bmichaud
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Posts posted by bmichaud
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What is your point? Bindly following one of those models and rebalancing monthly is not how we want to invest on this board. You're completely ignoring what I am saying - WE LIKE THE CHALLENGE OF RESEARCHING AND BUYING INDIVIDUAL STOCKS BASED ON OUR OWN ABILITY TO VALUE A COMPANY.
Our system is buying individual securities in a concentrated fashion based on our own judgment and analysis. If you want to engage in a fruitful discussion, let's debate how to improve on that.
If you want to start a discussion about using an uninvolved, model-based, monthly auto rebalancing strategy and how to improve upon that, then start a new board.
Semantics. You know exactly what I am talking about. You're espousing using a computer-driven model that takes all human thinking out of the equation. This is an "enterprising" value investment board where investors :) discuss individual ideas found through narrowing down the investment universe via a "system" of looking for out of favor, unloved, undervalued companies based on particular "ratios". As enterprising investors, we crave the challenge of finding 50-cent dollar bills and battling Mr. Market - it is this challenge that keeps us all in the game, NOT finding a strategy that allows us to take all emotion out of the equation, sit back, and let a computer do the work for us.
I am perfectly fine with system - you just don't like the value investing system, you like a QUANT strategy as I said. You put the word "system" in my mouth.
Regarding the church - you are coming into a Baptist church trying to preach Buddhism, and NOT trying to improve on Ben Graham's system. I love trying to improve on the value investment system - ie I believe a value investor can rationally buy gold shares with a margin of safety in order to protect capital against the current macro backdrop. Your accusations regarding my knowledge and respect of the value investment system are assuming.
Kraven, Bmichaud, and Dorsia-- systems are nothing to laugh at:
http://www.barclayhedge.com/research/indices/cta/sub/sys.html
The human emotional responses from each of you are a great example of why objective systems have an advantage over sometimes illogical humans.
Let's break down Bmichaud's arguments one by one in a non-emotional way.
I. Benjamin Graham himself espoused a systematic, quantitative value strategy--two actually--one for conservative investors and one for enterprising investors. Looks like we've dispensed with your argument that you can't espouse a systematic strategy on a value investing board without being subject to scorn.
II. Your second argument is even more emotionally driven. In your view, this is a "church" with certain faith-based tenets, therefore, you can't be reasonably be asked to improve, because that would be an affront to your "faith"? OK, notwithstanding point I. which totally eviscerates any claim you can make that systems are not part of the "faith" or the "church" if you will (are you one of those backwoods preachers who doesn't read the holy books called "Security Analysis" or "The Intelligent Investor"?), you are essentially saying that it is unfair of me to ask you to behave logically because you are a "believer" not a thinking person.
III. You believe that I can't see the "light" when you yourself ignore that Benjamin Graham himself espoused systems. I guess you would throw him out of your "church" as self appointed bishop on this board.
Oh Enlightened One, please elevate me to your elevated plane of reasoning where you tell others that they should leave the congregation while you ignore Benjamin Graham's teachings yourself! ;D
Seriously, though, value investing is not a cult, or a religion, it's a method, constantly evolving through discoveries which come from within and outside the community to improve risk/return profiles.
Bmichaud, your view of value investing is very naive, because it ignores Buffett's innovations and those of Charlie Munger, which moved value investing away from a more asset-based focus to one where earnings, earnings stability, growth, free cash flow and moats were examined.
I am almost disturbed that you have such a primitive view of the history of value investing--a field which you claim to respect. In your view, there have never been systematic approaches, and moreover, no innovation. Your view does not square with the facts. If you disagree, I would be happy to send you some books which might help you learn about the history of a field which you claim so vehemently to respect.
Graham's systems were quantitative systems. They used ratios. Period the end.
I am going to try to help you engage in fact-based reasoning:
http://www.validea.com/registration/newusersignupj.asp
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Semantics. You know exactly what I am talking about. You're espousing using a computer-driven model that takes all human thinking out of the equation. This is an "enterprising" value investment board where investors discuss individual ideas found through narrowing down the investment universe via a "system" of looking for out of favor, unloved, undervalued companies based on particular "ratios". As enterprising investors, we crave the challenge of finding 50-cent dollar bills and battling Mr. Market - it is this challenge that keeps us all in the game, NOT finding a strategy that allows us to take all emotion out of the equation, sit back, and let a computer do the work for us.
I am perfectly fine with system - you just don't like the value investing system, you like a QUANT strategy as I said. You put the word "system" in my mouth.
Regarding the church - you are coming into a Baptist church trying to preach Buddhism, and NOT trying to improve on Ben Graham's system. I love trying to improve on the value investment system - ie I believe a value investor can rationally buy gold shares with a margin of safety in order to protect capital against the current macro backdrop. Your accusations regarding my knowledge and respect of the value investment system are assuming.
Kraven, Bmichaud, and Dorsia-- systems are nothing to laugh at:
http://www.barclayhedge.com/research/indices/cta/sub/sys.html
The human emotional responses from each of you are a great example of why objective systems have an advantage over sometimes illogical humans.
Let's break down Bmichaud's arguments one by one in a non-emotional way.
I. Benjamin Graham himself espoused a systematic, quantitative value strategy--two actually--one for conservative investors and one for enterprising investors. Looks like we've dispensed with your argument that you can't espouse a systematic strategy on a value investing board without being subject to scorn.
II. Your second argument is even more emotionally driven. In your view, this is a "church" with certain faith-based tenets, therefore, you can't be reasonably be asked to improve, because that would be an affront to your "faith"? OK, notwithstanding point I. which totally eviscerates any claim you can make that systems are not part of the "faith" or the "church" if you will (are you one of those backwoods preachers who doesn't read the holy books called "Security Analysis" or "The Intelligent Investor"?), you are essentially saying that it is unfair of me to ask you to behave logically because you are a "believer" not a thinking person.
III. You believe that I can't see the "light" when you yourself ignore that Benjamin Graham himself espoused systems. I guess you would throw him out of your "church" as self appointed bishop on this board.
Oh Enlightened One, please elevate me to your elevated plane of reasoning where you tell others that they should leave the congregation while you ignore Benjamin Graham's teachings yourself! ;D
Seriously, though, value investing is not a cult, or a religion, it's a method, constantly evolving through discoveries which come from within and outside the community to improve risk/return profiles.
Bmichaud, your view of value investing is very naive, because it ignores Buffett's innovations and those of Charlie Munger, which moved value investing away from a more asset-based focus to one where earnings, earnings stability, growth, free cash flow and moats were examined.
I am almost disturbed that you have such a primitive view of the history of value investing--a field which you claim to respect. In your view, there have never been systematic approaches, and moreover, no innovation. Your view does not square with the facts. If you disagree, I would be happy to send you some books which might help you learn about the history of a field which you claim so vehemently to respect.
Graham's systems were quantitative systems. They used ratios. Period the end.
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I am perfectly fine with system - you just don't like the value investing system, you like a QUANT strategy as I said. You put the word "system" in my mouth.
Regarding the church - you are coming into a Baptist church trying to preach Buddhism, and NOT trying to improve on Ben Graham's system. I love trying to improve on the value investment system - ie I believe a value investor can rationally buy gold shares with a margin of safety in order to protect capital against the current macro backdrop. Your accusations regarding my knowledge and respect of the value investment system are assinine.
Kraven, Bmichaud, and Dorsia-- systems are nothing to laugh at:
http://www.barclayhedge.com/research/indices/cta/sub/sys.html
The human emotional responses from each of you are a great example of why objective systems have an advantage over sometimes illogical humans.
Let's break down Bmichaud's arguments one by one in a non-emotional way.
I. Benjamin Graham himself espoused a systematic, quantitative value strategy--two actually--one for conservative investors and one for enterprising investors. Looks like we've dispensed with your argument that you can't espouse a systematic strategy on a value investing board without being subject to scorn.
II. Your second argument is even more emotionally driven. In your view, this is a "church" with certain faith-based tenets, therefore, you can't be reasonably be asked to improve, because that would be an affront to your "faith"? OK, notwithstanding point I. which totally eviscerates any claim you can make that systems are not part of the "faith" or the "church" if you will (are you one of those backwoods preachers who doesn't read the holy books called "Security Analysis" or "The Intelligent Investor"?), you are essentially saying that it is unfair of me to ask you to behave logically because you are a "believer" not a thinking person.
III. You believe that I can't see the "light" when you yourself ignore that Benjamin Graham himself espoused systems. I guess you would throw him out of your "church" as self appointed bishop on this board.
Oh Enlightened One, please elevate me to your elevated plane of reasoning where you tell others that they should leave the congregation while you ignore Benjamin Graham's teachings yourself! ;D
Seriously, though, value investing is not a cult, or a religion, it's a method, constantly evolving through discoveries which come from within and outside the community to improve risk/return profiles.
Bmichaud, your view of value investing is very naive, because it ignores Buffett's innovations and those of Charlie Munger, which moved value investing away from a more asset-based focus to one where earnings, earnings stability, growth, free cash flow and moats were examined.
I am almost disturbed that you have such a primitive view of the history of value investing--a field which you claim to respect. In your view, there have never been systematic approaches, and moreover, no innovation. Your view does not square with the facts. If you disagree, I would be happy to send you some books which might help you learn about the history of a field which you claim so vehemently to respect.
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Aaaaaa Harry, just can't help yourself huh? Hahahahahaha espousing a quant strategy on a value investment board and expecting everyone to take it seriously hahahahaha.
There is groupthink on this board because it is a congregation of value investors. Yes the analysis always can be improved, but largely speaking there is very valuable debate outside of Munger. You denouncing the "groupthink" on this board is like denouncing the groupthink of a Baptist church (ie Christianity). If you can't see the light (value investing or salvation) then get off the board or out of the church.
Buffet says that buying a $1 for $.50 sits with someone in 30 seconds or it does not sit at all. Your obvious distaste for this style of investing, IMO, indicates it has not sat with you.
After having Parsad erase the last thread I started, I will take the risk of wading back in.......
In terms of the BAC debate, (yes, the medium is the message), the good and bad of the debate, which was mostly Munger vs. the World is that it was a very, very human debate. It was quite a good parody of the human "thought" process--on both sides.
There was not much informational/factual value on either side of it. I totally agree that people may have had excellent private arguments, information, analysis, etc, but clearly that wasn't shared publicly in the BAC thread or in the bank capital thread.
So overall, here is my big picture view.
Computer systems are not hampered by emotion, so if one wishes to compete with them, one must become more-computer-like and less emotional (aka, prone to personal attacks, psychological distortions, etc).
Almost all information has value, even information or analyses propounded by those we bitterly disagree with (is there any strategic or tactical advantage in underestimating the competition?).
Unfortunately, whether anyone cars to admit it or not, there is a huge amount of groupthink on this board. If I had $1,000 for every person who said HPQ was point blank cheap before the recent sell-off.... ;D
(Whether or not people are ultimately right about HPQ or not, clearly their timing leaves a lot to be desired.)
So, where are we in the big picture here? Computer systems will continue to work well as long as they have marshmallows to compete against (emotional humans). Why make it easier for the computers by being so emotional?
As soon as most AUM in the market is run by purely systematic means seeking to take advantage of a diminishing supply of dumb humans, that will be the tipping point when humans have the potential to outperform again (there is long term equilibrium/disequilibrium points to computer/human success).
While we have seen some signs of systems cannibalistically killing each other off, we are, to my way of thinking, a long way from a human investor led renaissance, given that most humans are still too arrogant to admit, at this point, that systems can do better than they can. When the metaphorical shoe shine boy becomes a systematic quant, as Gerald Loeb might have said, then the party is over.
So, big picture, if you don't want to join the machines, but still be an excellent human/discretionary professional, you can't give in to the human shallowness of acting quite so, ahem, human. 8)
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There shouldn't even be a cds mkt for Japan or the US - Japan's yields haven't budged in that time. Congrats to Bass for betting correctly on a speculative instrument that is detached from economic reality.
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I respectfully refer any Japanese bond bear to Cullen Roche's website www.pragcap.com to learn why countries such as Japan and the USA will not have a debt crisis. Japan and the USA are never revenue constrained, and as long as they issue debt in their own currency it will never happen. Einhorn purchased calls on Japanese interest rates in the 4Q of 2008 and Kyle Bass has been preaching about Japan coming to the "Keynsian End Point" for the past two years - both are incredibly smart men and both have been DEAD wrong.
Theres a good chance this could be a CDS trade. I think the most asymmetric CDS trade right now is long Japanese Government (JGB's) CDS. The 5 year contracts go for 104 bp. quote link here: http://www.bloomberg.com/apps/quote?ticker=CJGB1U5:IND
This trade would also provide a large hedge position as Ackman suggests. I have not found a bull case for Japanese Debt so far. The writing is on the wall right now.
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It is both an attractive standalone investment and one that offers significant hedging benefits for our portfolio. For a modest amount of capital commitment, this investment offers the potential for extraordinary profits.
I'm curious what he means here...perhaps a gold miner? What long position would provide a hedge to a portfolio already so heavily tied to a healthy economy (sans FDO perhaps)?
Can't figure that out either. However, I don't think it's a gold miner, as he's been pretty vocal against investing in gold. And from what I can remember, hasn't ever made an investment in commodities.
That's what I was thinking, but figured he may say that a miner generates cash flow and thus has intrinsic value. Perhaps he simply means the investment is so event driven that it will perform well independent of the market and his other holdings...
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It is both an attractive standalone investment and one that offers significant hedging benefits for our portfolio. For a modest amount of capital commitment, this investment offers the potential for extraordinary profits.
I'm curious what he means here...perhaps a gold miner? What long position would provide a hedge to a portfolio already so heavily tied to a healthy economy (sans FDO perhaps)?
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Though Buffett has made comments that he would manage $1mm today like he did in the early BPL days, I sincerely believe he would be more Munger-like than he was back then. I was just re-reading my favorite parts of the Snowball this weekend, and multiple times throughout the book Buffett is quoted saying that the "time is the friend of the wonderful business, but the enemy of a mediocre one". I just don't believe he would buy a Berkshire, Dempster, or Sanborn today UNLESS he had the ability to liquidate them. Net-Nets are just as dangerous as buying a tech company unless an investor can liquidate it. Parsad, I've picked up on that in your past comments that you like to get your hands dirty in those types of situations - I am extremely envious of someone in that position, as I would love to be very active in those types of investments.
All that to say, I very much tend toward option #3 for the core of my portfolio then employ special situation techniques for the other part of my portfolio in order to generate somewhat market-neutral returns. I hope to one day add Buffett's third category of "Controls"!! ;D ;D
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http://www.hussman.net/wmc/wmc110829.htm
Dr. Hussman continues to cite his recession composite data set as evidence that we are currently in or headed into a recession. As usual, he also continues to believe the general market is overvalued. While I do not believe in hedging an individual stock portfolio 100% as he does, I do believe his opinion on the general level of the market (along with others such as Grantham and Schiller) is helpful in the long run. Even while Buffett was able to fine "net-nets" back in his BPL days, he still hedged a portion of his portfolio against the vagaries of the general market according to his long-term outlook for the market...a good example that I use to manage the market exposure of the money I manage.
While buying fear is a useful tool, as discussed on a recent thread, I think blindly following a system of buying into fear is dangerous especially considering an overvalued market and a hideous economic backdrop. Hussman's recession warning combined with the potential European implosion (http://pragcap.com/the-end-of-the-world-part-1) has the potential to bring the general market quickly down to fair value and potentially lower, all the while making seemingly cheap stocks even cheaper. Again, I am not advocating hedging 100% of one's portfolio or waiting for Coca-Cola to sell for 3X earnings (i.e. Munger style), but rather to take into account the unprecedented macro environment we find ourselves in, one that the developed world has not faced since the Great Depression (i.e. the unwinding of a massive credit bubble), and prudently building in a margin of safety to one's purchases.
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Last I checked this board is not called The Corner of Quantum and Brevan Howard. We're just trying to buy fifty-cent dollars!!!
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I've heard from folks off of this board how difficult it is to argue with Munger due to his irrationality....I now fully understand. You can't fight irrationality with rationality.
No -- bmichaud is WRONG.
"It doesn't matter what those assets are comprised of"
I assuming you are familiar with unsecured lending?
The asset behind unsecured lending is complete air. During periods of stress, this risk and the risk associated with the accounting gets greatly heightened. Unsecured lending and the accounting of the corresponding capital creates an enormous air pocket that disappears when you actually need to access that capital!
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You my friend do not understand paid in capital. PIC is merely an accounting term - once that capital is "paid in" via a stock offering, the company then uses the capital to do whatever it likes, whether it's to lend, buy equipment, or simply park it in cash.
So if BAC started from scratch and issued $100B worth of stock, its books would be as such:
$100B Assets
$0 Liabilities
$1B common stock
$99B paid in capital
$0 retained earnings
$0 other comprehensive income
It doesn't matter what those assets are comprised of - if they were 100% cash or 50-50 cash and loans, the equity would be siphoned off between those four equity categories (which I am assuming you are familiar with).
Cayale is pretty good at throwing insults but not much esle.
How does someone afraid to invest in bank stock becuase he fears rising interest rates feel so bold to level personal attacks.
Paid in capital is nothing but air -- in times of distress and collapsing stock prices, this is extremely relevant or should be to any rational investor.
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What is your agenda? You are so far off the reservation regarding this topic that there must be something behind these wildly false statements...
Kraven -- no let's deal in the real world....BAC didn't sell stock yesterday or any time recently. There is no available cash correspoding to the book equity counted as capital.Are you saying that a "potential" issuance of stock is being counted as capital? I don't at all understand the above-bolded statement.
So as we sit today -- if BAC need to accuess this capital there is no way but to sell stock, which is impeded every day the stock price collapes.As I think through this, I believe Denninger is spot on, especially as stock prices collapse.
BAC's current capital position is based on its current assets and liabilities (the value of which can be debated) and has NOTHING TO DO with the potential future need to issue stock.
Again I do not at all understand what you are trying to accomplish here...
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I'm sorry but that is sheer stupidity. How the eff could a bank's market cap be part of its regulatory leverage ratio when the leverage ratio is based on the balance sheet? The market cap has nothing to do with the balance sheet...
The accounting shenanigans regarding banks that can be debated ad nauseum is whether banks should be required to market their assets to market even though they are long term holdings. So for example, back when the MBS market was imploding, Merrill Lynch took huge losses b/c of the firesale prices it had to market its MBS book to even though (in theory) it planned to hold their MBS securities to maturity.
I am not a bank expert by any means but as I understand (and have read from several sources) -- stock market capitalization is counted as capital.
From Karl Denninger, whose tone is rough but he is usually accurate in these areas...
"Note that given the utter fraud of allowing a bank to count "equity value" as capital, when it cannot be spent and is subject to 10% or more swings in value in a single day, means that precipitous stock price drops like this can instantly render a bank insolvent. We could have fixed that in 2008 and 2009 but of course that would have meant that banks would have had to actually go find capital from real people to make loans with, and that was unacceptable - so in addition to allowing them to "mark assets to fantasy" we also allow them to count as "capital" things you can't spend, thereby allowing them to generate profits from that phantom "capital" - and huge losses when the deception is revealed."
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All great points!
When I first started following him I took him a bit too seriously, now I just use his commentary as another macro data point that I don't necessarily invest on but keep in the back of my mind.
http://www.hussman.net/wmc/wmc110808.htm
His recession composite is flashing red at the moment, a very concerning proposition.
He is giving a high probability to the likelihood last week's selloff is the beginning of a bear market...
How seriously would folks on this board take that given Hussman is the quintessential permabear?
Recession or not...
In two more years you'll have had 4.5 years of bad loans running off replaced by 4.5 years of very high quality loans.
The people employed today are largely the ones who remained employed during the past recession, as not that many jobs came back. These employed people are the most "employable" ones, the firms like to cut the fat first. These are the very same people who will have got the last 4.5 years of loans.
a very good point!
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http://www.hussman.net/wmc/wmc110808.htm
His recession composite is flashing red at the moment, a very concerning proposition.
He is giving a high probability to the likelihood last week's selloff is the beginning of a bear market...
How seriously would folks on this board take that given Hussman is the quintessential permabear?
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Yet, most investors would say an Aeropostale or a American Eagle is transparent, while BAC is not.
The fact that American Eagle is leveraged 1.37X versus 10.2X for BAC is where I would derive my comfort, not in my analysis of how many bids I would receive if auctioning off t-shirts. If AE wrote-off 100% of its $300MM of inventory, leverage would go to 1.8X, whereas if BAC wrote-off 100% of its "Other Asset", leverage would jump to 18.5X.
I completely agree regarding the black box issue. I would guess Buffett does as well, and that's why he chooses to own WFC, which fully discloses its "Other Asset" category, does not make dumb acquisitions and has a relatively simple business model.
All I ask before buying BAC is to have some idea of what those assets are. Investors got smoked back in 2008 and 2009 buying AIG, Fannie, Freddie, BAC and C based on perceived "earnings power" and assuming the risk of a black box.
I would contend as well that this period of time is NOT akin to the early 1990s. We are in the process of unwinding a massive credit bubble, which will take much longer to unwind than the 1990s banking crisis. I say that to say there is a very big risk bank balance sheets are inflated due to accounting shenanigans (read any of John Hussman's commentary since the recession started), and thus investors must not simply "have faith" in BAC's ability to fairly account for its "Other Asset" category.
I agree which is why I dont own banks. At some point you just have to place your chips on the table or not. Banking is in the too hard pile until the age of deleveraging is over. Thats my plan.
My point, which perhaps I didn't make clearly, is that while banks are a black box in a way, so is everything else. Banks are no more a black box than a retailer or an insurance company or a restaurant. That is, if a bank tells you they have $X in loans, securities, etc., how is that so different from a retailer telling you they have $Y in inventory (which let's say is tshirts and jeans)? Investors have a false sense of security that since tshirts and jeans are tangible - they could theoretically touch and feel them - that is so much better than loans, for example. But when a retailer tells you they have $100 mil in inventory, what does that mean? Can you go see it? Even if you could, what is it worth? I could sell a loan book faster than a retailer could sell a warehouse of tshirts and jeans. If BAC wanted to offload a bunch of financial assets there would be countless bidders shortly. Put out a BWIC and bids come in quickly. Put out an offer to sell tshirts and jeans and . . . crickets most likely. Yet, most investors would say an Aeropostale or a American Eagle is transparent, while BAC is not. I don't believe it is true. BAC is a complicated entity. They have tons of things that are difficult to value and perhaps their "other" category isn't as well disclosed as WFC, for example.
I do agree though that we all decide what "bets" we are willing to take and we either put our chips on the table or we don't. Nothing wrong with that.
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I completely agree regarding the black box issue. I would guess Buffett does as well, and that's why he chooses to own WFC, which fully discloses its "Other Asset" category, does not make dumb acquisitions and has a relatively simple business model.
All I ask before buying BAC is to have some idea of what those assets are. Investors got smoked back in 2008 and 2009 buying AIG, Fannie, Freddie, BAC and C based on perceived "earnings power" and assuming the risk of a black box.
I would contend as well that this period of time is NOT akin to the early 1990s. We are in the process of unwinding a massive credit bubble, which will take much longer to unwind than the 1990s banking crisis. I say that to say there is a very big risk bank balance sheets are inflated due to accounting shenanigans (read any of John Hussman's commentary since the recession started), and thus investors must not simply "have faith" in BAC's ability to fairly account for its "Other Asset" category.
I love BB's BAC analysis, and I would put money (literally and figuratively) on it that he ends up right in the long run. However, I have a question that continues to dog me as I look at this company...
How do we know within reason what is on BAC's balance sheet? For example, in the line "Other Assets" on its balance sheet, BAC dumps over $100MM of assets and does not disclose very succinctly what is in that line...I was able to find in a note that one of the assets in their is their China Construction Bank investment that is currently carried at roughly $19B. There is very little information regarding what else is in that bucket, and if for some reason that entire bucket was wiped out, shareholder equity would be gone.
Just the CCB investment alone is worrisome - they've had that on the block for awhile now, and with China's real estate mess only getting worse, who know what that is truly worth.
All that to say - Parsad, it sounds as if you potentially are in BAC...if so, how do you get comfortable with what is on BAC's balance sheet outside of the Bruce argument that BAC earnings $45 to $50B PTPP and can earn their way out of it? If in fact BAC is forced to write down fluffy assets in the next couple of years, that is not enough time to "earn" their way out of it due to limited profitability over the near term.
I love his analysis as well and would and have put money on it. I have answered the question about the balance sheet before. The answer is simple, but perhaps not satisfactory. In terms of how you get comfortable with it . . . you just do. You have to take a leap of faith. Banks are a black box in that way. You will never be able to analyze their assets in a way that will give you 100% comfort. But at the end of the day, how is this so different from other companies that are non-financials?
Take FFH or BRK, for example. You have a list of assets and you think you know what they are worth. But all you know is what is listed on a piece of paper. They both have countless subsidiaries, etc. What is an insurance company really worth? You think you know and you do, so long as the numbers on the piece of paper are correct. Are you actually going to various insurance companies and doing an audit on their figures? Even if you had that kind of access, would it even be possible to do? Is one capable of doing it? Then, in BRK's case, there are all the operating companies both wholly owned and the investments. What is KO really worth? They tell you they have operations all over the world. Have people been to Nepal to analyze their exposure there? What about China? What about all their bottling companies?
At the end of the day as with any investment, all we know is what is listed on a piece of paper in the 10-K. Either you take the numbers at face value with your own bit of analysis built in, or you don't. I'm not saying that one shouldn't discount or whatever, as appropriate, but if you think BAC is playing games, don't invest. I can assure you that no one knows exactly what any of these banks is truly worth in the sense of putting an exact valuation on it. Buffett doesn't really know what WFC is worth. Berkowitz doesn't really know what BAC is worth. The structured assets alone, even if you had a list of each and every one is impossible to value accurately. But you don't need precision to know that at the current price BAC is undervalued. As they used to say on an old tv show, believe it . . . or not.
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I love BB's BAC analysis, and I would put money (literally and figuratively) on it that he ends up right in the long run. However, I have a question that continues to dog me as I look at this company...
How do we know within reason what is on BAC's balance sheet? For example, in the line "Other Assets" on its balance sheet, BAC dumps over $100MM of assets and does not disclose very succinctly what is in that line...I was able to find in a note that one of the assets in their is their China Construction Bank investment that is currently carried at roughly $19B. There is very little information regarding what else is in that bucket, and if for some reason that entire bucket was wiped out, shareholder equity would be gone.
Just the CCB investment alone is worrisome - they've had that on the block for awhile now, and with China's real estate mess only getting worse, who know what that is truly worth.
All that to say - Parsad, it sounds as if you potentially are in BAC...if so, how do you get comfortable with what is on BAC's balance sheet outside of the Bruce argument that BAC earnings $45 to $50B PTPP and can earn their way out of it? If in fact BAC is forced to write down fluffy assets in the next couple of years, that is not enough time to "earn" their way out of it due to limited profitability over the near term.
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Speaking of a flat market, Cullen Roche of pragcap.com provides a wonderful summary of the current macro situation...
http://pragcap.com/why-the-balance-sheet-recession-will-not-last-as-long-as-japans
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He wasn't saying that. He was saying that we had a 17 year bull market and then we have to have a 17 year bear market. This will be followed by another 17 year bull market. At least that's how I interpret it.
That's my bad, I was focused on the last sentence thinking that he meant the market would be flat for awhile, which makes sense given the environment we're in. Let's hope that he does not truly believe in that perfect symmetry - I'm going to assume he uses that outline as an extremely rough general market roadmap.
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So we have these perfect symmetry events where 1982 to 1999 the market ran a lot. And from 1999 to 2016 let’s say it does nothing or did nothing. So all we have to do is get to 2016 with a pot of cash and then we climb again until 2033.
He sounds so f'n stupid here. I'll never listen to another word this guy says. That being said, he's absolutely right about his opinion of most net-nets.
Isn't that a tad drastic?
Think about it - we're in a Japan-style deflationary environment (think Watsa's UST bet) that could extend for several more years even if we continue to run deficits, but if we let the Paul Ryans of the world scare the country into a balanced budget we'll be dealing with a Japan environment for even longer. The US Congress does not have the financial/economic brainpower to understand that the worst possible fiscal policy in this environment is a balanced budget, thus I don't believe we as a country have the political will power to do what is necessary to thwart underlying deflation.
All that to say, it appears perfectly reasonable to say that after the next five years the environment will be ripe for a secular bull market. Just because Buffett does not come out and say he thinks this, I guarantee you he has a strong opinion on when the next secular bull market will appear.
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All three are average investors.
Are you kidding me?
That's akin to saying Lebron and Kobe are "average" just b/c they're not Jordan (or Buffett in the case above).
What is the Big-Big Picture?
in General Discussion
Posted
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"