What did everyone buy today?

[Guest misterstockwell]

FFBCW--someone wanted to sell me many at 4.25. Though I think we are recession-bound, this is thinly traded and difficult to buy in bulk. I will take them when I can get them. They have a strike of 12.80, expiring Dec 2018, with 100% payout of all income for foreseeable future(which further lowers conversion price).

[ShahKhezri]

Initiated a position on PAYX, GOOG and LUK. 

[Rabbitisrich]

I have a Debt / Equity (asset) ratio of approximately 0.38.  I know it's rather high but I am a 30 year old who used a lot of leverage when I first started investing about 5 years ago and then doubled my leverage during Feb / March 09' crash to juice my returns!   

 

My goal is to reach zero leverage (In 3-4 years) as well but I honestly cannot help myself during these sell-offs!   ;D 

 

Thanks,

 

S

 

I'm 29, but was never attracted by leverage. I also don't short or use options. Guess it's a "keep it simple" thing.

 

It makes sense in this market. If you owned Wells Fargo or Microsoft two years ago, the core businesses have done everything you expected, but the multiples keep compressing and the expectations stay low. You would have taken a loss on otherwise smart bets rolling over options or servicing debt.

[JSArbitrage]

I've bought some WFC, MSFT and LUK.  All three are 66c dollars IMO and I'd rather buy high quality, shareholder friendly 66c dollars than rummage some low-quality 50c dollars. 

 

I am currently looking at The Gap but haven't bought.  I think they have a high quality portfolio of brands and are selling at about 9 times earnings.  They are also very shareholder friendly: they've returned almost every dime of FCF over the last 6-7 years to shareholders in the form of either dividends or buybacks. 

 

The only problem is that I am asking myself why not just buy more WFC, MSFT or LUK at these valuations?

 

Other than that, I am very heavy in cash due to an upcoming special situation and a possibility of buying a home within the next 1-2 years.

[Uccmal]

regards

rijk

Schiller 10 year pe chart has been pulled out by some uber bears to indicate the mkt is not cheap. The kind of valuations that will make one pull the trigger using Schillers criteria come along not too often and an inordinate amount of money can be made buying individual companies that ARE cheap. Unless you are just buying the index it pays to pay little attention to Mr. Schillers data I have been able to compound my dough in the past 12 years at a mid teen rate investing in a mkt which has by his definition too expensive. Its a mkt of stocks as well as a stock market. I can find plenty that seems cheap enough to pull the trigger on days like today and hopefully tomorrow too. Using Schillers data you might only get one or two swings of the bat in ones lifetime.

 

too true... By this measure markets have been overvalued my entire investing career except a few days in Mar 09. Walter Schloss was always in the market with hundreds of stocks and had consistent 19-20% returns over nearly 50 years.  I dont buy the market. 

[Myth465]

 

too true... By this measure markets have been overvalued my entire investing career except a few days in Mar 09.

 

LOL Incredibly good point....

[alertmeipp]

how can we ignore the incredible low interest rate  - the funding cost to expand and grow a profitable business has never been this low.

 

 

[Uccmal]

Good point Alert, 

 

Extremely cheap debt issues have been done recently by JPM, GE, MSFT, Brk, and other large caps.  One needs only look at that particular list to see who will have outsize returns going forward.

[stahleyp]

FFBCW--someone wanted to sell me many at 4.25. Though I think we are recession-bound, this is thinly traded and difficult to buy in bulk. I will take them when I can get them. They have a strike of 12.80, expiring Dec 2018, with 100% payout of all income for foreseeable future(which further lowers conversion price).

 

I think these are intriguing as well. The bank is well managed and they are growing quite a bit. I live in Cincinnati and they are in the news quite a bit while taking over smaller banks. They are growing quite a bit during a bad time.

[Rabbitisrich]

Is anyone buying now, or waiting until Jackson Hole? I sold out of FRFHF and 1/3 of my hedges to build up some cash, buy more HHC and WFC, and to open a full position in BRK/B. I still have 7% in cash. Perhaps another opportunity will arise if friday is a disappointment.

[Packer16]

Sold some ACME and bought some BAC

 

Packer

[ourkid8]

I am the same, I stay away from shorting and using options as well.  Leverage is my only vice and I am trying to kick the habbit.  I have a 3-4 year plan to be debt free as I do allocate the majority of my salary towards debt repayment or investments. 

 

Thanks,

S

 

I have a Debt / Equity (asset) ratio of approximately 0.38.  I know it's rather high but I am a 30 year old who used a lot of leverage when I first started investing about 5 years ago and then doubled my leverage during Feb / March 09' crash to juice my returns!   

 

My goal is to reach zero leverage (In 3-4 years) as well but I honestly cannot help myself during these sell-offs!  ;D 

 

Thanks,

 

S

 

I'm 29, but was never attracted by leverage. I also don't short or use options. Guess it's a "keep it simple" thing.

[ERICOPOLY]

Schiller 10 year pe chart has been pulled out by some uber bears to indicate the mkt is not cheap. The kind of valuations that will make one pull the trigger using Schillers criteria come along not too often and an inordinate amount of money can be made buying individual companies that ARE cheap. Unless you are just buying the index it pays to pay little attention to Mr. Schillers data I have been able to compound my dough in the past 12 years at a mid teen rate investing in a mkt which has by his definition too expensive. Its a mkt of stocks as well as a stock market. I can find plenty that seems cheap enough to pull the trigger on days like today and hopefully tomorrow too. Using Schillers data you might only get one or two swings of the bat in ones lifetime.

 

too true... By this measure markets have been overvalued my entire investing career except a few days in Mar 09. Walter Schloss was always in the market with hundreds of stocks and had consistent 19-20% returns over nearly 50 years.  I dont buy the market.

 

What would the PE10 look like if you ignore the 2009 earnings?

 

Tossing out true outliers is something completely reasonable.

 

How much of an outlier was it?  Well, it was consistent with the lowest reported earnings of the 1940s (inflation adjusted).

 

http://www.multpl.com/s-p-500-earnings/

 

 

[bathtime]

Anyone buying BP? Can buy it at 15% less than Klarman. I'm wondering what the likelihood is of the dividend increasing dramatically once Macondo is in the rear view mirror. If the dividend was restored to its heights, the yield would be 9.2% (currently 4.6%). Based on S&P's projected 2012 earnings stock is trading at a forward P/E of 4. Book value is around $34/share I believe.

[PlanMaestro]

What would the PE10 look like if you ignore the 2009 earnings?

 

Tossing out true outliers is something completely reasonable.

 

How much of an outlier was it?  Well, it was consistent with the lowest reported earnings of the 1940s (inflation adjusted).

 

http://www.multpl.com/s-p-500-earnings/

 

+1, and I do not think people realize how the composition of the S&P 500 has evolved since the 70s (oil crisis) to business with better margins, ROI, and global growth prospects.

 

Invest bottom up, lots of opportunities in this market.

[gordoffh]

just bought some  have been adding to position in SD but thought maybe buying one of the big oils at this price would be a good bet  the yield isn't hard to take

[ERICOPOLY]

I think the PE10 will improve substantially over the next 2.5 years even without any market drop.  It's dealing with some depressed numbers that are about to wash out with time.

 

2002  $31.50

2003  $35.44

 

Suppose we use $80 in earnings average for 2011, 2012 and 2013.  That would be a big disappointment versus the consensus forecasts of over $100 for 2012 and 2013.

 

This would bring us to a 10 year average earnings of $68. 

 

So today's market is 17.39x trailing 2014 PE10 (using $80 forward earnings targets instead of $100 forward targets). 

 

And that figure includes the 2009 earnings of only $13.

 

[vinod1]

What would the PE10 look like if you ignore the 2009 earnings?

 

Tossing out true outliers is something completely reasonable.

 

How much of an outlier was it?  Well, it was consistent with the lowest reported earnings of the 1940s (inflation adjusted).

 

http://www.multpl.com/s-p-500-earnings/

 

+1, and I do not think people realize how the composition of the S&P 500 has evolved since the 70s (oil crisis) to business with better margins, ROI, and global growth prospects.

 

Invest bottom up, lots of opportunities in this market.

 

Good point. There had been two changes

 

(1) Change in composition of S&P 500. Earlier it was dominated by low margin businesses (Top 10 in 1960 were ATT, GM, Du Pont, Standard Oil, Union Carbine, Sears, Kodak, IBM, GE and Texas Company) but in the most recent years it was dominated by much higher margin business (Microsoft, PG, JNJ, Coke, etc).

 

(2) Change in profit margins of many of the competitively advantaged companies within S&P 500. For example, profit margins of PG, JNJ, Coke have significantly improved from what used to be the case in the 1960s and 1970s. PG used to have profit margins of about 6.3% between 1951-1970 but recently has about 13%. Even if 13% margins are not sustainable I would think something like 10% is more likely than the 6% of earlier years. This is representative of other competitively advantaged business in S&P 500.

 

The above two have to be balanced with the fact that overall profit margins are mean reverting. GMO and Hussman wrote about this extensively.

 

If we completely ignore profit margins we would be looking at $90+ normalized earnings for S&P 500 and if ignore the changes in composition of S&P 500 and treat increases within the constituent companies as temporary we are looking at slightly below $60 normalized earnings for S&P 500.

 

To me ignoring either does not make sense and think normalized earnings are more around $70 - $75 for S&P 500.

 

Vinod

[sswan11]

Interesting post on Yahoo Finance from AIG-WT board:

 

C warrants      9-May-11 08:38 am   

The following guest commentary was written by David Bunting and Brett Haire, the two principals of Brave Asset Management. Prior to starting BAM, they ran the Equity and Government Bond Trading departments at First Boston Corp. where they were responsible for warrant trading and corporate finance valuation.

 

Almost 2 years ago, on July 14th, 2009, we published a guest commentary piece on TheStreet called "Treasury Should Auction Bank Warrants." We think the attention called to the TARP warrant situation then saved the U.S. Taxpayer some serious money and allowed John Q. Public a very interesting investment opportunity.

 

Since then, over a dozen TARP warrants have been auctioned with generally benevolent results. However, the largest warrant auctions, (the A+B warrants for Citigroup>©), have not fared so well and in our opinion, represents an interesting opportunity. Sometimes gray hair and an appreciation for financial history pays dividends. We think this is one of those times. Think back to 1988. An unfriendly bank takeover of the Irving Trust Co. by the Bank of New York>(BK) had been consummated. To bridge a valuation gap, the consideration package included a 10 year non-callable warrant on BK.

 

Turn the clock ahead 20 years, and change the dynamics a little: The bank being taken over is Citigroup, the rescuer is John Q. Public and part of the consideration package, is once again, a 10 year non-callable warrant.

 

Mark Twain suggests that while history doesn't repeat itself, it does rhyme every once in awhile. Here are some interesting similarities between today's Citigroup warrant pricing and Bank of New York's 20 years ago:

 

* After issuance, both warrants suffered significant price erosion and market disdain;

 

* Ultimately, at its nadir, sometime in 1991, the Bank of New York warrants visited $1.00. Citigroup's B warrant at its recent low traded at 18 cents.

 

* Close to expiration, in 1998, the BK warrants traded higher than $200.00 / warrant

 

* From a valuation perspective, here are some relevant comparisons from when the BK warrants were trading at a buck:

 

...BKNYW.... C/ ws / B

 

Time to expiration.....7.5 years...7.5 years

 

Strike price.....$62.00.....$17.85

 

Common stock pric....$14.00...$4.56

 

Warrant price....$1.00.....$0.19

 

Common / Strike .....22.5%................25.5%

 

Warrant / Strike .......1.6%.................1.1%

 

In 1991, BK was not a ward of the country like Citigroup is today. However, benevolent economic and yield curve conditions, coupled with an exceptionally long life, propelled BK from almost single digit price levels to a split adjusted price of over $280.00.

 

This environment provided stupendous linear results for the warrants which moved them from $1.00 to well over $200.00. Can history repeat itself?

 

The U.S. Treasury was fiercely determined to nurse Citigroup back to health and rescue the banking system so... isn't it reasonable to assume that Citigroup with 7.5 years to go, could catch a similar break and enjoy some tailwinds that could also provide the warrant holders with huge BK like returns? Something to consider Patch

[Ross812]

Bathtime,

 

I bought a partial position in BP in the AM at $36 and sold the October $36 calls for $2.24. BP at $36 is really nice. $33.76 is even nicer and if I make 6% in 7 weeks I'll live with that. I look at somewhere around $29 as the absolute bottom for BP (price during the spill and when the dividend was canceled, lots of dividend funds were obligated to sell), but time will tell...

[CONeal]

Robbed a couple of banks and also picked up a couple of companies in the construction industry.  Was 30+% cash a couple of days ago, now it's down to something like 0.00123. :D

[Guest misterstockwell]

I am still awash in cash. No jobs. No growth. World is slowing. Europe will crater. Why hurry?

[Viking]

misterstockwell, I agree. I actually sold a few things the past week to lock in some smallish short term gains. Back to about 65% cash, 20% BRK and 15% MSFT, BMO, TEVA & GLW.

 

I expect the coming week to be very interesting; with people returning from holidays, volume and volatility should increase. I will be happy to pick up more BRK under $68. S&P below 1,000 will get me even more aggressive.

 

Having the kids back in school will also make it easier to focus, think and do research. My wife still doesn't understand why I can't multitask better (research an investment and be a dad at the same time).

 

:-)  I know... problems, problems!!  :)