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A little note worth sharing


libor.plus1
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I'm a bearish guy in general. And up to today, I was pretty much all cash, except for maybe some option plays.

 

And over the last few months, I've been waiting for a huge correction so I could start building my position. Even with the slight correction we've had so far, I wasn't impressed...  "there's more to go"

 

"More" included:

 

-Greek elections

-economic slowdown

-batshit insanity from the rest of Europe, downgrades, bailouts, etc.

-China.

 

Now, my uncle collects old stamps, old newspapers, old cards. He buys this stuff in bulk from Ebay and thoroughly enjoys looking at them or reading them or just having them around. Just the other day, he got a giant collection of newspapers from the early 1940s, at the height of WW2.

 

I was intrigued, so I carefully opened up one of the newspapers, which contained a headline about the Germans attacking, and something about Pearl Harbour. I flipped through a couple of more pages and got to the stock section where there were headlines about new M&A activities, and general business commentary. What struck me as odd was that these business commentaries almost seemed removed from the headlines in the previous section about the end of the world. Some stocks were up, some stocks were down, but business as usual (relatively speaking).

 

And it made me realize... you know what? All this stuff about Greek elections and Europe, and the end of the world... this will all come to pass. It doesn't really mean anything in the grand scheme of things. I mean, what we have going on around us now is nothing compared to WW2. What we are experiencing now is small peanuts. We'll get through it. Things aren't that bad.

 

TL;DR: I started buying a bunch of stuff today.

 

 

 

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And it made me realize... you know what? All this stuff about Greek elections and Europe, and the end of the world... this will all come to pass. It doesn't really mean anything in the grand scheme of things. I mean, what we have going on around us now is nothing compared to WW2. What we are experiencing now is small peanuts. We'll get through it. Things aren't that bad.

 

TL;DR: I started buying a bunch of stuff today.

 

Thanks for sharing your epiphany.

 

It reminds me of one of Buffett's stock answers in interviews, about how (I'm paraphrasing) if you could have told someone born in 1930 that the US would go through a depression, a world war, many recessions, the cold war, financial and political crises, social unrest, inflation, etc.. That he would probably never want to invest, but that in fact, over the past century people got much wealthier and many businesses did extremely well.

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I'm a bearish guy in general. And up to today, I was pretty much all cash, except for maybe some option plays.

 

And over the last few months, I've been waiting for a huge correction so I could start building my position. Even with the slight correction we've had so far, I wasn't impressed...  "there's more to go"

 

"More" included:

 

-Greek elections

-economic slowdown

-batshit insanity from the rest of Europe, downgrades, bailouts, etc.

-China.

 

Now, my uncle collects old stamps, old newspapers, old cards. He buys this stuff in bulk from Ebay and thoroughly enjoys looking at them or reading them or just having them around. Just the other day, he got a giant collection of newspapers from the early 1940s, at the height of WW2.

 

I was intrigued, so I carefully opened up one of the newspapers, which contained a headline about the Germans attacking, and something about Pearl Harbour. I flipped through a couple of more pages and got to the stock section where there were headlines about new M&A activities, and general business commentary. What struck me as odd was that these business commentaries almost seemed removed from the headlines in the previous section about the end of the world. Some stocks were up, some stocks were down, but business as usual (relatively speaking).

 

And it made me realize... you know what? All this stuff about Greek elections and Europe, and the end of the world... this will all come to pass. It doesn't really mean anything in the grand scheme of things. I mean, what we have going on around us now is nothing compared to WW2. What we are experiencing now is small peanuts. We'll get through it. Things aren't that bad.

 

TL;DR: I started buying a bunch of stuff today.

 

Brilliant. I think we are all super-skeptics, but really after all our analysis it doesn't hurt to add a sprinkle of optimism. Mainly recognizing that the world will not end. And if things look really cheap, it's the time to buy.

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I'm a bearish guy in general. And up to today, I was pretty much all cash, except for maybe some option plays.

 

And over the last few months, I've been waiting for a huge correction so I could start building my position. Even with the slight correction we've had so far, I wasn't impressed...  "there's more to go"

 

"More" included:

 

-Greek elections

-economic slowdown

-batshit insanity from the rest of Europe, downgrades, bailouts, etc.

-China.

 

Now, my uncle collects old stamps, old newspapers, old cards. He buys this stuff in bulk from Ebay and thoroughly enjoys looking at them or reading them or just having them around. Just the other day, he got a giant collection of newspapers from the early 1940s, at the height of WW2.

 

I was intrigued, so I carefully opened up one of the newspapers, which contained a headline about the Germans attacking, and something about Pearl Harbour. I flipped through a couple of more pages and got to the stock section where there were headlines about new M&A activities, and general business commentary. What struck me as odd was that these business commentaries almost seemed removed from the headlines in the previous section about the end of the world. Some stocks were up, some stocks were down, but business as usual (relatively speaking).

 

And it made me realize... you know what? All this stuff about Greek elections and Europe, and the end of the world... this will all come to pass. It doesn't really mean anything in the grand scheme of things. I mean, what we have going on around us now is nothing compared to WW2. What we are experiencing now is small peanuts. We'll get through it. Things aren't that bad.

 

TL;DR: I started buying a bunch of stuff today.

 

Great post!  And of course I agree.  If you find stuff that is cheap, you should always buy regardless of what the headlines are blaring. 

 

We had lots of cash, but we've bought a few things in the last couple of weeks.  We bought something trading near its net cash today and have orders out on something else below its net cash.  Even if the world is apparently blowing up in some parts of the world, how can you not buy something at net cash when you are getting the business for free?  You can't!  Cheers! 

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We bought something trading near its net cash today and have orders out on something else below its net cash.  Even if the world is apparently blowing up in some parts of the world, how can you not buy something at net cash when you are getting the business for free?  You can't!  Cheers!

 

FMD one of them?

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Thank you for the reminder libor.plus1. I try to live by it as much as I can. Bought plenty of FTP under $18 the last few weeks and will add again if we drop more. Did the same last summer and winter with companies like BAC at $7 and $5 and the bank is stronger than ever. As I said elsewhere, uncertainty is always present, it just doesn't feel like that most of the time! If you get uncertainty in a specific stock (even if all outcomes are "good", one just better than the other) when the market is uncertain you can get amazing opportunities.

 

We bought something trading near its net cash today and have orders out on something else below its net cash.  Even if the world is apparently blowing up in some parts of the world, how can you not buy something at net cash when you are getting the business for free?  You can't!  Cheers!

 

FMD one of them?

 

Or Nintendo!  :)

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To be fair, WW2 was never fought on US soil, and US has gained a lot economically in the aftermath of the war, because of the war. I wonder if the same analysis can be done on old German or Japanese newspapers, where cities including hundreds of thousands of civilians, as well as a lot of industrial/commercial targets were obliterated, and whether the conclusions will be the same.

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To be fair, WW2 was never fought on US soil, and US has gained a lot economically in the aftermath of the war, because of the war. I wonder if the same analysis can be done on old German or Japanese newspapers, where cities including hundreds of thousands of civilians, as well as a lot of industrial/commercial targets were obliterated, and whether the conclusions will be the same.

 

I don't know, I hear that a lot, but it sounds like the broken window fallacy.

 

http://en.wikipedia.org/wiki/Broken_window_fallacy

 

Some technologies were developed because of the war, and getting women in the workplace certainly helped, but these could have been done without the war, and all the capital that went into blowing stuff up and making bombs could have been used much more productively otherwise.

 

I feel like history has tried to justify the war by saying it was so great for the economy, but I kind of doubt it was actually true. But we'll never know, as there's no control group for history.

 

There's actually something about that here:

 

http://en.wikipedia.org/wiki/Broken_window_fallacy#The_opportunity_cost_of_war

 

But to your point: Yes, some uncertainty doesn't matter too much for the economy in the end, but some certainly does. If you start to lose all the institutions and infrastructure on which businesses depend, then that's a huge problem. Doesn't mean you can't bounce back fast afterwards (ie. Japan), but in theory you could have done much better if you hadn't been bombed back to the stone age in the first place.

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You also have to account for starting from scratch again. Alot inefficiencies and institutional dogmas that would not be changed if the country were not in crisis. WWIi give rise to middle class, American manufacturing, union power, and many social reform that transfer already Alot of wealthy to the people as a enticement to support the war effort.

 

I am not supporting War but a crisis is needed for any major change to take place.

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You also have to account for starting from scratch again. Alot inefficiencies and institutional dogmas that would not be changed if the country were not in crisis. WWIi give rise to middle class, American manufacturing, union power, and many social reform that transfer already Alot of wealthy to the people as a enticement to support the war effort.

 

I am not supporting War but a crisis is needed for any major change to take place.

 

That's how it happened, but as there is no control group, you can't say it wouldn't have happened (maybe even better) without WWII. A lot of things can be impetus for change.

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I don't know, I hear that a lot, but it sounds like the broken window fallacy...

 

Well, like I said earlier, there wasn't a war on US soil, i.e. there was no "broken window" to begin with, so at least for the US, this fallacy wouldn't apply. Pearl Harbor damage was insignificant on the scale of WW2, and Hawaii didn't become a formal part of the US until 1959 anyway.

 

But just looking at the outcomes, the US emerged as the only economic superpower, and one of the two overall superpowers. How did the world look prior to that? Japan was an Empire, controlling Korea, Taiwan, half of China, and pretty much most of Far East. German Empire was a huge powerhouse as well. The UK, which also suffered significant WW2 destruction, also was an empire controlling a big chunk of the world. After the WW2 they all had to give up most of their "holdings".

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You also have to account for starting from scratch again. Alot inefficiencies and institutional dogmas that would not be changed if the country were not in crisis. WWIi give rise to middle class, American manufacturing, union power, and many social reform that transfer already Alot of wealthy to the people as a enticement to support the war effort.

 

I am not supporting War but a crisis is needed for any major change to take place.

 

That's how it happened, but as there is no control group, you can't say it wouldn't have happened (maybe even better) without WWII. A lot of things can be impetus for change.

 

I think base on my current study of history. For there to  be Gaining in rights the society has to be in crisis in a shape a forum. Which in turn making the group more valuable to the current power. Or else there is either no enough support or there fight and struggle can be easily be crashed. Also given that the current technology allows a this shift in power in the economy and society.

That is what I believe as the traditional game plan. But who knows the future might be different. But if you can give me a example I would love to hear it.

 

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I don't think war should be considered as cost benefit analysis. Since it create alot better condition for those who survive. Lower population, more requirement on labor again due to the destruction of production capacity. I think it has always been how we have dealt with over population, lack resources and work for everyone.

 

Historically these condition are what created great unrest in countries like China.

 

There a massive waring period much of the population are killed and displaced due to war.

The fundamental reason for war, i believe is caused by overpopulation which decrease rice productivity per person.

Which causes increase in tax rates, which causes massive tax evasion by the rich, which cause insane taxes to the poor (those who can't evade taxes).

The peasants no longer can live on their traditional plots of land or by working. Forcing them to get into groups and rebel.

Causing war... opportunity change in balance of power

End of war. Lower population and destroyed production capacity. Than the cycle start all over again over time.

 

Now i am not sure

Due to the power of technology

* Green Reveloution

* Atomic Bomb

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I don't know, I hear that a lot, but it sounds like the broken window fallacy...

 

Well, like I said earlier, there wasn't a war on US soil, i.e. there was no "broken window" to begin with, so at least for the US, this fallacy wouldn't apply. Pearl Harbor damage was insignificant on the scale of WW2, and Hawaii didn't become a formal part of the US until 1959 anyway.

 

But just looking at the outcomes, the US emerged as the only economic superpower, and one of the two overall superpowers. How did the world look prior to that? Japan was an Empire, controlling Korea, Taiwan, half of China, and pretty much most of Far East. German Empire was a huge powerhouse as well. The UK, which also suffered significant WW2 destruction, also was an empire controlling a big chunk of the world. After the WW2 they all had to give up most of their "holdings".

 

All the resources spent for war could have been used for more productive uses, so that's a kind of broken window. And while the destructions of the others allowed the US to dominate more relatively, the whole world including the US might have been better with more peaceful trade between more florishing (rather than destroyed) economies since economic growth isn't a zero-sum game. But we'll never know. It's not as simple as making up an alternative scenario in your mind that sounds plausible; it's just as impossible to create truly realistic alternate histories as it is to predict our future. Maybe Europe and Asia's PPP GDP would have been much higher without WWII, but this doesn't preclude the US's PPP GDP to also have been higher than it is now thanks to better trading partners and move technological progress coming from elsewhere, despite the US not being as big relatively compared to all the others (which isn't what matters -- I'd rather we all have great lives than having an ok life while everybody else is miserable...)

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All the resources spent for war could have been used for more productive uses, so that's a kind of broken window. And while the destructions of the others allowed the US to dominate more relatively, the whole world including the US might have been better with more peaceful trade between more florishing (rather than destroyed) economies. But we'll never know. It's not as simple as making up an alternative scenario in your mind that sounds plausible; it's just as impossible to create truly realistic alternate histories as it is to predict our future.

 

This kinda interested me more, so I googled for a bit. Check this article out: http://www.investopedia.com/articles/basics/06/alookback.asp

 

The US stock market performance in the 20th century is an anomaly:

 

http://i.investopedia.com/inv/articles/site/CT_ALookBack_2r.gif

 

http://i.investopedia.com/inv/articles/site/CT_ALookBack_3r.gif

 

"By contrast, other countries have lesser-known histories. For example, it took the U.K. much longer to recover from the world wars. Its diminished role after the collapse of the British Empire and the complicated bureaucracies of the colonial system slowed the U.K.'s growth immeasurably. According to the authors, problems with defense spending, labor, productivity and investment plagued the British economy and markets until the mid 1970s.

 

The U.S., on the other hand, suffered relatively little disruption to its stock market during the world wars and didn't have the prolonged declines that many of the European and Asian markets experienced. In fact, the United States' economy largely benefited from the wars - successful companies such as General Motors and IBM thrived as a result. At the same time, many other economies suffered great losses. For example, according to Phillipe Jorion and William N. Goetzmann in their article "Global Stock Markets In The Twentieth Century" (1999), the Japanese stock market saw a 95% decline in real returns between 1944 and 1949! The German market also suffered devastating losses. In this context, the U.S. market's success seems to be an exception, which the previous lack of data for other countries may have obscured."

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All the resources spent for war could have been used for more productive uses, so that's a kind of broken window. And while the destructions of the others allowed the US to dominate more relatively, the whole world including the US might have been better with more peaceful trade between more florishing (rather than destroyed) economies since economic growth isn't a zero-sum game.

 

Also, I think it's all part of a bigger "free market" vs "planned economy" argument. During WW2, the government took over much of the economy in terms of demand. Was that good or bad for the prosperity? It's hard to say. Today, China's "hybrid" economy is still largely planned, at least compared to the US, yet it has been growing and prospering like crazy.

 

The Cold War actually diverted a huge amount of resources towards "the military industrial complex", which, by your argument, is not the most productive use. However, it gave rise to all the innovation that we're still enjoying today. Think of NASA, or DARPA (the inventor of the Internet) -- these all were made possible by the Cold War, and were publicly funded.

 

Yes, you can argue that it's possible all that innovation could have been somehow developed privately without the government intervention or the Cold War, but I'm not buying that yet. I mean, look at the past 20-30 years, there weren't many fundamental innovations coming out of private sector that weren't already based on government-backed research of the Cold War era. And the excesses of financial bubbles and bursts of 2000 and 2007-present don't necessarily back the point that peaceful, non-military investment always puts the resources to the "most productive use".

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I think for a planned objective like war a planned economy is required.  However, for a peacetime eceonomy the planned economy causes allocation issues as the planners do not know the future.  This can be seen in post WWII Europe as many countries tried to plan there way to prosperty.  It can work up to the point of current levels of technology but actually retards innovation beyond the current levels and can cost alot of money as planned projects are borrowed for.  I think if you look at the Anglo-Dutch coutries and colonies, I think you will find their stock markets have outperformed more planned ecnomies of other countries. 

 

I also think alot of China's growth is catch-up growth and it will slow considerably once the country has caught up with US, Western Europe and Japan.  Catch-up growth can be planned like war because the objective is clear.  However, all the planning has a side effect of following the state plan.  At that point, growth will be based upon innovation which the Anglo-Dutch economies have a comparative advantage.   

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"By contrast, other countries have lesser-known histories. For example, it took the U.K. much longer to recover from the world wars. Its diminished role after the collapse of the British Empire and the complicated bureaucracies of the colonial system slowed the U.K.'s growth immeasurably. According to the authors, problems with defense spending, labor, productivity and investment plagued the British economy and markets until the mid 1970s.

 

The U.S., on the other hand, suffered relatively little disruption to its stock market during the world wars and didn't have the prolonged declines that many of the European and Asian markets experienced. In fact, the United States' economy largely benefited from the wars - successful companies such as General Motors and IBM thrived as a result. At the same time, many other economies suffered great losses. For example, according to Phillipe Jorion and William N. Goetzmann in their article "Global Stock Markets In The Twentieth Century" (1999), the Japanese stock market saw a 95% decline in real returns between 1944 and 1949! The German market also suffered devastating losses. In this context, the U.S. market's success seems to be an exception, which the previous lack of data for other countries may have obscured."

 

For anyone interested, this is the paper mentioned in the quote above:

http://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2004/GJ_Global.pdf

 

Going through the graphs and tables at the end is quite interesting.

 

Germany had annual real returns of 1.21% from 1921 to 1995, without dividends, and 4.83% with dividends. Japan: -0.81% (!) [1921-1996], I'm assuming without dividends. Quite a few other countries had negative annualized returns over much of the 20th century. Enough for me to pause and reflect on my previously held assumptions.

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