anders

Morgan, We have followed YAK for a nr of years and continiously building on our position and we are not worried. We see this as a long term. Mongolia is a high interest country, basically no leverage in the system and all reports coming in points to a bright economic future. The best leverage on good country prospect is as you know, infrastructure, financial institutions, real estate. We have great faith in Harris and believe this company will cover the real estate part to bring prosperity many years to come. The bottom nrs will come when they decide to slow down growth, Rgds

Agree! My problem today is rising cash level, I simply cant find anything that meets my criterias. (Except maybe IBM :) reading the AR,s, I think I finally start to understand why WB is bought it after 50 years of waiting, its a wonderful company with a bright future ahead)

My point of view is very simple and straightforward: in the last 100 years the Shiller PE of the S&P500 has reached 30 only twice, and both times with dreadful consequences… If you don’t play it safe with a S&P500 Shiller PE of 30, imo you will never play it safe… Nothing wrong with that, of course! It is just not a style I am comfortable with. This point might be simple but in my opinion dangerous thinking and a disservice to investors. This means that in practical terms to base a strategic decision on capital allocation, based on what might happen tomorrow in the market, that we are in bubble territory, because CAPE almost reached 30. To illustrate this, lets go back in history to november 1996. During this time we were at about same level of CAPE as today and, the subsequent years CAPE kept on climbing upwards. If you would have chosen to act on same principles in nov-96 - to allocate 70% in three vehicles and 30% cash - then you would have had to wait approximately 5 years to may 2002 until CAPE came down back to the 28-level. After that, CAPE bottomed at around 21,5 in march-03. I can only imagine those that during this period of time, really thought that CAPE would continue downwards but what instead happened was that it started to climb up! and 9 months later, we were back at the 28 level once again. Then from jan 2004-dec 2007, CAPE fluctuated a bit between 28 and 26 until the market started to go down in 2008 financial crisis reaching a low in march 2009. Why im writing this is to illustrate that anyone that made a strategic decision based on CAPE trading high in nov 1996, I think would have been very surprised over the price action over the coming years and would had to wait more than 10 years! before the dreadful consequenses that you talked about actually materialized and then could buy on the argument - CAPE is trading low. I have tried and failed miserably at trying to predict market, lost a lot of money on trying to make hedges based on CAPE etc, which has led me to the point that my only focus today is to find wonderful companies at a fair price regardless of overall price in market. I just sincerely hope you are much better than I am in seeing whats coming, Best Regards,

Yes maybe... But imagine if investors will accept 1 %age lower yeild on equity in SP500... to the SP500 yeild level that occured during IT bubble... then we have another 65% to go on SP500.. not saying I think it will happen just saying that unchartered territory might come with unchartered price action.. Flipping it to a technical viewpoint, all g-forces are still in place and would not do too much until we see a monthly close under 12m moving average, or until the shorter averages crosses the longer ones.. But that doesnt help me much either since I have seen my cash reserves ticking up since beginning of this year.. My two cents

Im confident its marginal cost and doesnt include other overhead costs such as geology, exploration, non cash charges etc. This since its easier for management to focus resources where they can bring in extra marginal revenue - controlling their incremental cost. As a side not, what is the overall breakeven point in oil price..? I red an article from nigeria a couple of months ago where he said that they cannot any longer produce oil under $70 at the expense of its people for westerners to continue driving mercedes. Saudi recently fixed their contracts forward not a long time ago, venezuela put the cost at 80.. moreover, we have moved from onshore to offshore to ultra deep water so my guess is that with todays market price in brent oil, we are at around the level where it starts to hurt.. Cheers!

I think this is one of the hard parts in investing.. when to sell..? I dont think there some universal answer on holding period.. the question that correlates to holding period was also asked by warren buffett to graham when he was younger.. (what is the mechanism in the market that corrects the value) I think I have an interview with Graham somewhere saying he held his position for 4 years and then sold it if the company price didnt jumped back to book.. could be why schloss adopted 4year rule.. I have shares like BAC that appreciated to book and then surpassed in a year. I ve had a great company for 4 years but the price just keeps on getting hammered.. Ive had companies with price decline and sold it after 3 years, then see it doubling year after.. Ive had companies that gone down in price over 50%, then next month getting bought out 200% above... Its so difficult to know when to sell.. I guess my point is to stop focusing on when to sell and instead put all your focus in doing correct purchases... which basically leads to when buffett says: "Have the purchase price be so attractive that even a mediocre sale gives good results" ;) Rgds

If the discussion is about data speed and storage i think we are just seeing the beginning ;D I think below are nr of things that will continue to grow many decades to come thanks to generation Z, that will require much higher bandwidth: -Cloud computing: Probably more than half of all IT will be in the cloud within 10 years and asia-pacific will most likely in a couple of years outpace north america in global cloud computing usage. -Artificiell intelligence: Googles recent purchase -Mobility: Photos, music, email -Nanotech, 3D printing, Smart-phones/cars/boats/planes, Smart-homes/buildings/citites, wearable tech -VoIP: Microsoft recent purchase of Skype.. integrate that with outlook and we have conferences, voice emails. -Gaming: Virtual reality hardware (oculus and playstation morpheus ready to hit the shelves soon), potential to recreate matrix -Space Tech: googles purchase of titan aerospace And yes, I believe people are going to be satisfied with what they have until they see the new thing the neighbour just bought... ;) Rgds

Hi guys, Im trying to get me head around this topic and would very much appreciate your help, as I understand it - in short - FED has lost its power to control the rates. As they no longer have any means to enforce the policy, they can only attempt to guide where they would like the interest rates to be in future. So even if they can move the funds target rate higher, their tools to enforce the decision is very limited. So if I understand this correctly, if they want to return to a Fed funds target, they need to drain the trillions of excess liquidity that they have provided to the banking system. To reduce the excess liquidity they could: a) sell Treasuries / MBS (prob not going to happen since it would drive up short term rates above 3% so the fed becomes CF negative) b) stop reinvesting maturing bonds (but the big maturities start at 2018 due to operation twist) c) Make a deal with Treasury to swap long term holdings to short term (would probably shock the market and sink the credibility of USA) d) Reverse repo (They can attempt to guide rates higher by increasing the repo rate. But yesterday when the FED made the repo, not only did it go above the 300 bn cap, the lowest rate of the auction was -0,2%, hence the repo was not effective and future repos will probably look the same). And from here Im lost :-\ What are the FED going to do and how can they do it? If they cant reduce the excess liquidity relatively quickly, they will probably lose ability to respond to potential inflation.

Exceprted from Seth Klarman's Baupost letter to investors, We don’t know now (nor do we ever know) what the overall market will do. As we’ve discussed in recent letters, there are reasons for investors to be frightened but also numerous individual opportunities worth seizing. Today’s limited opportunity set means that we are still holding sizable cash balances, about 35% of the portfolio at June 30. This dry powder will become more valuable if the markets become more turbulent. Equity markets continue to hit successive record highs, volatility remains strikingly low in equity and most other markets, and inflation is ticking higher. Investors have clearly grown weary of worrying about risky scenarios that never seem to materialize or, when they do, don’t seem to matter to anyone else. U.S. GDP, for example, was recently restated to minus 2.9% for the first quarter of 2014. Normally, this magnitude drop signals recession. Equities, nevertheless, marched relentlessly higher. ... In today’s ebullient markets, we see many investors ratcheting up their own risk levels--buying substandard credits and piling up leverage are two favorite methods--in an attempt to generate near-term performance. ... The financial markets could be getting closer to an inflection point, where the economic weakness that the bond market seems to be reflecting derails the more optimistic equity market. Or perhaps things can go on forever exactly as they are: a “Goldilocks” stock market resulting from a tepid economy, dampened volatility, and relentlessly low interest rates. Amidst the market rally, complacent investors continue to ignore a growing array of global trouble spots. Contrary to claims from the Obama Administration, the world is not a tranquil place at present. As such, risks facing investors seem to be rising but are not yet priced into the markets. ... Late in a market cycle--when bargains are increasingly hard to find, valuations are lofty, and most investors have been scoring handsome gains for a number of years--we can say from experience that history tends to rhyme. Money becomes more freely available to pursue even the most marginal of opportunities. Dollars pour into venture capital, and the largest buy-side firms take strategic stakes in hot, late-stage private investments just prior to an expected big money IPO. Specialized funds are raised, regularly and easily, to invest in things like Greek private investments, Spanish real estate, or European non-performing loan pools. Willing investors abound for these. It doesn’t matter that market prices have mostly rebounded, prospective returns are thereby limited, and the capital in those funds is likely to be put to work whether or not prices warrant and even if conditions on the ground deteriorate. With investment bankers and hedge fund executives canvassing Europe today to bet on recovery, you have the increasingly common circumstance of proliferating “opportunity funds,” absent only the investment opportunity. Some clients of hedge funds today are, in a sense, disintermediating themselves, funding new entities to bid higher for the same sort of assets their other, more disciplined managers are already bidding more judiciously for. The discipline problem in this case is not that of the legacy managers; it may just be that of the clients. The pressure to reach for return virtually ensures that many investors will take greater and greater risk for less and less potential reward at market peaks. If you can’t find bonds that yield 8%, better grab those offering 6%. Or 4%. If you need 8% to meet your bogey (assumed pension fund returns, for example, or promised returns to investors), then you will be prone to own increasingly risky assets or leverage up the safer ones. These pressures, as much as any indicator, are today signaling danger. Investors today are bidding ever higher amidst frenzied competition to buy pools of non-performing loans, and then leveraging them up to get double-digit returns. Mortgage securities backed by questionable loans issued to dicey borrowers now trade close to par and yield a downright stingy 3-5% where they once yielded a generous 15-20%. A recent brokerage report excitedly touted the new HoldCo PIK Toggle notes of a Croatian consumer goods retailer. Nearly every word of that description is a flashing red light to seasoned investors. To put it a bit differently, writer and investor John Mauldin is right when he says that there is “a bubble in complacency.” Fear has effectively been banished. The members of the Fed know it. Stock traders who chase the market to new highs almost daily know it. Implied volatilities (and realized volatilities) are historically low (the VIX Index recently hit a seven-year low), and falling. The Bank for International Settlements recently cautioned that financial markets are euphoric and in the grip of an aggressive search for yield. The S&P has gone over 1,000 days without a 10% decline, according to Birinyi Associates. Dutch and French 10-year government bond yields are at 500 and 250 year lows, respectively; Spain, 225 years. Spanish debt yields were recently inside of U.S. levels. Increasingly, hopes and dreams are being capitalized as if the future is certain and nothing can go wrong, as if up cycles such as the present one don’t inevitably sow the seeds of the next decline. The European Central Bank recently cut its deposit rate to an unprecedented minus 0.1%, and Mario Draghi assured that he isn’t finished. Can this be done without consequence? Investors have become numb to risk because such policies continue, seemingly forever, and new measures (such as European and now even Chinese QE) are regularly threatened and claimed to be costless and reliably effective. We are far from convinced of this; indeed, the higher the level of valuations and the greater the level of complacency, the more there is to be concerned about. Even as reported inflation remains quite subdued, signs of incipient cost increases are increasingly evident. We are seeing them, for example, in apartment rents, construction costs, and salaries of newly minted engineering graduates and oilfield workers. Like global equity markets, credit markets have been surprisingly resilient, and our worry meter is high here, too. Ecuador recently issued $2 billion of ten-year bonds, as the market shrugged off its 2008 default. Kenya also completed a $2 billion offering, the largest ever debt sale by an African country, according to The Wall Street Journal. That offering attracted $8 billion worth of bids. In the U.S., issuance of low-grade credit is at record levels, as is covenant-lite issuance. Yields are at or near historic lows, which is especially nutty for junk credits, including the hideously risky CCC-rated issues. June CLO issuance set a record. Given changes in regulation, Wall Street has far less capital available to support the trading of this burgeoning junk issuance and the corresponding surge in debt ETFs. A sudden change in rates or sentiment could lead to serious market instability. When is harder to predict than if. While we are not predicting imminent collapse (market timing is not our thing), we are saying that a selloff, greater volatility, and investor losses would hardly be surprising from today’s levels. In markets, it’s always hard to tell, in the words of the old commercial starring Ella Fitzgerald, Is it real or is it Memorex? Is the market nearly triple its spring 2009 level because things are better, or do things feel better because the market has nearly tripled? Indeed, we can do a simple thought experiment that might be revealing: How would everything feel if the S&P 500 were suddenly cut by one-third or one-half? Would such a drop drive astonishing bargains, or would the U.S. economy soon falter, with festering problems such as unemployment, the federal, state and local deficits, the long-term fiscal situation, and the creditworthiness of most sovereigns suddenly seeming ominous? It’s not hard to reach the conclusion that so many investors feel good not because things are good but because investors have been seduced into feeling good—otherwise known as “the wealth effect.” We really are far along in re-creating the markets of 2007, which felt great but were deeply unstable when shocks started to pile up. Even Janet Yellen sees “pockets of increasing risk-taking” in the markets, yet she has made clear that she won’t raise rates to fight incipient bubbles. For all of our sakes, we really wish she would.

Dont know... I have stopped trying to predict market direction... I cant find anything to buy and, my cash reserves goes up every month and even more as some of the comps are being bought out of the market.. that itself is a sign to me that equity seems expensive since nobody want to sell their brainchild at discount.. But trying to pinpoint investments geographically, top down, segments, I think is too difficult.. I was once great at it when I was younger, until reality came knocking on the door.. The markets and central banks are reflexive, the misconception is that market will continue upwards with stimulus.. but if I had to guess market direction, I still feel we need that final squeeze upwards to maybe 2050 until the shorts are gone and the algos cant do much more than trendfollow, then when the tide breaks, everything will start trend downwards and we will see the naked swimmers.. Dont know if any of this was helpful.. just writing as thoughts pop up.. ::) Cheers!

# augustabound Im sorry buddy, didnt mean to be offensive and it was clumpsy of me to write that all are the same.. I have used many contractors, and they have all pushed their fair amount of pay so I have yet to find a guy like you which I believe is quite rare.. I work in finance and I see all the non performers out there taking in big fees with no added value in return.. and people say fund managers are crooks.. so I know the feeling.. Cheers!

Sorry, another thing that came to mind that I never forget... The only way to change a mind that thinks they are entitled to more than they deserve is most probably a force through higher power.. I never forget when I watched the senate hearing of the CEOs of Freddie, Fannie, AIG, GM and from other financial institutions.. They all flew in to washington in company private jets asking for money and when senate saw this they got furious... and the CEOs had to drive home in a rented car.. lol.. Also, the top management at AIG got a good rollicking by a senotor when he red the bill from a Spa resort that they went after they got bailed out...

It could be one of the reasons why buffett like the thought of repurchasing company shares... kind of benefits both parties.. owners get value and management get value on their option programs...

I agree with packer here "I think the real question is what is the CEOs role? The correct role is steward not owner." I once asked a CEO why he did not return the capital to shareholders when they cant find anything useful to do with their excess capital.. He responded: "why give money to strangers instead to the people here that are putting in their sweat and blood.." Not much different from any owner perspective I guess... The guy building your house will always try to get out as much pay as possible, and you as the house owner will try to keep the costs down.. Rgds

I agree that JBW DCF is partly correct to put value of business - CF now until kingdom comes discounted back.. (he put in dividends if memory serves me well).. But the ingrediants that are put in the model is so flawed IMO that it will propbly cause you more damage than good.. some time ago, I simplified the process and created a "mental map" learning all discount rates and growth rates with a fixed terminal value with CF pinned at 1US dollar, that way I got a multiple on every CF out there... so for example if I had a company that generated x with y growth I could use my mental map that was fixed to 1 dollar and come up with a multiple and then multipy it with the companys CF.. I checked my map with analysis out there covering these comps and everytime came very close to their estimation on value... guess how many times it hit that valuation within time frame predicted.?!? Not once.. Second, the discount rate in the model is irrational.. WACC is irrational.. CAPM is irrational... I once looked at an DCF from an analyst with a discout rate lower than the interest on their bond.. I asked why, he pointed at his computer.. In my view, no equity holder would agree to be compensated less with a bigger risk attached than the companys bond holders higher up in the capital structure... hence the value of the company should be much lower.. Also, many confuse discount with risk.. raising the discount rate as some sort of protection against miscalculations in the DCF... serving as MoS..will not help you produce above average results IMO... DCF is linear model... Has anyone ever seen a published model that goes from x down to zero over the years..? me neither.. most of the times, its just straight line upwards.. But ask yourself this question, if you go into a shop applying that model buying 1 can on coca cola.. it will cost you x, but if you next day want to buy 1 million cans of coca cola, you would prob get a discount and the model wont work anymore, i guess I try to say that a business is not linear and cant be quantified.. so its very subjective and best way is to get as much knowledge about it as possible to quantify the value.. I could go on and on but will stop here.. sorry for a long reply... Cheers!

My advise is a) you should start reading history of hedging to build your own info bank that suits you and your investing style.. From my experience, many know how to use hedges in theory but cant handle them in practice... b) hedging should be a strat not a thing one you do from time to time, then it becomes speculation... nobody knows market direction, so example shorting index cause you feel or think its overpriced is really difficult.. cisco went up 100x during IT bubble before reversal, think about those who were "hedging" the stock after it went 5x...c) i like to view hedging from a catastrophy macro level, example risk 1% of yearly performance for protection...example assets with great convexity.. d) Make sure you know the products you are investing in.. buying ie ETFs is most propably not a good way to hedge your portfolio... I believe that the best way to hedge is to do your homework properly and buy your investment at a price so good that even a bad sale make a good result.. Thats your real h(edge).. ;)

Cant give a good answer except that well run family companies that know the russian market better than most of us recently put up their russian assets for sale.. That is enough reason for me not to invest in russia no matter the price tag.. Rgds,

I would like to revert the choices in real munger fashion ;D Either you lose 500 USD guaranteed or you chose to flip a coin and get away with 0 or lose 1000 USD. How would you react now with a potential loss instead of gain ? ::) Same thing here, math suggests you should take the 500 USD loss but since we are dealing with human nature, most people would go for the 50% chance with the coin, this since many generally feel a loss twice as much than a profit.. meaning taking a higher risk to aviod a potential loss.. Lets then put this into practice in todays economic reality, in which I think is the important part.. Many are today faced with the ugly reality of either having their money in a bank account that pays nothing and go minus with inflation, or risk it on an asset class in the market - potentially losing twice as much. Since many go for the second choice the risk tolerence decline and risk aversion goes up making the market an even more dangerous place to be in.. So my answer to your question would be that instead of thinking of what your potential gain would be, first look at your downside risk before upside potentil.. Focus on minimizing risk.. Rgds,

Great question.. Selling I consider to be one of the hardest part in investing.. Many value guys invest on the way down and then scale out on the way up, only to see the investment advance further up when they are out.. I still have some problems with selling but are getting better.. I usually say that everyone that bought my shares when I sold it would be very rich today.. lol.. My solution is to take away the fixation of price and focus on the business itself.. I remember buffet saying in an interview that he only look at the price at the very end because otherwise he will be influenced by that.. So, same logic should go for selling.. Every number you think about as a solution to a problem will affect you.. So in my opinion it is better to look at business internally first and at that point decide it you want to continue with the business or not.. if I reach a no answer, or realize that I made a mistake, I sell it to the market no matter the price.. I believe that you will always outperform if you can find winners at a reasonable price tag and then stay with them "forever".. Good example is BRK, I bought it years ago and have not looked at the price for years because I believe in the business, and the price has gone up and down over the years, but is still the gift that just keep on giving.. It is no random chance that Buffett waited 50 years to buy coca cola and still holds it in the portfolio.. There is truly powerful wisdom behind the simple words from the oracle "It is better to buy a wonderful business at a fair price, than to buy a fair business at a wonderful price"

They are making their money on their add-ons, so if you want real time, comp analysis, etc etc, then IB is expensive..

I use IB as one of my platforms and it works fine and information flow is also good. I have had no problem with customer service. IB gave me the opportunity to buy instruments that I couldnt buy at home ie TARP warrants.. I pay a dollar for stocks. If you want to build a basket of international stocks I think IB is a good option. Fees in IB FX are, as far as I know, quite cheap relatively to other platforms. It very much comes down how much margin they take from spot price. Some have structure to take direct fees, others to bake in the fees in spot price.. so essentially it comes down to how much you buy and sell. For me, IB is not for chasing the cheapest fee structure, its for expanding my universe of opportunities that comes with at a resonable cost, Best,

Thank you for all your responses. I feel that I need to work on my pragmatism since the discussion went into an unwanted direction. deepValue took it back somewhat but, key here is what kind of ROE vehicle you should put your focus on in today’s economic environment that probably very few has gone through during their lifetime - a world deleveraging process coupled with a money printing inflationary environment. Everything is a function of opportunity cost. So, if anyone could point me to a direction where I could find facts and reasoning showing that: During periods of high inflation, and/or deleveraging process; High ROE companies priced at a premium, will better safeguard the purchasing power of the holding period (the risk), over modestly priced lower ROE companies with a larger asset base? It would be much appreciated, Best Regards

Giofranchi, If it was offensive, it was not what i wanted. I appreciate your input and apologize to the author if s/he feels that I went over the line. The author asked for advise on how to find junk bond opportunities at present time.. I just tried to illustrate that junk bonds are very expensive. For me, the initial post is like someone that never bought a share asks for advise how to find opportunities in a tech company during the IT-bubble.. Hence, that would give a signal that last wave of buyers are approaching... and I tried to give that picture.. Junk bonds are part of the capital structure and in my experience the best way to find good opportunities is to do a dd on the comps that are issuing them and to read the prospect on terms - page by page. Just remember this, High yield is a sales term, it was previously called junk for a reason. BR,

I dont want to be offensive, but when a boss asks an employee to search for high yield debt and the employee goes to a forum to get info, then I know we are probably at the top of the cycle.. When High Yield yields less then the 10yr treasury five years ago, we need to score out the word "high".. investors have never been paid less to own high yield debt which makes the instrument very expensive... Advice from the oracle: “We’re not buying corporate bonds of any kind now,” Buffett, 82, said May 4 during an interview with Bloomberg Television’s Betty Liu in Omaha, Nebraska, where Berkshire held its annual meeting. “Not at those yields.” Best Regards,

I think the hardest part in biotech is to figure out how they are going to sell their finalized product?!? There is always a lot of focus on R&D, phase-studies, FDA approval etc but the key always comes down to - in my experience - how they are going to get the doctors to promote their product.. In general I believe that biotech has a bright future and the large medical comps are certainly looking into the industry... Some large houses have said that they are in process of moving from in-house r&d to outhouse so it will probably be many candidates for aquisition.. For me biotech is just too difficult because I dont have the time to put in the dd, nor the needed knowledge to invest, but I think it could work well as a basket, ie much like building a venture portfolio. I know those who have become billionaires on biotech, and then later lost it all on other biotech projects.. so I think its a bit like using levereage - addictive! Another interesting parallell to this is a friend of mine that is only looking at small oil comps with solid ownership and well known operators.. Most of the time he is wrong but the ones that is in sweet spot gives back so much more.. though he has the ability to surfe on the wave! If you ever decide to do the same within the biotech space, please dont hesitate to tell me how it went, Best Regards,