What are you buying today?

[scorpioncapital]

DHR

[no_free_lunch]

GILD

 

This is way out of my circle of competence but it seems attractively priced at these levels.  If you read commentary on it, a lot of people just don't want to buy something that has declining revenue.  However, as is noted in the GILD thread, even if revenue fell 50% you could still justify the current stock price.  At some point revenue will stabilize..

[LowIQinvestor]

China Mobile ( CHL)

Silly cheap and growing dominant biz

[fareastwarriors]

a bit of UA.C

[philippoc93]

ISNS - I expect revenue to decline to steady and begin growing in 2017, expenses are under control and A.Berger owns just under 20%. He knows what he's doing and is the Executive Chairman of the board now

[boilermaker75]

GILD

 

This is way out of my circle of competence but it seems attractively priced at these levels.  If you read commentary on it, a lot of people just don't want to buy something that has declining revenue.  However, as is noted in the GILD thread, even if revenue fell 50% you could still justify the current stock price.  At some point revenue will stabilize..

 

I wrote some 70-strike puts yesterday.

[wachtwoord]

In the past 2 weeks I bough an initial position in BWEL (trying to get an annual report) and increased my holdings in PDER and SODI. I reduced NOV, OPST and ALS.TO

[Cardboard]

WEQ.TO

 

This will turn around with improved business conditions out West. Potential for asset sales is definitely there and they have a guy from the Dark Horse L.P. who now sits on the board.

 

Cardboard

[TwoCitiesCapital]

Reopened half the shorts in IWM that I closed after Trump's election. Also, reopened about 1/4 of my options position against the SPY. Still hesitant with all this talk of corporate tax reform, but there's no guarantee that it gets through (as likely as it seems) and that's still months out at a minimum giving me time to change my mind.

 

At the present, U.S. rates have sky-rocketed in the last two months and have/will result in a stronger dollar as long as this spread continued. A stronger dollar likely means a continuation of the longest earnings recessions on the book - at some point, people are going to wonder how stocks have gone up, from already lofty levels, if earnings have been contracting for 2-3 years now...

 

[John Hjorth]

... At the present, U.S. rates have sky-rocketed in the last two months and have/will result in a stronger dollar as long as this spread continued. A stronger dollar likely means a continuation of the longest earnings recessions on the book - at some point, people are going to wonder how stocks have gone up, from already lofty levels, if earnings have been contracting for 2-3 years now...

 

TwoCitiesCapital,

 

I'm not sure how to correctly understand the qouted part of your last post in this topic.

 

As always, your input is highly appreciated for my part.

 

Is this comment from you about an expectation of earnings are supposed to decline for US multinational companies - measured in USD, - that is, because of the USD going up relatively to other currencies?

[TwoCitiesCapital]

... At the present, U.S. rates have sky-rocketed in the last two months and have/will result in a stronger dollar as long as this spread continued. A stronger dollar likely means a continuation of the longest earnings recessions on the book - at some point, people are going to wonder how stocks have gone up, from already lofty levels, if earnings have been contracting for 2-3 years now...

 

TwoCitiesCapital,

 

I'm not sure how to correctly understand the qouted part of your last post in this topic.

 

As always, your input is highly appreciated for my part.

 

Is this comment from you about an expectation of earnings are supposed to decline for US multinational companies - measured in USD, - that is, because of the USD going up relatively to other currencies?

 

Yes. Corporate earnings in the U.S. have already been in their longest, unbroken downtrend in history...but no one has been concerned because it's been a pretty shallow earnings recession.

 

I expect that a strengthening dollar, and higher rates, will BOTH contribute to a continuous reduction in corporate profitability. Foreign revenues will be worth less, we'll export less, and rates will cut into profits as companies roll into higher coupon debt.

 

Eventually, a bunch of shallow reductions in corporate profits aggregate to a meaningful reduction. I would have thought we were already there, but I guess not. That being said, the trend of a stronger U.S. dollar doesn't look to end anytime soon - at least not while U.S. rates offer such an attractive spread to any other developed countries'.

 

The only thing I'm concerned about is the actuality of meaningful corporate tax reform which has the potential to have a large impact on bottom line earnings, which is why I initially covered my shorts when Trump was elected. (Glad I did!)

 

That being said, I don't think corporate tax reform is a given, even with a Republican Congress, and so I'm growing more comfortable shorting again based on my view that U.S. equities are grossly overvalued relative to historical norms and other opportunities present.

[philippoc93]

Reopened half the shorts in IWM that I closed after Trump's election. Also, reopened about 1/4 of my options position against the SPY. Still hesitant with all this talk of corporate tax reform, but there's no guarantee that it gets through (as likely as it seems) and that's still months out at a minimum giving me time to change my mind.

 

At the present, U.S. rates have sky-rocketed in the last two months and have/will result in a stronger dollar as long as this spread continued. A stronger dollar likely means a continuation of the longest earnings recessions on the book - at some point, people are going to wonder how stocks have gone up, from already lofty levels, if earnings have been contracting for 2-3 years now...

 

That macro play makes sense in this current environment. A few questions if you don't mind answering?

 

1) What length contracts are you using? LEAPS or options?

2) How do you select your strike price? Do you base it off a 10%,15%,20% decline or is it a certain return you are looking for?

3) What percent of your portfolio do you attribute to this?

4) Finally, do you view this as insurance for your long portfolio or are you using a barbell approach?

 

Thanks a lot. I'm still learning about options and it's only my first year to properly running my own portfolio. Still saving up the funds to have enough to utilise options effectively.

[TwoCitiesCapital]

Reopened half the shorts in IWM that I closed after Trump's election. Also, reopened about 1/4 of my options position against the SPY. Still hesitant with all this talk of corporate tax reform, but there's no guarantee that it gets through (as likely as it seems) and that's still months out at a minimum giving me time to change my mind.

 

At the present, U.S. rates have sky-rocketed in the last two months and have/will result in a stronger dollar as long as this spread continued. A stronger dollar likely means a continuation of the longest earnings recessions on the book - at some point, people are going to wonder how stocks have gone up, from already lofty levels, if earnings have been contracting for 2-3 years now...

 

That macro play makes sense in this current environment. A few questions if you don't mind answering?

 

1) What length contracts are you using? LEAPS or options?

2) How do you select your strike price? Do you base it off a 10%,15%,20% decline or is it a certain return you are looking for?

3) What percent of your portfolio do you attribute to this?

4) Finally, do you view this as insurance for your long portfolio or are you using a barbell approach?

 

Thanks a lot. I'm still learning about options and it's only my first year to properly running my own portfolio. Still saving up the funds to have enough to utilise options effectively.

 

1) I typically shoot for a minimum of 12M maturities and roll them 6-9 months in if I'm still paranoid.

2) Once the position is a full position, I'll have multiple strike prices. Seems odd to me that I'd have options that profited at a 50% decline, but nothing that profited from a 20-30% decline on the way. I start off with strikes 10-20% below current prices and that is where about 30-50% of the options position will be. Then, there will be positions in options 10-15% below and sized a bit smaller. Then positions in ones that are 10-20% below that and a bit smaller.

 

The idea is that once markets start dropping, I can roll high strike prices into lower strike. This allows me to take some money off the table while increasing the downside leverage of the position at the same time. Helps you survive a bit longer if you're wrong about the timing/size of the decline since at any given time you're reducing your total $ at risk but increasing your total short notional so you still make big money in a big decline.

 

I've still lost some money over the past 2 years of hedging like this, but not as much as I would have by not actively rolling the contracts lower as markets tumbled and taking $ off the table.

 

3) Last time I had a "full" position I was about 6-7% straight short the IWM. The total $ amount in LEAPS was an additional 2-3%, but the delta adjusted notional was another 20-25% short - so about 30% of my portfolio was short IWM/SPY.

 

4) I tend to view it as a barbell approach. The long-side of my portfolio is all EM/resources/Financials/Fairfax and Fairfax isn't hedging like it used to be.

 

[Guest Schwab711]

ORI

[John Hjorth]

... At the present, U.S. rates have sky-rocketed in the last two months and have/will result in a stronger dollar as long as this spread continued. A stronger dollar likely means a continuation of the longest earnings recessions on the book - at some point, people are going to wonder how stocks have gone up, from already lofty levels, if earnings have been contracting for 2-3 years now...

 

TwoCitiesCapital,

 

I'm not sure how to correctly understand the qouted part of your last post in this topic.

 

As always, your input is highly appreciated for my part.

 

Is this comment from you about an expectation of earnings are supposed to decline for US multinational companies - measured in USD, - that is, because of the USD going up relatively to other currencies?

 

Yes. Corporate earnings in the U.S. have already been in their longest, unbroken downtrend in history...but no one has been concerned because it's been a pretty shallow earnings recession.

 

I expect that a strengthening dollar, and higher rates, will BOTH contribute to a continuous reduction in corporate profitability. Foreign revenues will be worth less, we'll export less, and rates will cut into profits as companies roll into higher coupon debt.

 

Eventually, a bunch of shallow reductions in corporate profits aggregate to a meaningful reduction. I would have thought we were already there, but I guess not. That being said, the trend of a stronger U.S. dollar doesn't look to end anytime soon - at least not while U.S. rates offer such an attractive spread to any other developed countries'.

 

The only thing I'm concerned about is the actuality of meaningful corporate tax reform which has the potential to have a large impact on bottom line earnings, which is why I initially covered my shorts when Trump was elected. (Glad I did!)

 

That being said, I don't think corporate tax reform is a given, even with a Republican Congress, and so I'm growing more comfortable shorting again based on my view that U.S. equities are grossly overvalued relative to historical norms and other opportunities present.

 

Thank you for your reply here, TwoCitiesCapital,

 

At least to me, it makes sense. In the portfolios that I manage for family members and myself, BRK was grown within a relative short time span from beeing a ~20% position to beeing a ~25% position. For me, that's not only about BRK has run up quite a bit lately, but also about BRK beeing a company - still - primarily doing business in the US, and the USD/EUR exchange rate has surged quite a bit lately.

 

My functional currency - also related to investment performance - is DKK, closely related to EUR [+/-2.25%].

 

I have posted questions about the definition of "your investment universe" in another topic on this board lately to my fellow board members. I think I really need to do some kind of work on  this going forward - in the beginning of 2017, to get some kind of overview - for my part.

[Ballinvarosig Investors]

Don't know about you guys, but I have mostly been cutting/trimming positions in oil and financials over the last two weeks. I was 35% cash before the election and since then my portfolio which is heavily weighted towards financials has just been unreal. I wish I could say that I was an investing genius and that I foresaw the value in major holdings I have like Wells Fargo, Lloyds and Uniqa, but the reality is that I have been at least partly lucky. The uplift we're seeing in financials is mainly due to a shift in sentiment in the treasury market. When I look back at the write-up's I did on the financial companies I own, while I did say an insurance company like Uniqa were getting killed by long-term bond yields wrecking returns on their investment portfolio, it was never core or central to my investing thesis. Same thing happened with the two oil stocks I own. I was mostly going by the value of the assets, then OPEC come out and announce a production cut, whoosh the stocks go up. I recommend that everyone reviews what Mauboussin had to say about investors confusing luck with skill in order to keep themselves grounded.

 

https://www.bloomberg.com/view/articles/2016-08-16/michael-mauboussin-on-skill-and-luck

 

FWIW and I know this will not be popular to say, I think the US market in particular is now grossly over valued. You only need to look at large cap American stocks and their European counter-parts to see the extreme divergence. For example, take a look at Nestle and Kraft Heinz. We all know the story here, two huge companies in similar established industries with limited growth prospects. The divergence in valuation makes no sense to me and that is why I am nearly 50% cash.

[DooDiligence]

I'm guessing that superior skill minimizes downside risk & luck contributes greatly to gains (the timing of other market participants becoming as enamored of our ideas as we are is impossible to forecast...)

 

I'm not claiming superior skills but I hope to obtain them by reading & talking with COBF members!

[no_free_lunch]

For example, take a look at Nestle and Kraft Heinz. We all know the story here, two huge companies in similar established industries with limited growth prospects. The divergence in valuation makes no sense to me and that is why I am nearly 50% cash.

 

Since I am just starting to research Nestle I would discuss this.  Aren't the 2 valued similarly?  Their PE's are both around 22-24.  It looks like Heinz might be 10% or so more expensive but on the surface I don't see a huge variance.  Maybe I am missing something.

[John Hjorth]

 

... FWIW and I know this will not be popular to say, I think the US market in particular is now grossly over valued. You only need to look at large cap American stocks and their European counter-parts to see the extreme divergence. For example, take a look at Nestle and Kraft Heinz. We all know the story here, two huge companies in similar established industries with limited growth prospects. The divergence in valuation makes no sense to me and that is why I am nearly 50% cash.

 

Yes, it is actually striking. P/E ~26 for NSRGY, P/E ~38 for KHC. [Not sure I have got it right with KHC though].

[StevieV]

I would like to own Nestle at the right price.  Even if less than Heinz, it is too expensive for my tastes.

[DooDiligence]

 

... FWIW and I know this will not be popular to say, I think the US market in particular is now grossly over valued. You only need to look at large cap American stocks and their European counter-parts to see the extreme divergence. For example, take a look at Nestle and Kraft Heinz. We all know the story here, two huge companies in similar established industries with limited growth prospects. The divergence in valuation makes no sense to me and that is why I am nearly 50% cash.

 

Yes, it is actually striking. P/E ~26 for NSRGY, P/E ~38 for KHC. [Not sure I have got it right with KHC though].

 

Yeah; that 22 PE on KHC is forward & not trailing.

 

They both seem to have similar debt levels (which I really like, especially in comparison to Colgate & P&G which are levered.) (I also prefer Nestle & KHC's product lineups in comparison to P&G & CL)

 

The price difference is probably the 3G/WEB halo effect (since I'm in Nestle, there's no halo there...)

 

I got no fancy analysis other than: Gerber, Ralston Purina, Digiorno, Tombstone, Stoufers, Lean Cuisine, Haagen Daz, Nescafe, Nespresso & more, combined with global distribution makes me hope for my tiny defensive position in Nestle to drop to half its value so I could triple up for a decade or more of "leben auf der Alp..."

[philippoc93]

ORI

 

Thanks for the reply on that TwoCities

 

 

[John Hjorth]

A bit more SCHO.CPH.

[frommi]

Sold WFC/MSM and bought MON.

[LowIQinvestor]

I'm up to my eyeballs in CHINA MOBILE ( CHL)

 

It gets cheaper every day!  ::)