Have We Hit The Top?

[Gregmal]

3 hours ago, dealraker said:

And it was just a few months ago I wrote Greg stating, "Well, I just made the largest investment I've ever made...into JOE."

The price was $36.5 or so.

 

Having read Cialdini's book INFLUENCE a few times I was at least aware that my own lamblasting of JOE through the years both in speech and in dictation had put me in the serious place of silly/stupid/ignorant bias and such.  So I grabbed my head with my hands and twisted it around a little - then actually began some reading including annual reports and Greg's posts.

 

 

 

Its funny but St Joe land is actually another good example of the silliness of "sell!"...Pretty much every piece of land ever sold in that area is worth more today than what it was sold for. Watercolor and Watersound Beach were $150-250k lots that are now $1-3M lots with $4-10M houses on them. Pier Park was $200k an acre when Simon Property bought it in 2006.

 

Its further example of the baffling nature of needing to apply a "they must sell the land" approach which is clearly just an agenda driven ideology. When pressed, no one can tell me why Joe has to sell its land fast enough to equal its market cap while Gold doesnt; Amazon never has, and even today....Apple? St Joe is the only company in the world I guess where you need to sell land and produce hefty earnings in order to justify its value......OR....not!

 

Theres a lot of this sort of stuff out there; Joe provides a good micro example but on the macro its embedded everywhere and you look and its trap snares plenty, as we can see. 

 

Tangentially, Ive been amazed at how much St Joe and Fairfax have in common today. I own both and the story arc of dated perceptions and 180 degree differences between those perceptions and realities is still very encouraging. If I had cash Id plow it into both without a second thought. See little reason to be "waiting with dry powder for an opportunity" thats sitting right in front of us all. 

 

Like you I have my predispositions. Every few weeks I look for a reason to sell Fairfax because my bias says its a trading sardine. I give it some thought, look for reasons to sell, and conclude theres just no real justification for doing so. So much of investing is about challenging our biases and perceptions and evolving into situations that might seem uncomfortable before everyone else finds them comfortable. 

Edited July 18, 2023 by Gregmal

[dealraker]

6 minutes ago, Gregmal said:

 

Its funny but St Joe land is actually another good example of the silliness of "sell!"...Pretty much every piece of land ever sold in that area is worth more today than what it was sold for. Watercolor and Watersound Beach were $150-250k lots that are now $1-3M lots with $4-10M houses on them. Pier Park was $200k an acre when Simon Property bought it in 2006.

 

Its further example of the baffling nature of needing to apply a "they must sell the land" approach which is clearly just an agenda driven ideology. When pressed, no one can tell me why Joe has to sell its land fast enough to equal its market cap while Gold doesnt; Amazon never has, and even today....Apple? St Joe is the only company in the world I guess where you need to sell land and produce hefty earnings in order to justify its value......OR....not!

 

Theres a lot of this sort of stuff out there; Joe provides a good micro example but on the macro its embedded everywhere and you look and its trap snares plenty, as we can see. 

 

Tangentially, Ive been amazed at how much St Joe and Fairfax have in common today. I own both and the story arc of dated perceptions and 180 degree differences between those perceptions and realities is still very encouraging. If I had cash Id plow it into both without a second thought. See little reason to be "waiting with dry powder for an opportunity" thats sitting right in front of us all. 

 

Like you I have my predispositions. Every few weeks I look for a reason to sell Fairfax because my bias says its a trading sardine. I give it some thought, look for reasons to sell, and conclude theres just no real justification for doing so. So much of investing is about challenging our biases and perceptions and evolving into situations that might seem uncomfortable before everyone else finds them comfortable. 

LOL...I basically went to sleep on Fairfax over the years.  I'd bought pre "Prem's the Buffett of the North" media hype years and got much of the benefit of the rediculous over-valuation that came along with his designation, but then I didn't sell ---- and honestly in my life if there was ever a clear "sell" this was the case for Fairfax back then.

 

But like Meta/Facebook too where I reluctantly bought more sub $100----well, I've slumbered down in my comfortable position out on the decks or reading nook and read COBF now for a long time and got brow-beat to hell by Parsad on Fairfax.  So in small amounts I've bought Fairfax about 20 times in the last year and a half or so.  I think only occasionally about the business or Prem nowadays, but when the logic screams at you and someone you admire is posting up endlessly to buy it or claim idiocy if you don't?  Yea, go for it.

 

Short of my early life reading COBF has likely been one of the most educational things for me in decades as far as investing.  Spek's discussion of the financials is yet another benefit.  I have enough $ coming in to make purchases every couple of weeks and East West, Cathay, and Hope all got funded again in the last couple of months.

 

I'll update you Greg on the warehouse buy we are doing if it goes through.  It it does it will literally shock you as to how cheaply we're getting it given the pressure on space locally.

 

I haven't yet bought much of MSG...but am reading.  

 

 

[John Hjorth]

4 hours ago, Gregmal said:

I think when we own real businesses we are always having to do something, so we dont really need to do the "do something" thing. When we own stocks, and dont really understand or appreciate what we own, we tend to think, since we arent really doing anything, that the whole buy/sell all the time thing, is how you do something. Its certainly one of those weird things people do. 

 

Me? IDK, I think its great I can choose my assets and business partners, have people way more qualified than me do all the work, and just participate without lifting a finger. 

 

Many years ago - but a few years after leaving university - I met again with an acquaintance from the university years, at a party, set up by our common friend, to have a good time together with a lot of folks, where we all knew each other, more or less, based on speciality.

 

So I asked him - openly - to start a conversation with him - how and what he was  doing. He was then the Danish head af sales for CompaQ. [Much to my surprice, I spend more time at the university, while he left with a B.Sc., while I continued to get the M.Sc., to become a Danish CPA [M.Sc. in auditing mandatory here locally].

 

I still remember him at certain written exams [those were always on Mondays] meeting in timely, but sleeping out major hangovers the first hour or so - taking a power nap! - before starting to do something! 

 

I was a bit baffled about his career progress compared to mine at that time, so I asked him : "What do you actually do in your job?"  He answered me [semi-drunk, at the party, like me] : "Not much. I keep close track on all the sales reps. referring to me. From time to time, I'm in the field, too, - selling a bit."

 

Then he told me he as part of his job description he also had these regularly not so pleasant conversations with his subordinate reps that were lagging on performance.

 

He told me he had basically and only two alternatives under these talks :

 

1. Firing the employeé.

2. To put a part of his own personal orders on top of the [lagging ] orders of the employeé, with the comment : " For me to have success, you need to have success!"

 

- - - o 0 o - - -

 

The first name of your personal sales reps. may be Warren, Charles, Prem, Jorge, or whatever, the last name may be Wallenberg or Lundberg, or whatever.

 

We have the privilege to fire them all immediately - without even giving notice. To continue to do nothing successfully, we need to choose our reps. wisely.

 

Easy to say, hard to do.

Edited July 18, 2023 by John Hjorth

[Spekulatius]

@SharperDingaan joint is close to Ottawa. If you are in the Toronto area (Mississauga), I can recommend these guys:

https://www.cameronsbrewing.com/

 

They have some value deal to get 20 cans for 30 CAD or something like this, if you pick it up. They deliver also. Couldn't do the deal on vacation - it was a bit too much, but did buy a few cans to bring home as a souvenir. I very much liked their brews (Pilsner, Red ale, lagers were all good).

https://www.cameronsbrewing.com/

 

Beerflation is still not to bad up there or around home.

Edited July 18, 2023 by Spekulatius

[UK]

16 hours ago, Gregmal said:

Tangentially, Ive been amazed at how much St Joe and Fairfax have in common today. I own both and the story arc of dated perceptions and 180 degree differences between those perceptions and realities is still very encouraging. If I had cash Id plow it into both without a second thought. See little reason to be "waiting with dry powder for an opportunity" thats sitting right in front of us all. 

 

Like you I have my predispositions. Every few weeks I look for a reason to sell Fairfax because my bias says its a trading sardine. I give it some thought, look for reasons to sell, and conclude theres just no real justification for doing so. So much of investing is about challenging our biases and perceptions and evolving into situations that might seem uncomfortable before everyone else finds them comfortable. 

 

This is very interesting, thanks for sharing! This is how I feel about both these companies too. I first bought some FFH maybe in the end of 2012 (or similar time), when there was a dip and they reached 3 year or so low, after they were thrown from the MSCI Canada or some other index, but the next 10 years, due to their bearish positioning and mistakes, it was love and hate or on and of holding for me (that is more of a trading sardine) and I never get enough conviction to make it a big position. But from the last year (and I was already maybe 1-2 years to late, and many thanks to Viking, Parsad and others for sharing their analysis and thinking on FFH) I do not see it as a trading sardine anymore. And they are still cheap on absolute and 'value today', while at the same time with improving results and also in a position to re-rate at least some 30-50 per cent relatively. I also followed JOE (together with Berkowitz) from a long time ago, but until covid and later reading all discussion here (again, many thanks to Gregmal and others) last year, I also did not have enough conviction to make it a large position. What is interesting, while FFH is already cheap on current results, JOE is maybe more in a 'value tomorrow' bucket (if you insist for having a view on future results to value it), but at the same time, if you look at it through possible NAV (as per latest discussion) it seems to me also like 'value today':). So here you are, you have two understandable, owner/large investor operated companies, with perhaps little if any disruption risks, with quickly growing/improving results, still cheap and not discovered or loved by market too much (with hopefully still wrong perceptions) to buy and do not touch, if nothing unexpected occurs (or they double or triple too quickly-lets hope for this scenario:)), for at least the next 3 or 5 years. I am not sure I have enough conviction at this time to suggest owning only them two, but even if you do not have much better ideas, adding BRKB and at least one other postiion will give you a well diversified portfolio, as per Munger:))). 

 

Edited July 19, 2023 by UK

[Dinar]

https://aswathdamodaran.blogspot.com/

 

Interesting take from Damodaran on where equity risk premium is today vs history

[mattee2264]

Microsoft to charge $30 a month for add-on generative AI features. Markets obviously reacting very positively.

 

But I think if Big Tech try to be too quick to monetize generative AI before it actually adds any value it is a risky move.

Obviously they might get a lot of people signing up because it is a fun fad. But if the reality doesn't live up the hype which seems to be inevitable then people will cancel pretty quickly. 

 

And unlike something like cloud which pretty much came as a freebie to Big Tech they will need to invest a lot of money into AI and if the returns on these new investments do not match their historical returns then any growth from AI will come at a considerable cost and not necessarily be value generative. 

 

Really it would have been a lot better I think to tease the future possibilities and talk up the investment and the wonderful returns they expect from it. And wait until they actually have a solid value-add offering before trying to monetize too aggressively. 

[Luca]

12 minutes ago, mattee2264 said:

Microsoft to charge $30 a month for add-on generative AI features. Markets obviously reacting very positively.

 

But I think if Big Tech try to be too quick to monetize generative AI before it actually adds any value it is a risky move.

Obviously they might get a lot of people signing up because it is a fun fad. But if the reality doesn't live up the hype which seems to be inevitable then people will cancel pretty quickly. 

 

And unlike something like cloud which pretty much came as a freebie to Big Tech they will need to invest a lot of money into AI and if the returns on these new investments do not match their historical returns then any growth from AI will come at a considerable cost and not necessarily be value generative. 

 

Really it would have been a lot better I think to tease the future possibilities and talk up the investment and the wonderful returns they expect from it. And wait until they actually have a solid value-add offering before trying to monetize too aggressively. 

Read a nice comment regarding this. The Ai revolution is people still using Office 365 for the next decade? To do what?

[Paarslaars]

The world still runs on excel...

[Parsad]

Well, contrary to what the banks are saying and many others, I'm expecting things to get tough next year in Canada for two reasons:

• Read a story today about many people taking large, short-term mortgages out while supply is low because they are expecting rates to fall next year...so in other words, they are paying inflated prices and taking on massive mortgages, and expecting their payments to go down next year.
• My brother who works for TD told me that today, they sent out 125,000 trigger letters to mortgagees.  Meaning, their variable rate mortgages are now only covering interest or less.  Their options, pay a lump sum to bring the mortgage payments in line with where they were, extend their amortization, or pay off their mortgage (meaning sell or borrow from friends/family).  That's for all of Canada, but just for this week alone!  I would imagine RBC, CIBC and BMO are in similar straits...so you can imagine close to 500K mortgages may be covering only interest payments!  If rates rise further over the next few months, that is going to trigger another avalanche of trigger letters.

Cheers!

 

[Gmthebeau]

10 hours ago, Parsad said:

Well, contrary to what the banks are saying and many others, I'm expecting things to get tough next year in Canada for two reasons:

• Read a story today about many people taking large, short-term mortgages out while supply is low because they are expecting rates to fall next year...so in other words, they are paying inflated prices and taking on massive mortgages, and expecting their payments to go down next year.
• My brother who works for TD told me that today, they sent out 125,000 trigger letters to mortgagees.  Meaning, their variable rate mortgages are now only covering interest or less.  Their options, pay a lump sum to bring the mortgage payments in line with where they were, extend their amortization, or pay off their mortgage (meaning sell or borrow from friends/family).  That's for all of Canada, but just for this week alone!  I would imagine RBC, CIBC and BMO are in similar straits...so you can imagine close to 500K mortgages may be covering only interest payments!  If rates rise further over the next few months, that is going to trigger another avalanche of trigger letters.

Cheers!

 

 

I have seen reports that many recent homebuyers are expecting rates to fall and they "will just refinance".  I agree a lot of people are betting on a return to low rates.  This seems like a very risky bet to me.   I think it is more likely we see the treasury yield curve shift up on the long end when people finally realize the FED is serious about getting back to 2% inflation and it will take much longer than the market expects.   Mortgage rates may very well go higher not lower.

[Gregmal]

10 hours ago, Parsad said:

Well, contrary to what the banks are saying and many others, I'm expecting things to get tough next year in Canada for two reasons:

• Read a story today about many people taking large, short-term mortgages out while supply is low because they are expecting rates to fall next year...so in other words, they are paying inflated prices and taking on massive mortgages, and expecting their payments to go down next year.
• My brother who works for TD told me that today, they sent out 125,000 trigger letters to mortgagees.  Meaning, their variable rate mortgages are now only covering interest or less.  Their options, pay a lump sum to bring the mortgage payments in line with where they were, extend their amortization, or pay off their mortgage (meaning sell or borrow from friends/family).  That's for all of Canada, but just for this week alone!  I would imagine RBC, CIBC and BMO are in similar straits...so you can imagine close to 500K mortgages may be covering only interest payments!  If rates rise further over the next few months, that is going to trigger another avalanche of trigger letters.

Cheers!

 

Do they not have any underwriting standards in Canada? I dont know but here in the US it doesnt matter "what people think" because the mortgage underwriting process requires you to have a certain credit profile and income ratio. In other words you can either afford it or you cant and unless you lose your jobs after closing, you can afford the home you are in. 

[Spekulatius]

36 minutes ago, Gregmal said:

Do they not have any underwriting standards in Canada? I dont know but here in the US it doesnt matter "what people think" because the mortgage underwriting process requires you to have a certain credit profile and income ratio. In other words you can either afford it or you cant and unless you lose your jobs after closing, you can afford the home you are in. 

I guess the question is what sort of safety margin in terms of rate increases was build into the mortgages at origination in Canada. The US is mostly a fixed rate mortgage market, but every other country except the USA does  not have 30 year fixed mortgages.

[Gregmal]

Underperforming fund managers everywhere:  Only 7 stocks went up so its not our fault we didnt own them or come close to perming well so far this year!

 

Gregmal: Weird, who'd have thought JOE, MSGE, SPHR, PCYO, AIV, UBER and FRFHF were the only stocks that went up this year?

 

 

Jokes aside, the professional level bullshit and excuse making is so fun to watch development. The headlines say the entire market is only up because of 7 tech stocks...but this just isnt true. 

[thepupil]

The median and average of S&P 500  stock is up 8% and 11% YTD.

 

For the top 10, those #'s are 48% and 72%. 

 

Everyone should be accountable for their performance. Part of the whole point of indexing is to ensure that you capture the big winners in a given year, so narrow contribution to an index's performance does not invalidate those who index (and in fact could be seen as a validation as it illustrates how hard it can be to outperform). 

 

with that said, it's probably been one of the more  extreme short term periods 

 

[Saluki]

1 minute ago, thepupil said:

The median and average of S&P 500  stock is up 8% and 11% YTD.

 

For the top 10, those #'s are 48% and 72%. 

 

Everyone should be accountable for their performance. Part of the whole point of indexing is to ensure that you capture the big winners in a given year, so narrow contribution to an index's performance does not invalidate those who index (and in fact could be seen as a validation as it illustrates how hard it can be to outperform). 

 

with that said, it's probably been one of the more  extreme short term periods 

 

 

In my work provided retirement account, I have index funds so I like to think of my portfolio a little like what Nassim Taleb describes as a barbell.  The SP500 is cap weighted so, regardless of whether you agree with the valuation of the high flyers, it is set up to capture the high fliers because they are added to the index as they start to get big. 

 

With that exposure to large cap growth on one end of the barbell like a ballast, I feel okay investing on the other end in small caps, special situations, and commodity shitcos that are dirt cheap.  Overall, my risk weighting is moderate. 

[Gregmal]

I dunno but there’s a certain beautiful  irony to the fact that people who base their businesses on charging bogus fees for their investment acumen and stock picking prowess….get a stock pickers market, and then complain that it’s not fair because it’s wasn’t their stock picks that went up! Typically Wall Street eh?

 

Same on the short side. Is Chanos still whining about “the markets” misreading CAT, GE, DLR, and VRE? Wah wah, not fair!

[Masterofnone]

4 hours ago, Gmthebeau said:

 

I have seen reports that many recent homebuyers are expecting rates to fall and they "will just refinance".  I agree a lot of people are betting on a return to low rates.  This seems like a very risky bet to me.   I think it is more likely we see the treasury yield curve shift up on the long end when people finally realize the FED is serious about getting back to 2% inflation and it will take much longer than the market expects.   Mortgage rates may very well go higher not lower.

Well in a (useless) sample size of one, my son and his wife just bought a house. Because they need one and are tired of pissing away potential equity in rent payments. They bought a house they can afford and if rates go down, will naturally refinance if it seems prudent. Anyone with a mortgage will HOPE rates will fall so that refinancing helps them financially. That is different than EXPECTS.

Reports..... agendas....?

Those expectations could be the case, though but at least in my son's experience the banks didn't seem caviler with their underwriting requirements- quite the opposite.

[Gmthebeau]

4 minutes ago, Masterofnone said:

Well in a (useless) sample size of one, my son and his wife just bought a house. Because they need one and are tired of pissing away potential equity in rent payments. They bought a house they can afford and if rates go down, will naturally refinance if it seems prudent. Anyone with a mortgage will HOPE rates will fall so that refinancing helps them financially. That is different than EXPECTS.

Reports..... agendas....?

Those expectations could be the case, though but at least in my son's experience the banks didn't seem caviler with their underwriting requirements- quite the opposite.

 

Exactly, hoping rates go down in their case would be normal.  Buying something you may not be able to afford because you EXPECT rates to go down is a whole other thing.   

[TwoCitiesCapital]

9 hours ago, Gregmal said:

Do they not have any underwriting standards in Canada? I dont know but here in the US it doesnt matter "what people think" because the mortgage underwriting process requires you to have a certain credit profile and income ratio. In other words you can either afford it or you cant and unless you lose your jobs after closing, you can afford the home you are in. 

 

On the flip side of this, I know someone who purchased a 500k home recently because they live in an expensive part of the country for retirees and vacationers. Collectively - his wife and him may take home ~80-90k.

 

They're monthly payment basically eats up their entire discretionary take-home pay. After car notes, mortgage, and groceries there is basically nothing left over for savings, expected maintenance, etc. If one of them gets laid off, it's choosing what to default on immediately since there is so little buffer to save a few months of payments. 

 

I advised against the purchase until prices and/or rates had come down, but some bank approved them and they bought basically the top of the market 

 

Generally, I agree the credit standards at banks are good and there won't be a repeat of 2008. That doesn't mean there won't be credit pain on defaults if we get ANY additional weakness in the economy 

Edited July 21, 2023 by TwoCitiesCapital

[thepupil]

For better and worse, a $500k a home isn’t indicative of an area being expensive anymore. Close to average/median home price in US now. 

[Gregmal]

13 minutes ago, TwoCitiesCapital said:

 

On the flip side of this, I know someone who purchased a 500k home recently because they live in an expensive part of the country for retirees and vacationers. Collectively - his wife and him may take home ~80-90k.

 

They're monthly payment basically eats up their entire discretionary take-home pay. After car notes, mortgage, and groceries there is basically nothing left over for savings, expected maintenance, etc. If one of them gets laid off, it's choosing what to default on immediately since there is so little buffer to save a few months of payments. 

 

I advised against the purchase until prices and/or rates had come down, but some bank approved them and they bought basically the top of the market 

 

Generally, I agree the credit standards at banks are good and there won't be a repeat of 2008. That doesn't mean there won't be credit pain on defaults if we get ANY additional weakness in the economy 

Yea it’s very weird but not abnormal. Between friends and family I’d say the majority of the people I know live similarly. Thankfully they are W2 and not 1099s…but one is a construction guy in NYC and makes $160k a year doing custom office buildouts. Another a manager for Lockheed Martin in Orlando making $110k. Another a cop in Palm Beach doing $130k including overtime. Another a nurse making $98k in north Florida. They live what we probably grew up thinking was middle-upper middle class lifestyles. Two own, two rent. The ones that own bought precovid. But the common theme? In order to live middle/upper middle class with what most would consider top 15% type jobs/income…requires them saving absolutely nothing and barely taking advantage of the company offered stuff.

 

It’s weird and probably something that’s gonna appear in some sort of longer term investment theme although at this point I haven’t identified where yet. 

Edited July 21, 2023 by Gregmal

[Parsad]

9 hours ago, Gregmal said:

Do they not have any underwriting standards in Canada? I dont know but here in the US it doesnt matter "what people think" because the mortgage underwriting process requires you to have a certain credit profile and income ratio. In other words you can either afford it or you cant and unless you lose your jobs after closing, you can afford the home you are in. 

 

Underwriting process in Canada is stronger than U.S...thus why we avoided the GFC scenario.  You have to put 5% minimum down and then pay for mortgage insurance, other wise minimum 20% down.  Only 35% of your gross income can be used for mortgage payments...including utilities and property taxes.  This is all from interest rates and people taking out the maximum mortgage they could afford when rates were low.  Cheers!

[mattee2264]

I think it is the case in a lot of Western countries that people with respectable middle class jobs are struggling to get on the property ladder, afford to raise a family and save enough for retirement. Especially hard for youngsters who missed out on the double digit real returns of the last 15 years. 

 

Pretty clear that ZIRP has massively increased wealth inequality and therefore intergenerational equity. But unfortunately even with the Fed pulling the rug away there hasn't really been any meaningful change in sentiment and people continue to chase Big Tech and maintain very high equity allocations. And markets know that if something looks like breaking the Fed will simply expand its balance sheet to mop things up. 

 

And it is a typical late bull market phenomenon that even as interest rates rise investors continue to see equities as far more attractive because the greater risk of equities isn't really showing up either in the underlying earnings or the quoted prices. It will take falling earnings and falling prices for investors to appreciate more the attractiveness of a fixed but certain return. 

 

 

Edited July 21, 2023 by mattee2264

[Gregmal]

True, but investing and homeownership is really the only path left for a normal person to ever get anywhere. Lets say you are super lucky, and for 30 years average $150k annual pre tax salary. This probably isnt realistic bc most people won't get anywhere close to that number until probably 2/3 of the way through their adult work life. But lets say its the average. After taxes, rent, and what comes with lets say 1.5 kids instead of 2.5, and a wife/husband who doesnt divorce you(even though thats the case like 60% of the time), if you're not investing but just saving, you're probably able to live like a cheapskate and sock away $30k a year? x30-40 years of working? You got like a million bucks....

 

So if you're an extreme outlier for a normal person, and get lucky, and beat the odds, and save for a really, really, really long time, you can be a millionaire at 70! 

 

Conclusion? at some point you need to take control of your shelter situation and to get ahead you need to have your money start making you money at some point.