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1988 -- what was it like?


ERICOPOLY
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Right, we've been pretty well pounded by experts on what we're going to expect the next decade.  I am just finishing The Davis Dynasty by John Rothschild and in it I found something from a Barron's Roundtable in 1988 that I thought could just as well be published today, except by comparison I think today Jim Rogers is relatively bullish. 

 

 

"A bear market has started that will probably last several years," said dour Felix Zulauf.  "We have had the first down leg."

 

"The questions to me," chimed in Paul Tudor Jones, "are not so much... will we have a bear market, but will we be able to avert a worldwide depression like we saw in the 1930s?"

 

"Most stock markets around the world," echoed TV commentator and motorcycle buff Jim Rogers, "are going to go up dramatically ... but no longer than six months, at which point we are going to have a real bear market.  I am talking about a bear market that is just going to wipe out most people in the financial community, most investors around the world.  And in fact there are many markets I would short but which I will not be short, because I think they will probably close them down."

 

 

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ERICOPOLY, first up, what do you think of the book?

 

I have been thinking alot about forecasting (and forecasters). Bottom line, I think it is normally pretty unreliable. What does one do when various (reliable, respected) people are making very different calls?

 

Things today (and the past 18 months) are about as murky as I can remember...

 

I am in cash. Two organizations I greatly respect (FFH, BRK) are largely invested. Follow the money?

 

I am content to wait for a fatter pitch (brought on by a broad based sell off). Time will tell if that forecast pays off... 

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Doomsayers: Have a look at this: (nod to CalculatedRisk blogspot:)

 

http://www.calculatedriskblog.com/2009/10/jim-realtor-no-shortage-of-buyers.html

 

Eric, That's great copy.  That was in the middle of the "greatest bull market in history" as I have heard 1982 to 1999 called now.  Shows how much you can predict the future.

 

Viking, FFH and BRK invest when stocks are cheap.  They dont invest in forward prediction.  They know that either things will rebound or cease to exist all together.  If its the latter no amount of money is going to make any difference. 

 

 

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When thinking about decade long returns, I like to refer to a nice little article written a few years ago by Jack Bogle:

 

http://www.vanguard.com/bogle_site/sp20060515.htm

 

Looking at current valuations (ie, S&P500 ~ 15X) and applying the Bogle framework, an optimist might expect an average annual return in the high single-digits over the next decade....perhaps 9%?  Of course, if that's assuming valuations remain in the 15-17X range.  The doom and gloom crowd would generally argue that the PE goes to single-digits when the market hits bottom...but maybe that was in March 2009?

 

SJ

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I do like the book.  Mostly because I like to read quotes like the ones above and there are things like that stuffed throughout the book.  I like books that center around a particular individual's life, because I typically get a little bit of historical background in a fun format.

 

The tidbits I enjoyed the most were the quotes like the ones above, where the experts thought a depression was around the corner.  Good grief, I was in 9th grade in January 1988, and I don't remember any depression.  Maybe I was a bit upset that Prom night didn't conclude quite the way I'd always dreamed, but that didn't cause the markets to close down.

 

 

 

 

 

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As I remember it, there is three main subjects in this book:

 

- The Davis family values and history, with a focus on Shelby C. Davis life and his relationship with his family members.

- The markets (bonds, stocks, etc.) historical data and general investors humor over several decades in his long lifetime (and several people, included medias in general, who predicted some stuff were dead wrong in retrospect)

- The investment style of Shelby C. Davis

 

That being said, I've red it few years ago, so maybe I'm missing some important topics here.

 

Cheers!

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Eric,

 

I just picked a copy of the Davis Dynasty but haven't gotten to it yet. Do you have any idea what page the Barron's discussion you reference is on? I couldn't seem to find it on the internet.

 

Thanks!

 

It is in Chapter 15.

 

I have the Kindle edition and they have "location" references, not page numbers.  It's at Kindle location 2085-87, but a lot of good that will do you :-)

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hy, I have been rewarded tremendously over the years with a very simple strategy of basically buying stuff that people hate (buying low) and then selling when it comes back in favour. Rarely have I held any position for more than a year and in some instances my holding period has been weeks (FFH a couple of times).

 

Yes, March was the mother of all buying opportunites and I was fortunate enough to participate wth purchases of BRK, WFC, GE, AMEX & FFH. And yes I sold, with hindsight, too early. And thanks to ORH I have had one of my best years ever. (The icing on the cake has been the appreciation of the CAN$ (living in Canada); with it approaching $0.95 to US$ my cash now buys much more - compared to US investors - than a few short months ago when the rate dropped below $0.80.)

 

And the past is now in the past. My thinking is now focussed on what to do moving forward. What is it that people hate today? Stocks are up 60%. Bonds yields are again approaching historic lows. Commodities have had a good run. Gold is up dramatically.

 

About the only think people seem to hate today is the US$.

 

Bottom line, I do not see any fat pitches (I mean really fat). Greed is again taking over.

 

I believe the current downturn is not behind us. What if the Japan experience is in our future? What if our stock market averages are down 70% from their peak 20 years later? Buy and hold?

 

I keep telling myself to be patient and simply wait for something I understand to go on sale.... it has worked for the last 10 years. I see no reason why it will not continue to work. (I also try and continue to learn from the past and tweak what I am doing...)

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viking i hear ya

 

it is getting harder and harder to find good ideas now.

 

i have been gradually raising cash as well.

 

it is getting frustrating to find fat pitches now, i was buying like crazy during the 1st 3 month of this year. It turn out well, but i guess it could of easily turn the other way.

 

what to buy/invest now?!?!?!?

 

then again i understand what other are going to say "there are plenty of great companies at reasonable prices" this i agree. I guess i feel more comfortable when i find ideas that make me go "whoaa i can't believe this is SOOO cheap".  what i am afraid is i can be waiting for years to come.....

 

 

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What if the Japan experience is in our future?

 

Everytime I catch the fearful/cautious side of myself asking that question, and sometimes I worry about it for days at a time, the calmer side of me settles the dispute with "rising population vs declining population".

 

We'll grow ourselves out of the current housing inventory overhang, and then construction ramps up and house prices will be held up by the cost of building new ones.  And if the dollar is weaker the cost of building new ones will rise.

 

It's what I tell myself.  We'll see what actually happens.

 

All of us will die.  That I can promise.

 

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I have also some trouble with buying right now. Generally, bargains nowadays are more expensive than they were 6 to 12 months ago and when you find a really cheap one then the quality is not there. I would not say that the market is expensive, but the gap between intrinsic value and trading prices has shrunk dramatically.

 

This may not apply to you if you are a buy and hold type investor with stocks such as JNJ, BRK, FFH, GS and others still attractively priced. They won't double overnight, but should provide attractive returns. For the more agressive value hunters, this market looks more tricky: a really cheap stock may only be cheap if the economy recovers. If there is a hiccup, then buying now may prove painful.

 

I realize that I cannot predict the economy, but I can't help myself and keep thinking about this second wave of mortgage refinancing that is coming up. We hear very little about that currently and the size in $ is as big if not bigger than subprime. With unemployment at 10%, higher costs for various necessities and interest rates on loans going up, I have to think that it will hurt somewhere.

 

Then you have the unknown impact of stuff like that:

 

http://money.cnn.com/2009/10/08/news/economy/bernanke_fed_balance_sheet/index.htm?postversion=2009100818

 

Who is going to buy such massive quantity of garbage from them? They can't really pull out, can they? My guess is that they will have to wait for these securities to reach maturity since selling would hurt the recovery process. Then try to imagine what happens with a double dip recession or a very very slow recovery with such a balance sheet and the Fed rate already at 0%.

 

Cardboard 

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I think you can measure the hate by looking at volatility pricing.

 

SHLD -- if the stock advances 3% by Jan 2011 you make 46% return writing the $70 strike put.  That seems a little excessive for basically treading water.

 

Only useful if you are comfortable with SHLD.

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