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Is there a bubble? Pullback coming?


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Guest misterstockwell

hey.. Prem predicts macro too.   :-X

 

Exactly

 

The world is too intertwined these days to be blind to macro issues.

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Guest broxburnboy

Will you guys shut up with your predictions and macro-views!   ;D  It's driving me bonkers. 

 

- Buy when things are cheap, sell when they are dear. 

- Look for things that are distressed and that no one else is buying. 

- Don't try and predict the future.

- Always keep some dry powder lying around.

 

Other than that, go read some 10-Q's, 10-K's or a good book!  Cheers! 

 

It seems to me that when you

 

- Buy when things are cheap, sell when they are dear. 

- Look for things that are distressed and that no one else is buying. 

 

You are predicting the future ! i.e. things will get better and people will start buying them

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hey.. Prem predicts macro too.

 

The world is too intertwined these days to be blind to macro issues.

 

Buffett and Prem don't know either.  As much as all of us try, none of us will get it completely right.  What they try to do is protect to the downside because of the risks to their insurance business.  Last time I checked, none of us ran an insurance business.   ;D  Cheers!

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It seems to me that when you

 

- Buy when things are cheap, sell when they are dear. 

- Look for things that are distressed and that no one else is buying. 

 

You are predicting the future ! i.e. things will get better and people will start buying them

 

Yes, to a certain degree.  What you are doing is buying something worth more than it's selling for...and that price will rationalize itself over time.  You are not speculating on the direction of the economy, metrics or interest rates.  Cheers! 

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Guest broxburnboy

It seems to me that when you

 

- Buy when things are cheap, sell when they are dear. 

- Look for things that are distressed and that no one else is buying. 

 

You are predicting the future ! i.e. things will get better and people will start buying them

 

Yes, to a certain degree.  What you are doing is buying something worth more than it's selling for...and that price will rationalize itself over time.  You are not speculating on the direction of the economy, metrics or interest rates.  Cheers!   

 

To ignore macro trends and their extrapolations is madness! Individual investments do not exist in a bubble, no matter how we try to rationalize them.

Case in point.. for the last 20 years stock market investors have hung on the every word of the Maestro and his successor, knowing that the

growth profile of their investments will be affected by the setting of the interest rate and the flood of liquidity engendered by lower rates. They have blinded themselves to the consequences of cheap money (monetary inflation) and indulged the  wishful thinking of something for nothing.

As the ponzi unwinds through runaway inflation (it cannot be a deflationary end, as long as the Fed can and will print unlimited money)

every paper asset and mispriced risk asset will be toast. Macro will trump micro in the end.

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To ignore macro trends and their extrapolations is madness! Individual investments do not exist in a bubble, no matter how we try to rationalize them.

Case in point.. for the last 20 years stock market investors have hung on the every word of the Maestro and his successor, knowing that the

growth profile of their investments will be affected by the setting of the interest rate and the flood of liquidity engendered by lower rates. They have blinded themselves to the consequences of cheap money (monetary inflation) and indulged the  wishful thinking of something for nothing.

As the ponzi unwinds through runaway inflation (it cannot be a deflationary end, as long as the Fed can and will print unlimited money)

every paper asset and mispriced risk asset will be toast. Macro will trump micro in the end.

 

Please take this in the nicest way possible...rubbish!  ;D 

 

We bought ITEX four years ago and our average cost is $3.31.  Today it's $4.55 and undervalued, pays a 3% dividend and continues to generate steady free cash flow.  Did the macro affect this business or ITEX in any measurable way?  No, their balance sheet is stronger, their cash flows are the same and the business is completely intact.

 

I bought Fairfax 7 years ago at $180, then during the same year I bought more stock at $65.  Today the stock is at $380.  Their balance sheet is stronger than ever and the business is bigger than ever.  Did the macro affect them in any measurable way?

 

If you bought Berkshire back in 1999/2000, the A shares were trading between $45,000 and $75,000.  Today, they are at $130,000 and the business is bigger and as good as it ever was.  Did the macro affect Berkshire in any measurable way?

 

I'm sure you can come up with numerous rebuttals to this, or even show me how certain stocks are the same price or at even much lower prices.  But the truth is that any investor could have found quality investments and done reasonably well by buying at a discount to the intrinsic value of those investments. 

 

The biggest argument I can give you to why macro is irrelevant...Mohnish put in $100K into PIF I in 1999, and today his stake is worth $50M...that's after losing 70% in 2008 and 2009, and then rebounding from the lows in 2010.  Macro doesn't matter to the degree many people are speculating.  Find good businesses, invest in them at great prices and build them for the long-term.  Cheers!   

 

 

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Guest broxburnboy

I can indeed think of many examples to the contrary.. but that would probably be non productive at this point. We must agree to disagree I suppose and let the devil take the hindmost.

Cheers

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"The biggest argument I can give you to why macro is irrelevant...Mohnish put in $100K into PIF I in 1999, and today his stake is worth $50M...that's after losing 70% in 2008 and 2009, and then rebounding from the lows in 2010.  Macro doesn't matter to the degree many people are speculating.  Find good businesses, invest in them at great prices and build them for the long-term.  Cheers!"   

 

No offense Sanjeev, but I think Mohnish is not being truthful to you. The way you frame that statement is he didn't add to the account. If you plug those numbers in over an 11 year time frame 99-10, the average annualized return is 75.93% AFTER tax!

 

Do you really believe Mohnish?

 

If you can provide audited numbers, I stand corrected and I apologize for doubting him.

 

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No offense Sanjeev, but I think Mohnish is not being truthful to you. The way you frame that statement is he didn't add to the account. If you plug those numbers in over an 11 year time frame 99-10, the average annualized return is 75.93% AFTER tax!

 

Do you really believe Mohnish?

 

If you can provide audited numbers, I stand corrected and I apologize for doubting him.

 

Of course he added to the account!  Almost all of his incentive fees were put back in.  My point was that regardless of macroeconomic factors, a good business is a good business. 

 

At best, Mohnish was worth $10M after the sale of Transtech, so where did the rest of the money come from?  Macroeconomic factors did not affect Mohnish's ability to create wealth, did it?  Not for his partners, nor for himself.  Cheers!

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I think people underestimate the luck component and overestimate the skill component. Which is why I'm an equally big believer in luck as I am in honing your skills.

 

I 100% agree with the luck component. Even coin flips that pay you 3 to 2 can wipe you out if you get hit with a dry spell. My thinking has always been to pick myself up and rebuild. Of course, I was probably laying 3 to win 1 unit on coin flips when I was just starting.

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I think there are times, outliers, when things a so nutty paying attention to the macro makes some sense (very rare). I also think trying to get too cute with the macro and trying to predict too much is nearly impossible.

 

A key learning for me since the crash is to get back to simple value investing (which Sanj outlined earlier with his 4 points) and too stop trying to predict things too much (so I do not read D Rosenberg or J Hussman as much these days). As the market rises higher and positions become fully valued (and sold) it becomes more difficult to find value and cash (as a percent of the portfolio) will rise; you don't need to predict the macro so much as manage your holdings appropriately. I know, easily said but hard to do...

 

 

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Sanjeev,

 

I'm not sure I'd classify ITEX as a quality investment... It might be a decent business but not a quality one.

 

Re Monish, I think the $50m you're talking about is his performance fee in one of his fund. I don't think that's the direct return of his initial investment.

 

Eric

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"The biggest argument I can give you to why macro is irrelevant...Mohnish put in $100K into PIF I in 1999, and today his stake is worth $50M...that's after losing 70% in 2008 and 2009, and then rebounding from the lows in 2010.  Macro doesn't matter to the degree many people are speculating.  Find good businesses, invest in them at great prices and build them for the long-term.  Cheers!"    

 

No offense Sanjeev, but I think Mohnish is not being truthful to you. The way you frame that statement is he didn't add to the account. If you plug those numbers in over an 11 year time frame 99-10, the average annualized return is 75.93% AFTER tax!

 

Do you really believe Mohnish?

 

If you can provide audited numbers, I stand corrected and I apologize for doubting him.

 

 

Mohnish knows more than I do, but my RothIRA is now up 26,523% over the eight years since inception in January 2003.  This proves what somebody said earlier about the importance of luck.

 

I figure there are more than a few people who don't quite trust everything people say on the internet, but one of these days I'll make it out to the Fairfax dinner in Toronto and can prove it on my IPhone (my Fidelity account provides the audit trail through their "Personal Rate of Return" feature).  Not this year though, I'm having surgery to fix my foot on April 4th (won't be walking for six weeks).

 

 

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Not this year though, I'm having surgery to fix my foot on April 4th (won't be walking for six weeks).

 

Look forward to you coming to Toronto.  What happened to your foot Eric?  Cheers!

 

I tore a tendon 3 years ago running on a treadmill, less than a couple of months after I'd quit my job.  The problem is that my first metatarsal on my left foot protrudes dowward at too sharp an angle, so the ball of my big toe is on a plane lower than the balls of my other toes.  This forces me to rock outward on my foot when I walk (supination) and that puts stress on the tendon (it's the tendon that always gets swollen when you twist an ankle).  In short, it's a partial club foot.  That was the first time I realized there was something wrong with my foot.  So the doctor is going to clip and lengthen my achilles tendon to give it slack so that he can straighted (via cutting) my ankle bone.  Then he is going to cut and redirect the angle of my first metarsal and also cut and feed slack to that tendon.  Then he is going to stitch up the torn tendon and tighten some other tendon in that area.  Six procedures.  I should have had this done right away nearly three years ago but I didn't  ???  Finally I won't be limping around anymore as I've been doing.  Oddly enough I'm looking forward to getting this done and behind me.

 

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While I was very worried about the economy last Summer and early Fall thinking that most of the recovery was mostly restocking of very depleted inventories during 2008/2009, I threw that thesis in the garbage can around October. There is clearly improvement in the economy and S&P earnings are terrific. I lost a lot hedging my portfolio last year.

 

Risks are there: commodity prices, interest rates, geopolitical, sovereign debt, slowdown in emerging markets, etc. but, IMO the market remains fairly priced. More importantly, I think that some companies remain absurdly cheap. They are not as cheap as in early 09, but considering the improvements in their earnings due to the better economy they are much less risky and still offer large upside.

 

So I am gravitating towards what Sanjeev has said. Just find good, bargain priced companies, keep watching the story carefully and sit on them until the price is right and turn off the TV. If things become too expensive in the marketplace, your portfolio will simply turn to cash as your holdings become liquidated due to valuation. This will be a natural hedge. And if unfortunately your cheap stocks get cheaper due to a market meltdown, then hold on to them, buy some more if you have cash or sell them to buy cheaper things being offered. I have tried many things and this seems like the best and easiest way to go. You simply can't eliminate the impact of market volatility on your portfolio. It is tough to bear and accept at times, but it is just how it is.

 

Cardboard

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Not this year though, I'm having surgery to fix my foot on April 4th (won't be walking for six weeks).

 

Look forward to you coming to Toronto.  What happened to your foot Eric?  Cheers!

 

I tore a tendon 3 years ago running on a treadmill, less than a couple of months after I'd quit my job.  The problem is that my first metatarsal on my left foot protrudes dowward at too sharp an angle, so the ball of my big toe is on a plane lower than the balls of my other toes.  This forces me to rock outward on my foot when I walk (supination) and that puts stress on the tendon (it's the tendon that always gets swollen when you twist an ankle).  In short, it's a partial club foot.  That was the first time I realized there was something wrong with my foot.  So the doctor is going to clip and lengthen my achilles tendon to give it slack so that he can straighted (via cutting) my ankle bone.  Then he is going to cut and redirect the angle of my first metarsal and also cut and feed slack to that tendon.  Then he is going to stitch up the torn tendon and tighten some other tendon in that area.  Six procedures.  I should have had this done right away nearly three years ago but I didn't  ???  Finally I won't be limping around anymore as I've been doing.  Oddly enough I'm looking forward to getting this done and behind me.

 

 

Eric, Consider prolotherapy before surgery.  Check out caringmedical.com  :)

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Not this year though, I'm having surgery to fix my foot on April 4th (won't be walking for six weeks).

 

Look forward to you coming to Toronto.  What happened to your foot Eric?  Cheers!

 

I tore a tendon 3 years ago running on a treadmill, less than a couple of months after I'd quit my job.  The problem is that my first metatarsal on my left foot protrudes dowward at too sharp an angle, so the ball of my big toe is on a plane lower than the balls of my other toes.  This forces me to rock outward on my foot when I walk (supination) and that puts stress on the tendon (it's the tendon that always gets swollen when you twist an ankle).  In short, it's a partial club foot.  That was the first time I realized there was something wrong with my foot.  So the doctor is going to clip and lengthen my achilles tendon to give it slack so that he can straighted (via cutting) my ankle bone.  Then he is going to cut and redirect the angle of my first metarsal and also cut and feed slack to that tendon.  Then he is going to stitch up the torn tendon and tighten some other tendon in that area.  Six procedures.  I should have had this done right away nearly three years ago but I didn't  ???  Finally I won't be limping around anymore as I've been doing.  Oddly enough I'm looking forward to getting this done and behind me.

 

 

Eric, Consider prolotherapy before surgery.  Check out caringmedical.com  :)

 

I enjoyed reading about prolotherapy tonight, thank you.  Ironically I view this surgery as preventive medicine -- if the bones don't get corrected the prospects for re-injury aren't favorable.

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Not this year though, I'm having surgery to fix my foot on April 4th (won't be walking for six weeks).

 

Look forward to you coming to Toronto.  What happened to your foot Eric?  Cheers!

 

I tore a tendon 3 years ago running on a treadmill, less than a couple of months after I'd quit my job.  The problem is that my first metatarsal on my left foot protrudes dowward at too sharp an angle, so the ball of my big toe is on a plane lower than the balls of my other toes.  This forces me to rock outward on my foot when I walk (supination) and that puts stress on the tendon (it's the tendon that always gets swollen when you twist an ankle).  In short, it's a partial club foot.  That was the first time I realized there was something wrong with my foot.  So the doctor is going to clip and lengthen my achilles tendon to give it slack so that he can straighted (via cutting) my ankle bone.  Then he is going to cut and redirect the angle of my first metarsal and also cut and feed slack to that tendon.  Then he is going to stitch up the torn tendon and tighten some other tendon in that area.  Six procedures.  I should have had this done right away nearly three years ago but I didn't  ???  Finally I won't be limping around anymore as I've been doing.  Oddly enough I'm looking forward to getting this done and behind me.

 

 

Eric, Consider prolotherapy before surgery.  Check out caringmedical.com  :)

 

I enjoyed reading about prolotherapy tonight, thank you.  Ironically I view this surgery as preventive medicine -- if the bones don't get corrected the prospects for re-injury aren't favorable.

 

 

There is a huge margin of safety in trying prolotherapy.  Practically zero risk of something going wrong.  There was a study out of the Univ of British Columbia a few years ago showing that something like 26 out of 28 people with Achilles tendonitis were symptom free after an average of 3 prolotherapy treatments.  Ross is the best MD in the world using Prolotherapy.  Plus he's a marathoner with a special interest in injuries that affect ambulation.

 

You'll walk away from a prolo treatment instead of hobbling in a cast for weeks.

 

But, Hey!  You've got insurance that pays for the surgery that will cost 20 to 40 times as much as one prolo treatment.  Must be 20 to 40 times better.  Right?

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Ericopoly,

 

I agree with twacowfca re prolotherapy, though prolo is not a fix for everything.- I have seen very good results-mostly with back problems. I am sure you have tried a good orthotic as well.  

 

Sounds like a very major procedure on  your foot.

 

Be prepared for a long recovery which can be up to 18 mo for less major foot surgery.(our feet take a beating + we take them for granted)

 

The other thing is that foot surgery can be tricky + not all foot surgeons are the same- so make sure the guy that is going to do your surgery is experienced + reputable ( I am sure you have done your due diligence)

 

Best of luck to you.

 

What a great site--great discussion on financial matters + the occasional free medical advice.

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With all due respects to Sanjeev, I've to respectly disagree.

 

A. Citing berkie and fairfax against macro focus is misguided at best. Buffett and Watsa have a built in macro meter that guides them well. They follow the "be greedy when others are fearful really well". Why in the world did prem buy CDS at the time he did? Do you think he had no idea of macro and the housing bubble?

 

Why did buffett sell those puts? A belief that fed wont let market go to zero. Being in insurance biz they are tuned to going against grain, ie writing policies when times get tough and pulling out when ez money is in. They are experts in mean reversion.

 

B. Lets take pabrai, he lost his shirt in delta financial. DFC was cheap on P/B , growing etc. not many could have predicted their demise. Fact is, they depended on outside funds for survival. DFC is like a strong man inside an oxygen chamber. The chamber is the macro. When O2 os great, DFC thrives. Anyone only paying attention to DFC and not the chamber would have lost the money.

 

The prudent thing is to monitor the level of oxygen, as some biz dont generate their oxygen.

 

Heck, pabrai's holdings are all in commodities that are subject to boom and bust. These co's depend on macro more than ever.

 

I like the saying on some poster, "worry top down, focus bottoms up".

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http://www.cnbc.com/id/15840232?video=1803581038&play=1

 

Charles Kantor, managing director of the Kantor Group at Neuberger Berman, explains why waiting for a market pullback may be a fool’s errand, and why he thinks the rally might have much, much more to go

 

 

it would be nice to know the macro (or worry about the macro) but is it knowable? probably most of us will be wrong about predictions about the economy, macro events etc...best to use our energy focusing on finding securities selling at fifty cents on the dollar.

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