bmichaud
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Posts posted by bmichaud
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I love his comments (or lack thereof) about Europe - he knows it's a terrible situation. It's going to get ugly over there, and even if they bail out the banks, the private sector is going to be forced to deleverage at an even brisker pace than we are at over here.
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One of the things that I've internalized about investing is that there are not bonus points for originality. Best idea wins, doesn't matter who came up with it.
Trying to be original for originality's sake is just as bad as blindly copying everybody else, IMO.
I'm not saying that's what you suggested. Just stating my own general guidelines.
No I agree. And in today's day and age of technology we're all going to be drawn to the same things at the same time so it is difficult to truly be original (unless of course you walk on water like the Harry Longs of the world). But part of me likes trying to be the first one into (or out of) a situation before the idea comes through the 13Fs, then once other dudes are in or out of the idea it's good validation. So not necessarily a completely original idea, but at least trying to formulate one independent thought as oppose to blindly following Ackman into JCP or the HKD. For example, SD and LVLT have been covered extensively here on the board - they are very interesting ideas that have become a lot more interesting lately. I'm working on coming up with an independent conclusion and formulate my own thinking as to why they are both great ideas as oppose to simply taking Carl at his word on LVLT (as much as I am probably 100% safe following him!!). And honestly, looking at what other great investors are doing is a great screen, if you will, that allows you to whittle down the investment universe into an analyzable set of opportunities. I just don't like to follow someone the second they announce a position haha.
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(http://www.gurufocus.com/news/146094/whitney-tilson-getting-fatigued-with-microsoft)
Not sure if it's already been discussed here, but around minute 4 in the above video, the Fast Money host asks Tilson if he is long the Hong Kong dollar since Ackman put on the trade. Without hesitation, Tilson answers "yes" and goes on to discuss the trade almost as if it was his own....
Come on dude, have some pride. Doesn't at least a tiny part of him want to do something original? Don't most board members here have that competitive drive to come up with your own ideas and strategy within the framework demonstrated by Graham/Buffett/Watsa? Don't get me wrong I am all for sharing ideas and ESPECIALLY analyses (I have learned so, so much since joining this board even though I rarely actually use the ideas), but my competitive streak leads me to at least attempt to come up with original ideas, themes, analyses, and strategies. Do others here feel the same?
Sorry for the rant - I just can't take Tilson's obsession with being an "authoritative" voice within the investment community. I'd be embarrassed to show up on CNBC with $200MM AUM after 12 years in the business. You couldn't pay me enough to show up there.
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Tilson's take.
Outperformance seems almost obvious to me over a 1 year period. The question is by how much.
The following statement by Tilson is a nauseating reach:
"We interpret today’s announcement as not only a bullish statement by Buffett regarding Berkshire’s stock, but also about the markets in general because Buffett wouldn’t even consider buying back his stock if he thought there was even, say, a 20% chance that the world – and major stocks markets – were going to go off a cliff, as they did in late 2008 and early 2009. At that time, he was able to invest more than $50 billion at distressed prices, which Buffett much prefers to buying back his own stock, so Buffett is clearly saying that he thinks we’ll muddle through and that a major market correction is quite unlikely."
What the eff is he talking about? Any close follower of Buffett knows that he has a 100-year time horizon and does not time ANYTHING, but rather VALUES things. He bought GS preferreds in 2008 prior to the market bottom falling out in early 2009 - Buffett buys when he sees value, no questions asked. This says nothing about his view of the market in the short-term, and if anything, it says he does not currently see value in the marketplace. There are plenty of franchises out there large enough to soak up huge amounts of BRK capital, but at the right price - obviously Buffett does not see the right price at the moment (outside of WFC, obviously - but he is probably close to his limit on how much he can buy of WFC).
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Based Berkowitz public comments, I'm inclined to believe he is/was ignorant of the realities presented in this analysis. He'll never make as much money as he originally anticipated in BAC, with returns relative to alternative common stock opportunities not so good. Although at $6, maybe BAC is a great investment -- I personally don't know either way but I'm still cautious about investing in banks that are still heavily levered, even if "only" 10:1. And the only way Berkowitz will make meaningful money in his BAC investment is if the Fed induces significant inflation through money printing but even then the returns in real terms will be paltry relative to the alternatives. Buffett, on the other hand, stands to do quite well under almost any scenario except complete armageddon.
I asked Mohnish what he thought of Buffett's investment and if Buffett was simply making a preferred bet like GE or GS. He said, no definitely this time Buffett is making a bet on BAC stock. He's protected through the preferreds, but the warrants aren't simply a kicker this time, but were integral to the investment. Why? Because with GE and GS he was getting interest comparable to quality equity investments he could make. With BAC, he's tied that capital up now at a 6% return for 10 years. The opportunity cost of this investment indicates that he is making a bet on BAC recovering, but he is protected on the downside if he is wrong.
This is exactly what I argued when Buffett made his investment. Clearly, the equity exposure was integral to the investment.
Buffett's betting on the frickin government would step in and save the system if need be - that's what he did back in 2008 and that's what he's doing now. If you go back and look at his Gillette, US Air, Salmon preferreds in the Forbes Buffett interview compilation I posted within the last couple of weeks, he clearly made those investments b/c the actual equity was too risky. Even if the equity is an integral part, by definition, buying something higher up on the capital structure (unless restricted by policy) means an investor deems the lower position is too risky.
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There are no dynamics behind the "long wave cycle". It's just nonsense. You can fit any argument into almost any set of statistics.
I continue to be surprised by the unwillingness of some to learn. By reading/understanding the analysis, anyone would realize that the debt dynamics discussed are far from nonsense.
I can only conclude that the phrase "long wave cycle" immediately turns some away. I personally don't like the phrase either -- "long wave cycle" would seem to suggest the macro economy evolves according to an easily predictable timeline, which I am highly doubtful. However, the analysis unquestionably captures the dynamics currently affecting the economy. I guarantee Buffett and Prem understand these realities and factor them into their decisions.
none of us are buying the market.
I agree. But understanding the analysis conveyed by Dalio would provide insight into the risk to E and consequently why a much higher than usual margin of safety should be required for any investment during these times, which has been my primary assertion. Further, no one in their right mind would invest a meaningful portion of their capital in the common equity at previously prevailing valuations (e.g. BAC $11-15/sh) of a highly levered bank if they understood the analysis. Berkowitz got it wrong -- very wrong.
On Buffett -- he secured equity upside at a valuation some have argued is at .3-.5 of tangible book value without any corresponding downside risk while getting paid 6% in a world of record low interest rates. Enough said. I personally see no problem with Buffett cashing in on the well deserved reputation he established over the course of a lifetime.
About the only thing we'll agree on.
The principles of Buffett/Munger/Graham have governed every meaningful investment decision I have ever made. So I presume we agree on much re investing. The difference is that I expanded my knowledge base to understand what the hell (and why) was going on during the 2007/2008 credit crisis -- it was a worthwhile endeavor.
I unf don't have time to go back/forth today -- usually enjoy the debates. Any really -- it is up to each one of us to decide to learn or not. You don't want to be a "one-legged man in an ass-kicking contest."
Munger - while I don't agree with your former assertions regarding bank capital and how it relates to the equity market, I am 100% on board with your approach to expanding knowledge beyond ignoring the macro economic realities of the current environment. I give 100% credit to Cullen Roche of pragcap.com for greatly assisting in that regard, as my view of the world has changed entirely, and I have made much wiser capital allocation decisions with the macro in mind. You are 100% right regarding Berkowitz being wrong on the banks - it is a fools errand to invest in banks based on post-depression recession history b/c we are simply in a completely different environment. The private sector is deleveraging and will be for a long time unless the government actually pulled their heads out of their as$es and ran huge deficits. The banks aren't going anywhere anytime soon - yes they are more attractive here at $7 for BAC than when Berkowitz purchased at $15, but only now is BAC starting to resemble an attractive entry point considering the environment we're in.
We're in a slow-growth (if not a low-growth) environment even assuming China doesn't crap the bed, AND the market is still above Grantham's 950 FV. I would argue qutie vehemently in this environment the market belongs below if not well below FV. Considering my view of the world, I am probably way too aggressive with my portfolio, but I just can't help buying really cheap individual securiteis. That being said, I am scared to death that we will end up below 950 and stay there for a long time, which would drag down nearly all of our holdings here on this board. If we have a negative GDP print, I will gladly be picking up BAC and WFC at $4 and $18, respectively.
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Good Lord those are cheap. I see what you're saying for sure.
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Bmichaud I don't agree with that. European equities are extremely attractive here, and if we go through the cycle you mention interest rates will be kept artificially low creating, at some point significant demand for equities.
I absolutely despise going into all these analysis as I am primarily a bottoms-up investor. But your last argument is effectively a gamble that equity values can decline more, after the STOXX 50 has already declined by 28% and the DAX is down 26%. I am not smart enough to know whether equities will decline further or today was the bottom. I just believe that buying stocks here will produce better returns than cash over time.
I am not satisfied with the quality of my posts today, due to a headache and absolutely no free-time, I apologize for the short-responses.
Regarding European stock markets, it looks like they are only approaching their 2009 lows (http://pragcap.com/european-markets-approach-their-credit-crisis-lows) and I would argue for their economies the econ environment is going to get a lot worse than back then. Perhaps I'm being too negative.
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So now in 2011, when I see some equities trading at March 2009 levels, (Think BP, CSCO etc) why would I not buy hand over fist? I have the cash to deploy, and my job is to invest it. Why wait? I am not a market timer. These exogenous events will correct themselves and if history is an indicator it will most likely be due to an artificial intervention by central banks.
This makes sense - I am finding the same thing, I think I am just getting too caught up in the belief that we're in a secular bear and all equities, under & overvalued, will decline if the overall market continues to decline. I'm struggling to reconcile those two things (undervalued securities in a generally overvalued market).
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We were only about 50% invested in March 2009 lows, and about 30% in really attractive preferred/fixed income situations but the difference in my view was that 2008/2009 was uncharted territories I personally did not know that central banks had the right or authority to backstop the system the way they did. It only started resonating towards the end of April and even then it was kind of a new element that we had to incorporate to how we viewed the market.
So today I view the market knowing that, central banks will always step in to support any systemic crises with the creation of new money ad infinitum. We can argue about whether that will in turn cause money supply to expand or not, I am not debating that point, because I feel comfortable buying some of these equities at 5-6% dividend yields and 3-4x EV/EBIT.
With that said, and in full disclosure, this view has not served us well, as of today we are down about 11% YTD in our equity portfolio, resource funds are still up over 10%.
But I just don't think I am wrong about this. I don't see any of the issues we are facing as more dangerous than a potential shut-down of the economic system which is what we faced in 2008. ECB Can play all the games they want, in the end they will print just as Ben will print and even China will print if it ever comes to it.
What makes you confident that a backstop of the financial system will in turn backstop the economy? Even if the ECB prints money ad infinitum, Euro countries are being forced to run fiscal surpluses (do to the fact that they are effectively on the gold standard) thus the European private sector is being forced to run a DEFICIT in order to deleverage. With the Euro private sector being forced into rapid deleveraging, the Eurozone economy has no choice but to sink. It's a debt spiral that no amount of money printing can solve.
Declining Eurozone economic activity = lower S&P 500 earnings = lower valuations
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Today is the first day we became fully invested in equities since 2003. I am prepared to increase leverage from 0 to 20% as well. Either im wrong or equities are extremely cheap here.
I'm not being a smart-ass, I'm legitimately curious how today compares to March 2009 for you guys. Do you think (I truly do not know) the risk/reward is better now than it was in March 2009? Since this is the first time you've been fully invested since 2003 I'm obviously assuming you were not at the March 2009 lows...
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http://www.dailymarkets.com/stock/2010/06/04/compilation-of-forbes-articles-on-warren-buffett/
I'm sure everyone has seen this but thought I'd post anyway. Anything on Buffett is phenomenal as always, but the article in 1974 is especially interesting considering the similarities between then and now with predictions of depression and global calamity, and investors flocking to gold. Buffet has an excellent quote at the end of that article saying that if all you're worried about is depression, profits and panic, then those things don't bother me at these prices.
We are staring another crisis right in the face (http://pragcap.com/preparing-for-a-credit-crisis) yet the market is overvalued based on the thought that governments will simply come riding to the rescue. Even though individual stocks are undervalued, prudence calls for holding cash and/or hedges in today's environment. It's unlike anything we have seen since the Great Depression - energy is going to get hammered, consumer demand is going to get hammered, and global Econ activity is going to get hammered. Even something as seemingly cheap as Sandridge can get a while lot cheaper if oil trades down to $65. An energy long short HF manager recently told me that at this point in the energy cycle common sense says to hold an XOM on the way down and an SD on the way up.
All that to say, depression, panic and profits should bother us at these prices.
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Bmichaud if it is such a non-event why did equity markets bottom exactly when it started and peak exactly when it ended. That paper is nonsense. I sold some treasuries to the fed during the time they were buying which formed part of the cash which was then paid out to me personally as part of my quarterly incentive allocation. I then used that cash to buy a new home, how is that a non-event? I don't necessarily have to re-purchase treasuries with this new money. I can do whatever I want. At some point it all becomes inflation.
The problem is that there aren't many people in my position that needed a home and have no existing debt. There is little demand for new assets which historically were fuelling the previous boom cycle. That is the issue. When housing bottoms fundamentally we can start to see the light at the end of the tunnel.
How is that paper nonsense? QE is an asset swap and nothing more. As Eric said, the cash swapped for USTs simply sits within the banking system as deposits - so the banking system is holding cash versus holding treasuries. That was QE2, and it did nothing for the banks' capital position b/c treasuries and cash are treated the same in capital ratio calculations. QE1 actually improved the banks' capital position b/c it removed risk-weighted assets, MBSs, and replaced them with non-risk-weighted assets, cash. QE1 was money printing, QE2 was not.
But that is not what QE 2 was, in QE 2 the fed created money out of thin air (printing) and purchased securities from investors who had them for sale. The investor that sells securities to the fed is receiving new money that never before existed, which then circulates in the economy.You are dead wrong here. This "new money" you speak of did not all of the sudden start finding its way into other assets. Yes it affected the speculative forces of the market, b/c investors that previously held a yielding asset, USTs, and now hold a non-yielding asset, cash, thus they are forced out the risk curve in order to find return, but it DID NOT find its way into other assets. This "new money" does not magically find its way into stocks or real estate as you mention. So Moore, you hold $500K of USTs then the Fed swaps $500K of cash for your USTs, now you purchase a house - the person you purchased the house from now holds your $500K of cash and you hold the house. Nothing changed. Even if the Fed had not swapped cash for your USTs directly you still could have purchased the house b/c USTs are another form of cash. If you had $500K of McDonalds stock however, you could not have purchased the house UNLESS the Fed had swapped $500K of cash for your MCD stock. Once that MCD stock is retired, THAT is money printing.
Imagine all the assets to the private sector in the US are as follows:
1. $1,000B cash
2. $2,000B USTs
3. $5,000B real estate
4. Total = $8,000B total assets to the private sector
Whether the above composition was $0 cash and $3,000B USTs or $3,000B cash $0 USTs, total money in the system is $3,000B. If, however, the Fed buys $5,000B of real estate, now there is $8,000B of total money in the system.
Whether QE is money printing 100% depends on the assets being replaced with cash. Bottom line.
So if we can agree that total US liabilities in the system, dollar bills + USTs, equals total money in the system, then we can conclude that DEFICIT SPENDING and the Fed purchasing non-UST assets are the primary risk to inflation. Deficit spending is what creates actual money in the system and the Fed simply pushes around the outstanding liabilities in order to control interest rates (unless of course the Fed buys non-UST assets).
Deficit spending will not become (highly) inflationary until the private sector is finished deleveraging. The deficit is the only mechanism sustaining the US recovery at the moment, NOT QE where the Fed buys non-UST assets.
So bringing this discussion full circle, how does all of this affect gold and stocks.
RE gold, I think it does best in an unstable economic environment - inflation or deflation - and the instability right now is private sector deleveraging, forced austerity measures, ultra-low interest rates and lack of debt restructuring. These factors are NOT going away anytime soon, thus I am comfortable owning gold miners even with gold at its inflation-adjusted high of the 1980s b/c I think they provide a margin of safety.
And I don't see any logic to the inflation adjusted high of gold argument either. Homes cost more inflation adjusted, cars cost more, burgers cost more and there are about 3 billion more human beings living on planet earth today vs 4 billion in 1980.How does Parsad using the inflation-adjusted high not make sense? He's comparing the former bubble in gold to today, and if you use a trend-line over the past 100 years, gold is overvalued. Your argument against that makes no sense.
RE stocks - I happen to be of the belief that the total market should not be trading above fair value considering the hideous macro backdrop. I don't think the developed world has faced a macro environment such as this since the Great Depression, thus I don't think investors should invest as if we are in a normal post-recession environment. Considering the likelihood that we are in a secular bear market combined with the hideous macro backdrop, I don't want to own economically-sensitive names such as banks, energy and industrials. Stocks can get a lot, lot cheaper from here. How does this tie into QE? I believe the Fed's irresponsible actions have put a "bid" under all risky assets and is currently keeping the market above FV.
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I know MMT is often times met with resistance, but I believe it answers a lot of macro questions - specifically, why interest rates have remained so low over the past three years despite much-espoused hyperinflation fears, why the economy has not snapped back as in other deep recessions, and why gold has performed well in the face of low inflation.
That being said, I would refer anyone who wants to know why swapping dollar bills for treasuries is a NON EVENT (as oppose to swapping dollars for MBSs - QE1) to Cullen Roche of pragcap.com.
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Harry you still have not reconciled your definition of an enterprising investor with mine. That would be a big help since my unemotional argument to you was that this board is focused on the enterprising investor, which is not at all "bot" investing.
Please reconcile.
Thanks
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That's an interesting jab from someone that won't answer simple questions. The only idea in my portfolio that has anything to do with this board is Clearwire, and I was the one who started the thread for CLWR. Yes they discussed clwr on the lvlt thread, but I found that out after the fact. My strategy differs very much from the small-cap focused nature of the board, so it offends me you would accuse me of poaching ideas without ANY basis for saying so. Until you can back up your arrogance with actual performance, then shut the eff up. Here is my current portfolio in no particular order (unlike yourself, I am 100% fine with full disclosure - grow some balls)...
mcd, irm, sle, clwr, gdxj
As you can see, I have my own strategy and outlook on things that have almost nothing to do with this board. I use the board to LEARN, not to poach. I agree with some things and disagree with other things on this board - only reason I so vehemently oppose your posts is the rank disgusting arrogance that permeates everything you say.
In a few years we can see how the MSFT bet goes.
Harry's system is shorting it.
Will the computer be "eviscerated"?
I was short, I covered. How did you like the "short" thread?
I didn't pay much attention to it. I pay attention to long ideas, and normally ignore the short ones.
However why were you shorting a large cap given your thinking around outsmarting the herd of people who follow large caps?
Even if any given large cap situation ends up being profitable, overall, the odds in the large cap space are probably stacked against us, and if they are not right now, will increasingly be over time.
As you know, I am not a discretionary investor, so I'm not at an inherent disadvantage in the large cap space.
Everybody wins with MSFT. You won because you traded on a dip, and anyone that held on during that period beat the market and will continue to do so I believe if held for a sufficient time.
Your point though about being discretionary....
I feel the large cap space is going to be one where people basically agree on the future earnings. I'm not for example going to have any advantage in valuing WFC's 2012 or 2013 forecast versus the experts in the field. Yet, you take the consensus forecasts of banks for example. The sector is so out of favor psychologically that they can be cheap and easy to spot as cheap by the discretionary investor without needing to disagree with the consensus earnings estimates (in other words, Mr. Market is at odds with the industry analysts). So you can just side with the people who spend their lives specializing in covering the banking sector. A person can easily win if they merely are determined to wait out the turn in psychology, which will come when time passes along. It doesn't really matter if multiples ever expand -- you just won't do poorly long term making 15-20% earnings yield when the overall market is getting 7%.
So just because they are heavily analyzed doesn't mean squat during these exceptional times.
Similarly, Coca Cola was heavily analyzed but any old fool could see that at 40x earnings the long term returns would be poor.
So there is no reason to stay away from large caps when the prices are completely out of whack with what reasonable industry experts agree will be the likely earnings.
The time to stay away is when the price too closely reflects what they believe will be the future earnings. In other words, don't try to be a better forecaster of earnings than the industry experts. Rather, just buy when the market prices the assets in complete disregard for their expert opinions.
But they are sometimes totally wrong of course. What were the 2008 earnings forecasts for Citigroup back in early 2007?
But nobody seriously predicts a WFC or a USB is about to go under -- that's not why they're cheap relative to the market as a whole.
So very small caps are just different in that you might be the only one covering them.... where that certainly won't be the case with large caps.
At any rate, you can play a psychology angle with the large caps (high earnings yield because they are hated) even though you have no information angle.
Eric, you are exceptionally skilled and will do well no matter what market cap decile you play in. However, I think for the vast majority of discretionary value investors, they would do best to stick to situations in which they have no competition.
I think making a quick 100% on SURW was a lot easier than making the equivalent return in a money center bank. ;D
And on a % basis, you probably also made more money more quickly in CRVP ;D
And for anyone who played SUR before their buyout offer, that was very easy money as well, with a great underwriter, selling below book :D
There are some other nano-cap situations I am looking at that are dirt simple compared to money center banks.
The board is interesting. Guys like bmi love to get freebie ideas like SUR, SURW, FMMH, etc. Everyone likes prize fish. What they don't like is when you start to point out that those fish came from a very specially designed reel outfitted with custom lures ;D
I could keep finding prize fish, or I could become a reel or lure designer. I think the latter creates more lasting intellectual/philosophical/business/mathematical value.
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Everyone can relax. I'm here now.
I just got back from the hardware store and bought us a ruler. It's 4 inches, but I think we can fold it in half and start measuring.
Hahahahahahah phenomenal
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This is embarrassing
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I provided a "cold hard" definition of enterprising investor, yet you can't reconcile your definition that an enterprising investor is defined as a systematic net-net approach. I don't get it.
And PLEASE explain how your "cold hard" data for other funds has anything to do with your own performance? Resolving something offline so that nobody else on the board can see your actual performance will do nothing.
I'm actually exposed you to aggregate data from hundreds of systematic funds:
http://www.barclayhedge.com/research/indices/cta/sub/sys.html
You didn't answer my enterprising investor question and you didn't provide your own performance....
I'm very pleased then that you seem to accept my cold hard data from hundreds of funds. I am happy to point you to sections of Graham's books precisely defining his systems if you would like to continue off-line. Most others here have read his works.
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I'm actually exposed you to aggregate data from hundreds of systematic funds:
http://www.barclayhedge.com/research/indices/cta/sub/sys.html
You didn't answer my enterprising investor question and you didn't provide your own performance....
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Can you please address the discrepancy between Graham's definition of enterprising and yours?
Also, please provide your performance numbers. It's extremely bad form to tout a particular strategy then not have the cahounes to back it up with cold hard data. And not data spat out by a model - your actual performance.
No it's not just that - come on dude, stop treating us like morons.
Page 156 of Zweig's Intelligent Investor: Operations in Common Stocks
The activities specially characteristic of the enterprising investor in the common stock field may be classified under four heads:
1. Buying in low markets and selling in high markets
2. Buying carefully chosen "growth stocks"
3. Buying bargain issues of various types
4. Buying into "special situations"
And Bmi, as for your enterprising non-definition, that was the word he used for his systematic net-net strategy.
Warren Buffett On Charlie Rose Sept 30.
in General Discussion
Posted
And he said that in ten years Europe will be stronger and the world won't collapse as a result of the oncoming crisis.
That is extremely easy for someone with a 100 year time horizon to say and just go ahead and load up on Wells Fargo or BAC and forget about what the price action does for ten years. Not so easy when you're managing somebody's personal capital and you have to explain to them some time in the next year or two why their WFC/BAC holdings are 50% lower than cost as a result of "temporary" events going on in Europe and that if they wait ten years they will be fine.
I'm not at all saying we're getting back to March 2009 lows, but I think as Prem CLEARLY demonstrates in his interview, we are in an environment entirely different than anything experienced since the Great Depression. Thus it is not prudent to invest as such. I know MMT is tends to fall on skeptical ears, but if one takes the time to learn it, then the austere environment Europe currently faces, regardless of bank bailouts, would scare the crap out of them. We're running a 10% deficit over here and are barely growing. Europe despises our deficits and is looking to balance their budgets. They are almost to the T following the blueprint the US laid out in the 1930s for how NOT to manage an economy in a deleveraging environment. Ya the US will muddle through, but there is a very good chance sky-high SP 500 eps estimates will come careening downward in the next year, bringing the market down with it. Our companies do not do business in a bubble - we're tied to the health of the globe, and if Europe enters a recession, let alone a depression, earning power will be affected. Earning power is already overstated given well above average profit margins, thus are very susceptible to external shocks.