Your best long-term idea today?

[CanadianMunger]

 

Me too, but I'll also have more respect for someone who does their own thinking than a BuffetBitch who takes every word that comes out of our favorite friend's mouth as purer truth than the laws of nature. When you think for yourself, you give yourself a chance to improve. When you follow like a blind sheep, you stay a blind sheep.

 

Interesting.  So would you classify Pabrai as a blind sheep?

 

-CM

[ni-co]

But I'd never even crack a 10-k or an AR for something just because someone I think is smarter than me owns it.

 

I'm totally the opposite.  I feel like by starting out with the set of names a guy like Buffett has been interested in, I'll have a less polluted lake to swim in.  It doesn't seem like a good idea to me to ignore his behavior and instead look over every stock in the market and only go with the names that I think are best (instead of peeking at the list of stocks that a few shrewd investors own).  I'm aware of his experience and wisdom and... more importantly, mine!

 

+1

A big part of the fun for me is reverse-engineering great investors' buying decisions – and becoming a better investor myself along the way.

[tombgrt]

But I'd never even crack a 10-k or an AR for something just because someone I think is smarter than me owns it.

 

I'm totally the opposite.  I feel like by starting out with the set of names a guy like Buffett has been interested in, I'll have a less polluted lake to swim in.  It doesn't seem like a good idea to me to ignore his behavior and instead look over every stock in the market and only go with the names that I think are best (instead of peeking at the list of stocks that a few shrewd investors own).  I'm aware of his experience and wisdom and... more importantly, mine!

 

Totally agree. If there is one thing I have learned the last few years it's to rely more on others and less on myself when it comes to generating ideas. That being said and to get back on topic:

 

IBM

 

 

This topic is about "the long-term" and I think IBM will be there, at least in the next 10-20 years. Long term I believe safety is more important than immediate return, otherwise I would vote Intralot/FNMA or another one with a good option-like kicker. I especially like IBM because Palantir believes it's almost a good short.  8)

[yadayada]

Dazel

We are all focussing on AMZN, but I think people fail to see here that Buffett would obviously never invest in something like this

[KCLarkin]

IBM

[ERICOPOLY]

 

Me too, but I'll also have more respect for someone who does their own thinking than a BuffetBitch who takes every word that comes out of our favorite friend's mouth as purer truth than the laws of nature. When you think for yourself, you give yourself a chance to improve. When you follow like a blind sheep, you stay a blind sheep.

 

Interesting.  So would you classify Pabrai as a blind sheep?

 

-CM

 

Wouldn't a blind sheep have more trouble keeping up with the herd?  Perhaps he has developed other senses to compensate and thus, in investing, a blind sheep may actually be advantaged.

[DCG]

Do you mean because of the actual business or because of the valuation?

 

Valuation aside, he invested in Walmart, so I wouldn't rule out him investing in Amazon at the right price.

[yadayada]

it seems a lot of people blindly follow buffett though, without asking themselves why he says something. You should wonder why he says it and nto blindly copy it.

 

They have the buy and never sell attitude, which is very suboptimal. Only reason Buffett never sells is because he is on board of directors like KO or he bought the entire company. They fail to see that buffett would have a different style of investing if he had a small amount of capital today.

 

And a lot of things he says are geared towards the daytrading crowd to get them to stop pissing away money to brokers basicly. So then it is better to take a somewhat opposite extreme point of view to educate them

 

Also investing in megacaps like he does with small amounts of capital is stupid at worst, suboptimal at best, unless they are very mispriced like BAC. You are handicapping yourself. For some reason a lot of buffett followers miss that. Both Munger and Buffett say that they would focus on small and microcaps if they would be investing today with little capital.

[peter1234]

it seems a lot of people blindly follow buffett though, without asking themselves why he says something. You should wonder why he says it and nto blindly copy it.

 

They have the buy and never sell attitude, which is very suboptimal. Only reason Buffett never sells is because he is on board of directors like KO or he bought the entire company. They fail to see that buffett would have a different style of investing if he had a small amount of capital today.

 

And a lot of things he says are geared towards the daytrading crowd to get them to stop pissing away money to brokers basicly. So then it is better to take a somewhat opposite extreme point of view to educate them

 

Also investing in megacaps like he does with small amounts of capital is stupid at worst, suboptimal at best, unless they are very mispriced like BAC. You are handicapping yourself. For some reason a lot of buffett followers miss that. Both Munger and Buffett say that they would focus on small and microcaps if they would be investing today with little capital.

 

+1

:)

[merkhet]

it seems a lot of people blindly follow buffett though, without asking themselves why he says something. You should wonder why he says it and nto blindly copy it.

 

They have the buy and never sell attitude, which is very suboptimal. Only reason Buffett never sells is because he is on board of directors like KO or he bought the entire company. They fail to see that buffett would have a different style of investing if he had a small amount of capital today.

 

And a lot of things he says are geared towards the daytrading crowd to get them to stop pissing away money to brokers basicly. So then it is better to take a somewhat opposite extreme point of view to educate them

 

Also investing in megacaps like he does with small amounts of capital is stupid at worst, suboptimal at best, unless they are very mispriced like BAC. You are handicapping yourself. For some reason a lot of buffett followers miss that. Both Munger and Buffett say that they would focus on small and microcaps if they would be investing today with little capital.

 

It all depends on who you are... for some people, blindly following Buffett is going to be their optimal strategy because, on their own, they're bad at investing. So it's possible for some that it's better than their alternatives (day-trading, trading on "hot tips," etc.)

[Palantir]

I don't see a point in continuing this discussion, but I thought I should follow up on this post as you do not seem to understand the point I made and rather are bent on accusing of saying things like "market is always right", which I did not do. I think you need to remember that the whole point of investing is to make money - if you can do it through value investing, great, growth investing, also great. That's it, there is no other reason to be investing in the markets. And in that vein, if you had a legitimate basis for investing in AMZN, you indisputably made the correct decision.

 

I'm using earnings growth as a proxy for owner's earnings or free cash flow. I am using owner's earnings or free cash flow as a variable for the implicit DCF that goes into a valuation. I am using John Burr Williams' "The Theory of Investment Value" as the "correct" formula for valuation. What part of that line of reasoning do you find objectionable?

 

You are free to use whatever methodology you want in valuing AMZN. However, that does not mean that the answer you get is correct, nor does it mean that the market price is wrong. All valuation methodologies are based on assumptions which drive the end result, and are therefore opinions, and educated guesses, not fact. Try to understand this point - this means that you cannot definitively prove that the market is "wrong" and your valuation calculation is "right". There is no feedback mechanism that determines the correct answer.

 

As for the market, I do not believe the market is "always right", and in this case I believe the market is wrong because I think it is undervalued, however, the market has done a FAR better job of understanding AMZN than either you or Warren Buffett.

 

We've spoken about lottery tickets before (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/what-are-your-least-favorite-investing-quotes/msg182034/#msg182034) Just because something randomly drops a bunch of money in your lap doesn't make your decision to invest in it correct. The question is a priori decision-making not post-hoc rationalization.

 

Yes we have spoken about lottery tickets before, however if you can find a way to predict lottery results and profit off those, then your result is not the result of chance. The more subtle point I am trying to make is that investing in AMZN is not investing in a set of truly random outcomes - there is a legitimate investment case for AMZN and people have been making it, and profiting off of it for years. If you do not understand this case, then simply put it into your "too hard" pile, and move on instead of critcizing those investors as "investing in lottery tickets".

 

Also, for some reason beyond my comprehension, you seem to think the burden of proof is on me to prove that the market is wrong. Why is the burden of proof not on you to prove that the market is right? And how would you go about doing so?

 

The burden of proof is always on the investor to show why you believe the market, which is composed of thousands or millions of investors is wrong whether you are making a long case or a short case.

 

The market is not always right. See The Dot-Com Bubble, The Ensuing Crash from the Dot-Com Bubble, The Run-Up to the Financial Crisis, the Ensuing Crash from the Financial Crisis. Etc.

 

This is a pretty poor straw man, but whatever floats your boat.

[Palantir]

Try to see the point. You just assume that your metric of earnings growth is the "correct" metric, whereas the market value is the "wrong" metric.  Notwithstanding the fact that you have not established why the market is wrong about AMZN, and now you are passing it off as a fact.

 

If you use the market price to judge a stock - what are you comparing? Price with price. So what's your analysis? Nothing. Was CYNK a better company at a $10 billion valuation than at $10 million? You don't know if you don't look at the underlying business - you are speculating. Please quit the nitpicking, all Merkhet is trying to explain to you is, if you had bought Amazon for $20 billion, how much cash would roughly have ended up in your bank account after a decade? Probably less than $160 billion. Seen from that perspective (I would say the value perspective) Amazon wasn't a 800% return investment. What the stock did in the meantime is irrelevant for that analysis. Do you really not understand this line of reasoning?

 

Also, if the market is 'right' about Amazon, why did you buy it? Risk-adjusted return would not beat the market ..

 

I'm going point out something to you - the valuation of a firm is not just the cash it has generated in the past, but what it will generate in the future. As for the rest, see my response to merkhet.

[jouni1]

sorry didn't read the part about lottery tickets  :)

[yadayada]

palantir care to expand why exactly you think AMZN is attractive currently?

[cubsfan]

Amazon goes into the "too hard pile" for me, but I must admit I became more interested after reading

Nygren's , Chad's and Arnie Alsin's  take on how they value AMZN:

 

Nygren under "You bought what?"

 

http://www.oakmark.com/Commentary/Commentary-Archives/2Q14--Bill-Nygren.htm?rf=dr

 

http://www.peridotcapital.com/2014/06/profitless-amazon-myth-lives-on-thanks-to-lazy-financial-media.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+PeridotCapitalist+%28Peridot+Capital+Blog%29

 

http://alsincapital.com/blog/2013/10/24/is-amazon-a-500-stock

 

It starts to look more like a Tom Russo investment, where the "capacity to suffer" is playing out.

 

 

 

 

 

 

[JAllen]

palantir care to expand why exactly you think AMZN is attractive currently?

 

 

A few of us have discussed it quite a bit in the AMZN thread.  Maybe it's best to keep AMZN discussion there that's beyond the scope of this thread?

 

 

On that note: I'll pick AMZN as my best long-term pick today.  I hope to hold it in twenty years and think it could be a $2 trillion market cap company in twenty years or so, assuming nothing serious happens to Bezos, which is highly unlikely.

[merkhet]

I commented to another user via PM that I should do better to remember my Robert Heinlein quote on singing, but I suppose I might as well continue as this is a slow weekend and I have the time to waste.

 

I don't see a point in continuing this discussion, but I thought I should follow up on this post as you do not seem to understand the point I made and rather are bent on accusing of saying things like "market is always right", which I did not do.

 

I understand completely the point that you made. I just happen to disagree. Vehemently.

 

Again, I feel the need to point out that reading comprehension is an important skill for life. I did not say that YOU said the market is always right. Read what I wrote again. I said that "the market is not always right" and then provided instances in which using market returns to judge investment decisions might not have been the best. This was meant to show you that the market gets things wrong -- ergo, using the market return on Amazon as the determinant of whether an investment was correct or not is the wrong course of action.

 

I think you need to remember that the whole point of investing is to make money - if you can do it through value investing, great, growth investing, also great. That's it, there is no other reason to be investing in the markets.

 

And I think you need to remember that probabilities are important. This is the point of the lottery example that I mentioned. I can buy a random lottery ticket and make a fortune. It doesn't mean that it was a bright move just because it happened to work out -- why? Because the odds are terrible.

 

Now, you've brought up TWICE now that you can find an edge in a lottery ticket. Well, congrats, but the point isn't that no one can make money in lottery tickets. The point is that buying a lottery ticket, and implicitly sticking with the original lottery ticket odds, has the possibility of making a lot of money but is still a pretty bad capital allocation decision.

 

I thought this concept was rather simple.

 

And in that vein, if you had a legitimate basis for investing in AMZN, you indisputably made the correct decision.

 

writser brought up CYNK earlier. If someone had a legitimate basis for investing in CYNK and got out before it was suspended on the market, then did they "indisputably [make] the correct decision"?

 

Alternatively, we can go down the following path. If you have a legitimate basis for investing in Amazon, that is the only criteria that matters. In other words, if you have a legitimate basis for investing in Amazon, and the operations eventually bear out that legitimate basis, then that is all that matters. The market return may follow or it may not. However, merely looking at the market return is flawed. I believe that the vast majority of the people on this thread have tried to explain just this point to you multiple times -- and, apparently, failed.

 

I'm using earnings growth as a proxy for owner's earnings or free cash flow. I am using owner's earnings or free cash flow as a variable for the implicit DCF that goes into a valuation. I am using John Burr Williams' "The Theory of Investment Value" as the "correct" formula for valuation. What part of that line of reasoning do you find objectionable?

 

You are free to use whatever methodology you want in valuing AMZN. However, that does not mean that the answer you get is correct, nor does it mean that the market price is wrong. All valuation methodologies are based on assumptions which drive the end result, and are therefore opinions, and educated guesses, not fact. Try to understand this point - this means that you cannot definitively prove that the market is "wrong" and your valuation calculation is "right". There is no feedback mechanism that determines the correct answer.

 

As for the market, I do not believe the market is "always right", and in this case I believe the market is wrong because I think it is undervalued, however, the market has done a FAR better job of understanding AMZN than either you or Warren Buffett.

 

Once again, I am going to point out to you that reading comprehension skills are important in life. It would be a mistake for you to think that I don't understand AMZN as I have in fact done a considerable amount of research on the company. More importantly, though, and this goes to my reading comprehension skills point, nowhere in this thread have I weighed in one way or another as to whether AMZN is overvalued, fairly valued or undervalued.

 

All I have done is try to show that merely saying, "well you could have made 800% since 200X" is a terribly ass-backward way of trying to figure out whether you made the right decision or not. Again, think about CYNK or maybe even a company whose only holding is a lottery ticket (without an edge). If you purchase a share of that company for a market cap of $1 million and the company ends up being worth $10 million because the lottery ticket paid off, you could have made 1000% and still have been an idiot.

 

We've spoken about lottery tickets before (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/what-are-your-least-favorite-investing-quotes/msg182034/#msg182034) Just because something randomly drops a bunch of money in your lap doesn't make your decision to invest in it correct. The question is a priori decision-making not post-hoc rationalization.

 

Yes we have spoken about lottery tickets before, however if you can find a way to predict lottery results and profit off those, then your result is not the result of chance. The more subtle point I am trying to make is that investing in AMZN is not investing in a set of truly random outcomes - there is a legitimate investment case for AMZN and people have been making it, and profiting off of it for years. If you do not understand this case, then simply put it into your "too hard" pile, and move on instead of critcizing those investors as "investing in lottery tickets".

 

I feel like I've mentioned reading comprehension so many times that I might as well create an internet meme and just re-post it here every time I need to say it. Reading comprehension is important.

 

I am going to make this as clear as possible. I do not care about the actual investment case of AMZN. The only thing that I have tried to make clear is that merely looking at investment performance and then declaring victory is a terribly illogical way to go about it. When I talk about lottery tickets, I am not saying that investing in AMZN is the same thing as investing in a lottery ticket. What I am saying is that you could use your metric of "market returns" justifying investment decisions similarly to say that lottery ticket winnings justify the purchase of that lottery ticket. And that would be madness.

 

Also, for some reason beyond my comprehension, you seem to think the burden of proof is on me to prove that the market is wrong. Why is the burden of proof not on you to prove that the market is right? And how would you go about doing so?

 

The burden of proof is always on the investor to show why you believe the market, which is composed of thousands or millions of investors is wrong whether you are making a long case or a short case.

 

I asked why is the burden of proof not on you to prove that the market is right. Your response basically reduces to repeating your statement and/or "because." Good one.

 

The market is not always right. See The Dot-Com Bubble, The Ensuing Crash from the Dot-Com Bubble, The Run-Up to the Financial Crisis, the Ensuing Crash from the Financial Crisis. Etc.

 

This is a pretty poor straw man, but whatever floats your boat.

 

Not a straw man. Reading comprehension. Etc.

 

We may have to agree to disagree here -- but I'm more than happy to go as many rounds with you as you'd like.

[Palantir]

I don't have time to type up a long essay, it's not a slow weekend for me.

 

 

Alternatively, we can go down the following path. If you have a legitimate basis for investing in Amazon, that is the only criteria that matters. In other words, if you have a legitimate basis for investing in Amazon, and the operations eventually bear out that legitimate basis, then that is all that matters. The market return may follow or it may not. However, merely looking at the market return is flawed. I believe that the vast majority of the people on this thread have tried to explain just this point to you multiple times -- and, apparently, failed.

 

 

No, this is badly mistaken. There is no way to definitively prove the strength of somebody's case for an investment. Please read the bolded part over and over again. Investing has no built-in feedback mechanism, and an investment case is merely an opinion.

 

However, what can be measured is the end result of making the investment. If you make a reasonable case for long AMZN and it goes up 800%, there is a good chance your case is justified. If you make a reasonable case for shorting AMZN, and it goes up 800%, well...hahahahha.

[sys]

there are two beliefs that are implicit in value investing.  one, that significant mispricings can occur in the market, and two, that over time, the market tends to correct towards more accurate prices.

 

using long-term market pricing of a stock as a shorthand way of evaluating an investment thesis might be a little lazy, but it isn't fundamentally incongruous with the philosophy of value investing.

[merkhet]

No, this is badly mistaken. There is no way to definitively prove the strength of somebody's case for an investment. Read the bolded part over and over again until it sinks in. Investing has no built-in feedback mechanism, and an investment case is merely an opinion.

 

Wrong again.

 

If I am invested in, say, Fannie Mae, because I believe that the court will reverse the 2012 Amendment that sweeps away all of their capital -- explain to me how there is "no way to definitively prove" whether I was right or wrong. Why would the actual result of the litigation not "prove out the strength of [the investment case]"?

 

Alternatively, if I am invested in, say, Tesla, and I believe that unit volume growth and margin expansion as a result of hitting economies of scale will provide me a good return -- explain to me how, a few years from now, I can't just look at the annual report and say "Oh, yea, they really did/didn't hit 1,000,000 cars a year at a 15% net margin."

 

And in that vein, if you had a legitimate basis for investing in AMZN, you indisputably made the correct decision.

 

The above...is not the same as the below...

 

However, what can be measured is the end result of making the investment. If you make a reasonable case for long AMZN and it goes up 800%, there is a good chance your case is justified. If you make a reasonable case for shorting AMZN, and it goes up 800%, well...hahahahha.

 

QED.

 

Palantir, I used to be a lawyer, so I'll leave you with another pig quote. "Never wrestle in the mud with a pig. You'll both get dirty, but the pig will like it." As I said before, happy to go more rounds with you when you get the time.

 

sys, I agree with you that the market tends to correct towards more accurate prices over the long-term. My disagreement with Palantir was that the market is necessarily correct merely because a long time has passed.

[Palantir]

No, there is absolutely no way to definitively judge the strength of an investment case.

 

No, this is badly mistaken. There is no way to definitively prove the strength of somebody's case for an investment. Read the bolded part over and over again until it sinks in. Investing has no built-in feedback mechanism, and an investment case is merely an opinion.

 

Wrong again.

 

If I am invested in, say, Fannie Mae, because I believe that the court will reverse the 2012 Amendment that sweeps away all of their capital -- explain to me how there is "no way to definitively prove" whether I was right or wrong. Why would the actual result of the litigation not "prove out the strength of [the investment case]"?

 

Oh...all this time you spent telling me that using results was the wrong method.  But I guess that you're getting around to my view. You realize in these scenarios you're looking at an investment case after the event happened? Markets reflect information that flows into them such as the FNMA court verdict or what TSLA's gross margin will be and that is what drives market returns, they do not simply appear out of thin air. Furthermore all value investors depend on the market recognizing value at some point, and if the market never recognizes the value of your holdings, you will not be a very successful value investor. Frankly, I find your disdain for investing in these names to be pretty amusing, it seems that you think that buying TSLA or AMZN is just throwing your money in a set of random outcomes, and which leads to some random price movements on a screen. I have no interest in correcting this view.

 

 

Speaking of pigs, my view is, "why argue with a fool when you can bet against him". I'll be doing that.

[merkhet]

No, this is badly mistaken. There is no way to definitively prove the strength of somebody's case for an investment. Read the bolded part over and over again until it sinks in. Investing has no built-in feedback mechanism, and an investment case is merely an opinion.

 

Wrong again.

 

If I am invested in, say, Fannie Mae, because I believe that the court will reverse the 2012 Amendment that sweeps away all of their capital -- explain to me how there is "no way to definitively prove" whether I was right or wrong. Why would the actual result of the litigation not "prove out the strength of [the investment case]"?

 

Oh...all this time you spent telling me that using results was the wrong method. But I guess that you're getting around to my view.

 

If you believe that the litigation will go one way or another, then the actual result of that litigation will tell you whether you were right or wrong. If, however, you believe that the litigation will go one way or another, the investment results of the underlying security do not necessarily tell you anything.

 

I suppose I have made things confusing by quoting "prove out the strength of [the investment case]" as opposed to saying that there is, in fact, a determinant outcome that comes out of the end of the litigation case (or the Tesla case). The former is actually not the same as the latter, and I should have written the latter.

 

You realize in these scenarios you're looking at an investment case after the event happened?

 

It doesn't tell you whether you were correct in forming that belief in the first place or the probabilities that you placed on it happening. On that part, we happen to agree. Though I suspect you have stumbled into it through no fault of your own.

 

Markets reflect information that flows into them such as the FNMA court verdict or what TSLA's gross margin will be and that is what drives market returns, they do not simply appear out of thin air. Furthermore all value investors depend on the market recognizing value at some point, and if the market never recognizes the value of your holdings, you will not be a very successful value investor. Frankly, I find your disdain for investing in these names to be pretty amusing, it seems that you think that buying TSLA or AMZN is just throwing your money in a set of random outcomes, and which leads to some random price movements on a screen. I have no interest in correcting this view.

 

I don't know how many times I've mentioned at this point that I don't have a disdain for buying TSLA or AMZN. I would try pointing you to the places on this thread where I've made this clear, but something tells me that it wouldn't matter much to you.

 

Speaking of pigs, my view is, "why argue with a fool when you can bet against him". I'll stick to that.

 

We are not betting against one another. I am not on the other side of the AMZN investment -- I have no idea why you would think that this is so. Unless you happen to be crazy. (I'm trying not to rule anything out at the moment.)

 

Btw, I love how you drop all sorts of points once you been proven to be wrong -- like going from "indisputable" to "very likely." That's cool though. That will serve you well in life.

[PatientCheetah]

Palantir, just want to say that you are the man! Whatever the methodologies/religions we use, the end goal in investing is always about making money. We have to remember the kind of returns that Buffett was making in his earlier years. He didn't get to where he is from preaching his philosophies, he arrived there through his returns.

[Palantir]

I have not dropped any of my points. It is still indisputable that going long AMZN was the right decision ten years ago if you had a investment case for doing so, I used "highly likely" to refer to a more general scenario with AMZN as an example.

 

OTOH, I like that you are slowly coming around to my argument, judging an investment case by the end result. Keep it up.

[Palantir]

Palantir, just want to say that you are the man! Whatever the methodologies/religions we use, the end goal in investing is always about making money. We have to remember the kind of returns that Buffett was making in his earlier years. He didn't get to where he is from preaching his philosophies, he arrived there through his returns.

 

Hahaha, thanks. That is the difference between Buffett and John Hussman, one has the results, and the other has very reasonable arguments.