Tim Eriksen
-
Posts
814 -
Joined
-
Last visited
Content Type
Profiles
Forums
Events
Posts posted by Tim Eriksen
-
-
Wanted to throw this up for discussion, when one invests in an index etf or mutual fund( say IVV or VFV that mimics SP500), one gets tax benefits that remain till the money is withdrawn. (Even then, it can be mitigated if the income is below say 75K ). Custom stock picking seems problematic from tax efficiency standpoint as most of the stocks have to be sold once they reach their IV which is a taxable event. It looks like custom stocks should outperform the index significantly (atleast 5% or higher) for it to be worthwhile...
cheers!
Not sure I follow your logic. The same tax benefits apply to both. If your approach is the same as the fund then it too may encounter the same issues of short term gains versus long term. You would have to look on a case by case basis - e.g. does the fund have large unrealized gains? What is the fund's average holding period? What often clouds the picture is that the mutual fund is growing in size thus there is less realized gains, but that can go the other way too.
Are your going to sell a stock that reaches IV if it only needs one more month until it is long term gains? What about two months?
-
Russell provides the daily data. Click on historical.
http://www.russell.com/indexes/americas/indexes/daily-values.page
-
I would second the recommendation.
-
Im not sure if a hidden liability like pensions is a really big problem.
US tax revenue is about 6 trillion $. And the deficit is about 500 billion$ I think. Which is really not too bad, since it is shrinking. So basicly 6.5 trillion is spent, while 6 trillion comes in. But in the past years, tax revenue has been lower then the historical average. And gov spending has been higher. So it is not really a huge problem compared to some other first world countries.
As for debt, the figures differ. Some say 18 trillion$, which of course isn't that bad, very managable, and nothing too worrying, just 3x income. But this does not take into account hidden liabilities:
Unless you look at different numbers than I do, revenue (receipts) are approx. $3 trillion, and outlays are about $3.6 trillion, creating a 600 billion annual deficit. So the $18 trillion debt is not 3x income but 6x.
http://www.whitehouse.gov/omb/budget/Historicals
-
You seem to be blurring the distinction between QE and national debt. In QE the Fed is buying assets (mortgages and bonds) and "borrowing" to do so. There is huge liabilities but also correspondingly huge assets. It is largely a wash except that the purchases are assumed to eventually result in a modest loss. Secondly, correct if me if I am wrong here, but the Fed is creating money at zero cost such that the liability side has a zero cost of funds and the asset side is earning something. Thus theoretically the Fed is generating a profit for the US at the same time it is stimulating the economy.
The national debt is obviously different - the cumulative effect of borrowing to support current spending. While a serious problem, it is not growing as rapidly in the last few years.
I would be careful in using the analogy of a person living beyond their means. There are important differences, for example a person cannot raise their income while the US can by raising taxes.
-
Back to the original post. I would agree Buffett has a better eye than Klarman and nearly everyone. Is it solely due to hours? No. That helps. What comes to mind to me is:
1. I think Buffett is more optimistic than Klarman and over time that generated a huge tailwind. Buffett expects the economy and businesses to grow. Many value investors expect businesses to die, or face significant hurdles due to competition. They see problems he sees future success. He generally expects a business to continue to perform like it has and others frequently do not.
2. Buffett is disproportionately focused on business, in comparison to other areas of life.
So the key is not more reading, it is re-orienting your basic philosophy or approach. Easier said than done.
When I read Snowball, I was struck at how Buffett's father was much like my own father in economic outlook. Seeing that pessimistic view always be wrong built in an optimism in Buffett regarding the ability of the US economy. It makes me it much easier to act (be greedy) when others are fearful when you view the fear as irrational.
-
Has Pabrai really compounded his original investors at 25% a year for 20 years? Is there proof of this somewhere?
I have read a few of his letters back in 2012. His net performance was not that high. It is my understanding that his fund started in July 1999. Through mid 2008 he was around 25% annual. Performance since mid 2008 has been average such that his overall net returns since 1999 are more in the mid teens.
The only comment I recall referencing 20 years included some years prior to fund launch (personal or personal and family money) and appears to be gross of fees.
http://basehitinvesting.com/mohnish-pabrai-lecture-at-columbia-university-my-notes/
-
"Having identified a source of float in the capital intensive assets, Buffett's next trick is to make it grow thereby increasing its value.
It is therefore no surprise that large components of Berkshires capital expenditures are being directed towards BNSF and MidAmerican - the two assets we identified above as being long-term DTL float generators.
Capex in BNSF/MidAmerican has a number of impacts:
- It increases the level of fixed assets in long-term DTL float generators
- Capex above depreciation will cause the DTL float to grow
- As new capital depreciates quicker than existing capital given accelerated tax depreciation it creates more per dollar DTL float than the existing book.
- Given the above, ever rising amounts of new capital expenditures will make the DTL float start to balloon (or should i say float?) upward"
Maybe my point is being missed. Let me try another way. DTL (deferred tax liability) float from accelerated depreciation is not as good as DTL float from unrealized gains, which is not as good as float from insurance. Increasing DTL float from accelerated depreciation requires substantial capital expenditures (part of which is recouped from tax benefits). Increasing DTL float from unrealized gains does not require any capital expenditures even though it does not generate any cash to invest. Thus it is better. Insurance float does not require meaningful capital expenditures and it generates actual cash that can be invested. It is by far the best of the three.
It seems to me that Buffett is moving down in terms of quality of float.
-
Thanks jay,
To me that still would mean 10 billion of the 15 billion was from BNSF taking on more debt. So I exclude that since it is more like return of capital than return on capital. To pay 34 billion and only have it throw off 5 billion over the last 4 years doesn't seem impressive to me. I am not saying that BNSF is not worth more today than when BRK purchased it. Clearly it is. I just didn't see high free cash flow then or now. It is better than a utility, but not as good as a capital light business.
It really makes me wonder at times if Buffett is focused on free cash flow or reported earnings. BNSF, MidAmerican and Net Jets (things purchased in the last 15 years) are not the same quality of businesses as Geico, WaPost, See's, Coke, AmEx, Wells, Gillette, etc.(businesses or stocks of the 70's through 90's).
-
The article says the 10-Q notes that $15 billion in dividends have been sent to Berkshire since the acquisition. Does anyone know where that is in the 10-Q? I personally wasn't a big fan of the purchase back then because it was so capital intensive. If I understand things correctly BNSF still spends more on capex than depreciation, thus not all of its earnings can be sent to BRK. If I recall correctly BNSF debt was $10 billion and has increased by nearly $10 billion since the acquisition.
Any discussion of the merits of the BNSF deal should compare it to alternatives which is hard to do. The S&P500 has doubled over the five year time frame. Since shares were issued in the deal it diluted shareholder ownership in existing BRK businesses.
-
He in fact uses Geico in the 70's as an example of a stock that would not have shown up on a low price to cash flow or earnings screen.
Those of us geeks familiar with Bayesian probability terminology would acknowledge that value screens probably have poor sensitivity and specificity. That is, given a large sample of value stocks, an ordinary value screen may come up with only 30-60% of those that are truly value stocks, and miss the rest. And given the remaining larger sample of non-value stocks, the same screen will mis-classify many of those as value stocks, meaning poor specificity.
In the medical field, a laboratory test with such poor screening characteristics would be rejected as useless, possibly dangerous. But for investing, a value screening approach will find enough great stocks to beat the market.
I think you hit on the key. Screening can beat the market. The difference is that I, and I am pretty sure Guy, are not just looking to beat the market by a few percentage points. After incentive and management fees that would be average performance. If someone is looking for early Buffett like out performance of 8% or more, which I am, it doesn't seem to work. Maybe some have used it successfully, but I am 8 and a half years into running a fund (plus 7 years of investing before that) and it hasn't been necessary or helpful. It just doesn't seem to generate great stocks (stock that can beat the market by 10% or more). Maybe I am just a poor screener. I'd rather read 13-F's or good blogs.
-
Kraven you are on fire today. Picture him pitching that process to investors. I imagine that guy had to come up with a better story than that to attract capital.
I was going to post this earlier but I thought it was too far off topic, but it looks like we are well off the original topic anyway. I liked the interview with Gottfried but the thing that I noticed was him saying that everything has to line up for his investments. The thing I've realized is that many times you have a great investment where 9 out 10 factors don't line up, but there is one big factor that overshadows the negatives. For example, geico in the early 70's, early berkshire before people understood the plan, or for a lesser known example take Mexican Restaurants. In each case you had kind of a murky situation and you could sit there and name all kinds of negatives,but you could also pretty much sum up why you should buy it anyway in one sentence.
Strange. I didn't see him saying everything had to line up at all. He in fact uses Geico in the 70's as an example of a stock that would not have shown up on a low price to cash flow or earnings screen. Some of his VIC recommendations clearly had some ugliness issues at first glance.
-
I think it depends on how broad you define the word "screen." Having a screen to weed things out is different to me than having a screen to allow stocks in. So based on Tim's criteria "micro and small caps with low risk, low PE combined with improving earnings" I would think that stocks that do not meet it are out. However, that does not mean that stocks that do meet it are automatically in. Tim could probably clarify in more depth if I'm even on the right path or not.
David
What I mean is I cannot recall the last time I went to a site and entered certain parameters in hopes of finding a good stock or even a narrowed list to start going through. Nor do I go through 52 week lows. I would not consider looking at what is the news or what another manager owns, or key words such as buyback spin off, deregistration, etc. as screening. I read a lot of earnings releases and eventually I will find something attractive.
-
I think screening works well for the highly diversified quantitative approach looking for net-nets or below book value stocks. Since I think Guy looks at things more like I do (micro and small caps with low risk, low PE combined with improving earnings), screening is not very fruitful. To me, the more you move toward the qualitative end the less valuable screening is.
-
3 hours later.. going to go ahead and answer my questions... correct me if I'm wrong.
1. Seems like hotel companies report non-GAAP figures like FFO (funds from operations) (and adjusted funds from operations). The main difference between these figures and Net Income is the lack of building depreciation. This suggests to me that a person could look at cash flow from operations as nearly FCF.
2. This was in the 10-K of a company I've been looking at:
"The useful life of each property is evaluated annually based on certain factors including construction materials used,
location, condition of the property and the particular capital maintenance program and requirements of the property.
The only exception is land which has an unlimited useful life; therefore, it is not depreciated."
So it seems like land is always being reappraised but that the asset could still be "hidden" if it is small enough in relation to total assets and the cash flows derived from that property are under performing a reasonable capitalized rate.
I could be off on these.
1. Just because they report a certain way does not mean that OCF is equal to FCF. On a given year it may be, but eventually major improvements (roof, room upgrades) will occur and will be capitalized. When they do have major upgrades FCF is below OCF. My view is more conservative than most and why I rarely buy a REIT, hotel company, or apartment owner. Returns are too low.
2. In the US the acquisition price is allocated between land and buildings at the time of purchase. The land portion does not change over time. The building portion is depreciated. Thus over many years the asset may have a book value materially below market price. I would be careful if the value is in the land as that is much more difficult to unlock.
-
-article is behind a pay wall.
It just says what I mentioned earlier - he gets to deduct the goodwill of approx. $100 million annually. What it points out is that the goodwill deduction can be used to shield income from other sources not just the Clippers.
-
Trevor Chang has written a short response to Tim's commentary over on his blog, if anyone's interested
http://westcoastinvestor.wordpress.com/2014/10/10/jason-industriesjasn-valuation-update/
From the blog I understand that Trevor is a university student, so I do not want to come across as mean or overly critical. His update shows earnings for past years and projections for 2014 and 2015. The analysis neglected to include non -controlling interest and preferred stock dividends from results. This should not be done. In the first half of 2014 it reduces income from $4.3 million to $1.7 million. Assuming a $5 million for the full year means his estimated earnings are overstated by more than 100% ($3 million instead of $8.2 million). The overstated earnings still results in a 2015 estimated PE of 31 (and 64x fully diluted). If you correct the numbers the PE is well above 60.
It is important to realize that SPACs have great incentive to make a deal, even a bad one since founders shares can likely be sold for a profit even if the stock declines. While a few big reputable names have used SPACs there reputation is less than stellar. It is unfortunate that a good thread on the board was highjacked to tout such a stock.
-
I appreciate the insights, Tim.
A question if you don't mind: Are the vast majority of SPACs structured this dilutively?
It sounds something like what PAH has and I'm wondering if it's always been the case with these vehicles in your experience.
Thanks.
All the ones I have looked at over the last eight years were fairly similar (inexpensive founders shares and warrants) except that JASN also has convertible preferred shares.
-
I'm not sure if the Outsiders theme has been discussed to death yet, but for anyone who thinks it hasn't this might be worth a read.
Took a quick glance and don't see it with this one. It is hard to be an outsider CEO when you start with a levered SPAC. Outsider CEOs grow the business and wisely repurchase shares. Most SPACs by design have substantial warrants, as does Jason Industries. In addition, this one adds convertible preferred on top of it. Plus they are adding debt to buy a levered company. Even worse, it granted substantial founders shares at a bargain price. Those are huge hurdles to overcome. If they do well, all these shares convert meaning they will have to purchase businesses better than what they already own. Oh and the business doesn't look that great on a proforma basis ($3 million of proforma net income for 2013 and that included a $12 million one time gain. First six months of 2014 it was $1.7 million and that included a $3.5 million gain.)
-
The crazier scenario is if the the $3 million was in stocks and generated say $500k in capital gains each year for the past two years they would not include it since capital gains are deemed non recurring.
In my last refinance they excluded my investments in my hedge fund and I only found out when they said they wanted to see more savings. Their reasoning for excluding them was because anyone could make up a statement like the fund's.
-
I agree - I think the ROE will likely be more like 12 - 15% going forward -
I guess what I was trying to understand is this.... if a company has a book value of $20. It's trading at $22... and I paid $6.7 and going forward I expect ROE of 12% or ($20x12% = $2.4 EPS... theoretically that's a nice $2.4 / $6.7 = 36% return each year... and i'm not factoring in the growth. However, as a shareholder..... I really need to be thinking about how much of that $is actually coming back into my pocket in the form of dividends... it's just an interesting thought process; and the comparing to other opportunities that I was looking at (Company B).
I certainly wouldn't use my historical cost basis to figure my return each year.
-
Where I live, there are no water meters for residential customers. Everybody pays the same, so basically those who save are subsidizing those who waste. It's a terrible system.
But I still conserve water as much as possible because I find waste inelegant, and I get some psychological benefits from conserving.
But most people aren't like that, so I really hope we'll get water meters soon... Even if there's plenty of fresh water around here, running treatment plants is still expensive, and the more efficiently you use water, the longer you can go between building expensive new treatment plants.
I really wish gray water systems and small-scale rainwater collection were more widespread. It's crazy to flush your toilet and water your lawn with potable water treated to the same standard as the water you drink...
http://en.wikipedia.org/wiki/Greywater
So isn't the problem all in the pricing. Historically, how much of the farming costs was water? I'll bet not much. The consumer who takes long or more frequent showers isn't wasting water. Water comes to the house and then back to the treatment plant. If, for example, a 1,000 gallons came in and 1,000 went out, there is no waste. Maybe pricing needs to reflect the differential (water actually "used" that doesn't go back to the treatment plant).
And I agree that it is foolish to flush treated water to the ocean, although not as dumb as flushing tens or thousands of acre feet of water to protect the Delta smelt. Is it a shortage, or just stupidity?
-
Huh? You lost me. As a value investor you want growth in IV and/or closing of gap between market price and IV. My point was what are dividends? They are a return of capital. Dividends don't create high return. The business has to do that. Dividends are just one way for the businesses returns to be allocated. When paying a dividend there is no net change in IV. A $10 stock that pays a a $1 dividend is all else equal, now a $9 stock. IV is the same (10 = 9+1). Your value is now a $9 stock plus the $1 dividend (less taxes on the dividend). So you may be slightly worse off due to taxes.
Dividends are one way that the gap between market price and IV closes. You have a stock with an IV of 10, and a price of 5 (Gap =5). You get a dividend, IV moves to 9, and price becomes 4 ex dividend. Now the gap between IV and your investment is 9-4-1 = 4.
I get your point, but two issues. First, I would argue that is the worst scenario to pay a dividend. A share repurchase has more bang for the buck. You should want the company to repurchase all it can at $5 because it is immediately accretive to intrinsic value per share regardless of whether the IV is based on earnings power or assets. Second, your 5 has just become 4+1, which is the same, except you may now owe taxes on the $1. (To be clear I am not arguing that if a cash rich company paid a large dividend that it would not unlock value, it usually does, just that a large repurchase would be better).
To put it another way. Share repurchases are nearly the same as a dividend when a stock trades near intrinsic value. When the stock is above IV, a dividend is better. When the stock is trading at a discount to IV, repurchases are better, and the greater the discount the more bang for the buck. That is why Buffett loves repurchases below conservatively calculated intrinsic value.
-
Janus has $30 billion in bond AUM, including an existing fund that Gross will step into. I agree that is nowhere near all the funds that Pimco offered under Gross.
We must have a different understanding of fund platforms. I don't see discount brokers needing to be wined and dined to add another Janus fund to the platform. Their customers will want it and if they don't provide it customers may invest directly with Janus. You also seem to be saying that most investors won't follow him to Janus but they would have been more likely if he had started from scratch. That seems contradictory.
This will be interesting to see who benefits from AUM leaving Allianz.
Deflation hedges
in Fairfax Financial
Posted
I think you are missing his point. It is a basic principle in economics that a higher price leads to decreased usage, and conversely a lower price leads to increased usage. Not for every individual but in aggregate. Of course you could argue that demand is the relatively the same regardless of price for certain products, but it doesn't take much increase to bring supply and demand back in line. For oil we are talking about a 1% change in usage. Will lower prices increase travel. Historically it does.