility for a couple of years, and some of your less-tempered partners will pull their capital because they get worried. Just a whole different game managing other people's money. Cheers! I would agree with Sanjeev here. It seems to me that the it is managing OPM (particularly, without lockups) that puts limits on performance in the case of a $100 MM hedge fund versus a $100 K individual portfolio, not the actual size of the capital pool. Until you really have enough AUM to actually move the market, I don't see why you couldn't, in theory, have essentially the same portfolio as an individual investor replicated on a larger scale. Even instruments like LEAPs, which helped me juice my YTD paper return, can be replicated using TRS, correct? (This is an actual question -- I'm not sure of the answer.) Take a look at the Fairholme Allocation fund. It's pretty much run with the same portfolio concentration as what one might have in an individual portfolio. Of course, Berkowitz has to deal with investors putting in and withdrawing money. Even Pabrai could probably still do a 50% year despite having close to, what, $500 million AUM? Although his investors would probably go apeshit if he actually implemented a strategy that would allow that to happen.

Nice. How much of your portfolio is still BAC exposure, if you don't mind me asking?

66% YTD. Feel very good about my portfolio, despite the volatility in it. Crossing my fingers for some additional catalysts.

http://www.ctvnews.ca/canada/nordstrom-to-announce-expansion-plans-for-canada-1.951278 Let's see if they take down some SHLD Canada real estate. And speaking of store within a store strategies . . . http://www.sacbee.com/2012/09/10/4805248/topshop-and-topman-open-today.html Actually, looks like Nordstrom is just selling the Topshop brand.

I heard Bill Gross touting gold and commodities the other day. And recommending the Pimco commodity investment vehicle. I used to think Bill Gross was the man before I got into the whole value investing thing. I don't think that anymore.

Why do you think he's trying to make SHOS look bad?

Thanks for pointing us to the GM thread. Packer, at first glance, these GM warrants look crazy cheap. Any thoughts on why they are priced the way they are?

I just want to say, this was an excellent post. Thanks writser! Then you can spend all the time that would have gone to becoming an outstanding investor on other things, which could be increasing the value of your own intangible assets (which allows you generate more earnings from labor), spending more time with family, a favorite hobby, or whatever. But if you want to trounce the averages, then it's gonna take a lot of reading for sure, at least if you're investing in the public capital markets. (Note that you don't have to put money into the capital markets to be an investor.) I read a lot, and it takes up entirely too much of my time in the week, since I have a job where I don't get to read what I want to read. But I enjoy reading the stuff I do, so that's the way it will be for now. Depends what you mean by trouncing the indices. 85% of professionals do not beat the market and less than 1% beat it by 3 percentage points or more. True. Reading a lot is necessary but not sufficient to trounce the indices. Pretty crazy that less than 1% of professionals beat the indices by 300 basis points or more. I gotta wonder what those guys would do if the market for investment professional services were efficient. And that figure you cite probably doesn't even take into consideration the fact that investors underperform their investment advisors/managers because of poor decisions they make with regards to putting in and taking out funds from investment vehicles.

I'm also interested in taking a look at these guys. I have stayed away mostly because I have to figure out how the cost structures work and how the pension liabilities work as well. Lots of work to understand these ones.

It's probably cherry-picking, but I think betting against the stupidity of a randomly-selected voter is a losing bet. On the left and right. I wouldn't call most voters stupid, although I would say that most voters are not very well informed. I think that most people are highly susceptible to being influenced by the questions that they are asked, and when you ask a stupid question in a twisted way, a lot of people will answer in a stupid way. It's seems likely to me that if you were to actually have a real conversation about profits and business with most voters, whether on the left or right, they would have far more nuanced views about business and might recant their stupid one-line answers when challenged.

I would modify the premise of this thread slightly. I would say that being a Superinvestor = WORK. Or being an Outstanding Investor = WORK. Because if all you're interested in is building wealth over time in a manner that beats the indexes, you can simply gain the knowledge required to have a fundamental understanding of investing and then implement a method of buying high quality, easy to understand companies at reasonable prices, and then holding over the long run. This can easily become a basket method of investing. Or you could just buy BRK or FFH, and you're very likely to beat the S&P over time unless you're putting money into them when they are very overvalued (which never seems to be the case). Then you can spend all the time that would have gone to becoming an outstanding investor on other things, which could be increasing the value of your own intangible assets (which allows you generate more earnings from labor), spending more time with family, a favorite hobby, or whatever. But if you want to trounce the averages, then it's gonna take a lot of reading for sure, at least if you're investing in the public capital markets. (Note that you don't have to put money into the capital markets to be an investor.) I read a lot, and it takes up entirely too much of my time in the week, since I have a job where I don't get to read what I want to read. But I enjoy reading the stuff I do, so that's the way it will be for now.

It is important for the parties strategically to keep their core base supporting them, and you see pandering on both sides for this very reason. Ultimately, though, you have to be somewhat centrist in your campaign to get elected as President in the US. Now whether you will remain centrist in office is another thing. You also need to appeal to large "groups" that could have a disproportionate influence in the vote if they were to vote as a bloc and potentially nudge you to victory. Hence the focus on women voters in both conventions. And Hispanics. These things are carefully staged, folks.