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Current Bullishness - What do you all think


Myth465
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I was trapped in 3 different airports and forced to watch CNBC.

 

It seems like everyone and there mom has gone crazy for stocks. I am enjoying the rally like everyone else, but believe its time to cash in some chips. Our situation in the US is improving, but our problems are real. They have been sweep under the rug in my opinion and its hard to walk around the house without tripping if you have a lumpy carpet.

 

The Economist even ran a few articles on the Jan 1 issue questioning the recovery / bullishness.

 

Thoughts?

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My real acid test is how many bargain stokcs are you finding?  I continue to find insurance, media, gaming and healthcare bargains (cos selling for less than 7x FCF many below 5x).  Some areas may be ahead of themselves (natural resources) but overall in my ponds things are still cheap.

 

Packer

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IMO, the broad market is modestly over-valued.  There are some ok values for individual stocks, but I'm not finding many that I actually want to buy (as Packer noted, insurance is an area with a number of good choices, but when you are already drastically overweight with insurance......).  

 

For now, I'm building cash.

 

 

SJ

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I think it pays to remember how the original Mr. Davis made all his money...insurance.  I just recently re-read the Davis Dynasty and forgot how much I enjoyed the story.

 

I think the same can be said about any other industry were an individual may have in-depth experience. 

 

Personally, I'm still finding enough ideas to stay busy.  I agree that the insurance space is compelling, but I have also been having success in the overcapitalized small bank/thrift area. 

 

I hope that in 2011 we continue to see spin-offs and re-orgs, since there were a hand full of those that worked really well for me this year.

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My real acid test is how many bargain stokcs are you finding?  I continue to find insurance, media, gaming and healthcare bargains (cos selling for less than 7x FCF many below 5x).  Some areas may be ahead of themselves (natural resources) but overall in my ponds things are still cheap.

 

Packer

 

There are no gaming stocks at 5 or 7x FCF.  Further, its disingenuous to value a gaming stock on a multiple of FCF given how much debt they carry. 

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But drastically being overweighted is how you outperform the market.  There is nothing wrong with that if you know what you are doing.

 

Packer

 

 

I like to think that I know what I'm doing, but I try to remain objective enough about my own behaviour to recognize that it could be unwise.  As Mark Twain once said, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."  Being drastically overweight in insurance exposes me to the risk that I'm missing a critical detail that ultimately could result in a permanent loss of capital.  I'm ok with that, but to add more capital to the insurance space I would need to have a super-cheap irresistible candidate. There are several good choices, but....

 

 

SJ

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You have to do what you are comfortable with.  I have a reasonable diverse portfolio but have not outperformed as much as a could had I had higher weighting on high conviction ideas.  However, my style is more shooting for 15 to 20% per year over a longer period of time versus 20%+.  Some folks are comfortable with the high concentration (Davis/Buffett) and some are not (Graham), I think it has to do with your personal risk tolerence.

 

Packer 

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Not sure how accurate it is but these surveys make me wonder : http://www.aaii.com/sentimentsurvey

 

That the recent surveys have bullishness going down does give me some comfort. 

 

And to Myth--the natural tendency of all those stock programs is to bullishness.  It sells, it's entertaining.  No one wants to watch a bunch of bears. :)  I think you'll only see a moderate tone on those programs when the market is just getting completely killed.

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I dont trust the insurance industry, no matter who is running it, to side-step super cats.  The world is too varied and interconnected to know all the odds on everything.  This is probably why larger insurers trade so cheap on a perrenial basis.  Cheaper than usual right now but not without alot of risk.  So, if you can stomach brutal corrections that come without warning thats great.  I have about a 30% threshold for insurers.

 

 

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I was trapped in 3 different airports and forced to watch CNBC.

 

It seems like everyone and there mom has gone crazy for stocks. I am enjoying the rally like everyone else, but believe its time to cash in some chips. Our situation in the US is improving, but our problems are real. They have been sweep under the rug in my opinion and its hard to walk around the house without tripping if you have a lumpy carpet.

 

The Economist even ran a few articles on the Jan 1 issue questioning the recovery / bullishness.

 

Thoughts?

 

Well a few months ago I was arguing that we weren't headed for a Depression, when everyone else pretty much thought we were, and now I'm not nearly as optimistic as everyone is becoming.  The deleveraging process is not easy, and it will take time.  But the numbers clearly show that a modest recovery is occurring. 

 

How robust can a recovery get with rising commodity prices, stagnant real estate prices and high unemployment?  I don't think a drop in market valuation is imminent, but I don't think 2011 will be as fruitful as 2009 and 2010.  We are in a pretty conservative position in both funds.  Be greedy when others are fearful, and fearful when others are greedy!  Cheers! 

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Well a few months ago I was arguing that we weren't headed for a Depression, when everyone else pretty much thought we were,

to be fair, people like me werent usiing the word depression we were saying then, what you are saying now:

 

How robust can a recovery get with rising commodity prices, stagnant real estate prices and high unemployment? 

 

Now everyone else is catching up with the thought process.

 

People have to remember, especially in the stock market- just because you land on 3rd doesnt mean you hit a triple.

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There are 3 with little or no debt and at those multiples, namely MGAM, FLL and LACO.

 

Packer

 

All of those have huge issues and are micro micro cap.  There are reasons they trade at those multiples.  But fair enough.  

 

EDIT:  I'd also say that the micro cap market is not indicative of the health of the overall market.  IE, finding a $10-$50 Million company undervalued doesn't say much to me about what the S&P is going to do. 

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But should a company trade a cheap multiple because it is a microcap?  This is where I am finding most of the "cheap" stocks (market caps less than $200 million).  You just need to make sure that being small is not an economic disadvantage.  As Graham has stated you can at most times find cheap secondary stocks and primary stocks only become cheap at the bottom of a bear market.

 

As to issues, you just need to understand those issues and whether or not you are willing to take the risks.  In this case for FLL, LACO and MGAM, the primary risks are marketabilty, Indian casino development (for LACO) and competitive Ohio gaming market (for FLL) versus the other gaming firms.  Given the pricing deltas between these other firms who have similar risks and the cheap prices overall, I feel most comfortable with MGAM then FLL then LACO.

 

I have no idea where the S&P 500 or the market is going to go.  I am just invest investing in "cheap" stocks. 

 

Packer

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No, they shouldn't be cheap because they are microcap.  However, one off microcaps are more likely to be cheap than a stock in the S&P 500.  Now, if the S&P 500 goes down 30%, your 7x FCF microcap (with issues) will probably also decline by 30%.  Or, if it's really a special situation, it will move completely independent of the market.  Regardless, they aren't indicative of the overall valuation of the market. 

 

In March 2009, I could have thrown a dart and found a stock that was cheap without issues (small or large cap).  Today, I am finding it very hard.

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I am happy with my holdings on the merits of their so called "owners earnings"(or my expectations for those earnings) relative to the current price.  I don't need any economic growth to get those earnings, I don't need a rebound in retail spending, I don't need housing to go up.  I don't even need the share prices to go up -- just the dividends (which are currently exceedingly depressed relative to historical payout ratios).

 

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to be fair, people like me werent usiing the word depression we were saying then, what you are saying now:

 

That's what you were saying Smazz, but there were a number of people who thought we were headed back to the lows of 2009.  Cheers!

 

 

Cheers,

lets all have a good 2011!

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