"Macro" Musings

[giofranchi]

Then (2007) and now.

 

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

 

What are these guys long term track records? Also, I looked at their first page and pretty much everything they show is negative. If one is honest, we have to look at both sides and not just the negative ones. How about they show valuations, balance sheet healht, or earnings growth? I also didn't care for about he was right about everything...just a bit early. How about he fesses up to his mistakes?

 

stahleyp,

I don’t know their long term track-record. Sincerely, I don’t care much… I just look out for information. Then I think and I decide which is the best course of action. I never rely on anybody else. So, I don’t really care about anybody else’s long term track-record…

 

I don’t even care about the timing. I know many of you repeatedly talk about market timing… And how market timing is a fool’s game… But I don’t care about it at all! All I care about is to be opportunistic and to always have the means to act opportunistically. Great opportunities don’t come often, so you cannot run the risk to be forced to let them go by, without taking advantage of them. Maybe, if you are a great statistician and trader, you have figured out a way to take advantage of the few really outstanding opportunities that will come along, and to be always fully invested. The same might be true for a great investor. Anyway, I seriously doubt it, both from a trader’s and from an investor’s perspective… Maybe, only the magician’s perspective would convince me!!  ;D

And, if you aren’t a star, you better always keep a decent amount of cash with you! To let it grow, when others are greedy, and to let it shrink, when others are fearful. Mr. Buffett and Mr. Watsa always have lots of cash ready at hand. Who cares about market timing?!

 

Instead, I agree with you about the quality of information: the sources of information must be of the highest quality possible. Anytime a piece of information is only partial, not complete, it is a pity and a shame!

 

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

 

[Guest]

gio, thanks for the response.

 

My point as far as records go, is that most people that have outstanding records usually have good processes while others with poor records tend to have poor process. The validity of their process tend to show over time. This is not always the case. As with anything else there are some exceptions. I agree that we need to wait for the "fat pitch" but I don't feel that I have the skills to adquetaly pick out a business and put 80% or what have you of my networth in one opportunity. Perhaps as I learn more I will do that. If that fat pitch does come along, couldn't you just sell lesser opprtunities and deploy the funds into that better one? That way, if nothing comes a long for a while, you're still compounding at a nice rate. I guess one could make the assumption that if he's already invested, he's actively looking for other things though. For me personally, I don't that's true. I love investing and even though I'm virtually 100% invested, I'm always on the prowl. :P

[giofranchi]

If that fat pitch does come along, couldn't you just sell lesser opprtunities and deploy the funds into that better one?

 

Well, of course you can! But I would argue that the currency you use to take advantage of the fat pitch matters. And a currency that has depreciated by 30% is not a very good one…

Anyway, I don’t believe in fixed schemes and rigid business plans… I just try to think strategically and act opportunistically. If you believe you won’t miss great opportunities, even though you are 100% invested all the times, and you are fine with that… well, then, very good for you!!  ;)

 

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

 

 

[Guest]

As an example, let's say I had all my money in Berkshire (which I don't) and I kept it there until I had a "fat pitch." I'd say you would most likely outperform the market nicely over the long term and, if you get that fat pitch, you could crush it. In the mean time, you get market growth and, most likely, a lot of downside protection (relative to the market anyway).

 

Also, personally, relatively to my net worth I save a lot. I replenish my cash quite rapidly. So, if the market were to tank, I could have a slug of cash relatively quickly.

 

Thanks for posting these though, gio. it's good to keep an eye on this a little bit.

[giofranchi]

As an example, let's say I had all my money in Berkshire (which I don't) and I kept it there until I had a "fat pitch." I'd say you would most likely outperform the market nicely over the long term and, if you get that fat pitch, you could crush it. In the mean time, you get market growth and, most likely, a lot of downside protection (relative to the market anyway).

 

Also, personally, relatively to my net worth I save a lot. I replenish my cash quite rapidly. So, if the market were to tank, I could have a slug of cash relatively quickly.

 

Thanks for posting these though, gio. it's good to keep an eye on this a little bit.

 

Imo, what you have written makes a lot of sense, and I think anyone who follows your example, including having an effective mean to constantly replenish his cash, is on his way to beat the market handsomely.

My perspective, though, is a little bit different. And it stems from my deeply ingrained skepticism about being truly able to understand a business and to forecast its future results.

Let me make this very simplified example: suppose for a moment that the whole market is composed by only two companies: Berkshire Hathaway and Wells Fargo, equally weighted. Now, the market plunges -40%. And it plunges this way: -30% for BRK stock price, -50% for WFC stock price. Before the plunge you were fully invested in BRK, and now you are saying: “Ok, my currency depreciated by -30%, but now I have the opportunity to purchase WFC, which is down -50%! Very good bargain!!”

That’s exactly when my skepticism comes in, playing the role of the joy killer… What do I really know about WFC, that other people don’t?! …Well, nothing…!! And that is it for me… I cannot invest… Beware: this is just me… It is just how I am done… Probably, it is a deep flaw of mine! And it shouldn’t apply to anybody else!

You see? My “fat pitch” is different from yours: my fat pitch is BRK that has come down -30%. After all, by now I must have spent thousands of hours studying BRK, and almost nothing studying WFC… So, how could I swing to that perfect pitch, without any dry powder left?

 

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

 

[vinod1]

Imo, what you have written makes a lot of sense, and I think anyone who follows your example, including having an effective mean to constantly replenish his cash, is on his way to beat the market handsomely.

My perspective, though, is a little bit different. And it stems from my deeply ingrained skepticism about being truly able to understand a business and to forecast its future results.

Let me make this very simplified example: suppose for a moment that the whole market is composed by only two companies: Berkshire Hathaway and Wells Fargo, equally weighted. Now, the market plunges -40%. And it plunges this way: -30% for BRK stock price, -50% for WFC stock price. Before the plunge you were fully invested in BRK, and now you are saying: “Ok, my currency depreciated by -30%, but now I have the opportunity to purchase WFC, which is down -50%! Very good bargain!!”

That’s exactly when my skepticism comes in, playing the role of the joy killer… What do I really know about WFC, that other people don’t?! …Well, nothing…!! And that is it for me… I cannot invest… Beware: this is just me… It is just how I am done… Probably, it is a deep flaw of mine! And it shouldn’t apply to anybody else!

You see? My “fat pitch” is different from yours: my fat pitch is BRK that has come down -30%. After all, by now I must have spent thousands of hours studying BRK, and almost nothing studying WFC… So, how could I swing to that perfect pitch, without any dry powder left?

 

giofranchi

 

 

I agree with Giofranchi having lived through an almost exact scenario in the 2008-2009 crisis. I went into the 2008-2009 crisis with about 70% cash and I had been able to take advantage of the market behaviour in that period nearly perfectly buy a lot in Oct/Nov 2008, trim a bit in Dec, load up in Feb/March 2009. The one thing I have not been able to do however is sell BRK at the lows in 2009 to buy other more attractive stocks. I was able to do it with cash I had, but for the life of me I cannot pull the trigger to sell BRK when you know with a near certanity it is less than 50% of IV and buy other stocks that are at 20-25% of IV. This is my one regret from that period but even going forward I doubt if I would be able to pull this off.

 

Vinod

[giofranchi]

Imo, what you have written makes a lot of sense, and I think anyone who follows your example, including having an effective mean to constantly replenish his cash, is on his way to beat the market handsomely.

My perspective, though, is a little bit different. And it stems from my deeply ingrained skepticism about being truly able to understand a business and to forecast its future results.

Let me make this very simplified example: suppose for a moment that the whole market is composed by only two companies: Berkshire Hathaway and Wells Fargo, equally weighted. Now, the market plunges -40%. And it plunges this way: -30% for BRK stock price, -50% for WFC stock price. Before the plunge you were fully invested in BRK, and now you are saying: “Ok, my currency depreciated by -30%, but now I have the opportunity to purchase WFC, which is down -50%! Very good bargain!!”

That’s exactly when my skepticism comes in, playing the role of the joy killer… What do I really know about WFC, that other people don’t?! …Well, nothing…!! And that is it for me… I cannot invest… Beware: this is just me… It is just how I am done… Probably, it is a deep flaw of mine! And it shouldn’t apply to anybody else!

You see? My “fat pitch” is different from yours: my fat pitch is BRK that has come down -30%. After all, by now I must have spent thousands of hours studying BRK, and almost nothing studying WFC… So, how could I swing to that perfect pitch, without any dry powder left?

 

giofranchi

 

 

I agree with Giofranchi having lived through an almost exact scenario in the 2008-2009 crisis. I went into the 2008-2009 crisis with about 70% cash and I had been able to take advantage of the market behaviour in that period nearly perfectly buy a lot in Oct/Nov 2008, trim a bit in Dec, load up in Feb/March 2009. The one thing I have not been able to do however is sell BRK at the lows in 2009 to buy other more attractive stocks. I was able to do it with cash I had, but for the life of me I cannot pull the trigger to sell BRK when you know with a near certanity it is less than 50% of IV and buy other stocks that are at 20-25% of IV. This is my one regret from that period but even going forward I doubt if I would be able to pull this off.

 

Vinod

 

Vinod,

I really couldn’t have said it better! Thank you very much for your crystal clear thoughts!  :)

 

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

[blainehodder]

Professor Aswath Damodaranon the current market valuation:

 

http://aswathdamodaran.blogspot.ca/2013/03/a-sweet-spot-for-us-equities.html

 

It is worthwhile to take a look at the comments as well.  I wrote a comment regarding CAPE/Shiller models, and profit margin mean reversion, and he has a pretty good response.

[vinod1]

Professor Aswath Damodaranon the current market valuation:

 

http://aswathdamodaran.blogspot.ca/2013/03/a-sweet-spot-for-us-equities.html

 

It is worthwhile to take a look at the comments as well.  I wrote a comment regarding CAPE/Shiller models, and profit margin mean reversion, and he has a pretty good response.

 

Prof Damodaranon writes clearly and is always a good read. However, he totally ignores the profit margins. His whole model, while very good theoretically, is based entirely on current year earnings (or TTM). If you assume that, his conclusion is pretty reasonable but you do not have to do any of his calculations either if that is your assumption.

 

Vinod

[giofranchi]

BNP-Paribas is the classic example: $2.5 trillion of asset footings vs. $80 billion of tangible common equity (TCE) or 31X leverage; it has only $730 billion of deposits or just 29% of its asset footings compared to about 50% at big U.S. banks like JPM; is teetering on $500 billion of mostly unsecured long-term debt that will have to be rolled at higher and higher rates; and all the rest of its funding is from the wholesale money market , which is fast drying up, and from repo where it is obviously running out of collateral.

 

Looked at another way, the three big French banks have combined footings of about $6 trillion compared to France’s GDP of $2.2 trillion. So the Big Three French banks are 3X their dirigisme-ridden GDP… By contrast, the top three U.S. banks which are no paragon of financial virtue – JPM, BAC, and C – have combined footings of $6 trillion or 40% of GDP. The French equivalent of that number would be $45 trillion for the U.S. banks. Can you say train wreck!

 

It is only a matter of time before these French and other European banks, which are stuffed with sovereign debt backed by no capital due to the zero risk weighting of the Basel lunacy, topple into the abyss of the shadow banking system where they have funded their elephantine balance sheets. And that includes Germany, too. The German banks are as bad or worse than the French. Did you know that Deutsche Bank is levered 60:1 on a TCE/assets basis, and that its Basel “risk-weighted” assets are only $450 billion, but actual balance sheet assets are $3 trillion? In other words, due to the Basel standards, which count sovereign and other AAA assets as risk free, DB has $2.5 trillion of assets with zero capital backing!

 

This is all a product of the deformation of central banking and monetary policy over the last four decades and the destruction of honest capital markets by the monetary central planners who run the printing presses. Furthermore, this has fostered monumental fiscal profligacy among politicians who have been told for years now that the carry cost of public debt is negligible and that there would always be a central bank bid for government paper. Perhaps we are now hearing the sound of some chickens coming home to roost.

 

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

130326_3_TFTF.pdf

Cyprus_-_Telegraph.pdf

[Zorrofan]

I really am enjoying this thread, so here is my small contribution. Love him, hate him or ignore him, this chart is from Zerohedge....

 

http://www.zerohedge.com/news/2013-03-28/chart-day-deja-vu-all-over-again

 

cheers,

Zorro

[vinod1]

Good interview with Shiller. Recommends financials using sector index fund as they are the cheapest sector trading at a CAPE of 14 which below average. Others sectors that are attractive Health Care, Energy, and Industrials.

 

http://blip.tv/wealthtrack-AppleTV/robert-shiller-6560861

 

Vinod

[giofranchi]

IceCap Asset Management March 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

IceCapAssetManagementLimitedGlobalMarketsMarch2013.pdf

[txitxo]

IceCap Asset Management March 2013

 

  I think it is much worse than: "Brussels considers itself a master of game theory". You have guys in charge like the Eurogroup chief Dijsselbloem, better known as Dieselbomb, who needed 6 years to get a BA degree in Agricultural Economy in some small Dutch University, has no MSc or PhD and has been the typical European political hack for most of his career. But he became Finance Minister in November of last year, and although obviously doesn't know squat about anything, is pontificating in the press about how to solve Europe's problems by confiscating money from depositors over the 100k limit and retracting his statements one day later, as we say in Spanish, "dónde dije digo, digo Diego". With idiots like that running the show even SuperMario may not be able to keep the euro together.

 

  I am trying to figure out what happened to people who were holding stocks in Laiki and Bank of Cyprus. If they were not affected by the bail-in, then there is going to be a massive bull market in Europe as everybody over the 100k limit who is not able or does not want to transfer their cash abroad puts as much of their money as they can into stocks. Many risk averse people will think that it is much better to put up with the fluctuations of owning BRK or FFH than to get shorn like the poor cypriots. 

 

[giofranchi]

IceCap Asset Management March 2013

 

  I think it is much worse than: "Brussels considers itself a master of game theory". You have guys in charge like the Eurogroup chief Dijsselbloem, better known as Dieselbomb, who needed 6 years to get a BA degree in Agricultural Economy in some small Dutch University, has no MSc or PhD and has been the typical European political hack for most of his career. But he became Finance Minister in November of last year, and although obviously doesn't know squat about anything, is pontificating in the press about how to solve Europe's problems by confiscating money from depositors over the 100k limit and retracting his statements one day later, as we say in Spanish, "dónde dije digo, digo Diego". With idiots like that running the show even SuperMario may not be able to keep the euro together.

 

  I am trying to figure out what happened to people who were holding stocks in Laiki and Bank of Cyprus. If they were not affected by the bail-in, then there is going to be a massive bull market in Europe as everybody over the 100k limit who is not able or does not want to transfer their cash abroad puts as much of their money as they can into stocks. Many risk averse people will think that it is much better to put up with the fluctuations of owning BRK or FFH than to get shorn like the poor cypriots.

 

+1

 

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]

"Contagion Starts Small" by David Kotok

 

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

Contagion_Starts_Small.pdf

[JEast]

First, I am a micro guy and have never been influenced by the macro stuff.  I just buy stuff when its cheap and sell when it is dear.  However, the Cyprus, then Canada, then even in New Zealand stuff about taxing (taking) deposits of troubled banks has me thinking of implications.  A possible implication is surely folks will start taking cash out and investing it in tangible 'stuff.'  Of course this is exactly what the FEDanistas want - increase the velocity of money instead of hoarding it on bank's balance sheets.

 

In addition, I have started to quietly hear from high information folks indicate in general "screw it, I am taking my cash and buying something."  Bull market continues? High yield bubble continues? Farm land bubble continues?  Maybe so.

 

Cheers

JEast

[giofranchi]

Short Side Of Long Issue 2 April 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

SSOL_Issue_02.pdf

[king888]

Short Side Of Long Issue 2 April 2013

 

giofranchi

 

Well, thanks for posting this report. However , is it supposed to be distributed freely in the forum?

Sanjeev has asked numberous times to not put any copyright materials here.And I just saw this at the end of report.

 

 

It is a breach of international copyright laws to reproduce all or part of this report by email, fax or any other means. The Short Side of Long’s report is provided on fortnightly basis to paid subscription members only. If you are not a paid subscriber and receive emailed, faxed or copied versions of the reports from a source other than Short Side of Long, you are violating the Copyright Act.

 

THE SHORT SIDE OF LONG

theshortsideoflong.blogspot.com

Copyright © 2013 All rights reserved.

[giofranchi]

Short Side Of Long Issue 2 April 2013

 

giofranchi

 

Well, thanks for posting this report. However , is it supposed to be distributed freely in the forum?

Sanjeev has asked numberous times to not put any copyright materials here.And I just saw this at the end of report.

 

 

It is a breach of international copyright laws to reproduce all or part of this report by email, fax or any other means. The Short Side of Long’s report is provided on fortnightly basis to paid subscription members only. If you are not a paid subscriber and receive emailed, faxed or copied versions of the reports from a source other than Short Side of Long, you are violating the Copyright Act.

 

THE SHORT SIDE OF LONG

theshortsideoflong.blogspot.com

Copyright © 2013 All rights reserved.

 

I only post material that I receive directly from the author and that is for free.

The only exception has been the Gary Shilling Insight… Parsad, I apologize for having posted some work by Mr. Shilling, and I will certainly do it no more in the future!

 

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

[dcollon]

Pimco's Bill Gross: A Man in the Mirror

 

http://media.pimco.com/Documents/13-0010-GBL%20Investment%20Outlook%20-%20April%202013.pdf

 

[Aberhound]

http://ragingbullshit.com/2013/02/23/economics-101-the-financial-crisis-explained-with-giggles-thrown-in/

 

British Comedians give lesson in macroeconomics and the markets

[giofranchi]

RECANTATION by Charles Gave

 

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. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence." - John Maynard Keynes

EVA+4.5.2013+NA.pdf

[giofranchi]

Kyle Bass and Dylan Grice on Japan:

 

http://www.zerohedge.com/news/2013-04-07/kyle-bass-japanese-retirees-will-lose-half-their-life-savings

 

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. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence." - John Maynard Keynes

Dylan-Grice-Japan.pdf

[giofranchi]

Absolute Return Partners Letter April 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. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence." - John Maynard Keynes

The_Absolute_Return_Letter_04131.pdf