TwoCitiesCapital Posted April 24, 2015 Posted April 24, 2015 Added to Altius and Amex. Bought a new position: HOG Why HOG? It seems a dying business. Younger people dont buy HOG and current fans are retiring. HOG sells ~40% of their bikes overseas and the strong dollar is hurting their foreign business right now. International growth is still intact and their domestic growth, though slow, is positive. This has been the case since 2005. Q1 '15 was weak and the stock sold off. The market is taking Q1 as the start of the real decline of the brand and is pricing it at a PE and P/FCF lower than any period over the last ten years aside from 2009. As for the future of the brand: I'm not sure HOG doesn't have young fans. Their bikes are expensive and young people cannot afford to buy them. The 20 and 30 somethings zipping around on crotch rockets are going to trade them in one day for something comfortable. The 20-30 somethings that give up their bikes will still have a midlife crisis in their 50's and go out and buy a bike. I really cannot think of a brand with a stronger following. I wonder how many hippies in the 60 and 70's were buying hogs? A bunch of those hippies own Harleys now... This. I've been watching HOG too. I've been reducing leverage in my portfolio for the last 4 months or so and I'm not quite to my goal yet, but if the price of this and American Express keep falling I'll have to re-evaluate my current holdings. Maybe I can finally redeem myself for not buying it in 2009 when I was looking at it around $13.
Jurgis Posted April 24, 2015 Posted April 24, 2015 Yeah, I held HOG around 2008-2009, sold close to lows. For a small justification, they did change CEO and the new CEO presumably cleaned up the company quite a bit. Of course now Barron's does a spread on the new CEO and they almost immediately hit a tough patch again. :) Currently no plans to buy. I think I'll just say that it's not in my circle of competence. :)
CorpRaider Posted April 24, 2015 Posted April 24, 2015 Added to Altius and Amex. Bought a new position: HOG Why HOG? It seems a dying business. Younger people dont buy HOG and current fans are retiring. HOG sells ~40% of their bikes overseas and the strong dollar is hurting their foreign business right now. International growth is still intact and their domestic growth, though slow, is positive. This has been the case since 2005. Q1 '15 was weak and the stock sold off. The market is taking Q1 as the start of the real decline of the brand and is pricing it at a PE and P/FCF lower than any period over the last ten years aside from 2009. As for the future of the brand: I'm not sure HOG doesn't have young fans. Their bikes are expensive and young people cannot afford to buy them. The 20 and 30 somethings zipping around on crotch rockets are going to trade them in one day for something comfortable. The 20-30 somethings that give up their bikes will still have a midlife crisis in their 50's and go out and buy a bike. I really cannot think of a brand with a stronger following. I wonder how many hippies in the 60 and 70's were buying hogs? A bunch of those hippies own Harleys now... I was going to say: To me their fans retiring is good. That's when it is most worth it to go drop $30K on a bike to cruise your CPA ass around. I also agree that pretty much everyone on a rice burner or a ducati or BMW would rather have a hog if they had the cash. I too missed HOG during the recession due to fear (although I bought DFS, WFM, DNKN and UA pretty much at the bottom, but I sold them all WAAAAAAAAAY too early. Lesson learned, hopefully. I just started looking at it though and haven't bought any yet. Didn't they have some labor problems that got them into trouble in the great recession?
james22 Posted April 25, 2015 Posted April 25, 2015 I am buying FFH today... Reflect your belief that is attractively priced? Or are dollar-cost averaging? I think it is attractively priced… As a very long term investment and if a more difficult environment awaits us. In case something goes wrong with this global deleveraging, and we actually get to see deflation or a stock market that goes down and stays down for some time (or both), FFH imo might truly succeed in compounding at 15% annual. If FFH compounds at 15% annual, there is no reason why 10 years from now it won’t trade at the same multiple it is trading today. This of course would mean a 15% CAGR for my investment. Of course it won’t happen if central banks succeed in resolving our debt situation without any harmful consequences, and if the stock market keeps marching upward undisturbed. Gio Thanks, Gio. I may be anchored on my failure to buy at $500 in Jan (went away for a long weekend thinking I'd a limit order in, returned to find I didn't), but it doesn't seem so attractive today. I'm open to the argument that any reasonable price is attractive enough for the unique protection FRFHF provides. But while I expect central banks to fail, I do also expect Fairfax will drop initially with the market before the realization it is what Fairfax is positioned for. I'll likely wait like netnet and hope for your buy to drop the price.
james22 Posted April 25, 2015 Posted April 25, 2015 I also agree that pretty much everyone on a rice burner or a ducati or BMW would rather have a hog if they had the cash. No. Only the many (not everyone) on Japanese cruising bikes might rather a Hog if they'd cash, but not Ducatis or BMWs. (Ducatis are for many on Japanese sport bikes and BMWs for many on Japanese touring bikes, if they'd the cash.)
kfh227 Posted April 25, 2015 Posted April 25, 2015 Since FFH was mentioned, I'd like to make a statement. I am 38 right now. 25 years till retirement. My wife and I have a Roth-IRA (and other retirement accounts through our employers). In our Roth-IRAs I decided to start buying companies like Berkshire, FFH, etc and stop trying to do better than the likes of Prem Watsa (in retirement accounts ;)). So, 2-3 months ago my wife's account had a bunch of FFH placed in it. I dollar cost averaged into mine. And next year, I am thinking that FFH will be placed into both. 25 years from now, I don't see why FFH would not be a $100B+ company. That's modest though. It's $15B today. I figure it should be in the $200B+ area by then.
merkhet Posted April 25, 2015 Posted April 25, 2015 Since FFH was mentioned, I'd like to make a statement. I am 38 right now. 25 years till retirement. My wife and I have a Roth-IRA (and other retirement accounts through our employers). In our Roth-IRAs I decided to start buying companies like Berkshire, FFH, etc and stop trying to do better than the likes of Prem Watsa. So, 2-3 months ago my wife's account had a bunch of FFH placed in it. I dollar cost averaged into mine. And next year, I am thinking that FFH will be placed into both. 25 years from now, I don't see why FFH would not be a $100B+ company. That's modest though. It's $15B today. I figure it should be in the $200B+ area by then. That seems reasonable. $225B in 25 years implies a CAGR of around 11.5%.
kfh227 Posted April 25, 2015 Posted April 25, 2015 That seems reasonable. $225B in 25 years implies a CAGR of around 11.5%. I think I calced that at a 15% CAGR, it would be around $500B. I added an image to my post showing what compounding at 11% will do in 25 years (ignoring inflation). I guess that would be something like 14% compounded including inflation.
CorpRaider Posted April 25, 2015 Posted April 25, 2015 I also agree that pretty much everyone on a rice burner or a ducati or BMW would rather have a hog if they had the cash. No. Only the many (not everyone) on Japanese cruising bikes might rather a Hog if they'd cash, but not Ducatis or BMWs. (Ducatis are for many on Japanese sport bikes and BMWs for many on Japanese touring bikes, if they'd the cash.) Yes. The crotch rocket gets old after you turn thirty. I had a Ducati , pretty much solely because I could get it for $12 grand versus $16 - 20 for a similar used hog at the time and it wasn't as embarrassing as a rice burner. I also had a 600cc honda CBR when i was a baby. Got married an now I drive an SUV.... None of the others are aspirational bikes, at least in the states. Finally, no posers in America who have never owned a bike, go and buy Ducati gear to wear just for the brand associations.
james22 Posted April 25, 2015 Posted April 25, 2015 I also agree that pretty much everyone on a rice burner or a ducati or BMW would rather have a hog if they had the cash. No. Only the many (not everyone) on Japanese cruising bikes might rather a Hog if they'd cash, but not Ducatis or BMWs. (Ducatis are for many on Japanese sport bikes and BMWs for many on Japanese touring bikes, if they'd the cash.) Yes. The crotch rocket gets old after you turn thirty. I had a Ducati , pretty much solely because I could get it for $12 grand versus $16 - 20 for a similar used hog at the time and it wasn't as embarrassing as a rice burner. I also had a 600cc honda CBR when i was a baby. Got married an now I drive an SUV.... None of the others are aspirational bikes, at least in the states. Finally, no posers in America who have never owned a bike, go and buy Ducati gear to wear just for the brand associations. Really? Because I'm 51, been riding for over 40 years, commute daily, tour twice yearly, and take a (track) class about every other year on Japanese sport bikes, plan to go European when I'm back in the US full-time, and I'd quit tomorrow if I had to ride a Hog.
CorpRaider Posted April 25, 2015 Posted April 25, 2015 I'm going to have to decline the (perceived) invitation to an internet pissing match. In any case, I must respect my elder, since you whipped out the learned ancient biker card. haha. I suppose if you really think you're a good touchstone for the mass affluent motorcycle consumer in the U.S. (and all the markets around the world that will follow that lead), then you won't buy any HOG. I don't own any yet, but I do not think one could replicate the brand very easily and I don't think there's anything even close as a peer in the space. It reminds me a lot of DE with perhaps weaker asian competition.
james22 Posted April 26, 2015 Posted April 26, 2015 "Rice burner" and "crotch rocket" betray your sensibilities, you whippersnapper. And I recognize I'm in the minority, just correcting your market size estimate. HOG might be a buy, dunno. I only have the sense that their Project Rushmore has been pretty well received? But that may be only in the motorcycle press, who rate things that Harley owners do not (reference their like of V-Rod versus its rejection by the Harley faithful). And I could see Indian becoming a peer (but again, I'm not the target audience). What do you think of their bikes? Maybe Polaris is the better buy. http://www.forbes.com/sites/greatspeculations/2014/02/11/resurgent-indian-motorcycles-could-hurt-domestic-sales-of-harley-davidson/ http://www.bizjournals.com/twincities/news/2014/01/31/in-motorcycle-contest-is-indian.html?page=all
CorpRaider Posted April 26, 2015 Posted April 26, 2015 Yeah, I think you've got a good point. I was going to say, in honesty, there are a lot more feasible affordable domestic options now than back when I went with the Ducati. A purely unionized workforce is a no on the decision tree for me no matter what else. A company like Boeing where they have some hand with the union given the southern plants is ok, but they've got HOG by the short and curlys. So I guess it is an automatic pass for me. Polaris really might be a better option, they have Victory as well. Thanks for the discussion. All the rice burner and whatnot was supposed to be "tongue in cheek", (I guess that doesn't come through on the internet) I've had two honda dirt bikes and I loved them so much I would ride until I got injured every time out (much better and more likely to start than the Husky's and Cagiva's my pops and brother had). My uncle tours all over the darn country and up to Canada on his BMW. He's a tough old bird. WAY more than I could handle. haha.
james22 Posted April 27, 2015 Posted April 27, 2015 It'll be interesting to see if the Harley-Indian rivalry splits or expands the market.
giofranchi Posted April 27, 2015 Posted April 27, 2015 But while I expect central banks to fail, I do also expect Fairfax will drop initially with the market before the realization it is what Fairfax is positioned for. I am not so sure about it… If FFH only had lots of cash to use in a market correction, I would agree with you. But FFH also has equity hedges that probably will make more money than the money it would lose on its equity investments, FFH also has a bond portfolio that will probably make even more money in a difficult environment, and FFH also has CPI-linked derivative contracts that could turn-out to be great winners in a deflationary environment. Therefore, FFH will actually make more money in a difficult environment than in a muddle through environment. I think the market knows this, but it is simply expecting the muddle through scenario to be much more likely than the deflationary one. If and when conditions change, who knows what might happen to FFH’s stock price? Cheers, Gio
ERICOPOLY Posted April 27, 2015 Posted April 27, 2015 Therefore, FFH will actually make more money in a difficult environment than in a muddle through environment. I think the market knows this, but it is simply expecting the muddle through scenario to be much more likely than the deflationary one. Also true at the end of 2007... As the book value was growing, the price of the stock dropped from around $287 at the end of 2007 to around $218 by late summer 2008 (in the days before the short-selling ban). Like Fairfax, there were blue chip companies that never saw an earnings decline (like Coca Cola) and they too had contractions in their market multiples. My guess is that in the next panic the market multiples will once again slip, even for the strongest companies. Including Fairfax.
writser Posted April 27, 2015 Posted April 27, 2015 Agreed. I also think it is, well, let's call it "optimistic" to predict the market will price certain stocks rationally during the next crisis. In fact, to predict anything at all about the next crisis.
ERICOPOLY Posted April 27, 2015 Posted April 27, 2015 By the end of 2009 Fairfax's stock was priced at $410 with a book value of $369.80. It was 1.1x book value. Five years later at the end of 2014, book value had grown by a cumulative 6.7% to $395. A compound annual growth rate of less than 1.5%. The share price has grown 49% over the same period. 6.7% cumulative increase in book value per share, and rewarded with a share price increase of 49%. Just saying... today's multiple is not a crisis multiple.
PatientCheetah Posted April 27, 2015 Posted April 27, 2015 Started a small short on IBB, noticed a few massive stock price drops due to drug approval failures recently, maybe over time, those failures will remind biotech investors that those stocks have large risks and are not one way bets
giofranchi Posted April 27, 2015 Posted April 27, 2015 Just saying... today's multiple is not a crisis multiple. I agree Eric. The fact still remains: in today' market there is no place to hide... you might either choose to hold cash, or you might choose to buy a business which itself is holding lots of cash and is positioned to perform very well in a difficult environment. There are no bargains out there (at least that I know of!). But, if you know a business which is better positioned and more atteactively priced than FFH, I am always interested to know what you think! Cheers, Gio
constructive Posted April 27, 2015 Posted April 27, 2015 But, if you know a business which is better positioned and more attractively priced than FFH, I am always interested to know what you think! Being more specific, you clearly seem to want a business which is not just "well positioned" but countercyclical. That requirement narrows the investment universe by 99.9%. GLRE and TPRE are the only two I know of that are cheaper and have significant equity hedges. Of course you are already aware of them.
constructive Posted April 27, 2015 Posted April 27, 2015 If you want your portfolio to be countercyclical, I think the more effective option is to buy well positioned companies and hold the short positions yourself. Otherwise you will need to do things like hold FFH and OAK even when they aren't very cheap, since no other companies can fill their place in the portfolio.
ERICOPOLY Posted April 27, 2015 Posted April 27, 2015 Just saying... today's multiple is not a crisis multiple. I agree Eric. The fact still remains: in today' market there is no place to hide... you might either choose to hold cash, or you might choose to buy a business which itself is holding lots of cash and is positioned to perform very well in a difficult environment. There are no bargains out there (at least that I know of!). But, if you know a business which is better positioned and more atteactively priced than FFH, I am always interested to know what you think! Cheers, Gio Well, I would just add that there are alternative techniques rather than just choosing companies. I think 2x BAC is more likely to earn 20% than FFH in a muddle-through. Counting the dividends, BAC would generate more than 20% return if trading over $17 in mid-January. It's an annualized return in excess of 30%. But I think FFH will drop 20% from here if there is another crisis that's coming to a head in January, a loss of roughly 27% annualized. The BAC $17 strike call (Jan 2016) can be written for 55 cents and the proceeds will purchase the $14 strike put for $55 cents. So maximum leveraged loss is 20% (assuming no dividends to lessen the blow) -- about the same as what I expect for FFH, although that's the maximum that is possible with BAC. But anyways... there are decent muddle-through returns to be had without risking your entire shirt. FFH likely doesn't have the same muddle-through returns as 20% by next January, because I think most of the multiple expansion has already happened.
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