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Curious what 1996 and 1997 investing climate was like for value investors?


LongHaul
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I was curious what 1996 and 1997 investing climate was like for value investors?

This was prior to the Asian Financial crisis and when a bunch of value investors under performed in 98 and 99.

Was there broad based overvaluation where it was hard to find great ideas and value investors reached?

 

Curious because so many US stocks are fairly or overvalued today.

 

 

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If I remember correctly, the telecom/tech boom was humming along and anything old industry was being sold down to obscenely low multiples in 98 and 99.  I think the underperformance of many value investors was more due to their unwillingness to jump off the cliff with the lemurs than to overpaying for businesses.  At least that's how I remember it.  96 and 97 may have been different.  I was a REIT analyst in 97 and REITS were richly priced, but real estate opco's could be purchased for attractive prices (Hilton/Promus, Newhall Land, etc.)

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There were bargains to be found every year but, it wasn't available among U.S. large caps which were very popular at that time. Night and day from today where you can buy a IBM for 11 times earnings. KO was like 50 or 60 times earnings vs 18 today.

 

The summer of 1998 was really bad for value stocks. They took a big hit with the Asian crisis and the Russian default while they were already cheap beforehand. That is the summer when I read the Intelligent Investor and could not comprehend that stocks were selling for net-net amounts during the 50's and 60's. I was thinking that with the availability of information that these had disappeared. Interestingly, net-nets returned in 2008-2009!

 

Then after the crisis, Greenspan really put the pedal to the metal and he had another reason to fear or the Y2K bug. Most stocks rebounded and the Internet and tech ones got into the stratosphere. There was also a big difference where big blue chips stocks like Canadian banks and Coca-Cola did not lead the market anymore despite remaining expensive. It was all about techs. I was mostly in cash late 1999 early 2000. I doubted myself but, there was very little value to buy. It was a much easier call to go to cash than today.

 

I remember telling a friend in February 2000 who had participated in the bubble and who timely realized it, that precious metals and a S&P or Nasdaq put were likely the cheapest assets on the planet. I made very little out of the puts but, the cash came in very handy as the market started to correct and brick and mortars got even cheaper. I also loaded up on cheap gold and silver stocks.

 

Cardboard

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We were being taught the dark art by a very cunning bastard at the time, who is unfortunately deceased today ......

 

He was a senior exec for a telecom & used 1/2 his salary, most of his bonus, & the proceeds from writing puts on fellow tech firms, into the purchase of 1 oz gold wafers. At the time, gold bullion was at ridiculous prices & you got snide remarks every time you went into a bank to buy a wafer or two. When the tech sector imploded the puts made him a millionaire a few times over. When he died, there were 6200 wafers under his bed at $2800 a pop! 

 

The forms of investment might differ, but the sectors do not.

 

SD

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We were being taught the dark art by a very cunning bastard at the time, who is unfortunately deceased today ......

 

He was a senior exec for a telecom & used 1/2 his salary, most of his bonus, & the proceeds from writing puts on fellow tech firms, into the purchase of 1 oz gold wafers. At the time, gold bullion was at ridiculous prices & you got snide remarks every time you went into a bank to buy a wafer or two. When the tech sector imploded the puts made him a millionaire a few times over. When he died, there were 6200 wafers under his bed at $2800 a pop! 

 

The forms of investment might differ, but the sectors do not.

 

SD

 

+1.... Well told and something to remember for next time.

 

 

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We were being taught the dark art by a very cunning bastard at the time, who is unfortunately deceased today ......

 

He was a senior exec for a telecom & used 1/2 his salary, most of his bonus, & the proceeds from writing puts on fellow tech firms, into the purchase of 1 oz gold wafers. At the time, gold bullion was at ridiculous prices & you got snide remarks every time you went into a bank to buy a wafer or two. When the tech sector imploded the puts made him a millionaire a few times over. When he died, there were 6200 wafers under his bed at $2800 a pop! 

 

The forms of investment might differ, but the sectors do not.

 

SD

 

Did you mean to say that he bought puts rather than wrote puts ???

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We were being taught the dark art by a very cunning bastard at the time, who is unfortunately deceased today ......

 

He was a senior exec for a telecom & used 1/2 his salary, most of his bonus, & the proceeds from writing puts on fellow tech firms, into the purchase of 1 oz gold wafers. At the time, gold bullion was at ridiculous prices & you got snide remarks every time you went into a bank to buy a wafer or two. When the tech sector imploded the puts made him a millionaire a few times over. When he died, there were 6200 wafers under his bed at $2800 a pop! 

 

The forms of investment might differ, but the sectors do not.

 

SD

 

Did you mean to say that he bought puts rather than wrote puts ???

 

Yeah confused about this as well! I think he meant bought puts (or wrote calls) ?

 

 

Also, if they were 1oz gold wafers, they couldn't be worth $2800/pop, right?

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I was curious what 1996 and 1997 investing climate was like for value investors?

This was prior to the Asian Financial crisis and when a bunch of value investors under performed in 98 and 99.

Was there broad based overvaluation where it was hard to find great ideas and value investors reached?

 

Curious because so many US stocks are fairly or overvalued today.

 

I remember vividly!

 

In 1996/97/98, I was a true dummy in investing. Amazingly, it appeared that throwing darts worked. There were not many investments that did not produce results from quarter to quarter. I bought, sold, bought, sold... and made money. I had an advisor who also threw darts around and also bought, sold, bought sold..he even had a goal to get out of a position when it appreciated 30%. He then put my money into some amazing technology companies in 1998 and I backed off throwing darts myself. You know, it was all so easy and I was paying this guy and why not let him do it for me.

 

Well, the rest as they say, is history. FF to 2001, I had learned some life lessons, around knowing what the &$@%ll I was doing with money. I was curious about long term investing and soon ran across Warren Buffett, OID, et al. I started reading and I read everything I could, mostly Berkshire letters, interviews with fund managers on OID etc.

 

Here is what I'd say about my experiences

- Grateful that it was 1999 not 2009 that all of that happened! My capital base was smaller and I still had some productive years ahead of me. I know several folks who have been financially maimed in 2009. They simply are not ready for any rational thought around investing and unfortunately they are closer to retirement.

- Truly grateful that the Buffett/Mungers of the world spend all their time educating people like myself searching for answers. That contribution to the world is unique. Take a deep bow, I do! 

- And boy-o-boy, was I ready for 2008!

 

All I'm looking to do now is to try and share some of the education around value investing with folks in my circles. I'm having fun doing it.

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I do remember 1998, which is close.

 

I was in college at the time.  Back then I had very little interest in investing, I was just focused on my engineering work.  But I had a friend/roommate who got really into trading.  When he wasn't in classes, he was on the computer, researching, buying, and selling.  Every once in a while he explained to me what he was doing, but I couldn't make heads or tails of it.  I heard many stories about technology companies, and how they were changing the world.  I heard about "bull raids", where people would talk in chat rooms about which technology or biotech name was going to go up, and then pat themselves on the back for making lots of money when it went up.

 

But I couldn't find any logic to why this stuff was happening.  It sounded completely random to me.  Who the hell decided which stock should go up, and why?  Couldn't all of these stocks go down a lot, too?  Plus, like I said, I was focused mainly on school, so didn't give it much thought after hearing these nutty stories.

 

So I kept on telling him how crazy all of this stuff sounded whenever he would start in on which stock was hot.  Finally he tells me one day that some people buy stocks based on what a company earns, or what dividends it gives out.  But then he said that because "those stocks never go up much", nobody pays much attention to them these days.

 

That bit about earnings and dividends made sense to me.  But because the only stuff skyrocketing was stuff that didn't make any money, I again decided to ignore investing.

 

By 2000, after the bubble burst, I had heard of Buffett.  After digesting all of his letters, a sensible investing methodology coalesced for me.  Between then and 2005, I used value-based mutual funds.  Since 2005 I've been investing in individual stocks.

 

It's interesting to remember how much of a frenzy it was back then.  Fast forward to today and you still hear tons of skepticism about the market, how much stuff is inflated from the Fed, etc.  I think the climates are still very different.

 

My friend is now a lawyer.

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longinvestor,

 

And boy-o-boy, was I ready for 2008!

 

I am always curious to hear how people navigated the GFC.  Care to provide any details?

 

Best I remember, going into the crash I had 30% in FFH; 20% BRK; 40% value mutual funds; 10% Ultrashort funds. The Ultrashorts helped hedge the falling tide in everything I held, only wish is having had the foresight to short the market indices, did not build enough of a cash position. I would have truly made a killing, but the result is "quite satisfactory" to me. Most of the money is/was in IRA's, so it should be just fine in the long run. And just like Enoch01, now I am only in stocks, no more funds.

 

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I had just got started in my own stocks in late ''97. 

 

One very clear recollection is watching a quick piece on ROB Tv, the precursor to BNN. The moderator showed two stock counters side by side.  MSFTs, and the entire TSE.  MSFT in and of itself was trading in greater numbers than all of the major stocks in Canada. 

 

I have nothing to say about value investing except I hadn't really figured it out very well.  I dont seem to recall the Russian default at all for some reason, although I recall Greenspans Irrational Exuberance Speech, and BRe-x very clearly, and both were around 96'.  Bre-x was my first valuation.  I estimated the value of all the gold that supposedly existed, multiplied it by the gold price then and couldn't get anywhere near the market cap Bre-x had attained.  In essence before even accounting for mining costs, there was no way that mine would ever pay the shareholders back. 

 

I had learned enough value investing by 1999 that I bypassed the Nasdaq runup and crash. 

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..... & the proceeds from writing puts on fellow tech firms.

 

Sorry, it was late when I posted. Stock options were part of his comp, often the lions share of it by the time the next reset came around; but totally illiquid - as he had to be publicly seen as supporting the firm. So to ensure no surprizes he would regularly use part of his bonus to BUY puts on a number of the firms direct competitors. When his firm imploded; he got to both keep the funny money - & multiply it many times over as the industry as a whole deflated. Just everyday cunning.

 

He was also very well paid, & did not need the money; so every 2 weeks he would send his mom down to a local bank to buy a few wafers. She would stuff them in her handbag, bring them home, & being somewhat old world; hide them under the floorboards. After she died the wafers mysterious migrated, but were not cashed in until after he died.

 

One of his last requests was that 2 of us open a very expensive premier cru that he had put with the stash, count them up, & value them. We were being sent a message.

 

SD

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The climate in '96 was not that bad for value investing.  In '97 it was getting a little tougher but still not excruciating.  However and by the time '98 rolled around and into all of '99, boy it was tough.  Not tough finding value, because it actually got a little easier, but tough and excruciatingly painful psychologically.  Value was everywhere, but if you bought something in the value camp it only went lower and in fairly short order.

 

One of several items that helped hold the faith was rereading 'Extraordinary Popular Delusions and the Madness of Crowds' by Charles Mackay.  Maybe I should dust it off and reread it again -- ha.

 

 

Cheers

JEast

 

 

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The climate in '96 was not that bad for value investing.  In '97 it was getting a little tougher but still not excruciating.  However and by the time '98 rolled around and into all of '99, boy it was tough.  Not tough finding value, because it actually got a little easier, but tough and excruciatingly painful psychologically.  Value was everywhere, but if you bought something in the value camp it only went lower and in fairly short order.

 

One of several items that helped hold the faith was rereading 'Extraordinary Popular Delusions and the Madness of Crowds' by Charles Mackay.  Maybe I should dust it off and reread it again -- ha.

 

 

Cheers

JEast

 

Peter Cundill also recommended "Extraordinary Popular Delusions and the Madness of Crowds". I'm ordering it now. I'm feeling a bit  delusional and drugged by the low interest rates.

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I was out of step for buying BRK.B rather than AOL during that period.  A coworker asking sarcastically, "AOL doubles at least every year, why are you buying an insurance company I never heard of?"  He did not listen to the answer. 

 

Of course in 2000 he learned the answer to that question the hard way.

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The climate in '96 was not that bad for value investing.  In '97 it was getting a little tougher but still not excruciating.  However and by the time '98 rolled around and into all of '99, boy it was tough.  Not tough finding value, because it actually got a little easier, but tough and excruciatingly painful psychologically.  Value was everywhere, but if you bought something in the value camp it only went lower and in fairly short order.

 

One of several items that helped hold the faith was rereading 'Extraordinary Popular Delusions and the Madness of Crowds' by Charles Mackay.  Maybe I should dust it off and reread it again -- ha.

 

 

Cheers

JEast

 

I found that a really heavy book to plow through, in retrospect I was relatively young when I first read it so maybe I ought to give it a try

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