Big Four To Audit Spain's Banks

[Parsad]

The four major global accounting firms will audit Spain's banks.  Cheers!

 

http://finance.yahoo.com/news/big-four-audit-spains-banking-141916156.html;_ylt=AjzukCakbEYtJhZcHU9IlpiiuYdG;_ylu=X3oDMTQ0dDdqMW45BG1pdANGaW5hbmNlIEZQIFRvcCBTdG9yeSBSaWdodARwa2cDMDljNTU0OWMtYzRiNi0zOGVmLWE4OTYtNzZmNTBhOWVhZmZmBHBvcwM0BHNlYwN0b3Bfc3RvcnkEdmVyA2Y1MjBkOTgwLWFjYmUtMTFlMS1iZjliLTVkNTc1ZWIyNzMxNg--;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

[bmichaud]

Sanjeev,

 

You must admit that you are a phenomenal market timer. Last year at the bottom and now this year at the top you have made some phenomenal calls. Wouldn't you agree though that the articles you post on here in support of your current market view are more or less coincidental with the current market movements and that the market is going to do what it wants regardless of the particular negatives or positives you highlight? For example, the weekly posts last year highlighting continuing strength in carload strength was how you defended your bullish US economy thesis, which to the average poster would seem to be the reason for market strength since last October, when in reality it was merely coincidental with the market moving up in order to clear the excessive negative sentiment built up last September. And likewise, you have discontinued posting the continued strength in carloads and instead switched to posting about the problems in Spain in order to support your view that we are going to run into a period of higher volatility - again, what I think we can consider coincidental to the market moving lower in order to clear out the excessive optimism built up since October.

 

All that to say - why are Spain's excessive asking assets relative to GDP and its lack of ability to deal with the crisis any different than last year or the year before? Couldn't you make the argument that Europe is more capable of dealing with the crisis this time around given they have proven they are willing to print (i.e. The LTRO program) and are now widely discussing Eurobonds, deposit insurance and an ECB-financed ESM recap facility despite what is just absurdly ridiculous posturing by Merkel who has practically zero say in the matter whatsoever (again proven by her willingness to look past the LTRO program) with Germany only having what two votes on the ECB?

 

Perhaps we continue to free fall from here, but there seems to be a very healthy amount of fear building up to allow for a reversal upon some data point the market deems sufficient to justify a turnaround....feels pretty good though having individual securities going down literally multiples of the market. Just goes to show the importance of holding cash for these types of opportunities - congrats on the phenomenal call....

[moore_capital54]

Sanjeev,

 

You must admit that you are a phenomenal market timer. Last year at the bottom and now this year at the top you have made some phenomenal calls. Wouldn't you agree though that the articles you post on here in support of your current market view are more or less coincidental with the current market movements and that the market is going to do what it wants regardless of the particular negatives or positives you highlight? For example, the weekly posts last year highlighting continuing strength in carload strength was how you defended your bullish US economy thesis, which to the average poster would seem to be the reason for market strength since last October, when in reality it was merely coincidental with the market moving up in order to clear the excessive negative sentiment built up last September. And likewise, you have discontinued posting the continued strength in carloads and instead switched to posting about the problems in Spain in order to support your view that we are going to run into a period of higher volatility - again, what I think we can consider coincidental to the market moving lower in order to clear out the excessive optimism built up since October.

 

All that to say - why are Spain's excessive asking assets relative to GDP and its lack of ability to deal with the crisis any different than last year or the year before? Couldn't you make the argument that Europe is more capable of dealing with the crisis this time around given they have proven they are willing to print (i.e. The LTRO program) and are now widely discussing Eurobonds, deposit insurance and an ECB-financed ESM recap facility despite what is just absurdly ridiculous posturing by Merkel who has practically zero say in the matter whatsoever (again proven by her willingness to look past the LTRO program) with Germany only having what two votes on the ECB?

 

Perhaps we continue to free fall from here, but there seems to be a very healthy amount of fear building up to allow for a reversal upon some data point the market deems sufficient to justify a turnaround....feels pretty good though having individual securities going down literally multiples of the market. Just goes to show the importance of holding cash for these types of opportunities - congrats on the phenomenal call....

 

With great respect, Calls are only as good as the returns they produce. We were down 9% last year net of fees, up nearly 40% as of March 2012 and now "only" up 5% as of Friday. Sanjeev would you care to share your returns for the same  periods (Dec 31 2011, March 31 2012, and Friday May 31)

[Parsad]

Sanjeev,

 

You must admit that you are a phenomenal market timer. Last year at the bottom and now this year at the top you have made some phenomenal calls. Wouldn't you agree though that the articles you post on here in support of your current market view are more or less coincidental with the current market movements and that the market is going to do what it wants regardless of the particular negatives or positives you highlight? For example, the weekly posts last year highlighting continuing strength in carload strength was how you defended your bullish US economy thesis, which to the average poster would seem to be the reason for market strength since last October, when in reality it was merely coincidental with the market moving up in order to clear the excessive negative sentiment built up last September. And likewise, you have discontinued posting the continued strength in carloads and instead switched to posting about the problems in Spain in order to support your view that we are going to run into a period of higher volatility - again, what I think we can consider coincidental to the market moving lower in order to clear out the excessive optimism built up since October.

 

All that to say - why are Spain's excessive asking assets relative to GDP and its lack of ability to deal with the crisis any different than last year or the year before? Couldn't you make the argument that Europe is more capable of dealing with the crisis this time around given they have proven they are willing to print (i.e. The LTRO program) and are now widely discussing Eurobonds, deposit insurance and an ECB-financed ESM recap facility despite what is just absurdly ridiculous posturing by Merkel who has practically zero say in the matter whatsoever (again proven by her willingness to look past the LTRO program) with Germany only having what two votes on the ECB?

 

Perhaps we continue to free fall from here, but there seems to be a very healthy amount of fear building up to allow for a reversal upon some data point the market deems sufficient to justify a turnaround....feels pretty good though having individual securities going down literally multiples of the market. Just goes to show the importance of holding cash for these types of opportunities - congrats on the phenomenal call....

 

Ha, BMI I'll take that with a sense of humor and thanks!  ;D  Truth is, the only reason I'm not still posting the weekly carloads is because they used to show up every week on the Yahoo Finance news under BRK-A.  I stopped posting them the same time they stopped showing them.  You can still go to the American Association of Railroads site and get monthly stats, but I only go on there monthly now.  If you would like, I'm happy to post them for you monthly, but you can find them at www.aar.org.  They are more expansive then the bloomberg linked weekly numbers, but those were concise and not in report form.

 

About 95% of the news and articles I post on here comes from these sources, because they are the ones I read every day:

 

- Yahoo Finance News under about 45 tickers I follow daily...BRK-A & FFH are two of them.

- Bloomberg.com

- CNBC.com

- Globeinvestor.com

- Reuters

- Googlefinance.com for those same 45 tickers

- FT.com

- Financialpost.com

 

With great respect, Calls are only as good as the returns they produce. We were down 9% last year net of fees, up nearly 40% as of March 2012 and now "only" up 5% as of Friday. Sanjeev would you care to share your returns for the same  periods (Dec 31 2011, March 31 2012, and Friday May 31)

 

Hi Moore,

 

If we aren't providing those numbers to our partners until quarter end, we can't provide them to you either.  I can give you our numbers until March 31, 2012.  MPIC Fund I, LP was down 8.5% in 2011, and up 8.3% in 1st Q 2012.  MPIC Canadian LP was down 5.1% in 2011, and up 9.7% in 1st Q 2012. 

 

What I can say is that we are in about as good a position as we've ever been in both funds at any time...including 2008/2009 and middle of 2011.  We've put a bit of the money in both funds to work, and we'll put the rest to work over the next few months if things remain as they are or worsen. 

 

Our partners will be very happy with how we've positioned the funds and I'm very excited every day when I wake up right now...so that should tell you something.  The last time I felt this way was through the better part of late 2008 and early 2009, and we weren't positioned like this then...it was good, but this time it is great!  The results in the ensuing two years were terrific for both funds as well, and I'm pleased that we'll finally be able to reward our Canadian fund partners, who've been loyal and faithful to us after suffering the two lean years we had when we started that fund.  Cheers!

[Parsad]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring”

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers! 

[alertmeipp]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring”

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers!

 

But.... all these negatives were there at the beginning of this year, 3 months ago, etc... The market is now pretty much at the same level as Jan. Not much has changed. I don't see how one can have different views now vs barely just few months ago.

 

[Parsad]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring”

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers!

 

But.... all these negatives were there at the beginning of this year, 3 months ago, etc... The market is now pretty much at the same level as Jan. Not much has changed. I don't see how one can have different views now vs barely just few months ago.

 

It's pretty simple isn't it?  I didn't think Spain was on the precipice of defaulting and that the amount of money Europe would throw at this thing would be larger than it is...and as such, I became more cautious. 

 

You should read the rest of that Leucadia letter.  Cummings and Steinberg sold investments to specifically pay down debt.  That isn't any different than what we did.  What did they see two months ago, that they did not include in their analysis 6 months ago?  Something perturbed them as well. 

 

And whether anyone likes it or not, why did Buffett forgo a $22B deal that normally would have looked very good?  Because he doesn't want Berkshire's insurance businesses to be constrained?  No.  Berkshire went as low as $22B in cash in 2008/2009.  They have about $40B in cash at the end of last quarter.  He could have easily issued $4B in debt at rock bottom rates to finance this thing, and still kept $22B in cash.  Something stopped him from doing the deal.  What changed in two months that he didn't see six months ago?  Cheers! 

[alertmeipp]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring”

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers!

 

But.... all these negatives were there at the beginning of this year, 3 months ago, etc... The market is now pretty much at the same level as Jan. Not much has changed. I don't see how one can have different views now vs barely just few months ago.

 

It's pretty simple isn't it?  I didn't think Spain was on the precipice of defaulting and that the amount of money Europe would throw at this thing would be larger than it is...and as such, I became more cautious. 

 

You should read the rest of that Leucadia letter.  Cummings and Steinberg sold investments to specifically pay down debt.  That isn't any different than what we did.  What did they see two months ago, that they did not include in their analysis 6 months ago?  Something perturbed them as well. 

 

And whether anyone likes it or not, why did Buffett forgo a $22B deal that normally would have looked very good?  Because he doesn't want Berkshire's insurance businesses to be constrained?  No.  Berkshire went as low as $22B in cash in 2008/2009.  They have about $40B in cash at the end of last quarter.  He could have easily issued $4B in debt at rock bottom rates to finance this thing, and still kept $22B in cash.  Something stopped him from doing the deal.  What changed in two months that he didn't see six months ago?  Cheers!

 

I think your reasoning is a bit stretchy. Say if Buffett announces a 30 billions deal tomorrow, will that impact your thinking?

 

[Parsad]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a Chinese Spring

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers!

 

But.... all these negatives were there at the beginning of this year, 3 months ago, etc... The market is now pretty much at the same level as Jan. Not much has changed. I don't see how one can have different views now vs barely just few months ago.

 

It's pretty simple isn't it?  I didn't think Spain was on the precipice of defaulting and that the amount of money Europe would throw at this thing would be larger than it is...and as such, I became more cautious. 

 

You should read the rest of that Leucadia letter.  Cummings and Steinberg sold investments to specifically pay down debt.  That isn't any different than what we did.  What did they see two months ago, that they did not include in their analysis 6 months ago?  Something perturbed them as well. 

 

And whether anyone likes it or not, why did Buffett forgo a $22B deal that normally would have looked very good?  Because he doesn't want Berkshire's insurance businesses to be constrained?  No.  Berkshire went as low as $22B in cash in 2008/2009.  They have about $40B in cash at the end of last quarter.  He could have easily issued $4B in debt at rock bottom rates to finance this thing, and still kept $22B in cash.  Something stopped him from doing the deal.  What changed in two months that he didn't see six months ago?  Cheers!

 

I think your reasoning is a bit stretchy. Say if Buffett announces a 30 billions deal tomorrow, will that impact your thinking?

 

 

Holy smokes, this is like pulling teeth! 

 

I'll make it simpler and less stretchy Alertmeipp, that way I don't have to go through the pain of this any further.  I'm a market timer and we are timing the market...to the minute actually.  Cheers!

[bmichaud]

Sanjeev,

 

You must admit that you are a phenomenal market timer. Last year at the bottom and now this year at the top you have made some phenomenal calls. Wouldn't you agree though that the articles you post on here in support of your current market view are more or less coincidental with the current market movements and that the market is going to do what it wants regardless of the particular negatives or positives you highlight? For example, the weekly posts last year highlighting continuing strength in carload strength was how you defended your bullish US economy thesis, which to the average poster would seem to be the reason for market strength since last October, when in reality it was merely coincidental with the market moving up in order to clear the excessive negative sentiment built up last September. And likewise, you have discontinued posting the continued strength in carloads and instead switched to posting about the problems in Spain in order to support your view that we are going to run into a period of higher volatility - again, what I think we can consider coincidental to the market moving lower in order to clear out the excessive optimism built up since October.

 

All that to say - why are Spain's excessive asking assets relative to GDP and its lack of ability to deal with the crisis any different than last year or the year before? Couldn't you make the argument that Europe is more capable of dealing with the crisis this time around given they have proven they are willing to print (i.e. The LTRO program) and are now widely discussing Eurobonds, deposit insurance and an ECB-financed ESM recap facility despite what is just absurdly ridiculous posturing by Merkel who has practically zero say in the matter whatsoever (again proven by her willingness to look past the LTRO program) with Germany only having what two votes on the ECB?

 

Perhaps we continue to free fall from here, but there seems to be a very healthy amount of fear building up to allow for a reversal upon some data point the market deems sufficient to justify a turnaround....feels pretty good though having individual securities going down literally multiples of the market. Just goes to show the importance of holding cash for these types of opportunities - congrats on the phenomenal call....

 

Ha, BMI I'll take that with a sense of humor and thanks!  ;D  Truth is, the only reason I'm not still posting the weekly carloads is because they used to show up every week on the Yahoo Finance news under BRK-A.  I stopped posting them the same time they stopped showing them.  You can still go to the American Association of Railroads site and get monthly stats, but I only go on there monthly now.  If you would like, I'm happy to post them for you monthly, but you can find them at www.aar.org.  They are more expansive then the bloomberg linked weekly numbers, but those were concise and not in report form.

 

About 95% of the news and articles I post on here comes from these sources, because they are the ones I read every day:

 

- Yahoo Finance News under about 45 tickers I follow daily...BRK-A & FFH are two of them.

- Bloomberg.com

- CNBC.com

- Globeinvestor.com

- Reuters

- Googlefinance.com for those same 45 tickers

- FT.com

- Financialpost.com

 

With great respect, Calls are only as good as the returns they produce. We were down 9% last year net of fees, up nearly 40% as of March 2012 and now "only" up 5% as of Friday. Sanjeev would you care to share your returns for the same  periods (Dec 31 2011, March 31 2012, and Friday May 31)

 

Hi Moore,

 

If we aren't providing those numbers to our partners until quarter end, we can't provide them to you either.  I can give you our numbers until March 31, 2012.  MPIC Fund I, LP was down 8.5% in 2011, and up 8.3% in 1st Q 2012.  MPIC Canadian LP was down 5.1% in 2011, and up 9.7% in 1st Q 2012. 

 

What I can say is that we are in about as good a position as we've ever been in both funds at any time...including 2008/2009 and middle of 2011.  We've put a bit of the money in both funds to work, and we'll put the rest to work over the next few months if things remain as they are or worsen. 

 

Our partners will be very happy with how we've positioned the funds and I'm very excited every day when I wake up right now...so that should tell you something.  The last time I felt this way was through the better part of late 2008 and early 2009, and we weren't positioned like this then...it was good, but this time it is great!  The results in the ensuing two years were terrific for both funds as well, and I'm pleased that we'll finally be able to reward our Canadian fund partners, who've been loyal and faithful to us after suffering the two lean years we had when we started that fund.  Cheers!

 

Haha no need to post, I read them every week anyway. Just used as an example of something you used to emphasize.

 

I only use the phrase market timing because that's what any top down market analysis is referred to around here. I don't think it is market timing at all, rather simple valuation and risk analysis, which doesn't take into account WHEN the market could come down.

 

It is just curious to me that given the large number of individual opportunities available out there that fifty percent cash is warranted. My ass was chewed out when I discussed being cautious last year since "buying an equity interest is no different than buying an entire business, so NEVER worry about the general market" - just trying to figure out how once analyzes this environment and when a buying opportunity arises given A) general market valuations are not terrible like they were before Lehman, and B) individual securities are very cheap. For example, how do you know BAC will ever get cheaper than it is now? What if they come out with a positive litigation announcement and the stock doubles, and THEN the market craters bringing BAC down to levels higher than they are currently?

 

Do you buy when the market gets to 10 times earnings? Do you buy at 15 times earnings? Do you do it from a bottoms up perspective? As Klarman and all value guys say, you only hold cash when you can't find individual ideas....

 

[bmichaud]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring”

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers!

 

But.... all these negatives were there at the beginning of this year, 3 months ago, etc... The market is now pretty much at the same level as Jan. Not much has changed. I don't see how one can have different views now vs barely just few months ago.

 

It's pretty simple isn't it?  I didn't think Spain was on the precipice of defaulting and that the amount of money Europe would throw at this thing would be larger than it is...and as such, I became more cautious. 

 

You should read the rest of that Leucadia letter.  Cummings and Steinberg sold investments to specifically pay down debt.  That isn't any different than what we did.  What did they see two months ago, that they did not include in their analysis 6 months ago?  Something perturbed them as well. 

 

And whether anyone likes it or not, why did Buffett forgo a $22B deal that normally would have looked very good?  Because he doesn't want Berkshire's insurance businesses to be constrained?  No.  Berkshire went as low as $22B in cash in 2008/2009.  They have about $40B in cash at the end of last quarter.  He could have easily issued $4B in debt at rock bottom rates to finance this thing, and still kept $22B in cash.  Something stopped him from doing the deal.  What changed in two months that he didn't see six months ago?  Cheers!

 

Here is what else I'm struggling with....what money did you think Europe had back then that they don't have now? There never was any money available since it all has to be created. Back then the entire situation rested upon the willingness to create the money necessary - they didn't prove their willingness until LTRO, thus markets tanked. Now we know they will print, thus the situation is far more stable.....

 

What are you seeing? Or is it a gut feeling, which is perfectly fine, I'm just impressed with the instincts if that's it!

[alertmeipp]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring”

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers!

 

But.... all these negatives were there at the beginning of this year, 3 months ago, etc... The market is now pretty much at the same level as Jan. Not much has changed. I don't see how one can have different views now vs barely just few months ago.

 

It's pretty simple isn't it?  I didn't think Spain was on the precipice of defaulting and that the amount of money Europe would throw at this thing would be larger than it is...and as such, I became more cautious. 

 

You should read the rest of that Leucadia letter.  Cummings and Steinberg sold investments to specifically pay down debt.  That isn't any different than what we did.  What did they see two months ago, that they did not include in their analysis 6 months ago?  Something perturbed them as well. 

 

And whether anyone likes it or not, why did Buffett forgo a $22B deal that normally would have looked very good?  Because he doesn't want Berkshire's insurance businesses to be constrained?  No.  Berkshire went as low as $22B in cash in 2008/2009.  They have about $40B in cash at the end of last quarter.  He could have easily issued $4B in debt at rock bottom rates to finance this thing, and still kept $22B in cash.  Something stopped him from doing the deal.  What changed in two months that he didn't see six months ago?  Cheers!

 

I think your reasoning is a bit stretchy. Say if Buffett announces a 30 billions deal tomorrow, will that impact your thinking?

 

 

Holy smokes, this is like pulling teeth! 

 

I'll make it simpler and less stretchy Alertmeipp, that way I don't have to go through the pain of this any further.  I'm a market timer and we are timing the market...to the minute actually.  Cheers!

 

Hey, seriously, I was just trying to learn. Obviously, you made the right move so far. (I guess the rest depends on when you move your cash to work.)

I often kick myself on not moving out when things were obviously overshoot short-term (e.g. BAC doubles in couple months)

[Parsad]

My ass was chewed out when I discussed being cautious last year since "buying an equity interest is no different than buying an entire business, so NEVER worry about the general market" - just trying to figure out how once analyzes this environment and when a buying opportunity arises given A) general market valuations are not terrible like they were before Lehman, and B) individual securities are very cheap. For example, how do you know BAC will ever get cheaper than it is now? What if they come out with a positive litigation announcement and the stock doubles, and THEN the market craters bringing BAC down to levels higher than they are currently?

 

My ass is starting to feel the same way!  ;D  I think your two main points are exactly why it is difficult for anyone to get a bead on what is happening around the world.  General market valuations and individual securities are both cheap as you say...everyone would agree with that, regardless of whether you are holding cash or fully invested.  The question is are they cheap enough, and that is where I think the instinct and temperament portion of investing...the art of the science...comes to the fore. 

 

We can all repeat the mantras "buy with a margin of safety" and "buy and hold", but they both do come with caveats..."margin of safety" is never a constant in all environments, and is directly correlated to the risk premium you desire relative to the risks around the investment...and "buy and hold" only exists if the moats continue to exist.  Meaning, do you always demand only a 50% discount to your calculation of intrinsic value, or does that discount fluctuate with the risk of the business and the risks around the business?  Do you "buy and hold" like Buffett did with Dexter, or would the prudent thing have been to sell Dexter?

 

Do you buy when the market gets to 10 times earnings? Do you buy at 15 times earnings? Do you do it from a bottoms up perspective? As Klarman and all value guys say, you only hold cash when you can't find individual ideas....

 

Yet, Klarman regularly holds large amounts of cash, and his circle of competence is probably nearly as wide as Buffett's.

 

Here is what else I'm struggling with....what money did you think Europe have back then that they don't have now? There never was any money available since it all has to be created. Back then the entire situation rested upon the willingness to create the money necessary - they didn't prove their willingness until LTRO, thus markets tanked. Now we know they will print, us the situation is far more stable.....

 

What are you seeing? Or is it a gut feeling, which is perfectly fine, I'm just impressed with the instincts if that's it!

 

Yes, I would say this behavior is as much art or instinct, as it is science.  It wasn't the money...but the response and the way the Union is structured.  We knew the risk of unanimous decisions across 17 countries would be difficult, but we hoped that it would happen.  We hoped that they would respond in force with a ton of capital...$1.5T or better was the number I always wanted...but they came up far short. 

 

The longer the response, the more difficult it gets to retain confidence in your markets.  And that is where the instincts started screaming...this is taking too long for agreement, and they are not going to be able to raise the capital...or print it, if you like.  The longer it goes on, the greater the damage that occurs to the fiscal infrastructure of the Union.  In Spain's case, they aren't near Greece yet, but the speed with which things are deteriorating is leading them exactly there.  Capital is fleeing, spending has come to a halt.  If the Union doesn't come to an agreement and acts in force, then you have a situation where Spain will default.  And then you just don't know exactly where the dominoes are any longer.  They topple in multiple directions. 

 

U.S. policy response in 2008/2009 was swift and vast, and one way or another, the country started to implement the initatives it needed to stabilize and deleverage their private institutions.  Europe's response has been fraught with disagreement, delay and the inevitable problems with the Union structure itself.  They can't move as fast or in unison, and they won't be able to act in force until things are ugly enough to force them to act together and quickly.  So you wait...either with the investments you hold or in cash.  We've chosen to wait with both, but more of one than many of you may choose to because we thought things would get cheaper.  There's really nothing much else to say.  Cheers! 

 

[Parsad]

Incidentally Bmi, this paragraph from Leucadia's 2011 Annual Letter best describes why market timing is not accurate...risk aversion would be a better term.  By the way, if you haven't read the letter, it is probably their best:

 

http://www.leucadia.com/c-p_letters/luk_c-p2011.pdf

 

A world-wide recovery in the near future is not a foregone conclusion. Europe and the future

of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring”

cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a

dysfunctional government, we believe that less financial leverage is better. We expect many

other companies and investors share this view. We emphasize that we are not pessimistic,

just cautious. We are enthusiastic about the future of our broad array of operating businesses

and investments and have our eyes open for additional acquisitions. Never fear, if a good deal

comes along we will find a way.

 

We've been long on the U.S. since late 2008.  But you have to have a margin of safety or some sort of risk premium for any investment.  When that premium shrinks or just is no longer high enough based on circumstances around you, then you have to make a decision to buy more, stay pat or sell because you demand a higher premium. 

 

The world around us is constantly moving, as is every industry and economy.  Information is constantly updated, augmented and sometimes even eliminated, so your analysis cannot remain stagnant.  Buy and hold works, as long as the information you did your original analysis with is still accurate.  Ten years ago, Microsoft was invincible...five years ago, chinks in the armor showed up...today, Microsoft is doing everything it can to bolster and maintain its moats.  That isn't just a technology related issue, but simply business.  No different than Walmart, Sears, etc.  Microsoft is still a great business, but the premium you would have accepted ten years ago or even five years ago, would probably have been too small.  That's all we did.  We realized the premium we were demanding was not the right size for the environment around us.  Cheers!

 

But.... all these negatives were there at the beginning of this year, 3 months ago, etc... The market is now pretty much at the same level as Jan. Not much has changed. I don't see how one can have different views now vs barely just few months ago.

 

It's pretty simple isn't it?  I didn't think Spain was on the precipice of defaulting and that the amount of money Europe would throw at this thing would be larger than it is...and as such, I became more cautious. 

 

You should read the rest of that Leucadia letter.  Cummings and Steinberg sold investments to specifically pay down debt.  That isn't any different than what we did.  What did they see two months ago, that they did not include in their analysis 6 months ago?  Something perturbed them as well. 

 

And whether anyone likes it or not, why did Buffett forgo a $22B deal that normally would have looked very good?  Because he doesn't want Berkshire's insurance businesses to be constrained?  No.  Berkshire went as low as $22B in cash in 2008/2009.  They have about $40B in cash at the end of last quarter.  He could have easily issued $4B in debt at rock bottom rates to finance this thing, and still kept $22B in cash.  Something stopped him from doing the deal.  What changed in two months that he didn't see six months ago?  Cheers!

 

I think your reasoning is a bit stretchy. Say if Buffett announces a 30 billions deal tomorrow, will that impact your thinking?

 

 

Holy smokes, this is like pulling teeth! 

 

I'll make it simpler and less stretchy Alertmeipp, that way I don't have to go through the pain of this any further.  I'm a market timer and we are timing the market...to the minute actually.  Cheers!

 

Hey, seriously, I was just trying to learn. Obviously, you made the right move so far. (I guess the rest depends on when you move your cash to work.)

I often kick myself on not moving out when things were obviously overshoot short-term (e.g. BAC doubles in couple months)

 

Hi Alertmeipp, I think I was trying to give answers, but my responses weren't taking, so it was just frustrating.  I don't know what I can say to explain to anyone...it's just difficult to describe when your instincts are saying demand more risk premium, because there are many things that normally do look relatively cheap to people.  Cheers! 

[moore_capital54]

Parsad I think I now fully understand your position, thank you very much for sharing your numbers and I would appreciate the May 31 number in due course (I predict you are now down for the year).

 

Based on your performance figures what I believe you did is manage your portfolio based on your returns, mitigating your risk based on your returns and not based on the fundamentals of the underlying securities you own. I don't fault you for market timing because what you did was very prudent and responsible and is something I too would do if I was younger and just building my track record. Nobody wants a down year in their track record and I believe when you had the chance to essentially approach "flat" you began to reduce risk. What you did was simply decide to forego future profits for the sake of sleeping at night. To say you did anything else such as make a macro call or see that Spain is in a different situation is totally crazy imho and I urge you to not believe in such madness, it was purely a coincidence. Again what you did as a fiduciary and capital allocator is totally understandable and something I would expect as an LP after a down year.

 

I think thats what Bmichaud and Albert need to understand, ultimately Parsad and all of us are managing our portfolios based on our historical returns, we add or reduce to our positions based on how well we are doing or how familiar we are with the investment environment. I feel very good with my allocation even though I did not choose to reduce long exposure as Parsad did, I gave up a huge paper gain for the year, but I don't believe I am a gambler that needs to quit while I am ahead, I believe that over time the securities I own will compound at rates that exceed my alternatives, cash included.

 

On this note it is worth mentioning that one manager is impressing me with regards to his conviction and that is Mohnish. He appears to be stepping on the peddle and continues to gain long exposure, he has not reduces his exposure. I believe Mohnishs portfolio will compound at 20-30% per year from here over the next 3 years, I own many of the same securities that he does with similar allocations. Ultimately, one has to decide if they are comfortable withstanding paper losses, some people are not cut out for it, we live in truly volatile times. There will always be reasons for why stocks are down or up, and to think one fully comprehends the reasons is insane. The  Zerohedges of the world are always bearish, always... I am not always bullish but I have historically made all my big gains on the longside and like to stay with securities for many years, I don't care if they move up and down in betwee and I don't care about my track record over 1 or 2 years when I have compounded very well for 20 years doing just this.

 

I just think everyone needs to be honest and objective, there is nothing different about the European situation today than there was last year and Bmichaud correctly observed that we now actually know that push comes to shove Europeans will print as well. Everyone will print ad infinitum, and so our jobs are merely to weather the volatility and stay focused at buying securities below their intrinsic value.

 

 

[Parsad]

Parsad I think I now fully understand your position, thank you very much for sharing your numbers and I would appreciate the May 31 number in due course (I predict you are now down for the year).

 

Thanks for understanding Moore...but you're wrong.  And I'll get on that May 31st number for you pronto!

 

Based on your performance figures what I believe you did is manage your portfolio based on your returns, mitigating your risk based on your returns and not based on the fundamentals of the underlying securities you own. I don't fault you for market timing because what you did was very prudent and responsible and is something I too would do if I was younger and just building my track record. Nobody wants a down year in their track record and I believe when you had the chance to essentially approach "flat" you began to reduce risk. What you did was simply decide to forego future profits for the sake of sleeping at night. To say you did anything else such as make a macro call or see that Spain is in a different situation is totally crazy imho and I urge you to not believe in such madness, it was purely a coincidence. Again what you did as a fiduciary and capital allocator is totally understandable and something I would expect as an LP after a down year.

 

Ouch!  I'm laughing, but the tears coming down indicate I just received a back-handed compliment...and it stung like hell.

 

I think thats what Bmichaud and Albert need to understand, ultimately Parsad and all of us are managing our portfolios based on our historical returns, we add or reduce to our positions based on how well we are doing or how familiar we are with the investment environment. I feel very good with my allocation even though I did not choose to reduce long exposure as Parsad did, I gave up a huge paper gain for the year, but I don't believe I am a gambler that needs to quit while I am ahead, I believe that over time the securities I own will compound at rates that exceed my alternatives, cash included.

 

I hope I'm not managing based on historical returns, because we are the largest investor in the fund, and I'm not interested in staying in the same place. 

 

Unlike many of the professional managers on here, as well as all private investors, our fund by design has a fundamental flaw that virtually none of you have to experience...the fact that we operate with with no lockup.  I'm happy with the way the fund is structured, as that was how this original fund was meant to be.  We wanted our partners to have capital when they wanted their capital.  It's not my job to protect them from themselves, be it over 60 days or a two-year lockup.  What we offer is above average returns and that we will try to not lose capital over time. 

 

We will start another fund eventually, and that one will have a lockup for those that want their capital locked up...more volatility, higher returns.  But the structure of this fund is what it is, and it isn't going anywhere...and maybe that's why our aversion to volatility is more paramount than some others, because we don't have the luxury of telling our partners to go to hell for a year or two...nor would we want to ever behave like that.

 

On this note it is worth mentioning that one manager is impressing me with regards to his conviction and that is Mohnish. He appears to be stepping on the peddle and continues to gain long exposure, he has not reduces his exposure. I believe Mohnishs portfolio will compound at 20-30% per year from here over the next 3 years, I own many of the same securities that he does with similar allocations. Ultimately, one has to decide if they are comfortable withstanding paper losses, some people are not cut out for it, we live in truly volatile times. There will always be reasons for why stocks are down or up, and to think one fully comprehends the reasons is insane. The  Zerohedges of the world are always bearish, always... I am not always bullish but I have historically made all my big gains on the longside and like to stay with securities for many years, I don't care if they move up and down in betwee and I don't care about my track record over 1 or 2 years when I have compounded very well for 20 years doing just this.

 

Mohnish is a very good friend of mine, a mentor and almost like the older brother I wish I had.  He is incredibly smart and able to grasp ideas immediately.  He's also become one of the most articulate value investors I know.  But even with all that, the only thing that saved the Pabrai Funds from sheer catastrophe in 2008, was the fact that the year-end request to redeem capital had nearly passed when the bulk of the losses hit.  Otherwise, we may not be talking about the Pabrai Funds at this moment. 

 

I saw what he was going through at the time and I can guarantee you it wasn't an enviable position to be in at all...not in the slightest.  I don't think anyone on this message board, including you and I, could have survived that and recovered from those losses.  Hundreds of hedge funds closed during that period with half the losses that Pabrai Funds went through.  I don't know of a single fund that has recovered from such a loss.  It was both a bit of sheer luck and Mohnish's ability to fight through any crisis.  Isn't it ironic how Prem and he have become such good friends, and yet it would seem almost destined after both their near-death experiences.  I don't want to ever have my funds go through what he experienced!

 

I just think everyone needs to be honest and objective, there is nothing different about the European situation today than there was last year and Bmichaud correctly observed that we now actually know that push comes to shove Europeans will print as well. Everyone will print ad infinitum, and so our jobs are merely to weather the volatility and stay focused at buying securities below their intrinsic value.

 

You are correct, and I have not said once that this is not going to happen.  The question is, is it going to happen after markets fall 10% or crater 25%?  And would the right decision have been to do nothing at all, or have cash to buy at either the 10% or 25% discount?  We're already at that 10% discount and I can now buy alot of the stuff you own and achieve the same return going forward.  And if markets tank to that 25% level, what happens to the stuff you presently own and what happens to the cash I have on hand?  The only way this goes wrong for me is if I decide not to pull the trigger at all...that won't happen!  Cheers!

 

 

         

[moore_capital54]

Parsad I think I now fully understand your position, thank you very much for sharing your numbers and I would appreciate the May 31 number in due course (I predict you are now down for the year).

 

Thanks for understanding Moore...but you're wrong.  And I'll get on that May 31st number for you pronto!

 

Based on your performance figures what I believe you did is manage your portfolio based on your returns, mitigating your risk based on your returns and not based on the fundamentals of the underlying securities you own. I don't fault you for market timing because what you did was very prudent and responsible and is something I too would do if I was younger and just building my track record. Nobody wants a down year in their track record and I believe when you had the chance to essentially approach "flat" you began to reduce risk. What you did was simply decide to forego future profits for the sake of sleeping at night. To say you did anything else such as make a macro call or see that Spain is in a different situation is totally crazy imho and I urge you to not believe in such madness, it was purely a coincidence. Again what you did as a fiduciary and capital allocator is totally understandable and something I would expect as an LP after a down year.

 

Ouch!  I'm laughing, but the tears coming down indicate I just received a back-handed compliment...and it stung like hell.

 

I think thats what Bmichaud and Albert need to understand, ultimately Parsad and all of us are managing our portfolios based on our historical returns, we add or reduce to our positions based on how well we are doing or how familiar we are with the investment environment. I feel very good with my allocation even though I did not choose to reduce long exposure as Parsad did, I gave up a huge paper gain for the year, but I don't believe I am a gambler that needs to quit while I am ahead, I believe that over time the securities I own will compound at rates that exceed my alternatives, cash included.

 

I hope I'm not managing based on historical returns, because we are the largest investor in the fund, and I'm not interested in staying in the same place. 

 

Unlike many of the professional managers on here, as well as all private investors, our fund by design has a fundamental flaw that virtually none of you have to experience...the fact that we operate with with no lockup.  I'm happy with the way the fund is structured, as that was how this original fund was meant to be.  We wanted our partners to have capital when they wanted their capital.  It's not my job to protect them from themselves, be it over 60 days or a two-year lockup.  What we offer is above average returns and that we will try to not lose capital over time. 

 

We will start another fund eventually, and that one will have a lockup for those that want their capital locked up...more volatility, higher returns.  But the structure of this fund is what it is, and it isn't going anywhere...and maybe that's why our aversion to volatility is more paramount than some others, because we don't have the luxury of telling our partners to go to hell for a year or two...nor would we want to ever behave like that.

 

On this note it is worth mentioning that one manager is impressing me with regards to his conviction and that is Mohnish. He appears to be stepping on the peddle and continues to gain long exposure, he has not reduces his exposure. I believe Mohnishs portfolio will compound at 20-30% per year from here over the next 3 years, I own many of the same securities that he does with similar allocations. Ultimately, one has to decide if they are comfortable withstanding paper losses, some people are not cut out for it, we live in truly volatile times. There will always be reasons for why stocks are down or up, and to think one fully comprehends the reasons is insane. The  Zerohedges of the world are always bearish, always... I am not always bullish but I have historically made all my big gains on the longside and like to stay with securities for many years, I don't care if they move up and down in betwee and I don't care about my track record over 1 or 2 years when I have compounded very well for 20 years doing just this.

 

Mohnish is a very good friend of mine, a mentor and almost like the older brother I wish I had.  He is incredibly smart and able to grasp ideas immediately.  He's also become one of the most articulate value investors I know.  But even with all that, the only thing that saved the Pabrai Funds from sheer catastrophe in 2008, was the fact that the year-end request to redeem capital had nearly passed when the bulk of the losses hit.  Otherwise, we may not be talking about the Pabrai Funds at this moment. 

 

I saw what he was going through at the time and I can guarantee you it wasn't an enviable position to be in at all...not in the slightest.  I don't think anyone on this message board, including you and I, could have survived that and recovered from those losses.  Hundreds of hedge funds closed during that period with half the losses that Pabrai Funds went through.  I don't know of a single fund that has recovered from such a loss.  It was both a bit of sheer luck and Mohnish's ability to fight through any crisis.  Isn't it ironic how Prem and he have become such good friends, and yet it would seem almost destined after both their near-death experiences.  I don't want to ever have my funds go through what he experienced!

 

I just think everyone needs to be honest and objective, there is nothing different about the European situation today than there was last year and Bmichaud correctly observed that we now actually know that push comes to shove Europeans will print as well. Everyone will print ad infinitum, and so our jobs are merely to weather the volatility and stay focused at buying securities below their intrinsic value.

 

You are correct, and I have not said once that this is not going to happen.  The question is, is it going to happen after markets fall 10% or crater 25%?  And would the right decision have been to do nothing at all, or have cash to buy at either the 10% or 25% discount?  We're already at that 10% discount and I can now buy alot of the stuff you own and achieve the same return going forward.  And if markets tank to that 25% level, what happens to the stuff you presently own and what happens to the cash I have on hand?  The only way this goes wrong for me is if I decide not to pull the trigger at all...that won't happen!  Cheers!

 

 

       

 

Parsad I did not mean to give you a backhanded comment, I truly believe what you did was very responsible. I am just pointing out that you are not market timing, you are timing your portfolio returns. Just make sure you are fully aware of that (which it appears you are) because over time if you truly subscribe to graham & dodd especially in bull markets, you will want to develop the stomach to withstand 2-3 month downturns.

 

In terms of an investment manager what you are doing is exactly what you got paid to do, you are not losing sight of rule #1, as your LP's make more money and more of your capital is profits from year's past you will develop more of a willingness to be long into downturns, because over a 5-10 year period the best thing you can do with good securities is sit on your ass.

 

I will show you another interesting example of this with gold. Recently the Gold Council came out with a very interesting study. Simply, if you had bought gold at the open in the US COMEX market and sold it at close from 2001 to 2011 you would have by 2011 lost 60% of your capital. Had you held gold overnight from 2001 and sold it in 2011 you would have made 600-700%, essentially gold was making most of its gain overnight in europe and asia where the true demand came from. Its not exactly similar to the point I was trying to deliver with equities but is something that the greatest investors know how to do which is sit on the ass, and let the fundamentals unfold. It can take many years sometimes 3-5 years..

 

 

[RichardGibbons]

After reading Sanjeev's writings for a decade, it would surprise me if he's timing the portfolio.  I think he's doing the strategy that he thinks will provide the best returns.  He recognizes the value of dry powder at the bottom of the market (and really, anyone who kept their eyes open during 2008 should also).

 

Furthermore, saying, "nothing's really changed since January" makes no sense.  I'd say more has changed in the last 5 months than most other 5 month periods I can think of over the last couple of decades.  In fact, if this 5 month period doesn't meet your criteria for a change in investment thinking, then I think there's probably only a few that do.  In that case, you should basically never have a change in your investment thinking.  Which I guess is fine, but it's probably pretty non-optimal if you assume the economy will not affect any businesses you own.

 

Moore's trying to help Sanjeev learn, but I'd guess that there's a fair amount that Moore could learn from Sanjeev.  Nevertheless, Sanjeev will almost certainly learn more from Moore than vice versa.  :)

 

[Parsad]

Parsad I did not mean to give you a backhanded comment,...

 

Don't worry Moore.  There are people whose back-handed comments are meant to help and improve others, whereas there are those who attempt to demean others.  I know you're the former. 

 

One of the latter ones was very good at it..."your naivety is so adorable, but maybe one day you'll learn that you are completely wrong and fooling yourself."  He's no longer on this board!  ;D

 

In terms of your gold analogy, I understand what you are saying.  There's that wonderful example that historians like to use all the time when it comes to equities...Jeremy Siegel especially likes to use it...if you missed the X best days over this many years, your total investment return would be 50% less, etc.  And then you get a period like 1999-2012, and you know where Jeremy Siegel can stick his book! 

 

If you are buying the market and have no idea how to value a business or its intrinsic value, then by all means hold something for 10, 20, 30 years.  But if you are capable of accurately estimating intrinsic value, and can use the follies of market pricing to take advantage of that ability, then by all means I think you should do so.  I come from the latter school. 

 

I'm a Ben Graham school investor and I idolize Warren Buffett, but I have no problem selling something if I think I can buy something at a much greater discount to intrinsic value...be it from a single event within a business or a macroeconomic event.  The market is there to serve us and profit from it when others make errors.  While theoretically we estimate the value as if we are buying the entire business, in actuality we are not.  We aren't hamstrung by promises made to owners or executives to never sell the company, and the inability to sell the stake due to illiquidity...we can always buy something cheaper.  Cheers!

[Parsad]

Nevertheless, Sanjeev will almost certainly learn more from Moore than vice versa.

 

You are probably correct here.  Cheers!

[moore_capital54]

After reading Sanjeev's writings for a decade, it would surprise me if he's timing the portfolio.  I think he's doing the strategy that he thinks will provide the best returns.  He recognizes the value of dry powder at the bottom of the market (and really, anyone who kept their eyes open during 2008 should also).

 

Furthermore, saying, "nothing's really changed since January" makes no sense.  I'd say more has changed in the last 5 months than most other 5 month periods I can think of over the last couple of decades.  In fact, if this 5 month period doesn't meet your criteria for a change in investment thinking, then I think there's probably only a few that do.  In that case, you should basically never have a change in your investment thinking.  Which I guess is fine, but it's probably pretty non-optimal if you assume the economy will not affect any businesses you own.

 

Moore's trying to help Sanjeev learn, but I'd guess that there's a fair amount that Moore could learn from Sanjeev.  Nevertheless, Sanjeev will almost certainly learn more from Moore than vice versa.  :)

 

Richard you are incorrect, I have and will continue to learn a lot from Sanjeev's writings as I have from other contributors on this board. I have not like you followed his writings for a decade but stick to me belief that he was timing his portfolio as he himself alluded to based on his redemption policy... (or so I understood)

 

The biggest issue with your post is this:

 

Furthermore, saying, "nothing's really changed since January" makes no sense.  I'd say more has changed in the last 5 months than most other 5 month periods I can think of over the last couple of decades.  In fact, if this 5 month period doesn't meet your criteria for a change in investment thinking, then I think there's probably only a few that do.  In that case, you should basically never have a change in your investment thinking.  Which I guess is fine, but it's probably pretty non-optimal if you assume the economy will not affect any businesses you own.

 

My understanding of graham & dodd is that the only thing I need to worry about with regard to change, are the tangibles and intangibles that are reported to me 4 times a year in the quarterlies and annual report of the companies I am invested in. Intangibles such as market position, and industry trends can be adjusted in between based on scuttlebutt and what not, but the only thing that would get me to exit an investment would be a sequence of quarterly figures which under-performed my projections or internal assessment of intrinsic value.

 

You say a lot has changed over the last 5 months? What has changed with BAC? or BRK ? That would make me want to own less of those names, whilst I would prefer to take the exogenous events of these last months to purchase shares in those enterprises from people like you who think so much has changed...

 

Will you stop banking tomorrow? or refueling your vehicle? or planning for that vacation? will you stop consuming or producing? How does a debt to gdp ratio affect that when you are analyzing the balance sheet of an enterprise? I won't disagree that with some companies such analysis is warranted but I do not believe I own any companies where, over a 5-10 year period any macro shock would result in that company earning less nominally over time.

[bmichaud]

Parsad,

 

Wonderful explanation - I can only wish I had been so eloquent last year describing my bearish bent. Yet another unfortunately painful lesson learned.....I really admired your and other investors' ability last year to look through what I thought to be painfully obvious macro concerns not discounted in even the cheapest of stocks and step up and buy.....now you're making the same arguments I made last year about Klarman holding cash even when individual opportunities are available....lesson learned - stick to your own f$cking guns. I should have never listened to any of you, though now is not the time to get bearish, IMHO, due to the oversold nature of the market and the likelihood of a major policy response in the near future.

 

However, as i was telling Moore, Buffett and Munger's advice from this year's AGM that they have never not bought an individual security based on the macro environment has been ringing in my ears for awhile now.....there always has been and always will be macro concerns such as there are now, and my guess is that one misses out on a lot of opportunity by foregoing individual opportunities based on macro concerns. For example, my guess is that coming out of the Great Depression there was a lot of fear mongering about the world economy and how long it would take to recover, and most likely there were lots of sovereign debt issues as a result of dealing with the Depression - BUT, that didn't stop KO, WFC or Geico from expanding their franchises year in and year out, providing investors with a time horizon longer than a few years with the ability to generate enormous wealth over a lifetime.

 

.....

 

If the above sounds like a very confusing train of thought, thats because it is. On one hand I still believe this secular bear comes to an end somewhere below 800 on the SPX, but then on the other hand how can I pass up such undervalued securities that will most likely do extremely well over the next three to five years regardless of the market? Then on the third hand, why on earth if the general market falls to below 800 would BAC NOT get hammered even from here?

 

 

[SharperDingaan]

An awful lot changed in Euroland in even the last 3 months, it is just not visible – yet.

 

When was the last time you saw a ‘deposit  run’ – maybe Northern Rock? They are now occurring monthly, the amounts are massive, & the funds are leaving Europe entirely. Even the tax evaders (ie: the most informed) have stopped investing, & possibly re-investing, their cash in Bundts.

http://www.telegraph.co.uk/finance/financialcrisis/9307106/Spain-is-in-total-emergency-the-EU-in-total-denial.html

http://howestreet.com/2012/05/full-fledged-european-bank-run-ecb-deposit-insurance-is-not-the-answer-how-fdic-played-a-part-in-the-us-real-estate-bust-monetarist-fools-are-everywhere-believe-in-gold/

 

When was the last time you saw investors ‘pay’ central banks to take their money? - & a central bank reject it (by not massively increasing their offering & relending the money to the IMF crisis fund). A sudden need to recycle through another route is not encouraging http://www.thelocal.se/40326/20120418/

http://www.dailymail.co.uk/news/article-2153324/Markets-facing-rerun-Great-Panic-2008-Head-World-Bank-warns-Europe-heading-danger-zone-bleakest-day-global-economy-year.html

http://www.reuters.com/article/2012/05/31/markets-usa-bonds-idUSL1E8GVOJ720120531

Some might suggest that Europe has had the equivalent of a stroke. We just don’t know how serious yet, or what is paralyzed.

 

The other man in the room is also not doing well.

http://online.barrons.com/article/SB50001424053111903964304577422293673015120.html?mod=BOL_hpp_mag

 

Now why would a rational man not expect at least a 30% drop,

& have those long equity positions hedged?

 

[bmichaud]

Had the post Lehman outcome been as widely known before it actually happened, do you not think the market would have been far lower heading into that fateful weekend?

 

All of these articles are spelling out Lehman 2.0. Isn't the rule of thumb that if something has made the papers it is already priced into markets?

 

Rhetorical questions of course.....

 

 

Here are the latest musings of Kiron Sarkar, a London-based HFM who posts on The Big Picture, regarding the current EZ situation and the likely upcoming policy responses:

 

http://www.ritholtz.com/blog/2012/05/euro-zone-continues-down-the-plug-hole/

 

http://www.ritholtz.com/blog/2012/05/draghi-urges-ez-politicians-to-act/

 

http://www.ritholtz.com/blog/2012/06/bp-considering-the-sale-of-its-50-shareholding-in-tnk-bp/

 

http://www.ritholtz.com/blog/2012/06/eurozo-policy-action-is-coming/

 

 

[Valuebo]

 

 

If the above sounds like a very confusing train of thought, thats because it is. On one hand I still believe this secular bear comes to an end somewhere below 800 on the SPX, but then on the other hand how can I pass up such undervalued securities that will most likely do extremely well over the next three to five years regardless of the market? Then on the third hand, why on earth if the general market falls to below 800 would BAC NOT get hammered even from here?

 

 

 

And what IF that happens? Do you not get good value here at $7 with BAC even if Europe collapses? There is always the chance of a 25-35% market collapse, always. I'm not willing to forgo great opportunities hoping to get even sweeter deals IF armageddon strikes. For me that is as stupid as keeping overvalued shares because the market is still rising and the economy is booming.

 

I understand Parsad completely considering his position with his fund without lock-up, but most here shouldn't care about macro at all imo. (Btw Parsad, saying "that you can't lose now" is pretty easy AFTER the market gave away all it's gains for the year. The outcome is quite perfect for you now, it could have been different.)

 

I don't care much that I lost my 35% in gains for the year in 50 days. My process isn't wrong because this happened. You can expect that if you hold 60%+ in one stock (it was lower before, I just added aggressively) and the rest in banks (+warrants). Nothing really changed for those companies that I am holding and I just pick up more as we go along. Most people are just too afraid of temporary paper losses. (That's of course easy to say with a 5-figure portfolio!)