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rjstc

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    The domino is starting to fall.

    in General Discussion

    Posted

    I think it was around 2000? When oil got down to around $14-16 a barrel that many people were saying the same thing. Oil prices would never get back up too high. I'd make a bet that when this slump is over the price will be higher than where it got up to after that. +$100.00 barrel. Buying somewhere around this point of pessimism will work out fine. Like buying banks etc just a few years back.

    Time to buy Fairfax again?

    in Fairfax Financial

    Posted

    I'm sure you two will rip me for this but could you please quit your "Chest Bumping" and go back to some good ideas so the rest of us can copy & make some money? Or is this an indication that there are not any good buys out there & this is all you you have time to do in the meantime?

    Lethargy bordering on sloth - the psychology of holding for the long term

    in General Discussion

    Posted

    I think you're worrying about some of the wrong things. Don't concern yourself with what the statistical analysis says, or "buy and hold," or "trading strategies,"or "growth," or "value," or any of that nonsense that is used by the industry to sell its services and sound important in newsletters.

     

    Would you be thinking about all that if you were investing in businesses that weren't traded all day long? I really doubt it. You're letting the liquidity of the market determine your thought process. But you don't have to. Here's what you'd be thinking about instead:

     

    A. Am investing in a business I understand? You, personally. Not someone else. By understand, I mean do you have a general sense of the kind of money it's going to be earning five and ten years from now, and as importantly, why? Among the thousands of publicly traded companies, this is usually impossible.

     

    But tell me -- is it hard for you to grasp that the Union Pacific railroad will probably be moving more stuff, perhaps at a slightly higher price per ton mile, five years from now? Is it hard to understand that Coke will likely be moving more drinks through its system five years from now, at a same or greater price per serving? Can you explain the forces behind this? Sure you can.

     

    Now I know everyone wants investments are have a little more va-voom than those. That's fine. But the mental model is the same whether you buy Coke or a Korean steel manufacturer -- the stock will eventually reflect the long term real earning power of the business.  If you don't have any sense of it, ask yourself, do I really know what i'm doing? Would I do this if I was buying into a private partnership that traded once every three months?

     

    B. What price am I paying, relative to these economics I feel I can understand? (See A.) Again, this is super simple. Now that I've established that this is a thing I understand, what am I paying? If I'm paying $10 billion, what sort of real earnings am I getting and when? Maybe if I'm going to get $700 million this year, and I feel that is going to grow at a nice rate due to the underlying nature of the business, that's pretty good -- I might earn a good return.

     

    Let's do UNP. I'd have to lay out $92 billion today to buy it. They will probably have sales of about $23.5 billion this year at at 35% pre-tax profit margin, and I'll get something like $5 billion after tax. Let's say they reinvest $1.5 billion of that and pay me back $3.5 billion. That's about a 4% yield today, and if they can earn 20% on the reinvested capital, next year my $5 billion is $5.3 billion. So next year they pay me $3.7 billion. And so on. Maybe that's too low, maybe that's enough...that's up to you, but that's what you're thinking about.

     

    Now I know this sounds like remedial security analysis but I will say this...I see very few people doing it any more. They're mostly doing something else. I see EBITDA, sum of the parts asset analysis, and all these things, and it makes my eyes glaze over. Maybe that sounds harsh, but it's reality. What is the business going to earn for you?? If you can tell me that, I'll tell you if it's any good as an investment. If you can't tell me that, why do you think you know what it's worth?

     

    Now, let's say my capital is wisely used in Union Pacific Corp, given my alternative current and future uses of that capital, so I buy it. What do I do then? Well -- what would you do if 99% of its liquidity went away? Let's say you could only trade it once in a while, and then on low volume.

     

    What you'd do is monitor the progress of your investment, the same way you'd do it if Union Pacific was private. What were their carloadings? What did they earn on them? How do expenses look? What are they spending new money on? What are their competitors doing? You'd read the statements, read the press, talk to other smart people about railroads, etc. Maybe the price would go down 30% next year and you decide to buy an even bigger piece of the Union Pacific for yourself because the business is still perfectly good.

     

    And then as that process goes along, maybe some day the market comes along and appraises the company in a different way. Maybe five years from now, the valuation is $220 billion, they have 15% less shares outstanding, and Union Pacific is only going to pay you $4 billion that year. And as you look around, you see that some other company you really understand is going to pay you 10% on your money, and grow that nicely over time. So you sell the stock and reinvest in the better opportunity.

     

    And so on, ad nauseum. How do we categorize what I've described above? Growth investing? Value investing? Buy and hold? Buy and sell? Really though, who cares? I'm describing basic, bread-and-butter investing. There will never be some day when this "stops working" as long as we have a functioning capitalist system.

     

    To those who say you can't earn high returns doing this, I beg to differ. What if you bought Union Pacific 10 years ago and just sat there? Well I'll tell ya -- about 23% per annum. Just letting the financial statements roll through the door. And this is not some obscure, hard to grasp situation. How many of us have done better trading all kinds of companies with iffy futures? How "risky" would it have been to hold a block of Union Pacific stock? And I could name lots of others as straight-forward as the railroad. (How about Mastercard, which we all use? How about Disney when they promoted Bob Iger, a disciple of Dan Burke & Tom Murphy, and an obvious talent? How about Autozone? Everyone reading this can put together a competent analysis of those companies with a little thinking.)

     

    I'm not saying these are today's opportunities, either. They may or may not be. The world changes and prices fluctate, so the opportunity set today isn't what it was in 2004, nor will it be in 2024. But my point is, the basic stuff works. The catechism works. I don't think it needs to be turned into rocket science.

     

    I hope all of this long-windedness helps you, and maybe some others, re-focus on simple, and sound, investing. Focus on what's important and the day-to-day will get a lot easier. And when you find a situation where the action (buy) is clear, don't be timid. And if it isn't, just don't do anything. This isn't the only way to invest, but it works.

     

    Coc. Very good. Rational.

    I Could Use a Mentor

    in General Discussion

    Posted

    Your mentor can be this board.

    Ask away. But please ask questions intelligently.

     

    Lately we have gotten quite a bit of this -

     

    Stock Idea Thread Title

    This stock looks cheap, and they sell stuff. I think it might be a good buy. What do you guys think?

     

    Why would someone put 5 minutes writing a response to that when its obvious someone didnt put 5 minutes into the orginal idea.

    I probably wouldnt go too far back in terms of reading all of these threads.

     

    Here is how I find ideas.

     

    I watch most episodes of BNN Market Call - http://www.bnn.ca/Shows/Market-Call.aspx

    I find the Canadian market dirt cheap. I am from the US, and live in Australia. In Canada you can buy oil and gas, manufacturing, oil field services companies, and REITs, for less than 10x cash flow. I have bought for between 3-5x cash flow in all of those areas.

     

    I find good value investors and follow them. I dont follow the big guys on Gurufocus, or dataroma. I follow small cap value investors. I have followed the CEO of Clarke into 2 ideas. I have picked up investments in 2 ideas from here - http://www.valueinvestigator.com/en/valuefavourites/    I think Eric Nuttal is one of the best oil and gas investors I have come across and I always listen for his thoughts....

     

    I review every single idea that comes up on VIC. http://www.valueinvestorsclub.com/Value2/Idea/Index.aspx

    I dont have a membership. After 2 months all ideas open up. Often times something is on VIC and there is a discussion of the idea on here, I will tend to join that discussion.

     

    I have this forum on RSS, and read most threads in real time.

     

     

    Those are my recommendations. If you stick with it you will be fine. The math is the easy part, and if you can multiply you will be fine. The philosophy and mindset are the more interesting bits. There is a strategy / way of looking at investing which works for you. Your job is to find it, without latching on to too many other things....

     

    Let me know if you have any additional questions.

     

    Myth. Curious which Clark? Harland Clark?

    Compounder Growth Propspects

    in General Discussion

    Posted

    the chuck akre interview posted here a few days back had his thoughts on valuing MKL. he said he thinks it earns 70$. that makes it less than 10 times true economic earnings.

     

    i have no idea what number it is, but it's something he uses :D. didn't look into it any more than that.

     

    That was a good interview about his thoughts on com pounders & especially MKL

    Your 2008/2009 Experience

    in General Discussion

    Posted

    They are very well or extremely well positioned for an insurance company.

     

    It's just that an insurance company is not the best vehicle in a market panic (due to the restrictions on the portfolio allocation).

     

    I already hold both cash and some short positions… And I don't want to stay too much out of the game. Therefore, can you point me at a business, any business, not necessarily an insurance company, that is better positioned than FFH to take advantage of an hypothetical market panic? I would then gladly shift some capital from FFH to …

     

    Gio

     

    Cash.  It didn't drop from $285 at the beginning of 2008 all the way down to $219 in March 2009.

     

    That drop was "only" half as severe as the overall market.  Given the gains on the hedges, one might have thought the stock would go up, right?  Wrong.

     

    Good point Gio. I think that part of the problem is mental. With a cash position people think they are missing something. But as he says it was a better hedge.

    "Macro" Musings

    in General Discussion

    Posted

    I have a math degree and you have an engineering degree.  Somebody who knew only those two things about us might guess that you probably prefer doing things by a process so as to be ISO9000 compliant, whereas I make decisions based on whether 19 is less than 33.

     

    So you don't take any short term taxable gains? Then I can see your point.

    "Macro" Musings

    in General Discussion

    Posted

    Mr. Buffett buys back under 1.2 x BVPS, and yet doesn’t sell one share of his, even when the stock trades above that price. Does he?

     

    In truth, this is not fair: not much of what Mr. Buffett does is very relevant to any of us… Ok, I admit that!

     

    Yet, an entrepreneur is content to be “vaguely right”… When he finds a good business, he sticks with it, unless its future prospects go irremediably south, or he is offered an obscene price. And the reasons are very clear to me:

    1) the knowledge and the experience of everyone are definitely limited,

    2) valuation is not an exact science.

    And in the long-run I think it is far better to hold a slightly overvalued share, which you know in the end will take you where you want to go!, than to constantly run the risk of making very costly mistakes. But the fact that I might be willing to hold a slightly overvalued share doesn’t mean I would be buying more at those prices, or that I would like management to do that in my stead.

     

    Gio

     

    And assuming that ERICOPOLY bought at a good price originally, and taking into account the fact that he says he is paying about 50% combined state and federal taxes in taxable accounts. It would seem like in making capital allocation decisions he would have to take that into account.

    1) By selling at full value he reduces his profit by that rate?

    2) He says that by holding the stock you are implicitly saying you are buying that stock today. So would that mean you would be immediately taking a loss when you factor in taxes?

    5 year stock returns

    in General Discussion

    Posted

    What company is BOL.P?

     

    Bollore SA?

     

    yes

    Mentioning LRE without dividends? Far from accurate!

     

    I think I mentioned I was just showing the stocks based on nothing but how they looked 5 years later on a chart.  I didn't say it included or didn't include anything else. I would guess most people would assume that dividends were separate.

    5 year stock returns

    in General Discussion

    Posted

    I was thinking about all the discussions about Fairfax VS some of the other stocks that I hold. Just simply looking at the charts of each for the past 5 years on my Schwab account I came up with these. Don't know if they are perfectly accurate but these are what they said. I don't hold Fairfax or BRK.B right now but do own all the others.

     

    Fairfax +39.36

     

    LRE.L  +107.79 

     

    BRK.B  +64.35

     

    LUK    + 53.13

     

    MKL    +75.26

     

    EXOR.M +279.05

     

    BOL.P  +425.15

     

    Nothing scientific, just roughly comparing.

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