TwoCitiesCapital

I've donated to cancer research and supported charitable companies like Toms and etc. I don't mind giving money and that has been the bulk of my giving in the past, but I've been burdened recently with the feeling I should be investing time into something as well. I'm considering focusing more on devoting a portion of my time to activities like Big Brothers & Big Sisters or Habitat for Humanity.

Why HOG? It seems a dying business. Younger people dont buy HOG and current fans are retiring. HOG sells ~40% of their bikes overseas and the strong dollar is hurting their foreign business right now. International growth is still intact and their domestic growth, though slow, is positive. This has been the case since 2005. Q1 '15 was weak and the stock sold off. The market is taking Q1 as the start of the real decline of the brand and is pricing it at a PE and P/FCF lower than any period over the last ten years aside from 2009. As for the future of the brand: I'm not sure HOG doesn't have young fans. Their bikes are expensive and young people cannot afford to buy them. The 20 and 30 somethings zipping around on crotch rockets are going to trade them in one day for something comfortable. The 20-30 somethings that give up their bikes will still have a midlife crisis in their 50's and go out and buy a bike. I really cannot think of a brand with a stronger following. I wonder how many hippies in the 60 and 70's were buying hogs? A bunch of those hippies own Harleys now... This. I've been watching HOG too. I've been reducing leverage in my portfolio for the last 4 months or so and I'm not quite to my goal yet, but if the price of this and American Express keep falling I'll have to re-evaluate my current holdings. Maybe I can finally redeem myself for not buying it in 2009 when I was looking at it around $13.

I've never heard of comparing real interest rates to the absolute level of EPS for equities. What would be the reasoning to do such?

That's possible. I didn't closely track their positions. I realized it is likely a PFIC after I bought, so I don't want to hold this for long term anyway. Is there a reason all this PFIC talk just blew up in the last few months? I'd never heard of this old, arcane tax rule and all of the sudden it seems like everyone and their mother is concerned about investments being PFICs, how to strategically do their taxes for PFICs, if PFICs can be held in IRAs, and if they're allowed in ERISA accounts, etc. etc. etc. I don't mean to derail the thread, but from what I could this isn't a new rule and I'm just trying to understand all of the recent interest that wasn't relevant a year ago?

Now, time to speculate what Prem will do with the ~$325M USD that he'll be getting out of it....

Thanks for sharing. I enjoy Crestmont's research. I'd like to know more about how they forecast their S&P earnings trend line. Would be interesting to see to determine if I agree with their estimate of earnings. My main concern for this market has become the occurrence of margin compression on top of multiple compression. Margins could compress by 20-25% easily and multiples could also compress 20-25% easily. The two happening in concurrence (a reflexive type movement for you Soros types) would be pretty ugly. I don't know what the trigger will be to set it off, but I think this year has a lot going for it to get the process started.

I don't know how you go about shorting at reasonable rates, but you could conduct a carry trade by borrowing at the lower rates (no different than shorting the rates) and invest in something with a higher yield to capture the spread.

They've done studies that were similar to this. Instead of analyzing interest rates, they analyzed inflation rates. American companies did best when inflation was around 2-3% (I don't know if there's anything magic about that number or the economy simply likes it because it's a stable benchmark that the Fed has mandated). They did markedly worse as inflation rates extended in either direction from this number. Now, in a situation where all else is equal, if inflation rates were falling so would interest rates and yet...stocks did relatively poorly when inflation was less than below 2-3% despite the interest rates that would have generally trended lower as well. This is likely due to the increased risk premium being necessary to invest in businesses whose underlying assets/products/etc. decline in value with every passing day. Also, knowing that the market could sustain higher multiples at lower levels of interest rates is largely irrelevant. It was helpful to know 5 years ago. We need to know what's going to happen going forward and not what mattered in the past. Rates can continue to fall, but that doesn't mean the market can sustain an infinitely high multiple. At some point, multiples are too high regardless of rates simply because consumers aren't benefiting enough to defer consumption or to accept the risk of investing in the deflationary environment.

Yea. I'm not quite sure it's the no-brainer that it seems to be. The ECB is buying a ton of German debt without concern for profit, and it's limitations for purchasing yields that can only be slightly negative have pushed it out on the yield curve (since German bunds were negative out to the 7-8 year point anyways). The ECB is buying EUR 60B per month and has to buy bunds out past 8 years to get to its mandated buy amount. Further, with the ECB buying more than the net expected issuance, you're going to run into a lack of supply for those entities that needs duration and government bonds regardless of the price like banks, insurance companies, and pension plans. These buyers are large and have a structural demand for these products that is largely price insensitive and they're buying in a market that has limited supply. In the long-run, it's a no brainer. Yields will rise or the financial system as we know it will likely disappear. In the short term, things could go quite a bit lower with speculation, structural shortages, and large price-insensitive buyers. I wouldn't buy the bund but I wouldn't be shorting it either.

I agree with all of the talk of considering things in percentages. I also placed a position cap (in percentage terms) on my positions now that the amount that I lose is in a given position or two is getting to the point where my annual contributions will no longer be enough to make up for mistakes and help me effectively double down. As of right now, the cost basis of the position can be no more than 10% of my net-worth at the time of purchases. This caps the relative $ amount I'm willing to lose in a position (because I know I'm going to make mistakes) and it also encourages me to build positions over time simply because I rarely have 10% of my net worth sitting in unused cash and I know that if I blow the whole 10% buying too early that I can't double down.

FFH could comfortably purchase the 74% that was being offered by the two private equity firms. They were then going to buy the balance over years, using internally generated profits. Regulations required them to buy the whole company. The arrangement with the pension fund is for FFHto buy back the balanceover the next few years. FFH could not telegraph their moves or else they would have been at a commercial disadvantage. This makes sense - anyone know any details of the agreement? Are we buying back at a staggered set of prices in the future or is OMERS getting the same price plus some interest annually?

http://www.ft.com/intl/cms/s/0/71182a70-e3e4-11e4-b407-00144feab7de.html#axzz3XTlKMUsR I've used the older generation of Jawbone UP bracelets and wasn't impressed after I had two that were defective over a 4 month period. This would still be positive for AmEx though which is all that really matters. Also, how come there isn't an AmEx thread in the investment ideas sections? Surely some of us are buying it (I've considered but am still taking off leverage in my portfolio so am waiting for a better price or more cash - whichever comes first).

This is what has me confused too. I was pretty excited about the Brit acquisition. Was less excited about the share issuance, but I get it. I'm sure this isn't the whole story, but without knowing what they're going to use the proceeds for I can't help but feeling slightly disappointed.

This has been my bigger concern. Oil is a single component of the index and as it drops in price, it's impact gets smaller and smaller. The dollar affects multiple items within the index and some are saying it's set for a multi-year rise. The strength of the dollar and the cost of housing are the major pieces of that index. We likely need a prolonged strengthening of the dollar or a prolonged decline in housing/rental prices for Prem to be right. How those come about is up for anyone to guess.

I think that's from March 3rd, 2014. They mention winning a recent ruling on discovery, which was February of last year. Yea. This came up on valuewalk for me yesterday. Have no idea why they're digging up old videos.

http://www.valuewalk.com/2015/04/fannie-mae-govt-preps-for-trial-before-sweeney/ Government preparing defense witnesses.

I disagree. Consider this. Prem bought the position in 2011 at EUR 0.10. He sold 1/3 of it at EUR 0.33 in 2014. This means that he incurred capital gains tax around 0.075 EUR per share. His next investment will have return 30% just to get back to even with his investment had it remained in BKIR - that doesn't even include whatever value accrues to BKIR over that interim. Looked at another way, he could have incurred a permanent 23% drop in BKIRs stock price before being on par with selling and incurring capital gains tax. The transaction was done again this year selling at EUR 0.36. The numbers are similar to the above. EUR 0.09 per share in tax means that the next investment needs to return 33% to break even (not including returns that would have accrued to BKIR) or that Prem could withstand a permanent loss of 28% on the investment from current prices to be on par with selling. Now consider that the position in question a bank with a captive market with limited competition. Banks in this environment have historically generated returns in the mid-teens on their equity (which is higher than normal). So, by selling and incurring capital gains tax, you already place yourself at a disadvantage for your next position to outperform, but it has to outperform a business that has a very good probability of being above average itself meaning that your next use of capital had better have extraordinary opportunity. I'm not saying it doesn't make sense to sell ever. I'm saying that the higher the proportion of your deferred capital gains to your position value, the higher the bar is for you to sell that position in favor of another one. With deferred capital gains, the bar for Prem is extremely high. I'm not sure it was met in 2014 and I'm not sure it was met with this sale either. If he's concerned about the size, he could've hedged the position for less money. If he's concerned about the market, he can take solace in the fact that it would require a significant double digit, permanent loss (and no correction in current currency value) to impair him more than selling would. If he needed the cash, it would have been better to issue equity above book value or debt at low rates as opposed to incurring the loss of $100M in capital gains tax.

This is why some sort of car sharing should end up being the default car ownership option, imo. I don't enjoy anything about owning a vehicle, if I could walk to the end of the block and be sure one was there I would absolutely sell my vehicle and do that instead. (Or definitely once my kid is out of his car seat, which is non-trivial to install) I think we're headed that way. The "sharing economy" leverages the current structure of inefficient ownership and makes it more efficient and cost effective for owners and users. This is why Airbnb and Uber and etc. are become more popular as people are no longer forced to pay for the privilege of waste. A car that sits 20 hours a day or a guestroom that is unused for 50 weeks a year are both wasteful - now you have an option to recoup some of the costs of that waste by being an efficient user of resources. I like the trend and am glad to see it blow up as big as it has in the last 3 years.

Reduced FCAU by 30% Reduced WFM by 100% I wanted to hold both - but both were purchased on margin and I'm reducing leverage in my portfolio as I am getting more and more skittish about the U.S. equity markets. Both of these had been strong performers and warranted taking profits. Watching AXP, SB, SBLK, and BBRY for potential increases; however, would probably need to be at more attractive prices to convince me to sell something else in favor of buying them.

Ah. Looks like you beat me to it. I just posted in the BKIR thread before I saw this. I guess I'll simply re-iterate my surprise. Given Ross' comments about captive banks earning extraordinarily high ROEs (15-20%), I would've thought this would have been one of those buy-and-hold-forever type of investments for them or at least waited until the bank was consistently hitting that level of profitability.

+1 How did none of us know about this!?!

Generally, when I'm cloning an idea, I don't do much research or try to conquer this bias. For me, the whole point of cloning is to benefit from the research of someone smarter than myself so I don't do it myself. This saves me a lot of time so I can focus the little free time I have on the few ideas that seem truly compelling to me. I guess I'm relying on this bias as the reason that I'm cloning. I manage the risk of this "blind" investment in a few ways: 1) The sources have to be reputable sources with a good history AND the thesis has to be easily understood by me and easily fact checked. 2) I size the positions very small. I might have a 10% position in my own heavily researched ideas, but most cloned positions don't ever get larger than 3% for me. 3) I more readily harvest gains from cloned positions by selling percentages of the position on the way or selling calls against the position to help reduce the downside. 4) Only about 25% of my total capital is available for cloning ideas. About 50% is used for my own researched ideas and the remaining 25% is more passively managed in a low-P/B portfolio. Often times, these cloned IDs have something occur that draws my interest and I'll more research and determine I want a larger position now that I understand the risks/investment better. In these cases I mentally switch the bucket it is in and size accordingly. This actually happened recently with Fannie Mae and Fiat.

The scary part of this graph is that every time it hit the upper bound it nosedived to, or through, the lower bound. If the trend continues, we could see earnings fall by 50+% which would also likely result in a compression of multiples. We'd be looking at a correction on the magnitude of 60-75%.... This is what has me concerned the most - margin compression on top of multiple compression. I don't know the likelihood of it happening, but a 75% correction would change a lot of attitudes about the market even for some of the most stoic investment managers.

I was considering getting the Passport when I wanted to upgrade my last phone a few months back. I had never owned a Blackberry before but am frustrated typing on my touch screen phones and constantly get typos (and hit the '.' instead of the spacebar all of the time). I do a lot of e-mailing and blog writing from my phone so it'd be nice to have something more accurate. That being said, I was a little hesitant to make the jump since so much of my life is wrapped up in Google Apps on Android (like Inbox, GoogleNow, Google Calendar, etc.) and I do most of my banking online through the various apps for my banks/credit cards. I know that most, if not all, of these apps can be access from a BB phone now, but I have reservations about how well they function off of their native platform. Also, the Passport hadn't been released on my carrier yet and I didn't want to wait a few more months to get the phone so I ended up picking up a Samsung Galaxy Note 4 instead. I do watch every release they make though and am more tempted to get one with each release that I've seen.

Don`t you think this is a bit expensive since the market has to fall at least 12% from here just to bring you to beak even? Protection is almost always expensive via puts and it only required a 10% drop for break-even when I bought it. I'm not concerned with a 10% drop which is why I picked them up so far out of the money. I'm concerned by the possibility of another 50% drop due to high debt, high valuations of financial assets, higher margins, and high multiples attached to those margins in a world that seems like it's increasingly crisis prone for these sort of market corrections. I'm biased though and have been bearish for years. I haven't allowed myself to put options since 2011 because I was concerned that maybe I was wrong and would be tossing a lot of good money down the drain; however, valuations are significantly higher now than they were and I believe the risks are significantly elevated as well. IMO, the current U.S. market is increasingly fragile. For current valuations to be maintained, you have a continuation of low inflation, low interest rates, high profit margins, and high market confidence to apply high multiples to those profits, with absolutely no shocks to any of those conditions. That seems like investors are hoping for a lot to go right to justify the current stock prices and there's a lot occurring right now that could shock any one of those inputs (higher dollar, higher wages, headline deflation, etc.)