Liberty

http://dealbook.nytimes.com/2014/12/01/how-a-vodafone-deal-for-liberty-global-could-work/?smid=tw-dealbook&seid=auto Kind of what we've been saying. Doesn't make too much sense, at least not a takeover of the whole thing.

In the "the one that got away" category... I've started thinking about V and MA again lately, and went over my 2011 notes and some recent filings and transcripts... Wish I had pulled the trigger back when I first started this thread. Hopefully there will be another nice entry opportunity at some point. I doubt it'll ever be super-cheap, though. Hard to find a better business of this scale. Not surprising that Todd Combs (I assume it's him) has been buying both members of the duopoly. This old piece on two-sided markets is interesting: http://www.gurufocus.com/news/155261/twosided-markets-and-mastercards-moat-ma

That's what I'm saying. Yet the Schiller CAPE said that the market was only "slightly undervalued" at the bottom, which is why I'm saying that using these macro indicators often doesn't help much and can actually do more harm than good if it keeps you from buying what you would otherwise buy. Many good investors didn't buy as much as they could have or stayed hedged for way too long after the crisis because they had made certain macro predictions and were waiting for something that never happened. The problem with predicting the future is that there's an infinity of wrong predictions and only one version of events that actually happens. And keep in mind that most markets environments are not early-2009. I think there are too many generals fighting the last war out there, expecting these "once-in-a-century" events to happen every 5 years. As Buffett likes to say, if you could have told someone in 1900 all the big events that were going to happen during the 20th century (depression, WW1, WW2, cold war, vietnam war, inflation, famines and purges in Russia and China, oil shocks, double-digit interest rates, countries defaulting, large banks failing, US president assassinated, epidemics, etc), they'd think that nobody could possibly make money, yet the Dow went up something like a zillion times and living standards multiplied. Of course. And if I can't find anything that is attractive enough for me, I'm ready to go 100% cash. But if I do see things that are attractive enough, I won't hold cash just to hold cash. I'd rather miss some buying opportunities here and there than have significant cash in my portfolio for the next 30 years, because missed opportunities compound too. And if there's a buying opportunity that comes along and that is truly juicy enough that I can't miss it, it'll be more undervalued than what I hold by definition (otherwise it wouldn't be particularly juicy, right?), so I'll just sell some of the less undervalued thing I own to buy that very undervalued thing. Or I'll go on margin and delever later. Who knows, there are all kinds of reasons why one could hold cash. I'm not saying that everybody who does is timing the market - especially not those with funds managing other people's money, with peak redemptions always happening at market bottoms, or with operating businesses that might need big cash cushions. I'm speaking as an individual investor, only managing my money, with a long-term horizon, and seeing enough opportunities to fill a portfolio.

That's exactly what we've been talking about here and in Racemize's thread. It's easy to posit a single event where one approach of the other would be bad. The reverse is equally true, but not as visible because sins of omission always less noticed. What if the market goes up rapidly for years while you hold a large amount of cash (this has just happened to many people over the past 5 years)? Many people never stopped being bearish after 2009 and missed multi-baggers. When they buy in the next downturn, it might not make up for their missed opportunities, but most of that will be pushed under the rug. Or maybe there's a drop, and they expect the apocalypse, but it's just a mild one and they never actually buy because they're so sure it'll go much lower... What truly matters IMO is over long periods of time. I might not be able to buy as much during dips, but I will participate more when things go well. If the businesses that I pick have more attractive characteristics than the market overall, and are more attractively priced, and they can live through almost any crisis and deploy capital opportunistically (buybacks, M&A), then holding them seems quite safe to me and I feel like they can create more value for me than I could with cash. If I could predict general market moves, I would. But I've been hearing people call for huge drops for years, and if I had listened to them I'd be poorer, and there would be the very real risk that I would stay bearish through the bounce off the bottom anyway and miss the following recovery (this seems to happen frequently even to very good investors). Timing is hard.

I don't think we have the same definitions for those words, because if you use general market levels and ratios to make decisions about a portfolio of single companies (and you don't own the general market), and you are seeing things that are attractively priced that you're not buying because of those decisions, that's macro investing to me by definition. That's a call on the general market. It's fine, you can do that if you want. It's just not something that I think I can do well. Yes.

Good. I don't either. You're looking at a single event (market drop, market rise). I'm looking at it over an investing career. Unless you can time market cycles reliably, I think the bottoms up approach is better than the macro approach. If I'm in good companies at good prices, I'll get through both up and down cycles just fine in the end. I might not get to buy as much as the bottom, but I won't spend years of value being created at my favorite companies holding fewer shares than I could have. Am I doing a bunch of statistical analysis here? I was just pointing to someone who has found valid flaws in the macro tools that you kept citing. If macro was as simple as "look at these things and make a decision based on the ratio", there would be a lot of rich macro investors. But it turns out, even Hussman isn't doing so hot, and in a lot of those cases, being early is the same as being wrong. That seems like a 9-foot hurdles to me, so I prefer not to play that game.

That's for each investor to determine. Some have very high hurdles, some are looking for 10%.. But whatever your target is, you have to ask if holding lots of cash helps you get closer to that target over long periods of time or if it holds you back.

What I mean by macro is looking at general things to make decisions about specific companies. If you are investing in indexes, maybe looking at CAPE and such can be considered valuation. But if you're thinking of investing in a specific company that you are finding cheap and would like to own, but don't do it because you think the index might fall/some reversion to some mean will happen at some point, that's market timing based on macro. That's what I'm trying to avoid. I don't think I have an edge there, and I think that a lot of people who will consider themselves to have been 'right' on macro will fail to properly take into account their opportunity cost (ie. a lot of people have been telling us to be careful of a market top for 3 years).

And to be clear, I'm not saying "everybody should be fully invested all the time". I believe there are times when I'd probably be 100% cash (can't find anything worth buying, everything I own was very overvalued so got sold). What I'm saying is just: If, say, I thought that Liberty Broadband and Fairfax were very cheap right now, I think it would be a better idea to buy more of them - even if I were to later sell some shares to finance a different, even cheaper purchase - than to hold cash for macro reasons (there might be other non macro reasons to hold cash, such as potential redemptions if you have OPM, or capital requirements for a business, etc). As I said above, it's certainly possible to get timing right sometimes and enter a huge market crash with tons of cash. But we hear about those a lot more than about people who rode a huge bull market with tons of cash (or worse, while shorting the market) despite having seen lots of good opportunities... Two sides of the same coin, but one requires market timing and the other just buying things that meet your investing criteria when you see them.

Well, I think the “macro” drag is an illusion. Instead, I look at it this way: I choose to earn 70 if everything goes right and 30 if trouble comes our way, instead of earning 100 if everything goes right and 0 if trouble comes our way. The total is always 100, that’s why I think a “macro” drag doesn’t really exist... But of course, if everything keeps going right, its illusion will surely be strengthened! ;) Gio Opportunity cost is real. Otherwise, why not be 90% in cash and say "the total is always 100"? :) You can say that it's about having a defensive posture, but if over 30 years the defensive posture reliably leaves you with fewer dollars at the end (see Racemize's paper), it was actually safer to not take the defensive posture. All it does is smooth out volatility, but if you're in good businesses, there'll be more upward volatility than downward, so best to just ride it all out (and let your partners do buybacks and acquisitions for you). That is, unless you believe that there's something on the horizon that could permanently wipe out someone that is entirely invested in the businesses that are in your current portfolio (because your alternative is to own more of those in stead of cash). But if there's something big enough to non-temporarily crush everything you own, you'd probably have bigger problems than investing... Canned food and ammo, etc. Everything else is market timing, IMO, and few people are good enough at that to win more extra performance than they lose (ie. they'll brag about buying something at the bottom but they won't count spending years holdings tons of cash that could have been deployed in attractive opportunities against that win).

Gio, I don't disagree with anything you said in your last comment, and I don't think it changes anything I've said. What you're talking about is degrees. Whatever gearing you give to macro tools (influencing you from 0 to 100% cash or from 10 to 30% cash...), if they are driving you in the wrong direction, you'll still be going in the wrong direction. Nobody knows the future, so maybe from today the right direction is to hold more cash. But the past is known, and it's pretty clear that someone who held more cash because of Hussman or the Schiller CAPE in the past few years has made a mistake (and Hussman himself wasn't spared in the crisis, it's not just the recovery that he missed). At one extreme, someone giving a really high weight to the Schiller CAPE would have been out of the market for decades because it was always "overvalued", but at the other extreme, someone giving only a little weight to the Schiller CAPE might still have been holding more cash than he otherwise would have held by just putting money in what attractive ideas are found, so there's a real "macro drag" there too. My only point is that I'd rather look at companies individually and not take the macro into account, because there are more ways to be wrong than to be right with it, so over time I don't think it helps even if once in a while I succeed in timing things correctly and anticipating the thing that actually ends up happening. If I don't find any good investments, I'll naturally end up with lots of cash. That's just my approach, and it's fine that you have yours. Cheers! :)

If French is your native language, I envy you… Michel Rio is imo the greatest author of “philosophical novels” alive today. And he writes in French! Unfortunately, I was able to find just few novels of his translated either in Italian, or in English, or in Spanish (the three languages that I know)… And I must use Google Translate to read the rest… You might imagine the pleasure of reading gets much diminished that way! :( If I were you, I would visit Amazon.ca, and order all the novels by Michel Rio I could find! Cheers, Gio Merci pour la suggestion. Thanks for the recommendation, I will check out his work :) On a purely pragmatic level, it's hard to recommend using a tool that told you not to invest in early 2009, or that might have kept someone on the sidelines for decades. http://finance.yahoo.com/echarts?s=HSGFX+Interactive#%7B%22range%22%3A%2210y%22%2C%22scale%22%3A%22linear%22%2C%22comparisons%22%3A%7B%22%5EDJI%22%3A%7B%22color%22%3A%22%23cc0000%22%2C%22weight%22%3A1%7D%2C%22%5EIXIC%22%3A%7B%22color%22%3A%22%23009999%22%2C%22weight%22%3A1%7D%7D%7D

Is this phonetic french from memory, or some other language I don't know? :) Raison d'être translates literally to "reason to exist". I get no credit for knowing that since french is my native language.

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2014/Valeant-Announces-Redemption-of-US4450-Million-Aggregate-Principal-Amount-of-its-Outstanding-6875-Senior-Notes-due-2018/default.aspx

http://thefatpitch.tumblr.com/post/103291720776/are-low-interest-rates-responsible-for-high-stock As if macro wasn't hard enough to predict, some widely held views don't even seem true...

I just think that Buffett's capital allocation skills are so well known and that his every move is so scrutinized, different rules apply to him than most others (front page news, on every financial channel every time he opens his mouth) that he couldn't do what Singleton and Malone did, not at that scale (for different reasons -- Singleton wasn't known and respected by markets at the time and nobody knew much about buybacks, and Malone likes to create a complexity discount when he buys, which he later reverses when he wants to close the gap, something that Buffett tries very hard to avoid). Maybe a few percents of outstanding shares could have been bought, but but I doubt anything in Malone or Singleton territory. Maybe a few decades ago he could have done something like that. But of course it's speculation. I'm just sharing my thinking on it, not pretending I can read the tea leaves.

If he wasn't him, sure. But he's set the precedent of announcing buybacks ahead of time to be fair to his shareholders, so he couldn't have bought much. Even if he hadn't said anything (and the big buyback program approval hadn't tipped people off), maybe it would have worked for a quarter, but as soon as there's a filing showing he's buying a lot, price would run up.

The difference between 25% and 60% might be like the difference between someone who's 6-foot 4 inches and someone who's 7-foot 4 inches, though. Both are tall, but one's a lot more extraordinary and rare than the other. I don't think the difference can be hand-waved away. I don't use this stuff to invest at all. Macro's too hard (who predicted the recent oil moves?). I just find it interesting because so many people cite Hussman and Schiller, and base investing decisions on their work as if it was gospel, so it's nice to see their stuff scrutinized by someone smart.

That's exactly what I just thought, came here to write that. This would certainly be tax efficient and in keeping with Malone's MO.

How do you know that as soon as buybacks were announced the price wouldn't jump up? I doubt he'd be able to buyback any significant amount, unless it's at a time when other things are more attractive anyway (2009).

I think it depends on how you interpret that part I bolded. I think to him, if these shareholders don't want to sell anymore after he says that at "1.X of book the stock is undervalued enough to buy back", then after getting the information that he'd like to have if he was in their place, these people aren't sellers anymore, they've decided to remain partners. If they only sell because they don't have that information (imagine an alternate universe), then he's actually doing a disservice to people who actually want to remain his partners. (did that make sense? not sure I phrased this well...)

That's my impression too. I've been having a discussion about this on Twitter with a few people, and basically, I can't see a way that would make much sense for this to happen. Malone hates taxes, and he hates not having control (he learned this the hard way). He wouldn't take VOD stock for the whole thing, and he wouldn't want cash (tax hit). And if the premium is high enough to entice Malone, then the deal is probably bad for VOD, so Malone would want to stay away from VOD stock even more... Maybe they'd sell some assets (there's speculation about the German sub) for a really high price and redeploy into some other bargain (but there aren't many things left in Europe with the right scale and growth environment; maybe somehow in LatAm? But they could do that just with cheap debt, no need to sell a crown jewel), but that's also a weird move; everything they've been doing has been to build scale, and Germany is one of their biggest and best-performing markets... Losing scale and their best asset would require a really crazy high premium to compensate.

Thanks Kraven, you've just saved me a few bucks and a few hours..

2007 is just one data point, though. I was curious to see how consumer confidence looks most of the time, including in the early days of long bull markets. Found this page that uses data from the Thomson Reuters/University of Michigan consumer confidence survey (which is the same one cited by Bloomberg): http://www.tradingeconomics.com/united-states/consumer-confidence Here's the graph from 1952 to today: http://i.imgur.com/HCOXeGH.png

According to Bloomberg, Vodafone is looking at Liberty Global. Hence the spike right before the close. Edit: Here's the piece: http://www.bloomberg.com/news/2014-11-28/vodafone-said-to-eye-takeover-of-malone-s-liberty-global.html More details here (via TXlaw) (nov 25): http://www.broadbandtvnews.com/2014/11/25/liberty-global-looks-at-german-cable-deal-with-vodafone/ Earlier piece (nov 21): http://www.bloomberg.com/news/2014-11-21/liberty-global-sees-german-watchdog-open-to-vodafone-deal.html