Spekulatius

I think it is noteworthy that the larger competitor Fresenius just had a significant earning reset.

I think banks are over earning right now, since they hardly provision anything for bad loans. I don’t recall provisioning for bad loans. Also, the allowance for bad loans are historically quite low right mod, which is because asset quality looks good right now, but that will change when the economy slows down or we go into a downturn. BAC for example had traditional Reserves of about 1.5% of their loans, and right now they have 1.05% (and they are still slowly burning it off), so it is below the historical baseline. Maybe this is Ok, because asset quality is better than it used to be, but I am not quite sure of this.

Hmm, I am getting ads for IBM cloud, credit card offers, checking accounts from Facebook and I am not interested in any of these things right now. Sometimes, I don’t see any ads at all when on Facebook. I actually feel the targeting could be way better.

Thanks for the link. The question is limited to one state but may represent a larger current. I live in a place where electricity is essentially a vertically-integrated regulated monopoly (wholesale and retail) with hydro responsible for more than 90% of electricity needs and with policies in place favoring low and uniform prices and in a relatively steady place versus the socio-political sphere. But I really like what has been going on in the US considering the experiments with various deregulation plans. It's noisy and sometimes disruptive and inelegant but it seems like it's the best way to go IMO. What is happening in Nevada (it seems like the ballot item will pass?) may be part of more to come at the national level and underlines the risks of transition costs and partial recovery of the value of stranded assets and I guess BH can manage transitions but investments in regulated utilities does rely on trust versus potential regulatory harm. The context in Nevada is fascinating with the recent residential solar issues and the ballot question does not go along traditional political divisions. I've looked into the issue, from a Nevada perspective, and come to the conclusion that it is very hard to decide what is best on a net basis for "society". In terms of consumer costs, I wonder if the Nevada experience would look more like California or more like Texas. I would tend to vote against the trend and for BH (bias here) because of the traditional reasons that it has used to justify the venture into regulated utilities (efficient operations, low cost of capital, reasonable rates of return, long-term outlook with stable and low retail prices and flexibility for alternative sources of energy and environmental concerns). Found the following to be useful: https://guinncenter.org/wp-content/uploads/2018/07/Guinn-Center-Q3-2018.pdf https://guinncenter.org/wp-content/uploads/2018/07/Guinn-Center-Q3-Voter-Guide-2018.pdf But this is not simply a story about two billionaires. A town in my neighborhood in MA has bought out their electricity distribution network from the utility a couple of years ago and they seem to be doing quite well with it. Prices are lower than in surrounding towns and their electricity network is more reliable it seems, since they are doing a better job maintaining it. This micro utility still purchases their power wholesale.

If you use these formulas , everything will look cheap. Great! Explain to me where I'm going wrong? Is g wrong when long run nominal GDP growth is gonna be somewhere around 4%. Or is r wrong at 9% when you have the 10 year Treasury at 2.85? What should the right numbers be? The model is correct, but almost any dividend stock will look cheap when you plug it in the model. the question then become is WFC cheaper than others? The biggest issue is longevity of growth. Very often, something bad happens and growth is reset, dividends are cut etc. If the assumption regarding longevity of growth is correct, almost any stock will look cheap.

If you use these formulas , everything will look cheap.

Stated book value is not a useful metric, tangible book value is a better metric, since it isn’t “path dependent”. I think most of the goodwill originated from the merger with Merrill Lynch and I am certain they overpaid back then. As I mentioned befor, tangible book is $@17.2/ share. also keep in mind that investment banking is still a substantial slice of the earnings (I think it is 30%, but I am not quite sure). If you strip this out at tangible book employeed (comp GS trades now lower than that and is a better business, imo), then it’s not quite that cheap any more.

I know there are a lot of FB haters out there, but it sounds more and more like the following Jig from “Life if Brian”: What have the Roman’s ever done for us?:

Yes, I started to use groups too. I joined a local group for the town I moved too and some value investing groups. For local groups, there is Nextdoor out there as a competing offering.

Or creating more real estate - marketplaces, video, Whatsup etc. Marketplaces is one where they created a better mousetrap than competitor Craigslist imo.the advantage is two fold - less fraud (because you are not anonymous due to your FB profile ) and ease of communication ( using Messenger). They don’t quit have the depth in listing yet, but they are getting there.

MKL without the halo would just be another reinsurance company trading at 1.1-1.2x book? That seems to be the downside case.

The 6-7x capitalization is due to the lease duration. 6-7x lease capitalization equates to an duration or roughly 10 years discounted.

Yes, that is correct. I would have given the warehouses a valuation of less than $280M for sure. They have created nice value with the sale there.

I have no clue about Florida and Minto, but isn’t Minto more a competitor than a positive for JOE? I also feel like we are closer to the end of the real estate cycle than the beginning. Berkowitz fund holding represents ther ist of a huge liquidity even. I just bought some BWEL where there was a liquidity event too an shares have cratered 15% in a short time. BWEL also trades at a 10 year low and actually seem to have decent fundamental. I own other real estate stocks that trade at 5 year + lows with very decent fundamentals. I do think hast JOE is finally worth the current valuation, but I am not sure I like the current setup.

I always get interested when a financial gets down to tangible book value, assuming the balance sheet appears solid. It’s a simple heuristic, but at this point, you simply are paying nothing for the franchise value. i have done thw several times with insurers, banks and now GS. GS ought to have some franchise value, because it is simply the best investment banking operation out there, and wealth management is now a more significant operation than it used to be as well. GS also has probably the best risk management up there, which is importent , because banks have high leverage so small errors in asset marks cause huge swings in equity. In all likelihood, thenstock is cheap here. I also think it is a better buy than some European banks I have been watching which are mired in either Brexit/recession scenario (LYG) and the money laundry scandal in conjunction with a regulator hungry for huge fines. UBS is interesting here too, due to their lower risk business model, but their tangible book is of poor quality (Lots of DTA‘s I think)

I started a position as well, basically riding BG2008‘s coattails here. I think it is at least an 80c on the dollar type of valuation and with a good management team in place, that is cheap enough, IMO.

Spekulatius, how are you thinking about 1MDB issue? I wonder if a good way to play this type of situation is to dedicated 10% of portfolio to companies with short term issues (short term defined as 1-2 years to fix). Call it the ‘shit storm mutual fund’. Over time buy 1% positions in 10 different companies. Facebook looks like a solid second candidate (early in the process). WFC would be a third (late in the process). I think the 1 MDB issue is more of a newsflow/reputations issue than a financial one. cost may be $1-2B, which is a quarter worth of earnings max. I could be wrong, of course, but I would be surprised if it were financially damaging. I own both FB and GS and each position is much higher than 1%.

The tangible book value is spelled out in the financial supplement from the last quarterly report. And yes the preferred count as equity, but needs be subtracted when like looking at the equity. I agree that GS is worth more than tangible book and have purchased the stock accordingly.

Based on what I have seen with drilling rigs, contracts ended up sometimes not getting enforced and renegotiation was occurring. I am guessing it depends on the balance of power between the customer and the supplier, the financial health of the customer (if he can’t pay, he won’t) and how the contracts are written. For example with Chinese customers, I always would be worried about them just bailing out, if they are unfavorable. Then they have to be sued in a chinese court - good luck!

BABA has more of them. BABA has the most Byzantine structure that I have seen.

I bought some BWEL because someone had a yard sale.

If it’s just a communication issue, ADS would be a great bargain. I am very sceptical of 15% growth predictions in credit card accounts late in the cycle. Leverage is already pretty high (tangible book is negative as another poster pointed out) and Epsilon has been struggling for a while since 2014 and now it’s top line is shrinking. Is this a melting icecube? 9x EBITDA might be achievable, but a good partner the proceeds will have to go towards debt reduction, IMO. The sale of Epsilon will recur their capacity to carry debt quite a bit. I don’t see a Slam dunk stock here, but I agree, if you believe the management project on adjusted earnings and growth, this is very cheap here.

The BV is a bit distorted, since BAC has the widest gap between stated book and tangible book. BAC’s tangible book is around $17/ share. Then it is surprising to see JPM relative outperformance.

^ Tim, this makes sense and matches my experience. I agree turning a fumbling company around in this sector takes time. Contracts can have a long duration (10 years +) and switching costs and hurdles are high. It’s a great business to be on currently. It’s tough if the reputation is damaged preventing from getting a foot in the door on new programs and takes time to fix. Good luck with the turnaround!

"The graveyards of Wall Street are littered with the skulls of those who were too early". A great book on that exact phenomenon is Nick Gogarty's "The Nature Of Value" which I may have once posted in the books forum, I can't remember. It's all about the stages a new technology paradigm goes through before it is reasonably investable. It really does not take that much foresight to predict that something new comes along to challenge the likes of Google or Amazon or FB within the next twenty years. It is not clear to me that the challenger has anything to do with Blockchain. The knock on Blockchain is that it is inherently inefficient to facilitate transactions, so maybe something new comes around to either fix that problem. Blockchain alone wouldn’t make transactions secure - we know what happens when the key is lost. Do clearly additional layers are needed to make this viable. There is also no reason why cloud companies cannot incorporate it in their offering. To me Blockchain looks more like an evolutionary step that will be part of existing and emerging techs than a technology that facilitate changes by itself.