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1 | username | board_title | thread_title | comment_url | See below. Any thoughts? I'd like to get some discussion started on this dead board! For whatever it's worth. Once upon a time, there was a giant conglomerate in Canada, called Canadian Pacific, or CP. It ran a railroad (its original business), airline, coal, oil, shipping, hotels (they own the Fairmont chain), and so on and so forth. It was so diversified that it was often used as a proxy for the whole Canadian stock market. It makes an interesting case study, because its beta was essentially zero. So, the sum-of-parts value isn't really distorted too much by what a given sector was doing at the time. In Oct 2001 they split up into a gaggle of different companies, having announced it in Feb 2001. In late 2000 up to Jan 2001 before the announcement, traded around $40. In late 2001, after the split, the sum of the trading shares was around $65, and the price held over $60. Alas I don't have hard figures to quote, but suffice to say that the values of all those parts, had you held onto them, now dwarfs the stock price of CP the day it announced the breakup. The coal division has returned 77% per year since float, but that's a bit of luck. The hotel division has returned 11%. So, there is certainly a good possibility of a breakup providing a tremendous amount of value to the long term investor. The big question is whether the underlying business are good ones, at a reasonable price, and well run. On that factor, I outsourced my due diligence to Berkshire Hathaway. They aren't perfect, but they are way better than I am at seeing (a) whether something passes the viable-investment hurdles of good management and market positions in industries with good underlying economics, and (b) whether it is trading at a substantial discount to its intrinsic value, conservatively calculated. So I bought a bunch. My average price to date is 28.10, coincidentally the exact price it's at as I'm typing, in pre-market trading. Given the overnight drop, I may buy a bunch more. In January 2002 Tyco announced it was going to split in 4. The share price dropped 40% in 10 weeks, and the plan was abandoned. (Admittedly some of this may have been due to concerns about their finances). If this is any precedent, then Tyco shares may be weak for a while. It seems to me like an excellent buying opportunity. My feel is to keep buying more every week the price is under 29.50, which is, I understand, the average price Berkshire paid for its block in their first quarterly disclore. If history is any guide, then the company is worth at least 30% more than that, conservatively calculated. Of course, I could be wrong. Obviously my position in Tyco has not done particularly well in the last 24 hours. Jim | 1/13/06 8:31 | ||||||||||||||||||
2 | mungofitch | Brookfield Asset Management | Competition removal strategy | http://boards.fool.com/Message.aspx?mid=32172013&sort=username | the stock will open much lower Friday morning, like $28 bucks. I would very seriously consider buying this stock, holding it and holding the pieces for good spell... Nice prophesy. I more than doubled my position just before market open at 27.50. Jim | 1/13/06 16:36 | ||||||||||||||||||
3 | mungofitch | Brookfield Asset Management | BAM Question -- Gaining Comfort on Forward R | http://boards.fool.com/Message.aspx?mid=32541092&sort=username | I know this sounds dumb but what is the difference between a spin off and split Nothing, really. A spin off implies that the "main company" is still largely there after the split, say an 85:15 ratio. A break-up implies that the successor firms are comparable in size, with none of them obvious heirs to the original firm's market position. Say, a 50:50 split or a 40:35:25 split. So, the only salient difference is the sizes of the pieces. Other than that, about the only difference is deciding if any of them gets to keep the original company name and ticker symbol. The important fact is that all the pieces left over at the end are publicly traded, which is typically the case in both a spinoff and a breakup/split. If you end up with non-traded shares, or if you end up with a tax liability (deemed disposition) as a result of the partition, then you have a much less pleasant kettle of fish. Jim | 1/16/06 8:52 | ||||||||||||||||||
4 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32287609&sort=username | An unsolicited 2-cents' worth. I'm not so sure about Berkshire Hathaway having low return expectations for their investments. They've managed a very steady increase in intrinsic value of around 13%/year in the last decade, despite starting from a point where their portfolio was hugely overvalued, and despite sitting on mountains of cash for much of that period. Most observers figure they insist on a 15% projected return, before applying around a 30% required margin of safety. So, my quick rule of thumb is they want something with a perpetual 15+% growth/year, at a discount of 30% to today's fair value. In round numbers, that implies >20%/yr hurdle rate for a ten year horizon, which I wouldn't call a modest return expectation. Marty Whitman (Third Avenue Value Fund) is one of the best investors of all time. He was buying at around $47-57 recently, according to gurufocus. That's a nice confirmation of this being a good price neighbourhood. I think it's a wonderful confluence of events that the housing market is cracking that the same time they're wrapping up the bankruptcy. It's not often you get such a great long-term company for such a good price. I can see book value per share doubling in 4-5 years, plus a huge multiple rerating because they will be a healthy happy company by then. So, I just bought a boatload of USG. Jim | 7/23/07 18:35 | ||||||||||||||||||
5 | mungofitch | Brookfield Asset Management | Chase Tower sold for $31M, BAM paid >$48M | http://boards.fool.com/Message.aspx?mid=32298337&sort=username | If you want a price database of essentially all US stocks, with a deep history, no survivorship bias (it includes companies that folded), and proper treatment of corporate events like mergers, splits, special dividends, spinoffs etc, then there are only a few sources of data. Roughly speaking, the best price I could find was $32,000/year for the data I wanted, and that's just to rent the data, not buy it. $20,000/year seems to be the entry point. Some suppliers include Mergent (the one on my Christmas list), CRSP (fabulous, but aimed at academics), Compustat, Ford Equity Research (monthly only), CSI Data (current companies only, I believe). Specifically for proper treatment of earnings release dates and revisions thereto, Compustat is probably the best starting place, if you have the money. http://www.factset.com/www_668.aspx But without a doubt, the best bang for the buck is finance.yahoo.com . It doesn't have everything, but it has an awful lot, and it's free. Jim | 7/23/07 19:06 | ||||||||||||||||||
6 | mungofitch | Brookfield Asset Management | Seth Klarman comments | http://boards.fool.com/Message.aspx?mid=32598232&sort=username | The other comments on cash for a rainy day are pretty good. As for brokerages, I hugely recommend Interactive Brokers. Commissions are so low I don't track them (e.g., $7.50 for 1000 shares). Their interest rates are the highest around for cash on deposit, and the lowest around if you want to borrow money. But, there is a $10/month minimum. Most people spend more on parking. As for the investing itself, there are a lot of ways to skin a cat. But, you should know that probably around 18 of the 20 most successful investors of all time were deep value long-hold investors who largely ignored variations of returns in time frames under about three years. So, "buy stuff cheap" is a good starting idea. If you can take that to heart, you're likely to beat the market no matter how you invest, whether you go in for short hold, long hold, exchange traded funds, or emerging market bonds. Let somebody sell you something worth a dollar for 60 cents, then sell it back to him when he wants to pay $1 for it. Repeat. I'd highly recommend reading "The Little Book that Beats the Market". It's not necessary to do exactly what the book says, but the book could not be any clearer to read, and what it says is right: the secret to beating the market is to buy good companies really cheaply. It explains in gory detail how to estimate both of those things in the simplest way that's just sophisticated enough to work, and then makes it really easy for you by having a free website that lists the current stock picks. (but yes, you have to read the book first. It's short.) Nothing in life is foolproof, but this is a nice sweet spot on the tradeoff of "likely to beat the market" and "full time job reading statements". This strategy lends itself very well to your "1000/month" plan. Some folks also think it's important to reduce market exposure when the market is dropping. For those who think such a thing is both possible and prudent, there is some interesting reading at these locations-- http://www.streetsmartreport.com/sts.html http://www.fundadvice.com/hotline.html and click on "timing models explained" http://www.dailyreckoning.com/Issues/2002/091202.html (scan down for the word "presents" about 4 pages down, ignore the part about your age) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461 (go down to "download the document from...") A large fraction of the investing population considers all attempts to time the market a dangerous and expensive waste of time. Heck, maybe they're right and I'm the idiot. It's certainly of little use if you have a really super-concentrated portfolio, since your portfolio won't correlate at all with the broad market. But I'd suggest reading some of these things and coming to your own conclusion. Jim | 7/23/07 20:01 | ||||||||||||||||||
7 | mungofitch | Brookfield Asset Management | Q2: BAM invested Hundreds of $Millions in RE | http://boards.fool.com/Message.aspx?mid=32844743&sort=username | MTH, one of the stronger ones, down 15%...of course the day after I bought another position. DOH! I have to keep reminding myself to look 5 yrs out. MTH (about 17.90) is now trading at just about exactly half of book value (about 35.20), and that's after figuring in the recent ~$100m writeoffs. I bought a bunch. As you say, the hard part is now not watching it too much. Jim | 8/1/07 13:21 | ||||||||||||||||||
8 | mungofitch | Brookfield Asset Management | Trisura spinoff? | http://boards.fool.com/Message.aspx?mid=32759260&sort=username | I'm new here, sorry if there are conventional cutlery criteria that I haven't checked. IBKR popped up at the top of one of my screens: Very high cash net of all debt as a fraction of market cap, combined with poor recent performance. Regardless of whether the screen was right in making this determination or whether the screen makes any money over time, it makes an interesting pick. They have not been public long, but were a very, very successful private company for many years. I am a keen client and would never switch. If I couldn't use them, I'd close the fund I run. Currently at $23.64, 24.5% off its recent high. It's a good time to buy brokerages and investment bankers. First, they have had a huge selloff, generally about 15% as a group. Plus, since 1978, during the period starting in August and lasting until the end of March, capital markets stocks have outpaced the broad market in all but four years. In fact, capital market stocks have been on a 16-year winning streak, with gains every year since 1991. Jim | 8/1/07 13:43 | ||||||||||||||||||
9 | mungofitch | Brookfield Asset Management | Difficult quarter for BAM? | http://boards.fool.com/Message.aspx?mid=32272439&sort=username | Question for you (or anyone) -- how do you value the market making segment. Very good question. Return on total assets is usually the first stop of the valuation train for any financial-related stock, with 1.5% as a minimum and 2% as a goal for a great financial firm. But beyond that, it beats me--I have to rely on my reading of where the world sits in the business/investing cycle, since that seems to me to be the driving force determining both the earnings and the multiples. Brokerages in particular are of course highly geared to stock trading volumes, which in turn are driven largely by the stock market level. By that reasoning, given that we are late in a bull, they should be doing well now and for a modest while longer. In the case of these firms, I have to rely on macro and cyclical factors and invest as a slate, since I'm not smart enough to value them accurately one by one. Here are the tickers I use for "capital markets" stocks. AMP, MER, GS, BK, LEH, LM, STT, BEN, SCHW, MS, BSC, NTRS, TROW, ETFC, JNS, FII, IBKR Right now, I think an equally-weighted portfolio of them all, held for 8 months, should be a good bet. Unless of course I'm wrong. The seasonality idea is courtesy of Bank Credit Analyst. See these from about a year ago http://www.bcaresearch.com/public/story.asp?pre=PRE-20060626.GIF http://www.bcaresearch.com/public/story.asp?pre=PRE-20060807.GIF Jim | 8/1/07 15:29 | ||||||||||||||||||
10 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32549083&sort=username | Who can I point to and say "When XYZ talks, value investors listen?" It isn't a direct answer to your question, but have a look at gurufocus.com Look at the "since inception" returns on the guru "scoreboard" page. (incidentally, I find it interesting that for the 10-year lookback, Warren Buffett is basically in a 3-way tie for first place at 20%/yr. Most people think his big returns come mostly from the distant past, but not so) Then look at what those people have been buying lately as a starting place for your own analysis. This is how I came to the conclusion that WFC was worth analyzing, and then deciding it's a screaming buy. As others pointed out, value investors tend to be patient, and things often move fairly slowly. Thus, there is often a multi-month or even year long window that a great trade can be made after it is disclosed in one of these portfolios while still getting close to the same price. Being able to see some of the recent purchases of some of the very best investors in a single place is the closest I've found to your request. Jim | 8/3/07 11:42 | ||||||||||||||||||
11 | mungofitch | Brookfield Asset Management | Growth rates | http://boards.fool.com/Message.aspx?mid=32848815&sort=username | Again, I'm not sure of the criteria for a falling knife post, but Sunoco (SUN) sure looks like a buy-on-fall candidate to me. Trading at $64.93 right now, down 25% from its recent high in mid June, down 23.7% from about 3 weeks ago. The latest headline was a profit forecast upgrade. Trailing P/E of 7.6, total debt could be paid off with two years' profits. Second quarter profits were up 19%. No matter what short term problems people might be seeing, it strikes me that the very long term price trend for oil is not likely to be down . Jim | 8/3/07 12:53 | ||||||||||||||||||
12 | mungofitch | Brookfield Asset Management | BAM or WFC for next 13 years? | http://boards.fool.com/Message.aspx?mid=32298619&sort=username | MTH (about 17.90) is now trading at just about exactly half of book value (about 35.20), and that's after figuring in the recent ~$100m writeoffs. MTH has now posted their Q2 earnings and impairment summary. Book value per share is now 968.937m, or 36.94 on a (conservative) fully diluted basis. Price is $16.30 at the moment, for a price:book ratio of 0.441 Though obviously not realistic, consider earnings: First-half earnings excluding the writedown: $39.67m Annualized rate: $79.34m, or $3.0246 per share on fully diluted basis. Earnings yield: 18.55% (or P/E of 5.39). This is not realistic since their business will probably continue to deteriorate in the next 6-18 months. Jim | 8/6/07 12:16 | ||||||||||||||||||
13 | mungofitch | Brookfield Asset Management | Poll: How strong is your conviction? | http://boards.fool.com/Message.aspx?mid=32598273&sort=username | Very interesting. Just wondering which source of data you're using-- For example, which quarter's balance sheet? Q1, Q1 restated, or have you found some Q2 data? Levitt's web site mentions a 38% interest in BXG, rather than 31% you mention. They "acquired" a 31% interest, but "maintain" a 38% interest, I guess because of either adding to the position or some antidilution kind of thing. Any thoughts of LEV as an investment if the merger calmly completes at today's prices and price ratio? In effect that means, what do you think of the attractiveness of the merged entity? I see LEV at $4.88 and BFF at $2.28, ratio 2.14:1 Certainly a far cry from the prices when the deal was announced. Tnx Jim | 8/6/07 13:39 | ||||||||||||||||||
14 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32289960&sort=username | Nobody knows what book is or will be, not even the HMBs themselves. Nobody. Fair comment! One of the reasons that I like Meritage is their relative conservatism; since a lot of their land inventory is options, the assets can fall in value faster, but not nearly as far since they didn't have to use as much leverage to acquire them. It's harder to go underwater, which isn't hard at all if you buy land outright at too high a price. But, to me buying at 45% of book is just a bit of extra safety. Even if half evaporates you've still got a buffer, but the main point is that I suspect the firm will be a viable, profitable firm in 2-4 years. Nothing is certain, but I'm happy with 3% of my portfolio there. Jim | 8/6/07 16:31 | ||||||||||||||||||
15 | mungofitch | Brookfield Asset Management | Trisura spinoff? | http://boards.fool.com/Message.aspx?mid=32761391&sort=username | But you're not buying at 45% of current book. You're buying at x% of current book. This should be obvious. If not, I'll wager $$$ to donuts that Book is lower next Q. Right? Oh, sure. But, in the same sense that the intrinsic value can have a margin of safety, the book value itself can have a margin of safety. I don't expect book to drop by more than half, because of the way this firm works. Of course, I could easily be surprised in the "unpleasant" manner, but the purchase is not crazy. If one buys 30 stocks at 45% of book which are not losing money at a great rate, are not in impending danger of debt default, and are in vastly different industries, then expected returns should be positive. Jim | 8/7/07 10:47 | ||||||||||||||||||
16 | mungofitch | Brookfield Asset Management | District Energy -Data Centers | http://boards.fool.com/Message.aspx?mid=32628769&sort=username | Jim: Do you mind if I ask if you work in realty/home building business? Nope. In fact, I've barely been in the US since the housing run-up started. I'm an ex-computer-geek from Canada, and now run what is arguably the world's smallest hedge fund. Jim | 8/7/07 14:05 | ||||||||||||||||||
17 | mungofitch | Brookfield Asset Management | BAM or WFC for next 13 years? | http://boards.fool.com/Message.aspx?mid=32298659&sort=username | Wouldn't options on land actually be a levered bet on land prices? I haven't looked at the HBers in awhile, but theoretically speaking, the total amount of capital at risk should be smaller, i.e. option value 100% decline < land value 30% decline. I agree with SrGuapo's comment. Options give you asymmetrical payoffs, and the possibility of leverage. Because of the asymmetry, the risk of options is potentially lower if you resist high leverage, but potentially higher if you use it extensively. A company that just went out and borrowed a billion to buy a billion worth of land at inflated prices may generally be in worse shape than, say, a company that spent $200m on options, half of which they have to let lapse. Most investors don't realize that, for example, even writing naked put options is safer than buying the same stock, absent leverage. Lower upside, of course. But the lesson is that the danger lies in the temptation of overusing leverage, not the use of options per se. Jim | 8/7/07 14:17 | ||||||||||||||||||
18 | mungofitch | Brookfield Asset Management | Growth rates | http://boards.fool.com/Message.aspx?mid=32849077&sort=username | LEE is in newspapers, which is a crummy shrinking business, but it's possible the selloff has been a bit overdone, and it may now be feeling for a bottom. At least they're not a flash in the pan---founded 1890. Price down about 52% from its TTM high, from 35.65 down to 16, edged up to 17 now. Interesting primarily on the general basis of "relatively safe sane-P/E companies that have done the worst in the last 6 weeks", which is a category that wins rather more often than not. At least their small on-line ad business (accounting for a whopping 5% of revenues) is growing at >50%/year. If worthwhile, it's probably best as a short hold (rebound from the selloff, if any), or long hold (till the ad cycle turns up again, if ever). I have a small position, intended for fairly short hold. Jim | 8/8/07 12:09 | ||||||||||||||||||
19 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32290212&sort=username | run-rate, i think you could pretty confidently pencil in at least $55M in annual operating income, on a GAAP basis... Understanding that this may be a number shot from the hip, any my question may be unfair, what was the general line of reasoning? I'm sure it's better than mine. From a really, really rock-and-roll standpoint, it looks like they currently collect about $300m per year on the debts they buy, with a cost of collection a little over half that, for a gross of ballpark 150m. The typical ongoing cost per year to buy the debt is ballpark 100m, leaving 50m. Perhaps I'm way off in my sweeping generalizations, but it's nice that such a simple view comes up with the same number. Their cash collections track their total assets almost perfectly so far, though of course perhaps that's a coincidence. Very, very odd business. I can read it, I just hope I follow it without getting that queasy way-out-of-my-field feeling. A note regarding the cycle of the business---perhaps the ideal for them is a big debt blowup creating tons of inventory, followed by a sharp and broad domestic economic upturn, improving ability to pay. Not an impossible scenario. Jim | 8/9/07 18:57 | ||||||||||||||||||
20 | mungofitch | Brookfield Asset Management | Trisura Buyer | http://boards.fool.com/Message.aspx?mid=32765427&sort=username | If you like a steady ride in intrinsic value.... Here's one hiding in plain sight--no sharp fall, so it isn't obvious. Total return since Jan 2000: -28.5% including dividends Increase in book value per share since then: +142% (not 42%) Increase in earnings per share since then: +148% Increase in cash flow per share since then: +160% Calendar 2007 P/E: 14.6 (trailing 16.8, forward 13.2) Gigantic industry leader, economic moat, continuing steady double-digit growth on all metrics, probably above-market growth for many years to come. Owned by Berkshire Hathaway, now trading below his probable last purchase price. No one else wants to own it, apparently. Just for fun, see if you can guess. I'll post the ticker in the next message. Jim | 8/10/07 13:14 | ||||||||||||||||||
21 | mungofitch | Brookfield Asset Management | Difficult quarter for BAM? | http://boards.fool.com/Message.aspx?mid=32274886&sort=username | Walmart under $46. | 8/10/07 13:15 | ||||||||||||||||||
22 | mungofitch | Brookfield Asset Management | Growth rates | http://boards.fool.com/Message.aspx?mid=32849219&sort=username | I owned WMT for a while last year, but got complaints from a bunch of clients insisting that I sell it. Who says that WMT has a PR problem? There was a wonderful write-up in the Outstanding Investor's Journal about that. The unions have targeted them (notably those representing the grocery workers), and have been doing a great job on the PR war. Heck, a couple of years earlier, they won the "most admired company" award. If people want to sell something for non-economic (and for that matter, nonsensical) reasons, that can make for an attractive price. I don't have to tell my clients what I've bought : ) Jim | 8/11/07 11:52 | ||||||||||||||||||
23 | mungofitch | Brookfield Asset Management | Trisura Buyer | http://boards.fool.com/Message.aspx?mid=32765638&sort=username | I've been reading Dremen's "Contrarian Investment Strategies" lately, and came across this little historical item. In the depths of the great pharma sell-off crisis of the early 1990's, the pharmaceutical sector dropped from its relatively normal high P/E ratio of 26 to the insanely low value of 16.5, one of the great buying opportunities of recent decades. I hear it was something about somebody named Hillary, but the reasons don't matter. The two points are (1) this is a sector with a historically high valuation multiple because of its tendency to large, steady, and rapidly increasing earnings, and (2) if you buy them when they're unusually cheap, you generally do well. These stocks roughly tripled in price from early 1994 to early 1997. Currently, the 7 largest drug companies in the Value Line database are: Pfizer, Glaxo, Novartis, Sanofi-Aventis, Merck, Wyeth, and Lilly. These are now trading at an average P/E of 14.92 using VL's method of averaging trailing and forward earnings; using trailing 4 quarters of as-reported earnings, the average is 15.78. Are they great companies? The top 7 firms have an average EBIT/tangible assets earnings rate of 46.6%. That's an amazing number. Is this a good entry point? These firms are on average 13.7% off their 52-week highs. Not a panic sell-off, but a nice point anyway. Are they overleveraged or otherwise risky? Any one of them could pay off all their debt with under a year's earnings. (well, Sanofi might take 15 months...) Is it just these few companies? If we add the next 5, Bristol-Myers, Schering-Plough, Gilead, Novo Nordisk, and Teva, the VL method average is 18.0, and trailing-4-quarters method is 19.85. A market-cap-weighted average of all the drug stocks covered by VL, excluding those without meaningful P/E ratios, gives an industry average of 17.00 (again, VL's trailing-and-forward method) for 36 companies. Bottom line: It seems to me that the pessimism surrounding the drug industry is again overdone. Investors are always fretting about drug pipelines running dry, yet patients--the same crowd--keep buying more drugs. And obviously they usually buy most of those drugs from the biggest companies. Meanwhile, these are the poster kids for flight-to-safety in case the markets do something nasty, or when the next bear market starts. With valuation, secular, and cyclical stars aligned, looks like a good long-term buy to me. An equally-weighted portfolio of the top 7-10 by market cap should do well. My particular favourite is Pfizer, though it requires a detailed valuation analysis to break it into "The Lipitor Declining Income Trust" and "The Hidden Growing General Drug Company". I also like Johnson&Johnson;, though Value Line categorizes it as "medical supplies", at an EBIT/tangible capital of 85% and a P/E of 15.1 Jim | 8/12/07 12:22 | ||||||||||||||||||
24 | mungofitch | Brookfield Asset Management | No Trump bump | http://boards.fool.com/Message.aspx?mid=32628785&sort=username | This thread and the participants are very good in analyzing the company. Hear ye, hear ye. Some of the most thoughtful analysis I've read in a long time. I do not include myself in that comment, but here are some random thoughts. Looks like basically a fine investment at this price, but it strikes me that a baseline scenario for the spreadsheet ought to be a weak couple of years, followed by a gentle climb back in the direction of "normal" conditions. (it's hard to say what "normal" is given the US debt supercycle, but I digress...) There are two main ways this can play out, much like the insurance business. Let's assume that you're going into a weak pricing period for insurance. An insurer can keep premium volumes high by writing business which makes no sense in terms of cost of float (high biz, low profit), or it can be disciplined and keep the costs under control against the market conditions, sacrificing volume in order to defend margin. For the most amazing example of the latter, see page 7 here: http://www.berkshirehathaway.com/2004ar/2004ar.pdf In this situation, the analogy I see is the quality of the debt. It seems simple and safe to assume that the quality is going to be abnormally low for a couple/few years. So, the two scenarios that seem most likely are: (a) the management pursues growth at any cost, and keeps buying the debt at the same old price basis as before while the collection ratio sags, wiping out the profit on the marginal business, or (b) management is very bright, and realizes that there is no point in doing business that doesn't make money: remain picky about the price and quality of the debt they buy. i.e., insist on much lower prices or higher quality debt to compensate for the much lower anticipated collections. Given management's iffy decision to buy back shares at the price they did, sadly scenario (a) seems a bit more likely. But maybe that's just 20-20 hindsight speaking--if IV is over 20, it was a fine move anyway. The third scenario is simply that it's so bad they don't make it through a slump, and the wind-down liquidation value is what you'd get. Despite the rosy calculations, I fear that the value here is a fair bit lower than some might have presented: the value relies on the company being there to do the collections, which relies on them being a going concern. If they head for the wall on an ongoing-business basis, the debt could be sold, not collected, which would be a poor outcome. We know what the market value of this debt is, and it ain't rising. On the optimistic front, I would forecast a certain amount of reversion to the mean in terms of collection ratio a few years out. This too shall pass. Last thought: any disclosure of insiders buying? If not, I'd be concerned! Surely they see what we think we're seeing. Jim | 8/13/07 19:04 | ||||||||||||||||||
25 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32290412&sort=username | What about JNJ? See the end of the post. I like JNJ a lot, and bought some not long ago. The only reason I didn't mention it earlier in the post is that Value Line categorizes it as somethign other than a drug company, so it's not in the top "drug companies". Jim | 8/13/07 22:34 | ||||||||||||||||||
26 | mungofitch | Brookfield Asset Management | BAM or WFC for next 13 years? | http://boards.fool.com/Message.aspx?mid=32298960&sort=username | For me it's a screaming buy. So I bought more. My quick analysis: Let's assume the company grows at a constant rate within its franchise for 10 years, then has no further growth, but maintains a constant level of earnings thereafter, defending its then-current franchise. I'll assume a discount rate of 6.5%, and I'll assume that the dividends rise at 6.5% for the next 10 years. (makes the calculation very easy, and it's handily half Value Line's 12.5% projected dividend growth rate) So, in order to get a net present value lower than today's price, I have to assume earnings growth of 3.28%. This seems unreasonable for a big-moat company which has, as yet, no signs of slowing growth, and no chance of being usurped by obsolescence or competition in any decade soon. They have some areas growing less than others, but basically it hasn't yet touched their year-to-year bottom line in cash flow, earnings, or book value growth rates, all of which are still consistently growing well north of 13% in the rear view mirror. As a bonus, the current price, adjusted at the same cost-of-funds rate of 6.5%, is now about 13% below my estimate of what Berkshire paid around 2 years ago. Seems like a no-brainer core holding to me. Jim | 8/14/07 14:47 | ||||||||||||||||||
27 | mungofitch | Brookfield Asset Management | A BAM question for Mungofitch regarding Altm | http://boards.fool.com/Message.aspx?mid=32274981&sort=username | So, I just bought a boatload of USG. PS I just bought a dinghyload to go with the boatload. Price now 38.40. Now the hard part--to ignore the price for a few years. Jim | 8/14/07 14:59 | ||||||||||||||||||
28 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32549557&sort=username | With risk-free USTs at 5%, how do you get 6.5% as a disco rate for WMT? I'm being conservative. In fact, I usually use 7% or a real (after inflation) 5%. I would certainly never use a number under 6%. There's nothing magic about the US bond rate, let alone the rate on a given day. Plus, there is a good case to be made that US yields will be very much higher some time in the next decade---one might argue that the pool of big net buyers is unlikely to grow at the current bond issuance rate forever. But back to valuation--- At a discount rate of 5%, I have to assume that earnings will be 7.6% lower in 10 years than they are for 2007 (est: $3.09) to come up with a conclusion that today's price is higher than net present value. Howver, this still assumes that dividends grow at 5%/yr for 10 years, and that the company maintains a constant earnings level thereafter by continuing to defend but never increase its franchise power. Jim | 8/14/07 16:04 | ||||||||||||||||||
29 | mungofitch | Brookfield Asset Management | Growth rates | http://boards.fool.com/Message.aspx?mid=32849778&sort=username | Your discount rate assumption is seriously flawed.... I find the appropriate discount rate depends very much on the situation. For a company with an average cost of capital of 11%, that's the appropriate discount rate to evaluate potential investments by the company. If GMAC's average rate is 9%, they should use 9% for that kind of test. But I use a discount rate for valuation, not as a hurdle rate. For someone like me who can borrow at a rate averaging under 7% over the years, 7% is not a crazy discount rate to use in estimating the present value of future income streams. It's also a reasonable number for estimating market valuations, as the historical average market P/E of around 17 implies a lower discount rate. Note, this is of course not the same as my hurdle rate for estimated returns when deciding whether to make an investment, which is closer to 20% once a margin of safety and all alternatives are considered. For example, I might use 7% to estimate the fair market price of a business in 10 years based on its estimated earnings then, but use 13-20% as the minimum return from now (today's price) to then (the estimated year 10 price), depending on the margin of safety and the time horizon of the value estimate. Consider a potential investment in a company which we assume is no longer growing 10 years from now. At that point, it will have only enough of a franchise value to maintain its earnings at its then current level (i.e., no further growth which falls within its economic moat), earning $10/year/share 10 years from now. I might estimate that company to be worth $143/share 10 years from now using a 7% discount rate. I might even estimate the NPV of that $143 to be $72.60 today again using a 7% discount rate. But I might not invest unless the current price is $23, which provides a 20% estimated return from today's price. Maybe it has $3.00 in earnings now and a P/E of 7.7 and an estimated earnings growth rate of 12.8% for 10 years, or maybe it has earnings of $1.10 at a P/E of 20.9 and an estimated earnings growth rate of 24.6% for 10 years, same thing to me (provided I believe the earnings growth rate estimates equally!) It will return 20%/year for a decade in either case, less the error margin on my estimate, which is my margin of safety. Personally I wouldn't touch GMAC or their bonds with a barge pole, so to me their rate doesn't enter into the realm of relevance : ) Jim | 8/14/07 22:20 | ||||||||||||||||||
30 | mungofitch | Brookfield Asset Management | WSJ questions BAM NAV's 8/9/17 | http://boards.fool.com/Message.aspx?mid=32810173&sort=username | For someone like me who can borrow at a rate averaging under 7% over the years .... You cannot assume a personal, unsecured borrowing rate of 7% for the next 10-30 years, that is ludicrously low and illogical. In fact I do personally borrow at the so-called risk free rate to within rounding error, which will probably average under 7% over the long run. So, it's not so crazy. Borrowing near the risk-free rate is no longer difficult at all, so why pay more? But, the most important thing is that there is a distinction between a discount rate used for company valuation , and an investment hurdle rate . I'm happy assuming that, on average through the years, a company earning a constant and sustainable amount can be safely valued based on an earnings-power value formula fed a 7% discount rate on those earnings. Phrased loosely another way, you can generally rely on their being a future buyer for any healty business around a P/E of 14, on average through the years. Given an estimate of sustainable earnings at a future date, I can then use the 7% figure to estimate a market price on that future date. But my investment hurdle rate is a whole different question. I want that future price estimated using a 7% discount rate, divided by today's asking price, to give me a compounded return which is over my hurdle rate, which may be on the order of 20%. I would never use my investment hurdle rate to estimate the future likely/fair market value of a company--that would be nonsensical. The stuff about the "correct formula" misses the key point that the correct formula depends critically on the purpose at hand. I can't think of any situation that beta would apply to anything, unless it's to estimate how much I can take advantage of some EMH sucker : ) Jim | 8/15/07 13:48 | ||||||||||||||||||
31 | mungofitch | Brookfield Asset Management | FFO and Net Income Calculation | http://boards.fool.com/Message.aspx?mid=32629170&sort=username | Regardless, his assertion that 6.5% is a 'conservative rate' remains astonishing. ...Yet true. Please try to understand what it's being used for. It really does make a difference. I calculate only terminal values using the 6.5%-7% discount rate. A bondlike discount rate is most appropriate for a terminal value, since, for better or worse, that's a quite conservative estimate of what the market is likely to use when buying the company from me later, in a typical year. If you use a higher value, it's just plain silly; it's no longer a good estimate of the terminal value, so your answer will be flatly wrong. Getting the terminal value wrong is not good for portfolio returns. I find that the selection of an inappropriately high discount rate is NOT a very good way to apply a margin of safety--it distorts time effects unduly, and (more importantly) unevenly among investments. It's much better to get your margin of safety (or high returns) using an aggressive investment hurdle rate with a good initial safety margin discount applied to the purchase price, since those are commensurable among alternative investments. If all your potential investments are at the same time horizion and with similar growth rates, an artificially high discount rate will accomplish the same effect, but will do so only within those constraints. I prefer an approach which allows fair comparisons among more situations. Jim | 8/15/07 20:23 | ||||||||||||||||||
32 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32291238&sort=username | Sorry, I'm not a follower of the shallow end of the popular culture pool, including reality shows and CNBC Is this the Seinfeld character we're talking about? : ) Jim | 8/20/07 12:02 | ||||||||||||||||||
33 | mungofitch | Brookfield Asset Management | BAM or WFC for next 13 years? | http://boards.fool.com/Message.aspx?mid=32299001&sort=username | Not that much to say. USG is going to have a bad couple of years, but is at a very attractive point in terms of long term value. It's owned by many of the folks at gurufocus, including Whitman, Berkowitz, and Keeley. And, most famously, Berkshire Hathaway owns a lot, though they declined to buy more given ample opportunity in Q2 at or below their original entry point. Most speculation is that they disliked the recent acquisition, causing their confidence in the intelligence of management to drop a notch. But still, for the patient, it seems like a very good deal at $37.35. Certainly a much better deal than when I started buying it! Jim | 8/20/07 12:48 | ||||||||||||||||||
34 | mungofitch | Brookfield Asset Management | Difficult quarter for BAM? | http://boards.fool.com/Message.aspx?mid=32274984&sort=username | Some rambling comments which you may or may not find useful. what do I look for regarding the handful of small, semi-speculative stocks that I purchased? One possible answer is to decide why you bought each, and sell it when that reason is no longer true. Decide the rule now while you like it, not later when you are anguishing about selling. For any stock which does not have a good economic moat, set a maximum hold period. You may find yourself wondering what to do with losers on the speculative side of the portfolio. An easy rule of thumb is that the stronger the balance sheet, the more certain the bounce. If it's good quality stuff, dips lead to rallies. If it's momentum/excitement/growth/hype, dips lead to dips. Oddly, this isn't just an old saw--I've done statistical tests. Value Line ranks roughly 1700 of the biggest companies in the US. They're all ranked by safety, from 1 (safest) to 5 (weakest), which defines "safe" primarily as balance sheet strength but also includes a history of only moderate price volatility. If, every month since 1986, you had bought the 10 safest ones (ranks 1 and 2) which had gone down the most in price in the prior 3 months, you'd have averaged a return of 21.4%/year. (this is the average return from doing this on 5298 possible trading days). If you had bought the 10 least safe ones (ranks 4 and 5) which had gone down the most in the prior 3 months, you would have averaged -12.7%/year. This loss rate gets worse with longer hold periods...it's not just a longer wait for the bounce. The moral of a story: Never catch (or hold) a cheaply made falling knife. Jim | 8/21/07 14:20 | ||||||||||||||||||
35 | mungofitch | Brookfield Asset Management | Holdings BAM, BRK, et.al. | http://boards.fool.com/Message.aspx?mid=32849802&sort=username | As far as I understand it, there is no requirement to get a bond rating to sell a bond. Caveat emptor. However, I understand that there are, in certain industries in the US, regulatory requirements to get (and maintain) a rating from an "approved" bond rating service. Further, the US government has an explicit list of rating services for this purpose. Working from memory, there was a big stink a few years back when Fitch tried to get onto the legally sanctioned list, and DBRS (Dominion Bond Ratings Service of Canada ) had not yet been able to manage it. Again, from my understanding, this is for all intents and purposes a regulatory duopoly in certain specific areas, given the relatively minor market share of Fitch. I'm sure there are some well informed people who can fill in the blanks on these regulations which escape my memory at the moment. (Hey, I'm retired, and not even an American). Let's assume for the moment that my senility has not yet let me down. A nice rule of thumb for economic moats is, the only thing better than a monopoly is a duopoly, since it doesn't get the attacks that a monopoly does. Microsoft has worked to hard to keep Apple alive. As an aside, I bought some Moody's today, on some quant criteria. It was the single worst performing stock recently at a certain lookback length among a short list of extremely solid firms (by conventional criteria). Statistically, in this situation, a bounce is much more likely than not. Other than the last sentence, for which I have good data, I apologise in advance for any errors in the above. I'm often wrong. Jim | 8/22/07 22:35 | ||||||||||||||||||
36 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32550481&sort=username | Besides financial firms, there are some special theoretical problems with valuing utilities, and commodity related firms whose pricing and profits are a direct function of a commodity price. (i.e., no problem with oilfield service companies or maybe even refiners, but a problem with pure oil firms or mines). A lot of otherwise good valuation methods will work better steering clear of those too. It's a lot easier to value "ordinary" product and service companies, and if you're using a single method to do comparisons, it might work best to do it only in this universe. Just a thought. Jim | 8/22/07 22:43 | ||||||||||||||||||
37 | mungofitch | Brookfield Asset Management | Q2 2017 | http://boards.fool.com/Message.aspx?mid=32810253&sort=username | How can I open a margin account and fence it such that I am not responsible beyond the initial capital? Start an investment bank! Jim | 8/24/07 12:15 | ||||||||||||||||||
38 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32374379&sort=username | No one is Required to have their bonds or other securities rated by an Agency such as Moody's Assuming this was related to my comment about official government recognition of the firms adding to their business values-- Though I agree with you in that I don't know of instances where a firm is legally required to purchase a rating from one of these firms for a debt instrument, this is a slightly separate question. There are in fact situations under which a rating agency is not simply a provider of discretionary services to bond raters, but rather a member of a government-maintained list of authorized firms, known as NRSRO's, whose services are sometimes required. The rating from such a "recognized" firm can be, and is, used for regulatory purposes. I understand there are now five such firms, and by extension, there are now some US regulations which can not be followed without the parcicipation of one of the firms on this sanctioned list. As a random example, Title 12 Part 966 Para 966.3 (a)(v)(C)(xi) Thus, though an individual firm can lend money without a government-sanctioned rating, certain sectors, notably insurance, could not do business in a compliant way without them. So, there is some apparent strength to the idea that the value of these firms is substantially bolstered by a "government license" franchise. For example, it would be impossible to run a money market fund without them. Being on this list is arguably a huge barrier to entry for those not on the list, and arguably a big contributer to the ongoing value of the firms.' Again, please forgive any errors in the above--I'm not an American, let alone a regulatory expert. Jim | 8/28/07 14:41 | ||||||||||||||||||
39 | mungofitch | Brookfield Asset Management | A Little Competition | http://boards.fool.com/Message.aspx?mid=32720662&sort=username | Not much to say, other than USG is a lot cheaper than it was a while ago, that it's a lot cheaper than it was the last time Berkshire Hathaway bough it. They will probably have an awful 2-3 years, but earnings should bounce back over $6 soon enough, I'd guess 3 years tops. It has been above that level many times in the past, so $6 is not being unreasonably rosy, even if old figures are not directly comparable because of the litigation. They have a conservative balance sheet, so they should be able to weather the downturn quite nicely. As the price is at $37 at the moment, that implies they are trading at a cyclically adjusted P/E of about 6, with no long term growth factored in. Given that Sheetrock is a great long term brand, and it's probably too heavy to import from China, there is nice upside as well. I think this might be a very good long term entry point. Jim | 8/28/07 14:55 | ||||||||||||||||||
40 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32291886&sort=username | Normally I would not invest in high tech--I worked there too long. The value proposition is rarely present, and when it is, it's usually overpriced. But here's a thought: Ebay may be a good value investment soon. Certainly value is much better than it was. Consider: Since March 2000, the stock has returned 0.50%/year on a compounded basis. Meanwhile, on a per-share basis: Revenues have gone from .40 to 5.50 Cash flow has gone from .08 to 1.70 Earnings have gone from .04 to 1.10 Book value has gone from .94 to 8.90 Operating margin has gone from 18.2% to 34% Return on equity has gone from 4.8% to 12.5% Net profit margin has gone from 11.2% to 20.2% Rate of growth is still >30% on most metrics, depending on the lookback you use. These are all per-share figures, but number of shares outstanding has only recently peaked, and they're now in the first couple of years of what will probably be a very long term buyback program, since they have no debt and just can't invest all the money they make quickly enough. As for economic moats, a lot of their recent expansion has been outside their core franchise, which is a shame. But their auction business is an impregnable bastion, the one they use as an example in business schools. Plus, the Paypal business has some moderate network-based moat value as well. I would take their long term prospects ahead of those of Google any day, since there is nothing that Google does that couldn't be copied. Warren Buffett would steer clear. But, it may be starting to look like a reasonable deal, though not quite at current prices. Price is $33 right now, or about 30 times current year's earnings. This is much higher than I would ever normally consider, but even this might conceivably make sense. They are still growing very fast within their franchise , and doing it while undergoing negative dilution-- they are not raising any new capital to achieve the growth. This fast growth will end, of course, but the prospects are that even then they will maintain outsize sustainable margins for a very large number of years thereafter, which should accrue to the shareholders. To me, it looks like a good long term value company, if it could be bought a little cheaper than the current still-rich price. The 52-week low was 25.50, a point at which it might be worthwhile. If the market tumbles suddenly at some point, this is a company whose price I might check--I'd certainly be a buyer at the right price. Crazy, but not utterly crazy. Jim | 8/28/07 16:34 | ||||||||||||||||||
41 | mungofitch | Brookfield Asset Management | Quick BAM blurbs on quarter | http://boards.fool.com/Message.aspx?mid=32275113&sort=username | Does the $6 in earning to which you refer take into account the increase in # of shares from the rights offering? The forecast, yes. Comparisons to the past are more problematic because of the bankruptcy. Value Line, for example, forecasts $7.55/share for the 2010-2012 period, about 4 years out. Might be right, might be wrong, but it certainly seems reasonable if they made $6.50 in '06 (adjusted for rights issue). As others point out, housing is nowhere near the only use of drywall, any investment will certainly only pay if you're willing to wait, and there may be better buying opportunities. Or not--they certainly aren't popular right now. I particularly love that it's 19% owned by Berkshire. Price and value I still have to be concerned about, but I feel better on the due diligence. Jim | 8/28/07 23:26 | ||||||||||||||||||
42 | mungofitch | Brookfield Asset Management | Holdings BAM, BRK, et.al. | http://boards.fool.com/Message.aspx?mid=32850775&sort=username | I did buy MRK back then, and did very well, though of course I sold too soon. One word to consider: Pfizer. There's some amazing value hiding behind the sliding-Lipitor distraction. I can't come up with an IV much under $45 after removing virtually all of the Lipitor business, but it's trading at $24.50. I can't see the worst case downside being lower than $19, and then not for long. Jim | 8/30/07 15:39 | ||||||||||||||||||
43 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32557025&sort=username | Looks nice, but at a guess maybe people are looking at a case of classic "cyclically ajusted earnings". Their earnings slid 38% coming off their last cyclical peak, so maybe folks are factoring in another decline? They have had as many years of declining cash flow as they have has rising. Historically their market price has correlated pretty closely with 8 times current year cash flow. Of course, even that metric would put them around 12% higher than today's price, but by itself that's not a margin of safety. For whatever it's worth, Value Line is forecasting a sharp and imminent fall in rate of earnings growth, though not an absolute decline. To the upside, they forecast a 14% book value growth rate, and a return on equity of around 13% several years from now. I have to say it meets a lot of my value criteria. All the margins and ratios are nice, and holding up well with time. Not overextended: they could pay off their debt with a year's earnings (or with cash, for that matter). Lots of share buybacks, probably continuing for quite a while. It meets one of my "overlooked businesses" filters: book value growth in the last few years has exceeded market returns by a wide margin. Their increase in book value per share is a beautiful rising line for 17 years, almost like they were targeting that rather than steady earnings. Good solid business--I particularly like this industry in that, though there is a lot of political danger for oil majors in terms of who gets an oil lease in one of those countries you don't want to live in, by contrast the oil services companies never get the attention, and just win on merit. They can, and do, work anywhere. All things considered, it looks like a good business at a reasonable price, even if they do have a couple of flat years. But the price does not seem screamingly great based on my estimate of EBIT/EV, for which I get 11%. That's good, but there are lots of companies even cheaper (1392 of them in my database); it's hard to weigh that against the positive aspects of the firm. If I forecast earnings, PE, and market price 10 years from now, it meets my hurdle rate, but not my "after margin of safety" hurdle rate. I'd certainly buy at $48, possibly at $51, but it appears I'm a bit late to the party for that. I too am interested in any help anyone might offer. Jim | 8/30/07 16:37 | ||||||||||||||||||
44 | mungofitch | Brookfield Asset Management | Q2CCs | http://boards.fool.com/Message.aspx?mid=32810434&sort=username | Follow up to post 5656 from Aug 3 (4 weeks ago). On the theory that Sunoco (SUN)'s fall was overdone, I simply bought some call options. Given that I'm not an expert in this particular firm, this improves the risk profile quite a bit. Since "over $70" seems to be the "normal" price for the firm, I simply bought some Jan 2009 $70 calls. Since the price has risen nicely---SUN is now at $73.14 rather than $64.93--I've had a very prompt gain, with the options up from $9.50 to $14. So, I'm closing the position, up 47%. I'm sure they will continue to rise, but as with many a value investor, I have no problem with buying too soon and selling too soon. There's always something on sale. For example, I think Goldman Sachs is looking good in the $170 range. Though "deep value long hold" gets all the attention, I have no moral objection to "deep value short hold". For anyone interested, try making a list of about 250 of the safest, reasonable-PE stocks you like, and buy whichever 5 are the largest % below their 3-month SMA. Sounds like a TA crock, but it does find some nice entry points. Every once in a while something good drops too much in a day or a week, and then it tends to show up on this list. Doing this every two weeks, the average return is >33%/year since 1986, after factoring in bid/ask and commission costs at twice the current level. It's only a backtest, but even if it's off by a factor of two... Jim | 8/31/07 16:53 | ||||||||||||||||||
45 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32416723&sort=username | Can you expand on this? There is an outstanding write-up in (what else?) last summer's Outstanding Investor Digest, if you get that. (if not, then why not?) As it turns out, I think a lot of that writeup is in the excerpt they have for free on their (somewhat iffy) web site: http://www.oid.com/public/html/excerpts/CenturyMgmt082006/CenturyMgmtExcerpt2006.pdf But, the gist of it is, simply estimate the margins on Lipitor, and use the public figures on sales to back Lipitor's revenue and expenses out of the business in the last few years. What remains is a huge, healthy, growing high-margin business with long term trends on its side. But the headline profits are sliding as Lipitor enters its sunset, so out goes the baby with the bathwater. It's like someone winning the lottery then getting chewed out by his banker the next year because his income is dropping, even if he has been getting a promotion and raise every year. Jim | 8/31/07 17:33 | ||||||||||||||||||
46 | mungofitch | Brookfield Asset Management | Quick BAM blurbs on quarter | http://boards.fool.com/Message.aspx?mid=32275123&sort=username | What's is stopping private equity to get a hold of the $1b in cash? Cash attracts vultures better than carrion. (not an insult, I like vultures). But, with no other big benefits in sight, wouldn't it be paying over $1bn for 900m in cash? It only works if the business has value. But the business is returning -40% on sales, if I understand correctly. And the 900m in "cash" seems to include $140m in long term investments, if Yahoo's precis is correct. I'd only buy it if, say, Munger were running it. Jim | 9/5/07 18:23 | ||||||||||||||||||
47 | mungofitch | Brookfield Asset Management | Winners and losers from Brexit | http://boards.fool.com/Message.aspx?mid=32294758&sort=username | I have to say, the original post does seem to have been posted to the wrong board. Making a trade like that probably isn't good for your financial health, on average. Of course, it is fun as a hobby, and often entertaining as a spectator sport. I hereby predict that the S&P; 500 equal weight total return index will be lower at market close Wednesday Sept 12 than it was on Friday Sept 7. But, I'm not betting the farm on it. Mainly I look for value stocks on sale. If my prediction is right, then the first 3 days of this week should be a good time to look around. If I'm wrong, it can't hurt to look. Jim For anyone else who things this sort of thing is good clean fun, my calendar is posted at http://boards.fool.com/Message.asp?mid=25013800 So far, the 27 trading days tagged as best have averaged +97.6% at an annualized rate, and the 15 days tagged as worst have averaged -28.4% annualized. Purely coincidence of course, as markets can't be predicted. | 9/8/07 18:20 | ||||||||||||||||||
48 | mungofitch | Brookfield Asset Management | Holdings BAM, BRK, et.al. | http://boards.fool.com/Message.aspx?mid=32850786&sort=username | Sounds like an outstanding high return opportunity, but perhaps not exactly a deep value safe play--there doesn't seem to be an obvious hard floor, since current multiples imply you're paying for a lot of growth that lies in an uncertain future. Though current earnings are no problem, there is no big cash cushion against sudden surprises. Still, if I wanted to take a flutter, it might be a nice choice for call options. Last trade Friday for a March '08 $35 call is $5.50. Jim | 9/8/07 18:42 | ||||||||||||||||||
49 | mungofitch | Brookfield Asset Management | Trisura spinoff tax | http://boards.fool.com/Message.aspx?mid=32829050&sort=username | I suppose it depends very much on why you bought the companies you have, and in particular on how certain you are they are both safe and have good outlooks. By far the best rule I've heard is that position sizing should be in proportional to your certainty (controlled risk and good returns). IMO, that portfolio would be fine for a serious concentrated portfolio manager who does a lot of serious research on each company. As a quick rule of thumb, I wouldn't put more into an investment measured as a percentage of portfolio than you spent in serious analysis, measured in days (part time is OK, if it involved math too). The analysis might be wrong, but at least I'll have tried my best! Sometimes I buy a "fleet" of stocks with similar properties, but then the rule applies to the time spent on analysing the rule which caused the purchase of the collection, and the size of the collection. Jim | 9/9/07 18:26 | ||||||||||||||||||
50 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32557137&sort=username | The drop did catch my eye. It's a great business in many ways. My worry has always been that Harleys are not so much attractive to a given age range, but to a given range of birth years. They were once in fashion, went out of fashion and languished in the weeds for a few years, then came back into fashion with a vengeance. The question is, will the comeback last? It this a Tina Turner moment, where the comeback is great but popularity inevitably comes to a (second) end? Will people born in the 80's covet them, and pay a premium for them? If one believes the attraction is an evergreen advantage, then this is a firm which will always have its extraordinary pricing power and margins. If so, it's a good deal: at a P/E of 12.5 on the newly revised estimate for the year, it's an excellent entry point, and for that matter a fair deal even if they never grow again as long as things stay about the same in terms of average margins and profits. That juicy earnings yield will accrue to today's buyers in many pleasant ways, including a truly impressive share buyback habit. Also, if they do manage to grow again, they have shown that rare talent for being able to invest new money and get the good margins on it, too. Book value has grown fourfold in a decade, and ROE ratios are better now. So, it should be at least a good chance of being an excellent long term franchise. The key to that is not just high margins, but high margins on the newly invested capital, and the ability to do that a lot. HOG isn't a super-high-growth franchise, but it has been respectable in recent years in that respect, and they haven't been foolish enough to invest in low margin businesses in any big way. The downside is if the "premium" fades from their brand aura, and they actually have to compete based on things like price and quality. They're probably overpriced now based on that outcome. How about the long-cycle outlook? If you assume an earnings growth rate of 10%/yr over the next decade, and being able to unload them at a multiple of 15, you're looking at an annual return of about 12%, with a reasonable amount of safety. If that's enough to float your boat, then go for it. If not, hold out for a better price unless you are comfortable with assuming their future growth rate being closer to their impressive trailing rate. I think I'd be a buyer, but not at $47. Jim | 9/12/07 13:17 | ||||||||||||||||||
51 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32495515&sort=username | Assuming for the sake of argument that you could have been borrowing money at 5% over the last few years and used that money to buy HOG stock, after dividends, you would be in a loss position from almost any purchase date this millenium (roughly speaking). In other words, the stock has gone net nowhere for a very long time. So, it makes an interesting exercise to look at intrinsic value then and now, and price-to-IV then and now. It is a much bigger and more profitable company now, that's for sure. That doesn't mean it's a great deal today, but it sure means you're getting much better deal than anyone who bought any time in the last 7.5 years. Jim | 9/14/07 16:25 | ||||||||||||||||||
52 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32294864&sort=username | A shoot-from-the-hip opinion: Great company, great sector, great long term prospects, great regulatory moat. Short term minor revenue risk, short term minor litigation risk, short term major price risk due to overblown perceptions of litigation risk. In short, I own some (and am obviously losing short term), but I speculate that the big buying opportunity will probably be in the future, on a sharp dip when the litigious excrement hits the proverbial fan. Executive summary: should be a great buy on a really big sharp dip with a long-ish hold. Keep an eye on the papers for when the class action suits get authorized. Jim | 9/23/07 14:54 | ||||||||||||||||||
53 | mungofitch | Brookfield Asset Management | Difficult quarter for BAM? | http://boards.fool.com/Message.aspx?mid=32275126&sort=username | Hmm. I like it. Best mismatch since the Palm deal a few years ago. Can you give us a good reference for EMC owns 87% of VMWare ? Seems right for the date of the spinoff, but is is still true? Assuming so (which I do)--- My quick calculation shows that the "no VMW" market value of EMC has dropped from $18.82bn on the date of the IPO Aug 15 to $13.48bn now, a drop of -28.3% I think that qualifies as a falling knife, even if it owns a rising spoon. Let's assume you're mildly bullish on the sector and think the non-VMW business of EMC is good and overlooked. 100% long EMC and 66% short VMW? Jim | 9/23/07 15:16 | ||||||||||||||||||
54 | mungofitch | Brookfield Asset Management | BAM prepared to exit palladium stake | http://boards.fool.com/Message.aspx?mid=32829065&sort=username | 'Short term minor revenue risk' - so you don't think SF revenues will get badly hurt in the coming few quarters at least? If it's a great franchise, any temporary profit drop is no big deal, no matter how large, even a loss. But that's a big "if". I really have little idea how far their profits will fall, but I don't think the securitization business is going away. If the revenues and profits tank, and if there is a lasting franchise, that's just a great buying opportunity when the market overreacts. Sounds glib, but the main point is I have no idea how hard they'll be hit. 'Short term minor litigation risk': Apparently Democrats are very close to the lawyer community. Given their political resurgence, wouldn't they push very hard legally to create some political capital at least? (With sincere apologies for mentioning politics outside the Asylum) :-) It's one of those great times to be glad I'm neither American nor living in the US. Not that there's anything wrong with that at all, but it means I have the perfect excuse to duck American political issues! But, in my experience, political winds drive the markets much less than many people think. First, watch the big money flows. The rest is often just distraction. The big question is, how much money will there be in rated securitization in the next 15 years? My guess: lots. Jim (a Canadian in Monaco. I duck political questions both those places, too) | 9/25/07 15:04 | ||||||||||||||||||
55 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32557261&sort=username | I'm not a technical trader, but it seems to me that USG ($37.26)is perhaps feeling for a bottom. It has been within a few percentage points of $35/share most of the last 7 weeks, but has made no dip below 35.40. It seems possible there are some buyers willing to shell out around 35-36 for long term value reasons, since they certainly aren't momentum investors. Normally I'd figure it was meaningless, but any semblance of a floor is quite the news for a stock that has been dropping so steadily for so long. I'm still a big fan of USG. They seem to have cyclically normalized earnings over $6/share, (a figure they beat for most of the individual years in the last 10), and should be there again soon enough, so you're getting a trend earnings yield of over 16% for a company with a long term franchise and whose biggest shareholder is Berkshire Hathaway. I've got some, and I've certainly been wrong so far, but I may buy more. For value stocks, I usually buy some, buy more if it drops more, but if it drops even more beyond that, I switch to buying some long dated call options to keep the downside in check. The main thing is to ignore the price for a couple of years, as they will probably report some soft results at some point. I have no idea whether that will be a better time to buy. Jim | 9/28/07 9:22 | ||||||||||||||||||
56 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32297301&sort=username | I also was intrigued about the new debt. But, maybe they are a lot safer with long term debt notes than a revolving line which can get "resized" at the most inopportune moment? In any case, the net position isn't much different if they're retiring other debt with it. I do hope they are not bent on silly (generic margin) expantion, since the most attractive thing about them was their apparent keen interest in remaining the low cost, cradle-to-grave producer in some key high margin businesses. One thing I don't happen to know...how much of their business is specifically in new housing construction? I suspect it's a lot lower percentage than many folks are assuming. It's not like their revenues are going to take the same drop as Toll Brothers--there's lots of commercial/industrial biz, and the home reno business will not suffer nearly as much as new-built. Jim | 9/28/07 10:53 | ||||||||||||||||||
57 | mungofitch | Brookfield Asset Management | BAM Question -- Gaining Comfort on Forward R | http://boards.fool.com/Message.aspx?mid=32521016&sort=username | Wasn't the last 10 years of housing boom way above normal? Yes. But, one could also say that it was just ahead of trend. Somewhere, underneath all the recent housing bubble and asbestos litigation, there is a pretty good underlying earnings trend. Their market domination and economic moats are large and defensible. So where's the trend? They made $6.50 last year. Let's assume there is blood in the suburbs for two years, with no new houses being constructed. After things return to normal, it seems reasonable to me to assume that they'll make $6 again soon enough--they are a fairly solid and resilient company. The most cogent and statistically supported analysis I've seen says the median new house price in the western US will probably bottom out around 2009-2010, give or take. That's pretty  horrible, but eventually things will start running again. Even if the trend earnings are only $5, that's still a trend earnings yield of 13.4%. If trend earnings are only $4, that's a trend earnings yield of 10.7%. If trend earnings are only $3, that's a trend earnings yield of 8.1%. So, even if my $6 figure is off by a factor of two, you're getting a much-above-average amount of value for your money, provided management doesn't do anything supremely bone-headed. Jim | 9/28/07 16:57 | ||||||||||||||||||
58 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32287347&sort=username | Does anyone have any comments on Hershey? It seems like, well, a very Buffetish business to me. (He likes sugar, though only when the price is right!) Debt is (just) under 5 years' profits, which is extremely manageable. Profit margin around 8.8%, and a return on equity over 75% (!). Sales, cash flow, earnings, and dividends generally grind upwards year after year, usually over 10% growth per year as a long term rate. Big turmoil because of the boss's departure. Still a high P/E, around 20- 21, but better than it has been in a long time. The price is down 32% from its high a couple of years ago. Seems like a great company to own for the long haul if you can find a low point in the price cycle. That might not be now. Thoughts? Insights? Candy bars? Jim | 10/3/07 8:54 | ||||||||||||||||||
59 | mungofitch | Brookfield Asset Management | BAM prepared to exit palladium stake | http://boards.fool.com/Message.aspx?mid=32829935&sort=username | It seems like, well, a very Buffetish business to me. ... Unfortunately, the Hershey Trust, which has a voting majority, is a very un-Buffett like owner. It has killed many initiatives in the past, including an offer from Wrigley's. The Trust will continue to be an obstacle to realizing full economic value for minority shareholders. Well, the trust is certainly an obstacle to takeovers, but I've always felt their stewardship has been at the quality end of the conservative scale. It's not like they're running it like a personal piggy bank, and recent initiatives (closing extraneous plants, etc) are fairly rational. They are, of course, unwilling to maximizing shareholder returns in the 1980's kind of way, for example cranking leverage or developing the real estate in a deeply trashy way, or selling out for that matter, but that's OK by me. A great moat and growth north of 10%/yr is a fine place to be. FWIW, my comment about it being a Buffetish business was more along the lines of "exactly the kind of business that Warren Buffett seeks", not "a business that Berkshire Hathaway should buy". It might be a great fit, but I don't see the trust ever selling it. I agree that, if they did, they might like the idea of Berkshire as owner, but it's hard to imagine any trustee wanting to sell for under 10 times operating earnings (probably what it would take to get Berkshire to bite), and spending the rest of his/her days getting sued. Incidentally, price to 2007 cash flow is around 13.3x, best it has been in a while. It has averaged around 15x since 1995. It was around this good in 2000, averaging around 13.4. Last time it was on sale was 1994-1995, averaging around 10.35x. Except for today's figure, these are smoothed averages, not "best day" figures. People who bought in 1994-1995 have averaged a total return of 12.4% per year, or 14.7%/year if you ignore the recent dip since late April. People who bought in 2000 have averaged a total return of 10.7% per year, also 14.7%/year if you ignore the recent dip. These are fine figures, and (much more importantly) I don't see any particular reason that they shouldn't continue at somewhat comparable levels for a very long time to come. Jim | 10/4/07 6:18 | ||||||||||||||||||
60 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32297507&sort=username | Sarver plunked down $14.5 million of his own cash in August and bought 3% of MTH, well after the bombardment of summer headlines about subprime mortgages blowing up and declining house prices. Don't forget, this is an insider in MTH and the head of a regional banking group in the Southwest. If anyone has a good idea of what's going on it's this guy. I did roughly what Sarver did (buying around the same price, not scale!) At this point, I think it's important to look at the base rate rather than the case rate. i.e., what is the typical outcome in situations like this? Right now they are trading for under half of book value. Yes, book value is probably going to go down some more with more writeoffs, and eaten into further with some losses in the next couple of years, but this is a firm that is more likely to survive than most in its industry, by my reckoning anyway. Thus, the base rate is a good return---generally when you buy a passably-well-run company at under half book value, you do very well, even if it's cyclically weak. As for the case rate, it's very hard to say exactly what will happen in any one case. How bad will subsequent writeoffs get? How will they do as house prices slump continually for the next 3 years? Will they be able to ride it through? Tough questions. I can't predict what the price the house'll sell for, but I like the neighbourhood. Jim | 10/12/07 12:47 | ||||||||||||||||||
61 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32521413&sort=username | I agree that overconfidence is a huge danger. But, being an overconfident kind of guy, I have no problems with margin. My biggest holding is Berkshire Hathaway, held mostly on margin, and that I've made more than enough this way to support the lifestyle to which I would like to become accustomed. My return is hugely in excess of my margin interest, so I'm happy. (in fact my cost of capital is negative--long story--so why not use margin?) If it is of any interest, here is some research I've done on how best to profit from the fact that very sound companies are sometimes oversold. The general principle that "safe" companies tend to rebound from drops http://boards.fool.com/Message.asp?mid=22571354 (for those unused to the jargon-- RS26 means "(relative stregth) total return of the stock in the last 26 weeks" (6 months); CAGR means "compounded annual growth rate", or return per year - - higher=better; GSD means "geometric standard deviation", or variation of monthly returns - - lower=better; Sharpe means Sharpe ratio, a metric of returns versus variability - - higher=better) The general principle that a deep value company is worth buying on even the smallest of dips, and lightening up on even the smallest of rises: http://boards.fool.com/Message.asp?mid=25860173 The idea that, among a set of "equally good" deep value long hold investments, the best one at any given time is the one that has dropped the most lately. http://boards.fool.com/Message.asp?mid=25967536 Jim | 10/12/07 15:12 | ||||||||||||||||||
62 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32558717&sort=username | I consider Wells Fargo to be one of the best all-time-great investments. Two main reasons for this are noting that they have had essentially the same perfomrance as Berkshire Hathaway in the last couple of decades but with much more steadiness, and whenever Berkshire wants to invest in something great they often buy more of Wells Fargo. He now owns 85 million shares, which is a fair bit even by Berkshire's standards, being around 15% of his total portfolio in a 3-way tie for first place. I figure heck, anything Mr Buffett likes is usually worth looking at, especially if you can get it near what he paid. The ratio of the price of Berkshire to WFC is also interesting, and has moved a very large amount in the last couple of weeks (19%), ith Berkshire rising sharply and WFC falling. Berkshire is up 31.4% in the last year, and WFC is down -2.2%, which is quite a big gap given that their long run returns are so similar and therefore for most purposes seem to be mean reverting. I think WFC might be a very good deal indeed at $34. I think Berkshire last bought some a couple of years ago at just about $30, but if you count the cost of money for two years, that's about today's price. Their recent drop was due to missing earnings expectations. But, I figure any increased earnings in this quarter for a western-US bank is pretty darned amazing, and WFC are so well run that they are likely to return to form (great profit increases) quite soon. I will even wildly speculate that Berkshire may be buying this quarter, especially if the price hits around $33 again. Yesterday's low as down 10.7% from its most recent high, which was all of 8 days ago, and the close was down 8.5%. Not much of a fall, I admit. More like a 2" fall of a really great knife. But I think it's potentially a great long term entry point. Jim | 10/18/07 6:06 | ||||||||||||||||||
63 | mungofitch | Brookfield Asset Management | A Little Competition | http://boards.fool.com/Message.aspx?mid=32721967&sort=username | Nice analysis. Seems pretty sensible to me. Assuming your facts are pretty good, it sure sounds like you're more likely to gain money that lose it. But... The only thing that springs to mind is, is it worth bothering? Is it better to buy a merely OK company at a great price, or to buy a really great company at a merely very good price? There are lots of other companies out there, so I'll take one that I've been looking at lately as an example. This isn't an attempt to convince you to buy a different company, just an exercise. I calculate the fair value of Wells Fargo to be about $47-60 right now, assuming their long term growth rate of 11%/year falling off linearly to a growth rate of zero in 20 years. The current price is $33.80. So, you're looking at a comparable margin of safety (28-44%) on something that is extremely well run and has a pretty fair chance of doing outstandingly well in the future. Admittedly my estimate is very much rosier than yours in many different ways, which is why I think this constitues merely a good price, not a great price. But, it makes an interesting comparison. Try this exercise: 1 - Create at least four different scenarios for how the next 10 years will play out for the company. 2 - Calculate the the value at the end of 10 years for each scenario. A simplifying assumption I make is that a patient long term investor can pretty much always assume the ability to sell any firm's stock at a P/E of >=14, given a multiyear window to choose the sale moment. This assumption makes terminal value calculation a lot simpler. 3 - Estimate the probability of each scenario. Pick these from thin air. 4 - Calculate the weighted average end value, which is sum(each probability times its end value). For bonus points, skew it so you're taking a figure halfway between the central expected value and the worst case scenario. Now do this for a few different potential investments (a good company at a great price, or a great company at a good price), and see which ones have the best central expected value. Try some other great companies like Harley, Coke, PG, name your favourite. Throw in something like RIMM or Google for fun. Try it for a cyclical company with lots of liquid assets like ZIGO. Note that the comparison process does not require a specific assumption for the discount rate to use for your time cost of money between now and then. Another interesting thing about the process is that the probability estimation process really drives home the advantage of relatively predictable industries and companies: their business prospects may be no better but the variation of the estimates will be a lot lower. It's usually better to be approximately certain about a good outcome than only vaguely confident of a great outcome. Sorry to belabor something so simple to someone who clearly knows how to do a better calculation of intrinsic value, but the point is that (in my view) the intrinsic value calculation can not be divorced from the likely range of growth prospects of the company. Without good prospects, a discount to current IV might not be so worthwhile. Picking up cigar butts on the street is a good deal--you may only get a few puffs, but the cost basis is extremely low. Though I wouldn't categorize IMB as a cigar butt investment, it may lean a bit in that direction---the interest is based on a mismatch between the modest expectations and the low price. I would suggest that cigar butt investing is probably most worthwhile with microcaps, where mispricing is most pronounced. In particular, with a diversified gaggle of firms below the Russell 2000 bottom cutoff cap. So, personally I'd lean towards getting either a much better discount (real butts down in the microcaps), or a better company. Just two cents' worth! Jim | 10/18/07 9:06 | ||||||||||||||||||
64 | mungofitch | Brookfield Asset Management | BBU | http://boards.fool.com/Message.aspx?mid=32287549&sort=username | My Intrinsic Value model computes an Intrinsic Value for Wells Fargo(WFC) of $48-$50 per share - attractive; not compelling by any means given the stocks current price of around $37.50. I wouldn't argue with that IV figure. Mine is different, but well within the variance you'd get with different calculation methods. To me the attractiveness of the investment is somewhat proportional to the product of the discount to IV (as you point out, only moderate), the safety factor provided by the quality of the company and management (outstanding in my assessment), and my conservative estimation of the long run growth rate (quite a bit above average in my assessment). In short, my liking is based more on "great stuff at quite good price" rather than "stuff at a really great price". I'm still accumulating, with intent of a long term hold. It's at $33.22 right now. Jim | 10/24/07 10:36 | ||||||||||||||||||
65 | mungofitch | Brookfield Asset Management | Hard to read | http://boards.fool.com/Message.aspx?mid=32565731&sort=username | FITB: Fifth Third Bankcorp. Any thoughts on this one? Traditionally considered a pretty safe investment, at $29.23 today it has now dropped down to just under half its all-time high from April 2002. More recently, it's down 30.5% from June 19th when it closed at $42.10. I don't usually place much weight in forward P/E's, but it's 10.4 now. Return on total assets is very respectable, at least as reported by some sources--I haven't calculated it myself. At first blush, it seems a well-enough run firm to weather the current storms. If/when business picks up again, you get a nice increase on both profits and likely a very strong bit of multiple expansion. Jim | 10/24/07 10:44 | ||||||||||||||||||
66 | mungofitch | Brookfield Asset Management | Trisura spinoff? | http://boards.fool.com/Message.aspx?mid=32754877&sort=username | FWIW One worry which some folks might have is the incredible housing boom in Ireland, in effect Dublin. However, a recent academic study predicting the likely level of house prices from fundamentals such as incomes, household creation rate, and real interest rates shows that Ireland is (very surprisingly) not particularly overvalued, or at least no where near as overheated as many other major centres worldwide. In effect, prices started from such a low base and population growth has been so rapid due to immigration that prices are about where you might expect. Small bubble would mean small drop afterwards, which means only a relatively small risk overhang for the banks involved. Jim | 10/24/07 10:50 | ||||||||||||||||||
67 | mungofitch | Brookfield Asset Management | New Brookfield Results Merit Close Scrutiny | http://boards.fool.com/Message.aspx?mid=32583357&sort=username | Makes perfect sense, as long as the dividend does not get cut. Phrased another way--- Dividends come out of earnings, and are secure only if the earnings are secure. The current yield is as meaningless as the cover of the book--it might be lying about what's under the covers. Simply buy stocks with very high earnings relative to what you paid, i.e., underpriced stocks, and you'll usually be fine provided (a) they are also stocks whose earnings can reasonably be considered sustainable, and (b) provided the firm doesn't have too much debt. If you can find a dozen companies with minimal debt (say, less than 5 years' earnings), sustainable earnings, and earnings yields of over 10%, then borrowing money at 5% to buy them seems relatively sane. No need to look for growth too---low PE stocks with low growth rates outperform low PE stocks with higher growth rates, statistically. The dividend yield can be ignored completely. If the earnings are there, you'll benefit one way or another. Personally, I always run with a little leverage. This gives me an extra couple of percent per year in returns (averaged through the years), most of which I use to buy way-out-of-the-money put options against indices, which means in essence that I can never be wiped out by any market event, provided it's the kind of market event which still leaves the market open and money meaningful. Asteroid hits are difficult to hedge! Jim | 10/25/07 11:57 | ||||||||||||||||||
68 | mungofitch | Brookfield Asset Management | Trisura spinoff? | http://boards.fool.com/Message.aspx?mid=32758080&sort=username | Nice analysis. I think perhaps many investors are concerned about litigation risk, given that there is some smoke (if not fire) pointing to some crossing of the line from opinion-provider to de-facto co-issuer. Note, I think they are in pretty good shape on this given what I've heard about the strength of their contracts, but I can understand there being some worried folks out there. But, consider: the market cap has dropped by more than $7.5bn. How much can litigation cost compared to that? It seems clear to me that the selloff is overdone. When it hits bottom, it will probably be a great buy. Jim | 11/5/07 10:53 | ||||||||||||||||||
69 | mungofitch | Brookfield Asset Management | Trisura - TRRSF market data? | http://boards.fool.com/Message.aspx?mid=32758090&sort=username | Does anybody closely follow the competitive landscape of the home appliances industry? Tough question. The easy assumption is that Haier will one day eat Whirlpool's lunch. But that may be oversimplifying. Here's one way of approaching it: Whirlpool has an EBIT/TCE (operating return on tangible capital employed) of 22%. Ignoring the occasional outlier year, this does not generally happen except for companies with economic moats. Great businesses generally show up in the margins. One might not always understand why the moat is good, but this is a pretty good starting point. One small warning: Whirlpool fails one of my tests for "hiding in plain sight": For those, I like to see companies whose book value per share has grown a lot faster in the last 5 years than their stock price total return. Whirlpool has had a total return of around 14%/year on book value growth of 5%/year. This is not a firm whose outstanding performance has been quietly ignored for the last several years. As a random comparison, look at Bed Bath & Beyond with a five year total return of zero and book value growth per share of 24%/yr. At the megacap level compare Wal-Mart, with five year total return of -2%/year and book value growth of +13.5%/year. But as for Whirlpool, the price is fairly good (EBIT/EV earnings yield 8.5%) and the company is pretty solid--both the business and the balance sheet. Jim | 11/6/07 5:40 | ||||||||||||||||||
70 | mungofitch | White Mountains Insurance Group | Seems cheap | http://boards.fool.com/Message.aspx?mid=28887114&sort=username | Sure, everybody hates them. That's why I just bought some. I really think this banking plummet is overdone in some cases. Heck, I even think Mr Prince did a pretty good job---talk about contrarian. So, I'm in at $34.49, just a small piece. Thoughts? Jim | 11/7/07 9:34 | ||||||||||||||||||
71 | mungofitch | White Mountains Insurance Group | Book | http://boards.fool.com/Message.aspx?mid=32810427&sort=username | Whirlpool/Maytag are well-known brands. If punished enough by the market to where it gets to what you folks consider cheap, is it a possible acquisition target for someone like WEB or ESL? There is a distinction between a well known brand and a moat, especially among products which are not "habitual" goods. But, I get your drift. Personally, I think both brands are now well known but of only modest value, so I speculate the firm wouldn't be of interest to the likes of Mr Buffett. Maytag used to be a premium brand, but it has been "strip mined" lately. Ask any (no longer lonely) repair man---they're all total junk under the hood now, substantially worse than the average or house brand goods. Since the acquisition they have been making a great profit shipping brand X goods with a Maytag tag on the front. This works for only a few years, then you have a has-been brand like Pierre Cardin on your hands. There is a lot of money in taking a high-end brand slowly downmarket, like Vuitton, but it isn't a sustainable business model unless you can continually find other premium brands to trash when the first one wears out. To the extent that the firm has a sustainable moat, I suspect it may have more to do with market dominance and logistics. But I don't really know--maybe there isn't one. Jim | 11/7/07 10:08 | ||||||||||||||||||
72 | mungofitch | White Mountains Insurance Group | price 516, book 565 | http://boards.fool.com/Message.aspx?mid=30076903&sort=username | What's your view on Citigroup's capital and reserves? It's pretty crummy. But I do feel that it's adequate and recoverable, at least unless/until some seriously worse surprises come out (not to be confused with the seriously bad news that we already expect). Unlike most folks, I do (to a certain extent) buy into the notion that Citi has such extraordinary diversification that this offers a level of resilience. In short, it would take a heck of a storm to take them down. If they don't go down, they will once again be a gigantic and profitable company as soon as the cycle swings. Thus, the issue becomes whether or not the selloff is in proportion to the likely true asset loss. Here's one back-of-the-envenlope view. They have a market cap of about 168bn at today's prices, down from about 275bn in June. How big is the subprime mess? Current estimates are that bank writeoffs to date have been on the order of $20bn, and estimates of the total losses in the biggies will be on the order of $80bn. Nobody knows, of course, but that means it's not worth my while trying to get too much more accurate. One analyst says total losses in all firms related to the subprime mess could go as high as 200bn, but that sounds like a kitchen sink figure. Let's pick a comfy 100bn for the big banks, of which Citi would bear a meaningful chunk. Pick a number out of the air---$25bn maybe? $40bn? Still, that's one HECK of a lot less than the 105bn the market cap has fallen. The share price is back where it was five years ago, at a level it first hit around 1998-ish. It seems possible that this is a bit too low. No position. No viewpoint. Way outside my circle of competence. Sensible position. In fact, outside mine too--there are only VERY select financial firms that I will usually consider making an opinion on. So why the heck am I holding it already? The route by which I bought was circuitous---it was using a quant screen of mine which seeks, among a very select group of high-safety low-PE stocks, the one which has done the absolute worst in the last couple of months. Statistically, this picks stocks about to bounce, and beats the market by a lot with a high level of safety. But, that's only statistically. Citi showed up on the screen and I bought it. As is my habit, I then (afterwards!) take the time during the scheduled limited holding period to do deeper analysis, and see which stocks to move to a long term hold deep value portfolio. I'm not sure C meets that criterion, but it ain't entirely crazy, which is why I'm soliciting input. It's up over 4% today, I note, which is the most of any of my deep value stocks today. Jim | 11/9/07 15:08 | ||||||||||||||||||
73 | mungofitch | White Mountains Insurance Group | Any comments on the annual letter? | http://boards.fool.com/Message.aspx?mid=30636136&sort=username | Citi has historically traded at slightly over 2x book (only 1.3x currently) and as high as 3x. Wouldn't it be more appropriate to apply this, say, 2.5x book multiple to the guess of losses of $25B to $40B. I feel that price to book varies over time, and is more a measure of the popularity of a firm at any given time rather than an intrinsic constant law of nature for the firm. Thus, I think it is entirely possible that Citi (given their immense size) can have a multi-billion loss without it really affecting their earning power going forward in any way that's a lot different from the noise level. Therefore, the one time loss can reasonably be deducted directly from the firm's value without a noticeable multiple. Obviously, I could be totally wrong in this view. It comes from the usual method of estimating the impact from a law suit loss. What you say isn't without merit---simply deducting the loss from market cap the way I've done has some hidden assumptions built in. The big question is trying to estimate whether the loss is big enough that they can not continue with their current trend level of earnings. As a manufacturer needs machines to make money, banks need money. If so, they will have to replace some or all of their lost capital, so I'd estimate their cost on that new capital (let's hope it's cheap bank deposits!). That's an incremental cost on an otherwise unchanged business, so it comes straight off the earnings. Then, I'd apply a long-run-average P/E multiple to that cost, and subtract that from the market cap. I guess my implicit assumption has been that, for a firm of this size, the reduction in assets by $20bn isn't really enough to change how much they earn by a whole lot, compared to the general noise level. They have total assets of $2.3 trillion on which to earn their money, so the loss is on the order of 1% of their gross assets. Jim | 11/11/07 13:48 | ||||||||||||||||||
74 | mungofitch | White Mountains Insurance Group | How much WTM to buy | http://boards.fool.com/Message.aspx?mid=26627993&sort=username | A big writedown can be a buying opportunity, expecially if the share price experiences a fire-sale drop. Anyone want to hazard a guess at estimating intrinsic value on these guys? Prior to recent news, Value Line was projecting EPS around 0.85 for 2008, and 2.35 for the 2010-2012 era. Projected growth rates for earnings, cash flow, and book value growth are all in the range 10.5-12.5%. Their estimates are usually very close to consensus. To repeat, these are projections from Aug 24, before the recent turmoil. A price target of $35 in under 5 years is not inconceivable for the upside, if one buys the math of 15x multiple on the 2.35 earnings some day. I think the downside is likely a very small chance of (a) folding, (b) being bought out at negligible value, or (c) having to raise so much capital that existing shareholders get highly dilured, all of which would constitute essentially wipeout for today's buyer. A medium-down scenario is a small but larger chance of them staying in business but barely scraping by. In this latter the price probably won't fall a lot more below where it is, since panic is rampant and price/book is 0.37 right now, leaving a lot of room for mistakes if they stay in business. But with the price at $4, assuming they stay in business, it seems that one is likely to do well more likely than not. Offhand, I'd say the price is below the probability-weighted expected value, which I would peg at about $9 based on a back-of-the-envelope guess. Statistically speaking a broad portfolio of such things will do well. Jim | 11/13/07 11:03 | ||||||||||||||||||
75 | mungofitch | White Mountains Insurance Group | Prelim results of share tender | http://boards.fool.com/Message.aspx?mid=29552250&sort=username | Come on folks, what are you thinking? Are you speaking to management or potential investors after the price crash? : ) Jim | 11/13/07 11:04 | ||||||||||||||||||
76 | mungofitch | White Mountains Insurance Group | Book at $429 | http://boards.fool.com/Message.aspx?mid=29096751&sort=username | Very nice analysis. Much appreciated too, a firm I didn't know about. You mention Sooooo.... lets say that WTM continues to grow book by 15% per year - I get $875 book. Despite their very aggressive stated goal in their corporate mission statement (bonds+700bp), 15% does seem like a bit of a reach. Growth in book value per share has been pretty steady at around 8.53%/year since end 2002. (exponential best fit through end 2002,2003,2004,2005,2006, and Q3/07). Do you think intrinsic value has been growing much faster than book in this period? Do you think these 4.75 years have been atypically bad? Jim | 11/14/07 10:58 | ||||||||||||||||||
77 | mungofitch | White Mountains Insurance Group | Trading at 500 again. Might be interesting. | http://boards.fool.com/Message.aspx?mid=30110476&sort=username | I went ahead and bought some yesterday at 4.09, intending for a longish hold. Since it's at 5.85 right now, I admit to being tempted to take the profit. I mean, at 43% in a day, I can live with being called short-termist. Jim | 11/14/07 11:03 | ||||||||||||||||||
78 | mungofitch | White Mountains Insurance Group | Book $606 | http://boards.fool.com/Message.aspx?mid=30658587&sort=username | Historically Berkshire Hathaway and Wells Fargo have both been really outstanding very long term hold companies, both with AAA credit ratings and very trustworthy, diligent, and hardworking management teams. They both make tons of money. Berkshire is famous for its great long term performance, but in fact the performance of Wells Fargo over the last couple of decades is surprisingly similar. As a result, the ratio of the two share prices is surprisingly mean reverting: sometimes one pulls ahead, sometimes the other. Playing on this noise (buying whichever has done worst lately) has historically been an extremely profitable strategy, hugely reducing risk (significant temporary capital loss at a moment you might need some money), while increasing long run returns. I note all this because the Berkshire-to-Wells ratio is about 30% above its average for the last year, a huge spike. Usually the ratio is very constant (they tend to track one another, averaged over time). Since Oct 4, Berkshire is up 13.7% and Wells is down -13.6%. Since Aug 2006, Berkshire is up 47.5% and Wells is down -9.3%. The ratio of BRKA to WFC is 4232 at the moment; it was 2620 in Aug/06, and has hovered mostly in the 2800-3800 range for many years. To me, the intrinsic value of Wells Fargo has not dropped in any significant amount. Maybe the rate of growth of intrinsic value will be below long run trend for a year or two, but that's a minor blip on the big picture. This is still a shockingly great company. Will it be lower in a month, a season, or a year? Sure, maybe. I don't really care. It will be up by at least 10%/year in a decade. If it drops some more, I'll buy some more. Thus, I suggest that today is a great day to buy WFC for long term hold. If one holds BRK, I boldly (foolishly!) predict WFC will outperform in the next while (month or few). For someone who owns Berkshire, today might be a good time to lighten up and switch some to Wells Fargo. Of course, I might be wrong. Jim Just bought more WFC at around 31.55 a minute ago | 11/16/07 9:32 | ||||||||||||||||||
79 | mungofitch | White Mountains Insurance Group | Tender offer | http://boards.fool.com/Message.aspx?mid=32837487&sort=username | Unless you have some thesis that explains why WFC might do well when BRK does poorly. Do you? It's not so much that they are negatively correlated, just that they are imperfectly correlated, if you see the distinction. If ANY two stocks have around the same long run return, but don't correlate perfectly, then there will be periods of relative outperformance of one versus the other, and switching when the ratio hits extremes is a winning strategy on average. There is no suggestion or requirement of any sort of correlation between the two, positive or negative, provided the two of them are both really good long run investments and don't track each other absolutely perfectly. I've looked at this as any number of 1 though 10 stocks, chosen from a list of boring but steady growers, typical of Berkshire Hathaway's portfolio holdings over time. Any subset gives about the same result: buy whatever's been doing worst lately, and you'll make at least a little bit more, and have a much smoother ride. The absolute level of returns in the backtests will never be met, since I'm using hindsight to pick companies that have been solid long term growers. However, I suspect it will add substantial value for anything which has been picked by a really outstanding deep value investor in the last couple of years. (Berkshire, Marty Whitman, whoever). As for WFC specifically, I like it for a lot of reasons, but one of them is that Berkshire likes it. They have three gigantic holdings tied for first place in their portfolio, and WFC is the only one that they've added to recently. This adds some weight to the notion that it's pretty good long term value. Not conclusive, but definitely bonus points. Will both firms continue to outperform the broad market in the next several years? I don't know, but I'd say more likely than not. Will they outperform by amounts which are very roughly comparable? Maybe not, but the method doesn't rely on that particularly much. Never buy shoddy stuff on dips, but a well made falling knife is almost always a good bet. To me, on a relative and absolute basis, WFC is a gold-plated falling knife. Jim | 11/16/07 16:58 | ||||||||||||||||||
80 | mungofitch | White Mountains Insurance Group | Prelim results of share tender | http://boards.fool.com/Message.aspx?mid=29581658&sort=username | Do you think these 4.75 years have been atypically bad? Katrina. Trashed them through Olympus Re and through their chunk of MRH. Hmmm, I don't quite buy it. I would guess Katrina would hit only a year or two at most, but the last few years haven't stood out that much one way or the other. Over a five year period, one should expect a reinsurer to have a crummy year, but it should be offset by some great years, especially since it was a strong insurance market. I'm not saying it isn't a great investment, in fact I think you're really onto something, but if they are going to average IV and book value growth rates way over 10%, it isn't jumping out in the last 5 years. I'm thinking that, given their structure, it might make sense to do "look through book value". i.e., replace the value on their books at which they are carrying interests in subsidiaries with proportional book value of those subsidiaries. Maybe simple price/book isn't catching the value very well. Gotta love their corporate strategy statement, though. Q: "What is the company's overall strategy?" A: "...we really don't have much of a strategy other than to increase intrinsic business value per share." That alone is almost enough to make you want to buy some shares. Jim | 11/17/07 14:15 | ||||||||||||||||||
81 | mungofitch | White Mountains Insurance Group | How much WTM to buy | http://boards.fool.com/Message.aspx?mid=26630351&sort=username | Anyone know the justification for doing a non-transferable right (cost maybe)? Thanks. I'm no expert, and I've wondered about this a lot myself. I understand that this is a lot more common in Europe. I think (???) the idea is that it is more of a guns-to-the-head approach---it perhaps ensures better that the rights will be exercised, since there can be extremely large discounts causing very high dilution if you don't exercise. It therefore may make sense when you have some large-holding strategic shareholders. Wild speculation on my part as to the issues involved. In one sense maybe they think it's fairer---a lot of smaller shareholders get no more from selling their rights than they pay in commissions to do so, given the very thin market for a lot of such things. Of course, it still takes advantage of the folks who ignore the notice. Maybe it comes down to the thinness of the market for the rights? Jim | 11/18/07 16:56 | ||||||||||||||||||
82 | mungofitch | White Mountains Insurance Group | Book at $429 | http://boards.fool.com/Message.aspx?mid=29102668&sort=username | Regarding the valuation on Pfizer. (with which I agree, but along a different tack) I strongly recommend doing the following calculation: Mentally split Pfizer into "the Pfizer ongoing drug company" and "the Lipitor closed-end income trust". Value each separately, and add them up. Lipitor's falling off patent is winding down one of the biggest blockbusters of all time, making Pfizer's overall earnings drop and making most investors ignore the firm entirely. But, the "Pfizer ongoing drug company" is in just fine shape, and is probably undervalued. As for "problems filling the drug pipeline", just look at history: people always figure the pipelines of drug companies are about to run dry, and somehow they never do, and people keep buying drugs. Very nice writeup by Outstanding Investors' Digest, much of which I believe is now posted on their web site. (Aug 06 issue at oid.com ) I can't see any particular reason it shouldn't be a $45 stock in 2-3 years. If true, it's a very safe way to double your money. What's the absolute downside? $19 for a while? Jim | 11/18/07 17:06 | ||||||||||||||||||
83 | mungofitch | White Mountains Insurance Group | WTM book value rising | http://boards.fool.com/Message.aspx?mid=28088869&sort=username | ...I had a copy of Marty Whitman's 'Value Investing: A Balanced Approach' nearby and he says to pay (on page 106) 2-3% of AUM plus tangible book value. The following is a direct quote from Chapter 5 on Corporate Valuations: "Financial institutions: Buy at a discount from adjusted book values (insurance companies), at a discount from stated book values (depository institutions), or at a discount from tangible book value plus 2% to 3% of assets under management (broker/dealers and other money managers." Very nice quote, thanks I note that most of the hedge fund groups that have gone public are supporting valuations of 18-40% of AUM. For now! Jim | 11/20/07 9:01 | ||||||||||||||||||
84 | mungofitch | White Mountains Insurance Group | WTM | http://boards.fool.com/Message.aspx?mid=26749765&sort=username | TZOO was mentioned here a few months ago, but I think it's a somewhat misunderstood company. They're a travel web site (I hear you groan), but interestingly, they don't sell trips. They are well known for their weekly "top 20" voluntary email list---a succinct message sent out to over 12 million folks who find their picks useful. But, economically, the things to note are: - They make their money being paid by the people offering the trips. In essence, they are a media property rather than a travel agent. They do not sell trips, flights, packages, or hotels at all. - They have built a stirling reputation for vetting the items on the list to see if it's a sham or the real deal. In effect, people trust their editorial judgment so that when TravelZoo says it's a great travel deal, it is in fact a deal, not just an overpriced offering with an ad budget. Their recent income has been poor(er). This is presumably why their price has been dropping. The main reason their numbers are so poor is that their US operations are so profitable that they have been opening up in other countries like mad (they now operate US, Canada, UK, Japan, France, Germany, and Hong Kong sites, and also have offices in Syndey, Taipei, and Shanghai). This expansion plan has two current adverse effects on the company. First, it costs money to launch a new operation, and second, they don't get any tax credit in the US for the losses on their foreign operations, so their tax rate is high. Both of these are short term issues, assuming the foreign operations work as well. Despite these headwinds, they are still making 10.8% net margin. Wait a minute, did you say tax rate?? Yes, this is a very profitable firm. They make so much money that their rapid overseas expansion is still unable to consume all their positive cash flow, and they buy back shares. Shares outstanding have dropped from 19.43m in 2003 to 14.25m now. (most recently announced million share repurchase in April, which I'm guessing is now done). This firm has an unusually good economics---I found it at first based on the Magic Formula Investing site, which screens for firms with both unusually good economics (EBIT/tangible capital employed) and simultaneously trading very cheaply (EBIT/enterprise value). As a bonus, they have no debt. Enterprise value is $200m, market cap $225m. The (hypothetical) story: as soon as the overseas units gain traction, the profits will accelerate quite rapidly and the tax rate will simultaneously drop. Net margins should rise from around 11% today back towards where they were not long ago--around 24% in 2006. Plus, they are growing rapidly. If one or two markets don't work out, no big deal, they can eat the loss easily. Risks? Lots. Rather than transient hits, I'm concerned most about dangers to the excellent business model. First, there is obviously nothing preventing someone else from doing it better. Though their subscriber list is large, so they have a bit of a head start, there not any obvious network effect: as they get bigger, the defensibility of their business does not particularly improve. That being said, they are the only ones really doing what they do right now. Second, there is a risk that in a soft period they compromise their editorial standards and take some ads from some iffy deals, weakening their reputation. They are rating their own clients, which is always a bit of a conflict. (ask Moody's) The current price of $15.92 is 85% off its all time (silly) high of $110 three years ago, and is 1.2% above its recent three-year low. Thoughts, anyone? Jim | 11/20/07 9:41 | ||||||||||||||||||
85 | mungofitch | White Mountains Insurance Group | Trading at 500 again. Might be interesting. | http://boards.fool.com/Message.aspx?mid=30113576&sort=username | Sure, no one knows how far the rot goes at Freddie Mac. Maybe it's not a falling knife in the "good time to buy" sense, but it sure is falling something . My terminal says down 26.6% since yesterday's close, which was already down 46.3% from the one-year high. Unfortunately, it's on the page of things I already own. I guess the main question is whether or not it was overpriced yesterday. Jim | 11/20/07 11:12 | ||||||||||||||||||
86 | mungofitch | White Mountains Insurance Group | Q3 adjusted book | http://boards.fool.com/Message.aspx?mid=29638800&sort=username | Well, I suppose that if it seems reasonable to assume they will indeed live to fight another day, then it comes down to normalized earnings verus current price. Average over the last 5 complete FY excluding "other income" was $3.4bn. Maybe $3bn is "normal" for them, but let's say $2bn. Even if it's only $2bn, that's an earnings yield of 11.3% right now. At $3bn normalized, it's an earnings yield of 16.9%. Even with some possible dilution, that seems juicy. I don't know much about the "extra capital cushion", but if/when it goes away, they may in fact use the extra capital to buy back shares, and the dilution might no longer be a long term concern. Pure hot air. I wouldn't buy at today's price because I don't like the company enough. But, I'd say the odds favour it being a good long term entry point. Jim | 11/20/07 12:05 | ||||||||||||||||||
87 | mungofitch | White Mountains Insurance Group | Book $606 | http://boards.fool.com/Message.aspx?mid=30660077&sort=username | The last 5 years in the mortgage market were 'normalized?' I know you haircut it, I just think you're starting from the wrong place. Hey, just throwing some numbers around. Five years' worth is all I had handy. It does strike me that there has probably been some honest growth in their business in the last decade, yet the share price is the same place it was in 1997. If they survive, they will probably be back on a moderate trendline again in a few years when the dust settles. Lower than the bubble, sure, but probably higher than the pre-spike level. Again, taking wild stabs in the dark, it seems to me more likely than not that 2011 earnings will be over $2bn, and $2.5bn doesn't seem at all outlandish. Heck, 1998 earnings were $1.7bn, and it was over $2.2bn the next 8 years, so $2.5bn seems only mildly optimistic---it's the average of 97-01, so we're assuming zero growth for around 12 years. They have an historic PE of 22, but let's say 17, market average. 17 x $2.5bn=42.5bn, four years hence, versus $17.6bn right now. That would represent a return of around 25%/year for four years. I'm not saying this is going to happen, but it's within the range of possibilities, and by no means the most optimistic possible outcome. For a more conservative (but not worst case) outlook: you can unload almost anything at a P/E of 14, if you are patient. Let's assume that earnings go right back to what they were in 1998, $1.7bn. 17 x $2.5bn=23.8n, or 8%/year for four years from here. Nothing to brag about, but hardly unpleasant. For those into this kind of investment, it's probably worth a more serious analysis. Jim | 11/20/07 16:06 | ||||||||||||||||||
88 | mungofitch | White Mountains Insurance Group | How much WTM to buy | http://boards.fool.com/Message.aspx?mid=26633817&sort=username | Current market cap is $28bn. After today's carnage. You sure on those figures? I've just checked two sources for common shares outstanding, and both imply a market cap of about $17.5bn at the moment. Your figure looks more like yesterday's market cap (?) One source says common shares outstanding 661.3 million (market cap $17.66bn), and the other says 650.14 million (market cap $17.36bn). Both values use the price from a moment ago, $26.70/share. So, using $2bn as an earnings guess you get a P/E ratio of around 8.75. Given that I'm guessing $2bn is on the low half of the spread of values once you pull out a really bad year or two, yes, I'd say it's probably cheap. Maybe earnings will never get above $1.4bn again, the 1997 figure. That implies maybe a normalized P/E of 11.7, which still isn't bad. Frankly I know little about what really drives their business, I'm just playing with the numbers. But, if they survive and get back to where they were 5-10 years ago, it seems cheapish at first look. Jim | 11/20/07 16:18 | ||||||||||||||||||
89 | mungofitch | White Mountains Insurance Group | esurance and Prince Albert II | http://boards.fool.com/Message.aspx?mid=29187202&sort=username | Interesting. However, given that the week only just ended, one possible explanation is that they are all still sliding continuously, and thus this sort of test would be true for most of them in every week till they bottom. I'm not saying that's the case, just being contrary! Jim | 11/24/07 10:01 | ||||||||||||||||||
90 | mungofitch | White Mountains Insurance Group | Tangible book vs. adjusted book value | http://boards.fool.com/Message.aspx?mid=28094785&sort=username | May track the sector over the next few weeks to see what the data shows. In a similar vein, I'm sort of watching for a bottom and turnaround in the financials, which are deeply oversold in many cases. I've found that an equal-weight index trends better than a cap-weight index, so a simple MACD on RYF (an ETF which tracks the S&P; equal weight financials sector index) is probably better than a dart throw for testing when the financials are finally turning up a bit. Not yet, that's for sure. Jim | 11/25/07 11:23 | ||||||||||||||||||
91 | mungofitch | White Mountains Insurance Group | Prelim results of share tender | http://boards.fool.com/Message.aspx?mid=29638803&sort=username | Interesting post. As for giving me credit, though, that's even better. How much were you going to lend me? : ) I certainly have to agree that getting someone you trust to do good due diligence for you simplifies things a lot. One thought: things which have been held by Berkshire for a very long time may have to be checked again. When Mr Buffett was recently asked about his view of the long run future of the newspaper business, he asked the questioner: if newspapers didn't exist today, would they need to be invented? The questioner answered no, and Mr B said, well, you have your answer. So, I for one would not include WPO on the list these days, despite its being a very good company. FWIW, my #1 and #2 picks from the Berkshire Bunch today are WSC and AXP respectively. The one it recommends lightening up on is Berkshire itself. (in fact, it recommends 65% long WSC, 55% long AXP, and 20% short BRK, but I could never in a zillion years bring myself to short Berkshire) But, this is a ranking system which flips around relatively frequently, using a much shorter horizon. It's my intention to try a backtest of this, considering at any given time only those stocks which Berkshire bought or added to in the prior 2-3 years. Jim | 11/25/07 15:03 | ||||||||||||||||||
92 | mungofitch | White Mountains Insurance Group | General insurance valuation question | http://boards.fool.com/Message.aspx?mid=30347244&sort=username | Never buy a stock simply because its price has been going up for a long time. For that matter, never buy a stock simply because its price has been going down for a long time. However, WFC is an amazing company, and continues to increase its value year after year on a fairly steady basis, while maintaining safety and prudence. So, with those bases covered, buying on dips makes a lot of sense. Taking a definition of a dip to be "a long way below 200 day moving average", these are the historical performance figures for WFC. Drop from 200 day average versus average total return in following one year period, average from any/all start days which were in that category. -25% to -22.5% 132%/yr -22.5 to -20 111 -20 to -17.5 89 -17.5 to -15 64 -15 to -12.5 60 -12.5 to -10 51 -10 to -7.5 47 -7.5 to -5 31 -5 to -2.5 29 -2.5 to 0 26 0 to 2.5 22 2.5 to max 21%/yr So, the moral is, if the present is anything like the past, it pays to buy this stock on dips. Given that the price is currently about 13% below its 200 day moving average, the expected return statistically would be around 60% in the next year. I'd subtract a small amount due to the subprime losses, but not much. Much more importantly, it's a great entry point for a long term hold. Jim | 11/26/07 12:59 | ||||||||||||||||||
93 | mungofitch | White Mountains Insurance Group | Price/book ratio not too shabby | http://boards.fool.com/Message.aspx?mid=26756061&sort=username | What the data is likely to show is lower lows at least until the start of the next Recession Errr, isn't that rather a tautaulogy? Assuming that the market roughly tracks the real economy with a slight leading gap, then the end of a string of lower lows would be almost by definition the process of entering a new recession. In other words, you're probably right, but I'm not sure you've said much. Things will get bad around the next time they get bad, and the market will bottom after the economy starts doing badly. Jim | 11/26/07 13:20 | ||||||||||||||||||
94 | mungofitch | White Mountains Insurance Group | How much WTM to buy | http://boards.fool.com/Message.aspx?mid=26639036&sort=username | For an amazing amount of great information on Berkshire's portfolio, try http://loschmanagement.com/ On the menu down the left there is a section for Berkshire. This has summaries of the holdings at year end, value of additions and disposals each year, all trades by quarter, private acquisitions etc. For recent purchases have a look at gurufocus.com Try clicking on "guru portfolios" and select Mr Buffett, for example. Or, click on "scorecard" along the top menu bar, and sort by 10 year return. It's interesting that Mr Buffett is still in a roughly 4-way tie for first place. Amazingly useful site, but make sure you pay attention only to those managers who actually have great long term returns. Jim | 11/27/07 9:50 | ||||||||||||||||||
95 | mungofitch | White Mountains Insurance Group | Book $606 | http://boards.fool.com/Message.aspx?mid=30686272&sort=username | Jim, I know you have an interest in and have done a lot of work with purely quantitative strategies having followed your posts on MI over the years. If you haven't already, you might want to check out some of Mebane Faber's work on quantitative strategies related to momentum and mean reversion at the asset class level, industries, etc. I'd be interested to know if any work you've done in those areas is consistent with Mebane's findings. I don't usually look at what happens with lags that long, so I can't comment too specifically. But certainly it does seem to be consistent with some stuff I've done. But, I'm uncomfortable looking at just price to figure out what to do at a sector or industry point of view. I find something like long run price-to-book (or revenue or earnings etc) to be more interesting and reliable. It's not good to buy on dips if something's still overvalued, but it's a great idea when it's undervalued. It's not a great idea to trend follow to the upside with too much enthusiasm if something is overvalued, but it's a great idea if it's undervalued. Even a very crude estimate of value adds a huge amount of safety and reliability to such systems. Ratio of current price-to-book ratio to long run average price-to-book ratio is a great simple start. In summary, I have no doubt that what you say works. But it may be working because a few bad years mean that things in that sector are now undervalued on average, rather than because they've just had a few bad years per se. If that's the case, then it may be better to start with even a simple value estimate rather than using recent price history to act as a placeholder for a value estimate. There really isn't any approach better than buying high quality undervalued stuff on dips. Jim | 11/28/07 8:14 | ||||||||||||||||||
96 | mungofitch | White Mountains Insurance Group | Book at $429 | http://boards.fool.com/Message.aspx?mid=29311870&sort=username | yeah, I don't get it. E*Trade must have been || that close to bankruptcy... First, I have to compliment you on your lexicography. Cool! But, I might phrase that as, they must have been perceived to be || that close to bankruptcy. I think they are in fact comfortably solvent, based on the disclosures to date. This can change, of course. But I'd take 'em ahead of Ford. Jim | 11/29/07 15:28 | ||||||||||||||||||
97 | mungofitch | White Mountains Insurance Group | WTM Book up 18% for the year 3% for the qtr | http://boards.fool.com/Message.aspx?mid=28310030&sort=username | ...Semiconductor components always trend downward... Dangerous word, that. Not disagreeing, just commenting on something that many people (not me) take for granted. This too shall pass. On June 18, 1999 I hired a bank to manage some money for me. Their suggested portfolio included Dell, and I asked them to pass. I couldn't see paying a P/E of 83 for anything. Total return (after dividends) since then has been -3.1%/year compounded for 8.45 years. The price return is not the issue---the company has done OK, especially considering what an awful business they're in. But, the price at entry matters a lot. It is very very rare for any investment at a P/E over 50 to do well, so I never make them. (the exceptions would be great companies having a bad year, not a growth idea) Jim | 11/30/07 16:23 | ||||||||||||||||||
98 | mungofitch | White Mountains Insurance Group | Year end adjusted book | http://boards.fool.com/Message.aspx?mid=29823006&sort=username | Dec 14th close is 14.76, yet another new low, give or take a few cents. 86% off the all time high. I still buy the story, though apparently no one else does. Revenue has been a touch weaker lately, but otherwise much as expected. I might pick up a few more shares--it's cheaper than buying lunch. Jim | 12/17/07 6:36 | ||||||||||||||||||
99 | mungofitch | White Mountains Insurance Group | Book $606 | http://boards.fool.com/Message.aspx?mid=30690346&sort=username | This isn't much of a fall at all, price $81.20, 15% off 52 week high. But, there is essentially unlimited demand for it at $80, setting a floor, since Berkshire is apparently loading up the truck at any price under $80. Give that they have been buying this since early summer, and given that their typical returns are pretty good, today's price at 81.20 represents about the same entry. In other words, it's probably worth $1.20 more than it was when they started buying. This is by far Berkshire's biggest investment in a long time, and they had to apply publicly for permission to buy over 25% of the company. If history is anything to go by, odds favour it being a very good investment in the long run, starting from this entry point. Jim | 12/20/07 9:52 | ||||||||||||||||||
100 | mungofitch | White Mountains Insurance Group | price 516, book 565 | http://boards.fool.com/Message.aspx?mid=30367496&sort=username | For me, it's all about the quality of rhe firm. The better the value of the company (balance sheet, earnings yield, etc), the more reliable the bounce, and the sooner it comes. The more speculative, the farther it falls. So, if the company is a really really solid one, don't worry about buying on the drop too soon. It will bounce soon enough, just hold tight. This isn't just a philosophy---it comes out in empirical tests too. Some notes on the subject I made a few years ago, sorry for the "mechanical investing" jargon, but I'm sure you'll get the idea. http://boards.fool.com/Message.asp?mid=22571354 For those who are not familiar with it, the Value Line safety rank is a combination of two factors: financial strength, and a history of price stability. Jim | 12/20/07 16:28 |