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merkhet

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    Why I Am Not A Value Investor

    in General Discussion

    Posted

     

     

    The problem with value investing is that it is now a popular and widely followed investment philosophy.

     

     

    Can someone please say this at the AGM? Buffett would laugh out loud if he heard this.

     

     

    +1

     

     

    Intuition is the secret sauce, the xfactor, what separates the truly great.  Intuition is illogical in nature. I know a lot of real estate investors that have amazing intuition. Hard work and analysis is logical . Mix it with a splash of intuition you win.

     

     

    I think that what strikes many people as intuition is merely the clustering of previous thought and experience so that to both the internal and external audience, it arises as if it was a eureka moment.  Hard work and analysis is present even if it does not seem like it.

    Fairholme Opens up Hedge Fund

    in General Discussion

    Posted

     

    Thanks for sharing.  What's the thought process here? That he can employ some leverage and perhaps more importantly, hedge to reduce some of his horrible down years? His ~12% per annum, since inception is good, but its about where Gayner is....and guys like Loeb and Pabrai have crushed this, no?  I guess his fees are a little lower.

     

     

    I think he wants to hold five positions versus twenty.

    Paying cash for a house

    in General Discussion

    Posted

     

    Yeah, I think this is going to be one of those levels of comfort with risk answers, but I would probably take as much sub 4.5%, 30 year fixed, tax deductible debt as I could get...

     

     

    I agree.  If you guys are in the U.S. and you can get below 4.5% over 30 years, with the deduction, then friggin' do it!  As long as you can afford to maintain that house and pay that mortgage from your investments, let alone any other earned income, it's a no-brainer.  Cheers!

     

     

    Of course, this is assuming that you have to buy a house. I would think the opportunity cost of the down payment (20% of the house price) would likely be high for most of the posters on this board.

    Hedge Fund Manager Wants to Be on TV

    in General Discussion

    Posted

     

    After the closing bell rings and the trading day comes to an end, we head to dinner at a nearby steakhouse, where he tells me that while he still likes the research part of investing -- the long nights hunched over 8-Ks and 10-Qs, the digging through earnings-call transcripts, the private investigators in far-flung countries -- he’s realizing that the more profitable route, in the long run, might be to turn himself into a brand, go on CNBC, get some gravitas, and start picking fights.

     

     

    I believe people are responding to the emphasized lines from the article.

    Questions for Marty Whitman?

    in General Discussion

    Posted

    Apologies for not being able to get to everyone's question.

     

    Mr. Whitman started the class talking a little bit about K-Mart's Disclosure Statement (attached). Indicated that the following sections are where you can find the most important parts:

     

    (1) History of the Debtors

    (2) The Chapter 11 Cases

    (3) Summary of the Reorganization Plan

    (4) Resale of Securities Received Under the Plan

    (5) Certain Federal Income Tax Consequences of the Plan

    (6) Liquidations Analysis (Appendix) -- mostly for laughing purposes

    (7) Pro Forma Financial Projections (Appendix) -- mostly for laughing purposes

     

    He then said that when investing in distressed securities, the important thing is to figure out the fulcrum security (which is the most senior security that will not be made whole):

     

    (1) Look at the financials and come up with a cash flow number for the company.

    (2) Then figure out a reasonable amount of debt for the company

    (3) Next look at the existing capitalization and go down the list until you find the fulcrum (the next dollar after the reasonable amount you calculated in (2))

    (4) Buy a crap ton of that security so you can control the bankruptcy proceedings.

     

    I'm sure there are other nuances, but that's the gist of it.

     

    A lot of people were asking questions at dinner, so I was really only able to get in the additional question of the Chinese investments. (I also tried to ask about monolines, but I don't know if MBIA is still a sore subject or if he didn't hear me.)

     

    He invests in China through HK securities. He prefers these because there are very strict regulations as it pertains to those companies. The history of Hong Kong having been a British colony means that there are a variety of protections afforded to foreign investors. The flip side seems to be that it's very difficult to effect takeovers of companies, since you need to have a 90% vote in order to do that -- thus he likes to buy a little over 10% of a company so that he is a gatekeeper.

     

    On HK real estate, he thinks that both the Chinese and HK real estate markets are likely overvalued. However, that doesn't bother him given that his cost basis was very low. He is much more worried about permanent impairment than these "little blips" in valuation. In other words, he's worried more about China trying to make Shanghai a world class financial sector in 20 years and thus extracting value away from Hong Kong real estate.

     

    Note: Mr. Whitman is 89 years old, so I was surprised that he still thinks 20 years out. :)

     

    Apparently, he used to teach a class on value investing here, but that was a while ago. It's too bad that I missed out on that -- would have been amazing.

    Kmart_Disclosure_Statement.pdf

    Questions for Marty Whitman?

    in General Discussion

    Posted

    I'm hoping that I'll get to ask more questions on Wednesday -- today we talked generally, and I was only able to ask two questions edge-wise.

     

    Mr. Whitman mentioned J.C. Penney was in dire straights and that it was likely to be in receivership at some point soon. Pressed for an answer as to the timeline, Mr. Whitman mentioned that it'll probably happen within the next year, but that he didn't want to be held to that.

     

    Since JCP was on the menu, I decided to ask a question about Sears, since he owned K-Mart back in the day. He indicated that it was a mistake for him to own K-Mart back in the day even though he made an immense amount of money on the company. He believed that K-Mart could reorganize and be profitable based on the retailing -- which ended up being wrong. He also mentioned that Mr. Lampert has been a little quicker to realize that the retailing isn't working than J.C. Penney -- maybe an indication that he has been following the developments around the real estate.

     

    I was also able to ask a quick question on the Fannie & Freddie preferred shares, but it turns out that the credit team didn't consult him on that one -- it's purely a credit fund idea rather than his.

     

    We have another class with him that should be more of a Q&A on Wednesday -- then we're off to dinner. I'll try to ask as many of these questions as possible.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    That's interesting, valuecfa.

     

    My guess is that a response from the government will provide both (a) more information and (b) a better entry price. Therefore, I'm waiting to see what they have to say.

     

    While I believe that the preferred shareholders will win in the end, it's likely that the government will put up, at the very least, a superficially appealing argument for their action. That could cause the Johnny-come-lately buyers to depart for calmer seas.

    Taxes and options

    in General Discussion

    Posted

    A related question.

     

    Let's say I bought SHLD in August. Assume SHLD goes to $100 by November, and I buy 2015 $100 puts on my entire position. What is the earliest date that I can exit my Sears position to avoid paying short-term capital gains?

     

    The alternative formulation is as follows:

     

    Let's say I bought SHLD in August. Assume SHLD goes to $100 by November. What can I do in order to maintain (most) of my gain and avoid paying short-term capital gains tax?

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

     

    I can't wait to read the response.

     

    I don't know how closely correlated the response will be to the share price, but the share price "should" react to a light defense of their actions.

     

    I suspect the response will be heavy on historical facts and a walk through of the crisis, but light on legal bounds for actions that occurred well after the crisis.

     

     

    That's my guess as well. I figured I would wait to see the response before I pick up a position -- might shake loose some weaker hands.

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