"Macro" Musings

[giofranchi]

Visualizing Bob Farrell's 10 Rules

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

visualizing-bob-farrell-10-rules-of-investing.pdf

[giofranchi]

Cashin, Klarman, & Marks:

 

(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.

Klarman

 

Look at the average American. I have been telling my friends in Europe for several years that the average American has $1,000 in the bank, owes $10,000 on their credit card, makes $20,000 a year after taxes — by the way, I am exaggerating, these are not specific data but conceptual — and spends $22,000. That is not healthy.

Marks

 

http://www.zerohedge.com/news/2013-02-20/cashin-klarman-marks-un-abating-risks-collapse

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[giofranchi]

Interview with Felix Zulauf.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

Interview_with_Felix_Zulauf_Feb2013.pdf

[giofranchi]

"Fifty Trades of Grey" by Michael Cembalest, J.P. Morgan Asset Management

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

02-19-2013_-_EOTM_-_Fifty_Trades_of_Grey.pdf

[giofranchi]

Thing goin' on that you don't know

 

http://www.cravensbrothers.com/archives/1459

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[giofranchi]

The worst is over

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

IceCap_Asset_Management_Limited_Global_Markets_February2013.pdf

[txlaw]

Bernanke highlights:

 

http://www.reuters.com/article/2013/02/27/usa-fed-bernanke-idUSL1N0BR41N20130227

[giofranchi]

Broyhill Asset Management Investment Outlook Feb 2013

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

Investment_Outlook_Portfolio_Strategy_Feb_13.pdf

[giofranchi]

All the silver in the world

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[giofranchi]

Charles Gave on the recent Italian election.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

Charles_Gave_on_the_election_in_Italy.pdf

[giofranchi]

Evergreen on Gold.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

NA+EVA+3.1.2013.pdf

[giofranchi]

New Gary Shilling Insight.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

insight-0313b.pdf

[blainehodder]

http://www.hussmanfunds.com/wmc/wmc130204.htm

 

 

I am with Hussman here.

 

Dow all time high.  S&P at all time highs.  Looking overbought on a bollinger basis, overbullish advisor sentiment, and grossly overvalued with a shiller P/E of 22.8.  All combined with cyclical highs in profitability.  I am hearing my coworkers abandon the sidelines to chase the run up.

 

All of this is happening and everyone I talk to has the same plan:  "It will all go up until the Fed tightens."  Who will be the buyer in this case?  I can't see this ending well, even if you hold cheap stocks.  Even net nets, magic formulas etc. get crushed during big corrections. 

 

Right as the market hits all time highs, I am selling off the fair value + stuff and raising cash.  I can't wait to buy my favorites on the cheap.

 

What about you?

[PlanMaestro]

Why Don’t We Have Deflation?

http://krugman.blogs.nytimes.com/2013/03/05/why-dont-we-have-deflation/

 

[giofranchi]

Gundlach's "The Big Easy"

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

Gundlach-the-Big-Easy-Slides-FINAL.pdf

[giofranchi]

http://www.hussmanfunds.com/wmc/wmc130204.htm

 

 

I am with Hussman here.

 

Dow all time high.  S&P at all time highs.  Looking overbought on a bollinger basis, overbullish advisor sentiment, and grossly overvalued with a shiller P/E of 22.8.  All combined with cyclical highs in profitability.  I am hearing my coworkers abandon the sidelines to chase the run up.

 

All of this is happening and everyone I talk to has the same plan:  "It will all go up until the Fed tightens."  Who will be the buyer in this case?  I can't see this ending well, even if you hold cheap stocks.  Even net nets, magic formulas etc. get crushed during big corrections. 

 

Right as the market hits all time highs, I am selling off the fair value + stuff and raising cash.  I can't wait to buy my favorites on the cheap.

 

What about you?

 

I agree.  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[ERICOPOLY]

 

Even net nets, magic formulas etc. get crushed during big corrections. 

 

 

I remember a lot of the cheaper stuff going up during the crash of the Dot Com growth bubble.  And that was no small correction.

 

BUD for example, went up a lot.

[blainehodder]

 

Even net nets, magic formulas etc. get crushed during big corrections. 

 

 

I remember a lot of the cheaper stuff going up during the crash of the Dot Com growth bubble.  And that was no small correction.

 

BUD for example, went up a lot.

 

Jae Jun at oldschoolvalue.com has done some work running backtests on various value strategies with stockscreen123.  His results are here:

 

http://www.oldschoolvalue.com/stock-screener.php

 

 

It appears every strategy was severely punished in the 08' crash, with particularly  devastating drawdowns on NCAV, netnet working cap portfolios, and net net working cap increasing models.  In 2000, He shows drawdowns on most value strategies as well.  I'm not sure about 99 though.  Of course, this is only true for a generic basket, not individual stock picks.

 

Stockscreen123 recently moved to Compustat data (which accounts for survivorship bias), which was likely used in Jae's backtest as he recently revamped the screener, so the data is likely correct or close to correct.

 

Greenblatt's reported magic formula results show up 12.8% in the 2000 bust which is very interesting, but was definitely hit fairly hard during the 08' crisis. I suspect the MF would be down if we face another "most assets are priced lower" periods (as opposed to the dot-com bust), but this is just a guess.

 

Cheap, quality stocks seem to perform the best in most periods up or down given a 10 year time frame though, which we all know or wouldn't be members of this forum!

 

While I don't claim any ability to predict the shorter term returns of the market, the Shiller PE does a pretty damn good job in the 5-10 year range.

 

http://greenbackd.com/2012/07/30/new-global-research-on-graham-shiller-cyclically-adjusted-price-earnings-cape-ratio/

 

So, even though some stocks are bound to do well during an overall expensive market period, it seems playing the cheap quality game, in cheaper markets might be a decent idea.  Particularly for more diversified investors who are less confident in single names... I wish I understood banks better:)  As it is though, I am not finding tons of companies that are cheap, and I can understand.

 

[ERICOPOLY]

 

Even net nets, magic formulas etc. get crushed during big corrections. 

 

 

I remember a lot of the cheaper stuff going up during the crash of the Dot Com growth bubble.  And that was no small correction.

 

BUD for example, went up a lot.

 

Jae Jun at oldschoolvalue.com has done some work running backtests on various value strategies with stockscreen123.  His results are here:

 

http://www.oldschoolvalue.com/stock-screener.php

 

 

It appears every strategy was severely punished in the 08' crash, with particularly  devastating drawdowns on NCAV, netnet working cap portfolios, and net net working cap increasing models.  In 2000, He shows drawdowns on most value strategies as well.  I'm not sure about 99 though.  Of course, this is noly true for a generic basket, not individual stock picks.

 

Stockscreen123 recently moved to Compustat data (which accounts for survivorship bias), which was likely used in Jae's backtest as he recently revamped the screener, so the data is likely correct or close to correct.

 

Greenblatt's reported magic formula results show up 12.8% in the 2000 bust which is very interesting, but was definitely hit fairly hard during the 08' crisis. I suspect the MF would be down if we face another "most assets are priced lower" periods (as opposed to the dot-com bust), but this is just a guess.

 

Cheap, quality stocks seem to perform the best in most periods up or down given a 10 year time frame though, which we all know or wouldn't be members of this forum!

 

While I don't claim any ability to predict the shorter term returns of the market, the Shiller PE does a pretty damn good job in the 5-10 year range.  So, even though some stocks are bound to do well during an overall expensive market period, it seems playing the cheap quality game, in cheaper markets might be a decent idea.  Particularly for more diversified investors who are less confident in single names... I wish I understood banks better:)  As it is though, I am not finding tons of companies that are cheap, and can understand.

 

The 08 crisis wasn't a stock market crash (in my words).  It was a global financial crisis.  Even money market funds were questioned.

 

It was very different from the Dot Com collapse which was just a revaluation of equities.  I remember some very cheap "old economy" stocks -- things at like 4x or 5x PEs even during the height of the stock bubble.  So it was a bifurcated market -- that was dirt cheap stuff even in the face of the biggest market valuation bubble in history.  That was why the small cap value managers did very well during that period.

 

Anyways, I just wanted to remind that if you can find really cheap stuff it will take care of itself perhaps and waiting out a market crash might not be useful.

[blainehodder]

Yes I definitely agree Eric.  Waiting is costly, and macro analysis proves too many people stupid on a regular basis.  I am not really seeking the sidelines, but I have taken profits on things that have run up to fair value or higher and am looking to get into some other cheap stuff.  Am I wrong in thinking having some cash would be prudent in case a huge opportunity arises? 

Do you have any on hand, or are you 100% invested?  Also, didn't you have some cash on hand to capitalize on the financial panic in 08'?  Or did you have to sell cheap stocks even cheaper to buy the cheapest thing you have ever seen if you get what I am saying? I am geuinely seeking advice here.  I don't have near the experience or returns you have had.  I was a broke uninvested student in 08' and a kid during the dotcom bust. 

 

I am noticing the net-nets right now are for the most part very ugly (the exchange listed ones at least), and the really ridiculous dream stocks I was finding are no longer cheap (JCTCF comes to mind).  There is still always winning businesses to be had in North America regardless of the environment, as you may prove with BAC, but I am not finding tons of easy money... (I haven't spent the time analyzing the BAC balance sheet to feel comfortable).

 

In the end I agree with your advice for sure, I guess I am just saying it might not hurt for me to look for cheaper markets to play in where the dream stocks exist, and hold some cash in case our markets get cheaper.  Cheap, high returns on tangible cap, smart capital allocation, and management I can trust are prob more abundant in non-North American markets right now no?  This applies far more to me than you though as you are heavilly in BAC.  I am very curious however in the stocks that would interest you if say, you didn't understand banks, or weren't allowed to buy them?

[txitxo]

 

The 08 crisis wasn't a stock market crash (in my words).  It was a global financial crisis.  Even money market funds were questioned.

 

It was very different from the Dot Com collapse which was just a revaluation of equities.  I remember some very cheap "old economy" stocks -- things at like 4x or 5x PEs even during the height of the stock bubble.  So it was a bifurcated market -- that was dirt cheap stuff even in the face of the biggest market valuation bubble in history.  That was why the small cap value managers did very well during that period.

 

Anyways, I just wanted to remind that if you can find really cheap stuff it will take care of itself perhaps and waiting out a market crash might not be useful.

 

You have a point there. During the 2000 crisis value stock portfolios certainly didn't do as bad as the rest. The bubble was mostly limited to dotcom stocks. However, even some rock-solid stocks like BRK went down by 50% from the 1999 peak to the 2000 through, about the same percentage as between the 2007 and 2009. But BRK was out of phase with the general market, so somebody buying cheap BRK in 2000 would have outperformed the S&P500 by almost 100% in a couple years. Other stocks like MKL "only" fell by 30%.

 

2008-2009 was certainly a whole different story, even gurus like Dreman or Miller got absolutely crushed. Quantitative value strategies who had worked very well for decades went down by 70% (as it happened to Pabrai).

 

The 1T$ question is: how is the next leg down going to be? A nice, clean ~30% crash, like the one in 1987? Or another chainsaw massacre?

 

[ERICOPOLY]

This applies far more to me than you though as you are heavilly in BAC.  I am very curious however in the stocks that would interest you if say, you didn't understand banks, or weren't allowed to buy them?

 

I would own a large allocation in Fairfax if I couldn't own BAC.  I do have 25% in AIG warrants at the moment -- that's the only non-BAC thing I own.

 

So if BAC were taken away I'd probably put 50% in FFH and buy more AIG warrants (to a 50% allocation).

 

[PlanMaestro]

Cooperman not talking about taxes.

http://video.cnbc.com/gallery/?video=3000152534

[buylowersellhigh]

This applies far more to me than you though as you are heavilly in BAC.  I am very curious however in the stocks that would interest you if say, you didn't understand banks, or weren't allowed to buy them?

 

I would own a large allocation in Fairfax if I couldn't own BAC.  I do have 25% in AIG warrants at the moment -- that's the only non-BAC thing I own.

 

So if BAC were taken away I'd probably put 50% in FFH and buy more AIG warrants (to a 50% allocation).

 

 

Eric,

 

I am trying to get up to speed on Fairfax.  The fact that you say that means a lot.  Could you let me know why feel so strongly about Fairfax?  I have read the Fairfax board.  Obviously the lack of uw profits doesn't bother b/c you like mgmt, ability to allocate capital, etc.

[value-is-what-you-get]

BAC is the second worst performing stock on the Dow since the last peak in 2007.  Down 78+%.

 

That s why I'm ignoring the macro on that position.