AZ_Value Posted March 17, 2014 Share Posted March 17, 2014 I remember that he talked about selling part of the farm to someone else via debt but I think a better analogy is the farm is growing faster than other farms (which are smaller) so the effect is a decline in the growth in wealth. If you look at the growth on personal net worth it is still increasing even though we have debt. As of 2011, US personal net worth was $60t with debt of $13t on asset of $73t. Here is a good site for some perspective: http://en.wikipedia.org/wiki/Financial_position_of_the_United_States Packer http://money.cnn.com/magazines/fortune/fortune_archive/2003/11/10/352872/ It was really a piece about the trade deficit more so than the debt itself if you read the whole thing, as he recognizes like he's said many times that a country that borrows money in the same currency it prints cannot really be faced with default or anything like that because inflation will always be the easier solution (This whole thing obviously only holds true if you don't factor in a childish Congress that might do the unthinkable for political posturing only) Link to comment Share on other sites More sharing options...
Guest Posted March 17, 2014 Share Posted March 17, 2014 I used Shiller's data from 1871 to now, and made various hindsight bias assumptions (e.g., hold a certain amount of cash all the time until a significant drop occurred, having the insight to only invest at the bottom and invest for the next 1-3 years, and then go back to cash again, or similar). I did similar studies from 1970 until now. I did not come up with a scenario, assuming near-perfect timing (but holding cash until that timing was required), where holding cash made any sense. Nice. I'll be interested in reading it. Link to comment Share on other sites More sharing options...
yadayada Posted March 17, 2014 Share Posted March 17, 2014 What do you guys think about not putting your money in an index when PE ratios go to 30 or higher? People always say today is better then yesterday, but it seems it can only really go down from there, especially in an enviroment like this. Link to comment Share on other sites More sharing options...
Guest Posted March 17, 2014 Share Posted March 17, 2014 What do you guys think about not putting your money in an index when PE ratios go to 30 or higher? People always say today is better then yesterday, but it seems it can only really go down from there, especially in an enviroment like this. Depending on what you mean by P/E, I think the CAPE only went over 30 before the Great Depression and the the tech boom. It went to around 27 in 2007. Link to comment Share on other sites More sharing options...
ageofsocrates Posted March 17, 2014 Share Posted March 17, 2014 I think watsa has the right to be cautious. There's been an unprecedented buildup in credit within the world banking system and on governments' balance sheet. http://www.zerohedge.com/news/2014-03-14/chinas-credit-nightmare-explained-one-chart http://www.bloomberg.com/news/2014-03-10/debt-exceeds-100-trillion-as-governments-binge.html Link to comment Share on other sites More sharing options...
james22 Posted March 17, 2014 Share Posted March 17, 2014 I would not sell because the market has such and such valuation unless you are holding the market. COBAF 401k 24% 0-10% 20% 11-20% 22% 21-30% 11% 31-40% 24% 41%+ http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/401k-what-percent-of-portfolio/10/ Assuming most 401ks are limited to market index funds, a significant number of us have to consider market valuation, yes? Link to comment Share on other sites More sharing options...
james22 Posted March 17, 2014 Share Posted March 17, 2014 Value investors are known for ignoring “macro” developments and relying solely on their skills as bottom-up stock pickers. Their depth of research is usually unparalleled, but there’s a general hesitancy in considering broader market valuations in their analysis. We’re value investors through and through, but we think it’s a mistake not to pay attention to what the current investment opportunity set looks like [the cheapest 10% of the market looks an awful lot like the other 90%] compared to different points in history. http://www.gurufocus.com/news/246779/7footers-in-a-sea-of-pygmies-why-concentrating-on-just-the-averages-obscures-true-market-insights Link to comment Share on other sites More sharing options...
yadayada Posted March 17, 2014 Share Posted March 17, 2014 i also see alot of people analyzing companies like apple. Why would you do that? It seems time is better spent finding some badly mispriced microcap with a market value of 90 million in some niche market. Seems that if you would spend an equal amount of hours on both large and small caps, that the latter will yield much better results over time. Plus there are less moving parts :) . And if you do this, it seems hard to not be close to 100% invested most of the time. Link to comment Share on other sites More sharing options...
ourkid8 Posted March 17, 2014 Share Posted March 17, 2014 In the Investment Ideas section, why don't you provide us any? Tks, S i also see alot of people analyzing companies like apple. Why would you do that? It seems time is better spent finding some badly mispriced microcap with a market value of 90 million in some niche market. Seems that if you would spend an equal amount of hours on both large and small caps, that the latter will yield much better results over time. Plus there are less moving parts :) . And if you do this, it seems hard to not be close to 100% invested most of the time. Link to comment Share on other sites More sharing options...
Palantir Posted March 17, 2014 Share Posted March 17, 2014 i also see alot of people analyzing companies like apple. Why would you do that? It seems time is better spent finding some badly mispriced microcap with a market value of 90 million in some niche market. Seems that if you would spend an equal amount of hours on both large and small caps, that the latter will yield much better results over time. Plus there are less moving parts :) . And if you do this, it seems hard to not be close to 100% invested most of the time. I think it is because AAPL for a while was a badly mispriced megacap. If they didn't know the firm was Apple, I think even the deep value guys would have said it was attractive at 400. Link to comment Share on other sites More sharing options...
yadayada Posted March 17, 2014 Share Posted March 17, 2014 In the Investment Ideas section, why don't you provide us any? Tks, S i also see alot of people analyzing companies like apple. Why would you do that? It seems time is better spent finding some badly mispriced microcap with a market value of 90 million in some niche market. Seems that if you would spend an equal amount of hours on both large and small caps, that the latter will yield much better results over time. Plus there are less moving parts :) . And if you do this, it seems hard to not be close to 100% invested most of the time. I did actually. Plus if you read VIC, you can see a few interesting ideas being posted there lately. All ideas that only the smallest hedge funds can touch. And that have a much better risk/return then almost any 1bn$+ market cap out there. Which is what it is all about with valueinvesting in the end right? Finding the most asymetrical risk return scenarios where you dont have to be some kind of predicting genius to make a decent return. I think I read a buffett quote a while back where he wished he was a small time investor again. Because the opportunities out there in the small cap space are so abundant. Especially when the market is depressed. So why handicap yourself by looking at really large investors? Unless they invest in something really small. Personally I like to look at concentrated hedgefunds and smaller hedgefunds with really good track records. And see what their highest conviction ideas are. If they invest in a smaller company then they normally do, then it probably means that is a really good idea. Why else would they devote time to it if they can only invest a small amount. They would only do that if they believe there is significant amount of upside with a managable amount of risk. Link to comment Share on other sites More sharing options...
ukvalueinvestment Posted March 17, 2014 Share Posted March 17, 2014 I agree entirely. Clearly the biggest opportunities are in small caps. Intuitively that makes sense, and all the great investors say it too. Yet, I see people endlessly discussing the likes of Apple on the investment ideas, and think "whats the point"? Does the average person really have an edge on Apple. Is it really going to be mis priced by the market? Link to comment Share on other sites More sharing options...
SFValue Posted March 17, 2014 Share Posted March 17, 2014 In the Investment Ideas section, why don't you provide us any? Tks, S i also see alot of people analyzing companies like apple. Why would you do that? It seems time is better spent finding some badly mispriced microcap with a market value of 90 million in some niche market. Seems that if you would spend an equal amount of hours on both large and small caps, that the latter will yield much better results over time. Plus there are less moving parts :) . And if you do this, it seems hard to not be close to 100% invested most of the time. I did actually. Plus if you read VIC, you can see a few interesting ideas being posted there lately. All ideas that only the smallest hedge funds can touch. And that have a much better risk/return then almost any 1bn$+ market cap out there. Which is what it is all about with valueinvesting in the end right? Finding the most asymetrical risk return scenarios where you dont have to be some kind of predicting genius to make a decent return. I think I read a buffett quote a while back where he wished he was a small time investor again. Because the opportunities out there in the small cap space are so abundant. Especially when the market is depressed. So why handicap yourself by looking at really large investors? Unless they invest in something really small. Personally I like to look at concentrated hedgefunds and smaller hedgefunds with really good track records. And see what their highest conviction ideas are. If they invest in a smaller company then they normally do, then it probably means that is a really good idea. Why else would they devote time to it if they can only invest a small amount. They would only do that if they believe there is significant amount of upside with a managable amount of risk. woudl you list some of the funds you like to track? Link to comment Share on other sites More sharing options...
frommi Posted March 17, 2014 Share Posted March 17, 2014 Mispricings happen everywhere where people sell because of emotions or the current news and not because of the companies numbers. This can lead into a stampede. When i started as a value investor and researched a company everytime i looked at great numbers and after that looked at the headlines, i thought oh no i don`t want to invest here. But thats exactly the reason it is cheap, so i started to view the headlines as a contrary thing. The more negative headlines, the better. With small caps its often better to find the ones nobody has ever discovered before you. But this is much harder at the moment, because everybody wants to be a value investor and its enough when 2 people buy a stock to drive it to fair value. Look at how many netnets currently exist in the US, i have seen my screener getting fewer results every month. And with netnets in nondeveloped countries there are a lot more risks, so you have to diversify more to reach the same result. But that is a butload of work where you don`t know if it pays off. Link to comment Share on other sites More sharing options...
Guest wellmont Posted March 17, 2014 Share Posted March 17, 2014 I agree entirely. Clearly the biggest opportunities are in small caps. Intuitively that makes sense, and all the great investors say it too. Yet, I see people endlessly discussing the likes of Apple on the investment ideas, and think "whats the point"? Does the average person really have an edge on Apple. Is it really going to be mis priced by the market? big stocks often get mispriced. or there is opportunity for restructuring, financial engineering. you have more opportunity in small cap because there are more of them to look at. One of the biggest large cap mispricings I've seen in a while was HPQ in late 2012. Link to comment Share on other sites More sharing options...
Kolnidur Posted March 17, 2014 Share Posted March 17, 2014 Over the long run you're going to understand a lot less by just studying microcaps that have little statistical significance in their industries. You may have better IRR if it's a bull market, and also if you stay small forever. But if your curiosity extends beyond making a few more dollars for friends and family, then it is much more rewarding to study big winners (whether or not they are at an investable price today.) Link to comment Share on other sites More sharing options...
constructive Posted March 17, 2014 Share Posted March 17, 2014 Yet, I see people endlessly discussing the likes of Apple on the investment ideas, and think "whats the point"? Does the average person really have an edge on Apple. Is it really going to be mis priced by the market? No, the average person doesn't have an edge on any stock, small or large. The average person should buy index funds. Link to comment Share on other sites More sharing options...
Liberty Posted March 17, 2014 Share Posted March 17, 2014 Yet, I see people endlessly discussing the likes of Apple on the investment ideas, and think "whats the point"? Does the average person really have an edge on Apple. Is it really going to be mis priced by the market? No, the average person doesn't have an edge on any stock, small or large. The average person should buy index funds. Exactly. If you think you have an average understanding of a situation, you definitely shouldn't invest thinking you'll spot a mispricing. You could still do well by buying a wonderful business at a fair price and holding for the long-term, though, but determining what is a wonderful business isn't easy either. But it's not because a company is big and scrutinized that the consensus is correct. Just look at BAC and AIG during the past few years for an example of this. Link to comment Share on other sites More sharing options...
Palantir Posted March 17, 2014 Share Posted March 17, 2014 I didn't need an edge in GOOG to understand that when it was trading at 10x FCF it was a steal. No complaints selling it a 100% later. Link to comment Share on other sites More sharing options...
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