Klarman Holding 50 Percent Cash

[Vish_ram]

To assume that MSFT (and others in info tech group) profit margins/ROIC will mean revert is crazy. The nature of the software businesses is that they have high returns on the marginal revenue. 

 

Even if anti-trust breaks things apart, each of the smaller cos will exhibit similar characteristics. This is why I like QQQ XLK IGV etc, i've been owning them for years. Probably one day it'll correct, but meanwhile it would have gone up by huge multiples. 

 

In cola cola & its supply chain, the entire value add was captured by the syrup/brand/KO. The rest of firms involved hardly captured any. 

 

In modern times, the info tech are the syrup/brand/KO. They capture the value add. The others are the salt firms, HFCS firms, ...

[gfp]

2 minutes ago, Blake Hampton said:

Earnings are measured against book. Return on equity is what's important.

 

What happens to this analysis when book value approaches zero and passes into negative territory?  Surely it will happen soon enough at Apple [ticker AAPL for those playing at home].  This simple calculation will be distorted when Apple's book value is one dollar and kind of useless when Apple's book value is negative 50 billion dollars.  At what point does Apple's reported Return on Equity stop having useful analytical value?  Is it $100 billion?  $40 billion?  One dollar?  

 

It might be that a super simple calculation, whether it is price to earnings or return on equity, is not really the end all be all.

 

 

[73 Reds]

6 minutes ago, Blake Hampton said:

Earnings are measured against book. Return on equity is what's important.

That's academic speak for "I'll never invest in brainpower".  (I've yet to meet a wealthy academic).

[Gregmal]

Yea all I keep hearing is “the textbook said this is an important metric”…and well, sometimes the textbook is correct and a lot of times it’s not. But it certainly isn’t gospel lol. Remember when Hedgeye used the “4x book value” argument to claim JOE was overvalued lol. Gotta live in the real world. 

[james22]

You'd think the textbook guys would be more worried about AI than anyone else.

[73 Reds]

21 minutes ago, Blake Hampton said:

Earnings are measured against book. Return on equity is what's important.

@Blake Hampton Following are among the metrics I deem important:

 

-Management trustworthiness;

-Superior capital allocation by management;

-Optionality through future products and services and/or acquisitions;

-History of successful innovation;

-Monopolistic characteristics;

-Stickiness of products and services (i.e., moat);

-Products/services deemed near-essential.

 

Where to you find these on a financial statement?

 

[thepupil]

I don't mind a textbook-y argument, but the problem is it's just not a good one. 

 

Do you think  Buffett may have updated his view on the "right" market RoE since...1977? Was he worried about AAPL's 2019 RoE of 56% mean reverting to 12%?. It went to 157%...Was that coupon sticky? 

 

If you think the market is levered such that rising rates will have a material impact on margins, you aren't actually looking at the companies themselves. the S&P 500 on a wgt average basis has 1.5 turns of debt . many of the top 10/25 heavies are net cash companies. Mean reversion in rates has had no discernible impact on margins. in fact it increased them as they earn cash yield while paying fixed on their long dated maturity debt and banks are printing money. 

 

the weighted average maturity for S&P 500 issuers is 10.5 years. any hypothetical mean reversion in margins would take quite some time to flow through (over which time companies could adapt) Because those companies are SSOOOOOOO risky S&P issuers' bonds are yielding a whopping 0.6% over the risk free rate. 

 

find 10,20,30 companies in the S&P 500 you think are vulnerable and tell me what % of the S&P500's market cap they are? I bet you can't 5% of the index with poor credit quality. 

 

 

I said the same thing in 1/2020. It's been 5 years. We had a pandemic. We had rates go from nothing to somethings and guess what, no issues whatsoever from interest rates going up. no mean reversion in margins whatsoever. Perhaps it will happen in 10 years. or 20 years. But who cares. We go from paying 5% of EBITDA to 7%? 10%? again,

 

Large cap IG corporate america could pay its debt off in a few years if it wanted to. Just take a few years break from buying back stock. Large cap IG corporate america is like everyone who bought a house at 2021 rates except they used like 5-10-20% leverage and they've got 5 or 10% of the mortgage balance in the bank. 

 

 

Regarding taxes, I think it's easy to just view haircut earnings in the even there are corporate tax increases. If a corporation has $1 of earnings and makes $0.8 after tax and tax rates go to 30% such that you're now at $0.7. maybe a bit more of decline  for knock on effects. It's a manageable risk.

 

By the way, there is a whole class of securities unaffected by corporate taxes (pass throughs like REITs, BDC's, MLP's, international companies etc). you don't have to have all your investments in things with this or any other risk. I just checked. 37% of my portfolio is taxed as a C corp in the United States. 63% is not. 

 

the rates/taxes mean reversionist margin centric argument has been made for the entirety of my investment career and been wrong. You have to think corporate america is grossly overearning by some other means to be very bearish (beyond a simplistic "multiple go down").

 

 

 

[Blake Hampton]

Apple is not the market, Microsoft is not the market.

 

Go look at the data yourself:

https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx

[Castanza]

@Blake Hampton are you by chance a prepper? 

[Blake Hampton]

2 minutes ago, Castanza said:

@Blake Hampton are you by chance a prepper? 

No just rational.

[thepupil]

11 minutes ago, Blake Hampton said:

Apple is not the market, Microsoft is not the market.

 

Go look at the data yourself:

https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx

 

Number go up, right?

 

 

 

 

[thepupil]

I mean look at 2025E vs 2020/15/10 actual... We're not talking just tech. Look at Healthcare. Look at Industrials. 

 

What a beast! 

 

 

 

[thepupil]

of course, there's endpoint sensitivity and using 2025E may be too bulled up, but just do 2023, which is in the books. 10%/yr for 15 years. not bad. 

 

[Castanza]

22 minutes ago, Blake Hampton said:

No just rational.

Go on 

[Gregmal]

lol speaking of 2023 eps, remember all the insane arguments, again largely academic, that were being made here in 2022 about sensational things like the “earnings cliff” and all that? Part of the SPY 3000 conspiracy I guess. 

[thepupil]

2 minutes ago, Gregmal said:

lol speaking of 2023 eps, remember all the insane arguments, again largely academic, that were being made here in 2022 about sensational things like the “earnings cliff” and all that? Part of the SPY 3000 conspiracy I guess. 

 

In fairness, earnings growth has greatly fallen off...from a feverish pace...

 

Same chart, but only with actuals and no estimates

 

 

[Gregmal]

Yea folks either had weird definitions of a "cliff" or were just selling us some crock.

[Malmqky]

1 hour ago, Blake Hampton said:

Apple is not the market, Microsoft is not the market.

 

Go look at the data yourself:

https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx

Apple and Microsoft and similar firms have such a large weighting in the SP, it makes sense to value the SP differently now than in the 70s.

[thepupil]

11 minutes ago, Gregmal said:

Yea folks either had weird definitions of a "cliff" or were just selling us some crock.

maybe an earnings mesa?

 

 

 

[SharperDingaan]

Just to stir the pot 

 

Some of the more useful material one can read are the various Taleb books, any good textbook on game theory, and the various earlier Michael Lewis books. You're leaning how to APPLY the everyday differently, how big ideas get going, and what happens when savants are involved.

 

Most people take out a 25yr mortgage, with the intent of paying it off over 25 years. If the mortgage is paid off earlier it's usually because of an inheritance, or house-flipping along the way. Yet almost NO ONE, PLANS to pay it off within 10-15 years, via a compounding investment. APPLIED thinking ..... 

 

Assume a $1M purchase, 35% down payment, 650K mortgage. But what if you only put down 25%, had a 750K mortgage instead, and put the 100K difference into a tax exempt TFSA, invested entirely in a BTC-ETF? If you could do a CAGR of 14.4%; that mortgage is fully paid off at the end of year 15 .... but what if you could ALSO swing trade it reasonably well, and do a 20% CAGR?; that mortgage is now paid off in 11 years. 

 

Most people, 11-15 years after buying their first house, will have kids entering their teens; expensive. But .... if you had NO mortgage at this time? .... life changing. You are maybe that 1 in 1,000,000+ people ? .... simply 'cause you can APPLY. 

 

If you're in the crypto space, are not pressured to sell, and are good at swing trading; 20% may be as little as 3 round-trips, with one of them incurring a loss.   

 

One of the big advantages to coming from the business ownership versus investment space, is because APPLIED thinking is routine, and as natural as breathing. Your employees continue to have a job, 'cause you're good at it; you fail, they are out of a job, and you see their faces every week.

 

Everybody applies differently, but for all .... the measure is profit &/or gain on investment.

Thereafter, it's just risk versus return.

 

Good luck!

 

SD 

Edited yesterday at 12:32 AM by SharperDingaan

[coc]

16 hours ago, SharperDingaan said:

Just to stir the pot 

 

Some of the more useful material one can read are the various Taleb books, any good textbook on game theory, and the various earlier Michael Lewis books. You're leaning how to APPLY the everyday differently, how big ideas get going, and what happens when savants are involved.

 

Most people take out a 25yr mortgage, with the intent of paying it off over 25 years. If the mortgage is paid off earlier it's usually because of an inheritance, or house-flipping along the way. Yet almost NO ONE, PLANS to pay it off within 10-15 years, via a compounding investment. APPLIED thinking ..... 

 

Assume a $1M purchase, 35% down payment, 650K mortgage. But what if you only put down 25%, had a 750K mortgage instead, and put the 100K difference into a tax exempt TFSA, invested entirely in a BTC-ETF? If you could do a CAGR of 14.4%; that mortgage is fully paid off at the end of year 15 .... but what if you could ALSO swing trade it reasonably well, and do a 20% CAGR?; that mortgage is now paid off in 11 years. 

 

Most people, 11-15 years after buying their first house, will have kids entering their teens; expensive. But .... if you had NO mortgage at this time? .... life changing. You are maybe that 1 in 1,000,000+ people ? .... simply 'cause you can APPLY. 

 

If you're in the crypto space, are not pressured to sell, and are good at swing trading; 20% may be as little as 3 round-trips, with one of them incurring a loss.   

 

One of the big advantages to coming from the business ownership versus investment space, is because APPLIED thinking is routine, and as natural as breathing. Your employees continue to have a job, 'cause you're good at it; you fail, they are out of a job, and you see their faces every week.

 

Everybody applies differently, but for all .... the measure is profit &/or gain on investment.

Thereafter, it's just risk versus return.

 

Good luck!

 

SD 

 

How in the h*ll could anyone read Taleb's books and then recommend leveraged swing trading on crypto??

 

This world is truly mysterious. 

[SharperDingaan]

Barbell portfolio. Cash and BTC-ETF as the two bells, both cash equivalents.

 

Taleb is silent as to whether both bells are required at the same time; we just ASSUME that they are. Taleb is all about NOT ASSUMING, and altering pay off structure.

 

Sell the BTC-ETF at 10% up, buy back at 5% down, repeat; 15% on a round trip, and simply replicating a market maker (the house). Nothing says that you cannot wait until it goes your way, or that you have to sell at 10% up if the dog is running strongly. But ... two round trips OVER THE ENTIRE YEAR and your CAGR is an easy 20% plus. You are the 1 in 1,000,000+ for good reason.

 

No leverage on the barbell itself, it's only the mortgage on the house. Taleb was also an extensive user of leverage via the use of options. It is just a different approach.

 

Nash gave us game theory, in various complexities. This is simply applying it in a developing/emotional market where there are no DCF valuations, as there is no future cash flow to discount. Gun in a knife fight.

 

To pay a mortgage off within 10 years, you must take risks, and you must be intelligent about it. If you don't .... welcome to the 25 years of payments that everyone else does. This isn't risk free, but it isn't that risky either, and if successful ..... the payoff is enormous, and entirely tax free if it's within a TFSA. High Sharpe ratio.

 

Not for everyone, but if you are young and a regular on the COBF forum, you really owe it yourself and future family ... to take a hard look. Picking up the quarters ... adds up.

 

APPLY!

 

SD

 

 

 

 

 

 

 

 

 

 

 

Edited 10 hours ago by SharperDingaan

[73 Reds]

17 minutes ago, SharperDingaan said:

Barbell portfolio. Cash and BTC-ETF as the two bells, both cash equivalents.

 

Taleb is silent as to whether both bells are required at the same time; we just ASSUME that they are. Taleb is all about NOT ASSUMING, and altering pay off structure.

 

Sell the BTC-ETF at 10% up, buy back at 5% down, repeat; 15% on a round trip, and simply replicating a market maker (the house). Nothing says that you cannot wait until it goes your way, or that you have to sell at 10% up if the dog is running strongly. But ... two round trips OVER THE ENTIRE YEAR and your CAGR is 20% plus. You are the 1 in 1,000,000+ for good reason.

 

No leverage on the barbell itself, it's only the mortgage on the house. Taleb was also an  extensive user of leverage via the use of options. It is just a different approach.

 

Nash gave us game theory, in various complexities. This is simply applying it in a market where there are no DCF valuations, as there is no future cash flow to discount. Gun in a knife fight.

 

To pay a mortgage off within 10 years, you must take risks, and you must be intelligent about it. If you don't .... welcome to the 25 years of payments that everyone else does. This isn't risk free, but it isn't that risky either, and if successful ..... the payoff is enormous, and entirely tax free if it's within a TFSA.  High Sharpe ratio.

 

Not for everyone, but if you are young and a regular on the COBF forum, you really owe it yourself and future family ... to take a hard look. Picking up the quarters ... adds up.

 

APPLY!

 

SD

 

 

 

 

 

 

 

 

 

 

 

Agree with your general point but paying off a mortgage early should not be difficult; simply don't borrow too much and prioritize.  Conversely, it is not always wise to quickly pay down a mortgage, particularly if you borrowed at low rates and can invest excess funds more favorably.  All else being equal, no debt is better than debt but everyone's circumstances and abilities are different and mortgage debt is perhaps the one form of debt that is sensible for many if used responsibly.  The flip side of course is, you are subject to any conditions and requirements (besides debt repayment) that your mortgage lender places on your loan and those should be properly quantified to determine your true loan cost.

[SharperDingaan]

46 minutes ago, 73 Reds said:

Agree with your general point but paying off a mortgage early should not be difficult; simply don't borrow too much and prioritize.  Conversely, it is not always wise to quickly pay down a mortgage, particularly if you borrowed at low rates and can invest excess funds more favorably.  All else being equal, no debt is better than debt but everyone's circumstances and abilities are different and mortgage debt is perhaps the one form of debt that is sensible for many if used responsibly.  The flip side of course is, you are subject to any conditions and requirements (besides debt repayment) that your mortgage lender places on your loan and those should be properly quantified to determine your true loan cost.

 

There's always risk; all that we can do is mitigate it to something that we're (including spouse) comfortable with. There is also the reality in that some markets, $1M isn't far from entry level.

 

The other reality is that on that entry house, a lot of folks will also have a parental contribution. It may be better as a contribution to parental TFSA's (200K max over both mom and dad) that is subsequently invested in a BTC-ETF, than as a gifted DP or equity investment. Lower mortgage payments today, or NO mortgage tomorrow when the kids are teens? 

 

But no matter what .... it has to be thought about differently; with big payoffs for the 'right' decisions.

 

SD

 

 

Edited 10 hours ago by SharperDingaan

[cubsfan]

2 hours ago, SharperDingaan said:

Picking up the quarters ... adds up.

 

Love it. As long as it's not in front of the steamroller. Every aspiring investor should read 2 books:

 

- Smartest Guys in the Room - Bethany McLean            (how CEO's can fool everyone for years)

 

- When Genuis Fails - Roger Lowenstein                         (the CAN'T miss strategy to make money)