bmichaud

We will all be better for it :) Best of luck!

Congrats Sanjeev! I have no doubt you will eventually attract assets far greater than your original estimates - the track record, repeatable contrarian process, and the lack of leverage and esoteric investments MUST prove appealing to a wide investor audience starved for high risk adjusted returns. If anyone else on this board is similar to me at all, then they have told many people about the Canadian hedge fund manager they follow via a value investment message board who has a ruthlessly efficient, effective and repeatable process. Eventually the word will get out - it is like how Ben Graham answered Buffett's question as to how does one know if the market will ever recognize value....nobody knows when, but value is always realized. I just hope that once you are running a $1B fund that you still outline your process, even if in vague terms, here on this board!

I am not arguing for the sake of arguing, I am really trying to understand.... So based on the above, if one were to position ones' self based on micro and macro factors that he or she believes will lead to a 50% decline in the market - perhaps not imminently, but within a 3 year time frame - whether you agree or not on those factors, you would not have a problem with said positioning? It appears you have more of a problem with a fact-lite prediction of an 'imminent' 50% correction, correct? Here are 2 different statements: 1. How can anyone possibly invest right now given the high levels of profit margins, market cap to GNP, unrest in the Middle East, Japan blowing up any day now, etc.? Further, if you look at a graph of the stock market it mirrors exactly what happened back in 1929! Therefore, it is obvious that the market will crash very soon. Or, 2. Given that profit margins are at historic highs, the market cap to GNP is high, there is unrest in the Middle East, etc, it is prudent in my view to allocate funds in a more conservative manner. It is not clear exactly what will happen - it never is - but all I can do is prepare myself in a way that makes sense to me. The first is a prediction. The second is not. Any talk of how much we will decline in exact numbers is a prediction. That's fine if someone wants to do that, but in order to be correct there has to be a time frame on it. Otherwise, you know, broken clocks and all that. Roger that - thanks!

I am not arguing for the sake of arguing, I am really trying to understand.... So based on the above, if one were to position ones' self based on micro and macro factors that he or she believes will lead to a 50% decline in the market - perhaps not imminently, but within a 3 year time frame - whether you agree or not on those factors, you would not have a problem with said positioning? It appears you have more of a problem with a fact-lite prediction of an 'imminent' 50% correction, correct?

Hi bmichaud, in your historical analysis you just forgot to mention that going from 1937 to 1949 we had to endure one of the bloodiest war in human history… Will we behave in a wiser manner this time? I really hope this time is different! Let’s pray it is so. giofranchi True, though the market corrected hard in the two years leading up to the war - 1937 to 1939 - and remained low for five years afterward - 1945 to 1950.

If the market was trading at 10x earnings with bargains coming out of our ears, then you easily could say there is a good chance of a 50% rise sometime in the future....but you just don't know when. You logic is like saying it is dumb to short a stock that is 100% overvalued and likely to stop at least 50% within a reasonable period of time....or likewise it is dumb to buy baC at $5 because you don't know when it may return 100%....

Isn't one of the long standing rules if investing that you can either predict what or when something will happen....but not both? Why should we care when?

This graph of the Schiller PE is far better, IMO - it automatically takes into account globalization etc... as that will flow through the "E" part of the equation. It appears there is a slight step-change upward in 2000, but for the most part, going back to before 1890 the market appears to want to revert to around 15X, give or take. Shiller_PE_Ratio_-_multpl.pdf

To your point txitxo - Given the similarities between: the 1929 and 2007 credit-induced peaks, the deflation-induced 2007-2009 and 1929-1933 declines, and the debasement-induced 1933-1927 and 2009-2013 rallies, the 1937 peak appears to be a very relevant comp to the current period. 1937/2013: Schiller PE well over 20 with interest rates at multi-year lows and falling. Schiller PE falls from well over 20 to around 15X in 1940 where interest rates bottomed at around 1.90%. Interest rates begin a multi-decade climb in 1940, but the market falls to under 10X, back up to 15X, then back under 10X in 1950 before initiating a huge secular bull run. Would not at all be a surprise to see the 10-year rate bottom below current levels, given the massive amount of debt still outstanding (see the chart attached - yes there is a clear step up in the ratio, but the post-1929 deleveraging went on far longer than the current cycle). We shall see if this time is truly different 8) Shiller_PE_Ratio_-_multpl.pdf 10_Year_Treasury_Rate.pdf Credit_Market_Debt_%_of_GDP.pdf

Attached are some charts relevant to this conversation, courtesy of Ned Davis Research. The market cap to gdp chart is as of 4/30/13. Updated for the current SPX level of 1,635, the cap to gdp ratio is 116%. I've added the various interest rate levels in red boxes (interest rate source is the Schiller PE data spreadsheet)...which I might add largely debunks the notion that below-average interest rates automatically mean above-average PE ratios. The long-run average since 1925 is 61.4%, which would require a -48% drop to 856. Using the trend-line 92% as "fair value", the market would need to drop -22% to 1,283. Using a more realistic say 80%, the decline would be -32% to 1,115. EDIT: Might I add - if the S&P Industrial average price to sales were to revert to its 59-year average, the implied fair value on the S&P 500 would be to 1,106. Using the S&P 500 price to sales, the market would be fairly valued at 1,229. I like using the industrial average for valuation and margin analysis purposes, as it removes the odd accounting nature of financials. Stock_Market_to_GDP.pdf SP_Industrials_Net_Profit_Margins.pdf SP_Industrial_Average_Price_to_Sales.pdf SP_500_Price_to_Sales.pdf

With GMOs 7 year forecast at -1.1% per year, I'm going to go out on a limb and say the burden of proof is on the bulls....

He actually has a pretty darn good record tracking this secular bear market if you go back and look at his essays since 2001.

Sanjeev is correct on the risk premium - projected returns are around 3 to 3.5% over the next ten years, while the ten year treasury is around 1.8%. So the MRP is less than 2% with an artificially low rate!!!!

I honestly don't see why individual greed is needed for a market top (where was the individual at the 2007 top?) - those that control the bulk of equities are balls to the wall long based on "cheap" stocks, "there is nowhere elae to earn a return", Draghi and the Fed. Margin debt is approaching all time highs - by definition I don't see how there can be so called "under exposure" when there is so much margin debt.

Roche ran a fund for several years in through the mid 2000s without a down year. He was too all to have to publicly disclose info, but I've seen him post some stuff. His market risk "algorithm" he discusses periodically via the blog, but now through his form Orcam. It has been in risk off mode since early this year, hence his tweet today. My guess is the longer the market stays as irrational as Roche's model or Tixito's says it is, the harder and further it will fall probably in the not so distant future. Montier I have no idea other than he's an awesome writer :D

Here is Cullen Roche's recent tweet about this market.... https://twitter.com/cullenroche/status/332219781895819264 It's unreal to say the least.

And now I see that Kass asked for money. Hahahahahhahahahahahahabahhahahahhahahah

Kass is a frickin clown. I'm appalled at the questions he asked after hyping it up like he was going to really go after Buffett. That's what Buffett gets for bringing in someone who sold BRK shares after hours upon hearing about Buffetts illness because he believed the "intrinsic value had changed". What part of Kass is a "credible" investor? What are his returns and how much does he run????

hahahahahahah

Yes in theory they could buy the entire world equity market cap. But the article addressed reserves I believe. I believe it is illegal for the Fed to buy equities if I'm not mistaken.

According to Google Finance, roughly 578MM SPX shares traded today. At the average price range for the day of 1,586, total dollar volume traded today was $916.71 billion. So if global central banks put 10% of their reserves into US stocks, that's 1.2 days of volume. 20%, is 2.4 days and so on and so forth. Seems like a non-issue.

Interesting thread. Just started looking into CHTR after Malones interview the other day on CNBC. Would be interested in seeing a comprehensive poll done on this (on the board here) because I am in the camp that hates not having sports, golf channel and news available at all times on tv. i would think if you could afford it, it would tough to cut the cord....but i Know a decent number of people who are cutting it. I'm at my brothers apartment this week, and all he has is Netflix. Would take awhile to get used to that for me.

Wow wow. Gld, gdx and miners down over 6% pre market.

The disconnect between where the market is pricing SD and Sanjeev/Watsa's forecast that SD will be sold is quite fascinating - usually the market is rather efficient with pricing potential takeouts as such. SD is being priced like the dogshat independent E&P it is. It originally ran up in anticipation of exactly this scenario of TPG taking over the BOD, and now that it is happened the market has no interest.

That's about what I calculated based on the info you gave. So it is an interesting exercise when it comes to the sell decision - there is a good number of "high quality" stocks out there that would likely generate that type of a return if one just bought and forgot. Really the sell decision comes down to the rate of return one desires. Ya we can be Buffett clones and hold BAC "forever", but once it reaches a reasonable estimate of fair value, it is likely a great sale opportunity, as it most likely wont be a 15% terminal roe type company....and as Munger says, it almost doesn't matter what the purchase price is over the long run, as returns ultimately converge to returns on capital.