“to Value Act: You spoke about being all about LT Cash flow value etc etc. but seemed to completely dismiss the implication that lower intrinsic demand impacts cash earnings. Higher interest rates lower earnings. Higher taxes lower earnings. Higher discount rates lower future earnings. You may believe you are a bottom up investor looking for value… but it seems you have forgotten to go all the way from the bottom to the top… bottom up includes the macro. Bottom up and top down are they same exact thing - its just how long into the research process it takes before you realize you need to kill the idea” I have to disagree but I understand the disagreement is not directed to me. As a fellow value brother, i feel the need to defend our fetish. Firstly, bottom up is not the exact same thing. Essentially, you can do bottom without knowing where interests are going or where they’re at right now. I personally discount earnings by 15% as a rule of thumb for simplicity reasons. Secondly, he (we) is (are) not adjusting intrinsic value of a firm based on a macro forecast. Thirdly, think long term. you analysis supposes a very short time frame.
Value Act is a HF in CA btw FrankArabia hit some of the major points here. I could care less about computing the “appropriate” discount rate. Let’s just all agree to disagree about what the proper discount rate is. I also use the same discount rate or ranges of discount rates for all the potential investments I analyze. I don’t believe in MPT. Secondly, intrinsic value is not a single number (not implying that you were working under that assumption as well). I mentioned that value is determined by long-term cash flows to rebut the OP’s point regarding the impact of hiring additional workers and CAPEX. Both of these actions result in immediate cash outflows (which he listed as a negative attribute). But if the company is making good capital allocation decisions, these investments in human and physical capital should theoretically exceed initial cost(s). I also mentioned that I have an aversion to forecasting - quite frankly no one does it well. When performing valuation, I try to be so conservative that I guard against poor judgement, lack of information, and just pure bad luck. Which is also why I stated that I prefer assets power and normalized earnings power analysis, to DCF analysis (although normalized EP does make some simplifying assumptions - I certainly don’t stick a 20x multiple of the E and call it a day). And yes, your time frame is very short-term in nature (which is fine - I’m just not hardwired that way).
All these people who continue to be bearish are the main reason I’m bullish. Not that I really think this market has a lot left in it, but all else equal I’d rather be long than short/cash. Here’s some decent perspective on things turning around: http://jeffmatthewsisnotmakingthisup.blogspot.com/2010/03/what-hamlet-could-have-taught-day.html
OP interesting points, on a macro level I’m probably bearish as well, but it doesn’t really matter. Like FrankArabia and ValueAddict I’m also a value guy. In my portfolio I’ve been focusing on special situations and net-net type of deals during this downturn. I have a liquidation play (EDCI) a few net-nets (LTON, RSKIA, MYRX) and a few other firms selling at a nice discount to cash flow. All of the issues that I own are good cash generators that haven’t faltered during this downturn. I try to take the Warren Buffett view to buying businesses, would I be happy buying this company and holding it if the markets shut down for the next 10 years. What really has me happy right now is some going private deals and spin-offs that seem to be coming to market. As a secondary comment, I do have a large cash and fixed income stake, about 15% cash 30% FI, but I’m happy to deploy it if I find a good opportunity. I’m happy to sit on cash until a home run comes along.
Thanks for all the inputs guys… I was more looking at changing allocations in my 401k account and not picking individual stocks in my PA. This means that I’m basically able to pick amongst a few mutual funds.
I think it may be better to look at the fundamentals of the firms in your portfolio and thinking how they’re affected by trends you’ve identified rather than taking a broad market view. I feel that the market is best at analyzing macro data but maybe not so good at analyzing firm-specific news. I have no evidence or theory to back it up though. Even if the economy will contract and the equity market tanks for the next few months, so what? Money you have in the market is not money you will need. Buy, hold and check it once in a few mos.
pgh.ndt if you want to discuss specific investments please email me at tangask at gmail
FrankArabia Wrote: ------------------------------------------------------- > pgh.ndt > > if you want to discuss specific investments please > email me at tangask at gmail Sent you an email, check you inbox.
Every 4 years, stock market have a decent size drop. 2006 was the last one and the drop that year was unusually mild. 2010 is the next one on the cycle. Most of these drops occur between September and October. I would wait for 10-15% drop during those 2 months and get into the market. The stock market returns for the 3rd year of the presidency are always positive (2008 is the exception). 2011 may see great returns just like the earlier ones on the 4 year cycle (2007,2003,1999,1995,1991,1987,1983…). Just my 2 cents.
Did you just make that up off the top of your head…? What a load of bs
For ValueAddict & FrankArabia: Bottom up and Top down should always lead to the same investment conclusion - you do need to make an assumption for discount rates and where interest rates are going, that is the “up” part. My time frame is not intended in the slightest to be geared towards the short term. A significant amount of the growth in earnings globally is directly attributable to increased debt levels. This debt is now permanent capital that needs to be rolled at current rates just to allow sustained earnings power. Its my belief that additional debt is necessary to continue showing “plug-in” growth rates of 10% yr/yr. Debt is not getting paid off… and despite the current opening in the credit markets, credit is still contracting. Where is intrinsic demand coming from? I agree that a lot of companies will show leveraged earnings growth… but where is value when stocks are already trading at full multiples on 2011 dream earnings? Do you honestly think you have an f’in clue of what free cash flow is going to be in 2017 let alone a reasonable discount/opportunity rate? ValueAddict Wrote: ------------------------------------------------------- > Value Act is a HF in CA btw > > FrankArabia hit some of the major points here. > > I could care less about computing the > “appropriate” discount rate. Let’s just all agree > to disagree about what the proper discount rate > is. I also use the same discount rate or ranges > of discount rates for all the potential > investments I analyze. I don’t believe in MPT. > > Secondly, intrinsic value is not a single number > (not implying that you were working under that > assumption as well). I mentioned that value is > determined by long-term cash flows to rebut the > OP’s point regarding the impact of hiring > additional workers and CAPEX. Both of these > actions result in immediate cash outflows (which > he listed as a negative attribute). But if the > company is making good capital allocation > decisions, these investments in human and physical > capital should theoretically exceed initial > cost(s). > > I also mentioned that I have an aversion to > forecasting - quite frankly no one does it well. > When performing valuation, I try to be so > conservative that I guard against poor judgement, > lack of information, and just pure bad luck. > > Which is also why I stated that I prefer assets > power and normalized earnings power analysis, to > DCF analysis (although normalized EP does make > some simplifying assumptions - I certainly don’t > stick a 20x multiple of the E and call it a day). > > > And yes, your time frame is very short-term in > nature (which is fine - I’m just not hardwired > that way).
I like LTON and MYRX too. A lot of cash and strong balance sheet. I would like to ask my fellow value investors: In a lot of the net-net case, how do you analyze the management/board whose priority doesn’t align with normal shareholders? A good case is the aforementioned LTON, which has tons of cash and a special dividend or share buy back should send share price soar. pgh.ndt Wrote: ------------------------------------------------------- > OP interesting points, on a macro level I’m > probably bearish as well, but it doesn’t really > matter. > > Like FrankArabia and ValueAddict I’m also a value > guy. In my portfolio I’ve been focusing on > special situations and net-net type of deals > during this downturn. I have a liquidation play > (EDCI) a few net-nets (LTON, RSKIA, MYRX) and a > few other firms selling at a nice discount to cash > flow. All of the issues that I own are good cash > generators that haven’t faltered during this > downturn. I try to take the Warren Buffett view > to buying businesses, would I be happy buying this > company and holding it if the markets shut down > for the next 10 years. > > What really has me happy right now is some going > private deals and spin-offs that seem to be coming > to market. > > As a secondary comment, I do have a large cash and > fixed income stake, about 15% cash 30% FI, but I’m > happy to deploy it if I find a good opportunity. > I’m happy to sit on cash until a home run comes > along.
Re-read some of my posts. Your response made absolutely no sense. Secondly, I didn’t say to buy every security in the market irrespective of the multiple it’s currently trading at.
I’m about 20% cash right now. From a long term point of view, I think the bull still has a lot of room left to run (maybe 10-15% or so). I am a little worried about April 15th though. US Treasury is releasing a report that is likely to label China as a “currency manipulator”. If that happens, congress may impose tariffs or quotas on Chinese imports. China has already said that if the US does that, they will return the favor. US and China getting into a trade war would not bode well for the economy.
I stated: >I like to focus on what’s known today and evaluate companies in relation to asset power >and normalized earnings power without any reliance on notoriously imprecise forecasts >about the unknowable (aka the future). I’ll certainly make projections - but these >projections are best case scenarios - and I refuse to pay full price due to the implicit >overoptimism that we all exhibit. EMPHASIS ON ASSET POWER AND NORMALIZED EARNINGS POWER (with zero growth assumption - over long periods of time - with ULTRA conservative projections as seen from another post) >I also mentioned that I have an aversion to forecasting - quite frankly no one does it well. >When performing valuation, I try to be so conservative that I guard against poor >judgement, lack of information, and just pure bad luck. You don’t need to forecast FCF in 2017, you just have to be less wrong than everyone else by refusing to pay full price for the intrinsic value your DCF model gives you and ground your analysis in the balance sheet. I already conceded that no one can forecast - this is redundant
I feel I should make a final comment. First, I am not going to debate top up bottom down, forecasting FCF, discount rates or whatever. Quite frankly, i don’t even run my stocks in any sort of “model” per se. You should be able to figure out the value in your head roughly within 30mins after understanding the qualitative attributes. the numbers are actually quite easy. models are just calculators and if you have to do a whole bunch of calcs, something is not right. Secondly, I will put my money where my mouth is, and if you wish to do the same, go right ahead. If you feel cash the right place to be, by all means, but you have to make a decision in ANY case. Last week I bought Chubb Corp for roughly $50USD. Its an insurance company in the U.S and in my mind, a very decent company selling at a reasonable price. that’s all i need to know. If its down to $40 bucks in a month (which i wish it will), i’ll be happy to buy more so long as the business hasn’t changed materially. The thing i love about this game is I don’t have to say a thing to prove my point. My results will make or break me. i like that. so what are you buying, selling, or stealing? For the poster who elaborated on what he knows and what we don’t know, I would like to see what he/she is actually doing.
I don’t analyze management as much as I probably should. I look at the proxy and related party transactions mostly. Sometimes I’ll look through conference call transcripts. Mostly with the net-net type of companies all I’m hoping is the market recognizes the issues are undervalued quicker than management can destroy the company. I usually look for companies that are cash flow positive, are burning cash slowly, or have a very large margin of safety. LTON is cash flow positive although the management is trying all they can to squirrel away/hide assets. I’m not exactly clear on what the newest twist in this situation is, I do know the cash is intact, and they’re not losing money, so I’m holding. I’m just waiting for Mr Market to see the value. MYRX - They are/were burning cash at a rate where the margin of safety would be burned up in about 3 years when I purchased. Since then management has initiated that merger with JAV which I’m not too sure about. I get the point that they basically bought a pipeline + marketable drugs for nothing because JAV is out of cash, but I sense a bit of empire building in this purchase. I’m holding on this one as well, and voting against the merger. I would rather not see the dilution and waste of cash and time from the merger. ustcer Wrote: ------------------------------------------------------- > I like LTON and MYRX too. A lot of cash and strong > balance sheet. I would like to ask my fellow value > investors: In a lot of the net-net case, how do > you analyze the management/board whose priority > doesn’t align with normal shareholders? A good > case is the aforementioned LTON, which has tons of > cash and a special dividend or share buy back > should send share price soar. >
Thank you for your reply. I’m holding both positions myself as I also believe that both stocks offer certain margin of safety and good upside once market realize their value. It’s also interesting to know that you will vote against the JAV merge. I haven’t looked into detail about JAV. Only thing is that they have a drug that is approved in EU and is due for FDA decision in US soon. gh.ndt Wrote: ------------------------------------------------------- > I don’t analyze management as much as I probably > should. I look at the proxy and related party > transactions mostly. Sometimes I’ll look through > conference call transcripts. > > Mostly with the net-net type of companies all I’m > hoping is the market recognizes the issues are > undervalued quicker than management can destroy > the company. I usually look for companies that > are cash flow positive, are burning cash slowly, > or have a very large margin of safety. > > LTON is cash flow positive although the management > is trying all they can to squirrel away/hide > assets. I’m not exactly clear on what the newest > twist in this situation is, I do know the cash is > intact, and they’re not losing money, so I’m > holding. I’m just waiting for Mr Market to see > the value. > > MYRX - They are/were burning cash at a rate where > the margin of safety would be burned up in about 3 > years when I purchased. Since then management has > initiated that merger with JAV which I’m not too > sure about. I get the point that they basically > bought a pipeline + marketable drugs for nothing > because JAV is out of cash, but I sense a bit of > empire building in this purchase. I’m holding on > this one as well, and voting against the merger. > I would rather not see the dilution and waste of > cash and time from the merger. > > ustcer Wrote: > -------------------------------------------------- > ----- > > I like LTON and MYRX too. A lot of cash and > strong > > balance sheet. I would like to ask my fellow > value > > investors: In a lot of the net-net case, how do > > you analyze the management/board whose priority > > doesn’t align with normal shareholders? A good > > case is the aforementioned LTON, which has tons > of > > cash and a special dividend or share buy back > > should send share price soar. > >
econberkeley Wrote: ------------------------------------------------------- > Every 4 years, stock market have a decent size > drop. 2006 was the last one and the drop that year > was unusually mild. 2010 is the next one on the > cycle. Most of these drops occur between September > and October. I would wait for 10-15% drop during > those 2 months and get into the market. The stock > market returns for the 3rd year of the presidency > are always positive (2008 is the exception). 2011 > may see great returns just like the earlier ones > on the 4 year cycle > (2007,2003,1999,1995,1991,1987,1983…). Just my 2 > cents. WTF?
Lanikai Wrote: ------------------------------------------------------- > Have been debating moving to cash the past few > days. Several reasons: > > 1. Market is up roughly 45% the past year > 2. More mayhem in the housing market > > 3. no optimism coming from the consmuers > > 4. margins will not improve from where they are now > > 5. Sovereign mess in Europe and Japan, you have a high level of pessimism for a market that just popped 45% - if you stay on the sidelines you might miss the next 45%. there is still a lot of value out there so don’t take the whole world off the table. look for the next sector in line for a rebound - or just stick with the ones that have solid fundamentals/outlooks for the year.