What are you buying today?

[Hawks]

Bought some MDLZ today on weakness over last week or so. Anyone else buying this or has done some research?

[ItsAValueTrap]

For example, due to the fact that AMZN is trading at extremely inflated multiples for prolonged time, it is able to issue a small amount of equity to do a lot of things. The IV increase whenever it issues the equity at such extremely inflated multiples.

 

I'm not so sure about that.  During the dotcom bubble, they raise capital through debt when they could have sold stock.

 

Right not Amazon is buying back some shares.  Their share count went up a little over the past 10 years, but it hasn't really increased its IV by issuing lots and lots of stock.

[jay21]

Bought some MDLZ today on weakness over last week or so. Anyone else buying this or has done some research?

 

Here's the thread:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mdlz-mondelez/msg112645/#msg112645

[Hawks]

Thanks Jay. Appreciate it.

[ERICOPOLY]

 

 

There is only one intrinsic value.  Time will reveal it to us.

 

We have only prediction to rely on divining it's value.

 

But when? And how will we know when we are at intrinsic value, and that our intrinsic value estimate is the "true" intrinsic value?  :)

 

Berkshire's intrinsic value may very well be zero.  You don't know.  You have only prediction to rely on, and thus you will have better luck restricting your forecasting efforts to the relatively more predictable businesses.

 

Again, nothing brilliant in pointing out that "prediction" and "predictability" are related.  However, still some disagree!

[muscleman]

Rimm's "intrinsic value" is likely dropping....why would you buy more? People seem to assume that IV is fixed and certain while price is variable....but IV seems to be pretty variable when it comes to these tech stocks...

 

I disagree.  IV doesn't change.  Your perception of IV changes along the turbulent path of discovery.  You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing.  No.

 

To get the IV prediction accurate with a higher batting average, and thus fewer investment mistakes, stick to businesses that are more predictable.  (that's a "Duh" comment).

 

I guess that by definition of the term "predictable business", you then realize that your IV number is a "prediction of the business"... well, more of the obvious.

 

I would say IV changes in some cases and doesn't in other cases.

For example, due to the fact that AMZN is trading at extremely inflated multiples for prolonged time, it is able to issue a small amount of equity to do a lot of things. The IV increase whenever it issues the equity at such extremely inflated multiples. You can run some simple math. Suppose AMZN's book value is $10 per share, and it issues equity at $200 per share and doubles the share count, what is the book value now? It is $105 per share! Who can create value faster than this? Buffet clearly cannot! ;) Then if the market thinks OMG, AMZN is much cheaper now than before, buy a ton! Then the stock price will jump to maybe $400.

 

 

Those kind of companies' IV has little to do with BV and thus the effect on IV is much smaller. It's substantial but I don't see how they could exploit this forever. Do you have examples of extreme cases that were able to double share price a few times? I doubt they are out there and if they are it simply won't be for the capital injection but market perception of the company / simple momentum.

 

 

 

OT: Bought some ITM SD leaps.

 

Is CRM not a good example? They are making reckless acquisitions, so eventually they will go really bad.

But assume they can issue shares at such extreme multiples and have our champ ERICOPOLY on the board to manage all the acquisitions, won't you agree that over the past few years, their IV would be growing?

My point is, when these kinds of ridiculous companies trade at 100x IV, and they issue shares to acquire companies trading at 0.5x IV, doesn't this increase their own IV significantly?

[tombgrt]

Rimm's "intrinsic value" is likely dropping....why would you buy more? People seem to assume that IV is fixed and certain while price is variable....but IV seems to be pretty variable when it comes to these tech stocks...

 

I disagree.  IV doesn't change.  Your perception of IV changes along the turbulent path of discovery.  You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing.  No.

 

To get the IV prediction accurate with a higher batting average, and thus fewer investment mistakes, stick to businesses that are more predictable.  (that's a "Duh" comment).

 

I guess that by definition of the term "predictable business", you then realize that your IV number is a "prediction of the business"... well, more of the obvious.

 

I would say IV changes in some cases and doesn't in other cases.

For example, due to the fact that AMZN is trading at extremely inflated multiples for prolonged time, it is able to issue a small amount of equity to do a lot of things. The IV increase whenever it issues the equity at such extremely inflated multiples. You can run some simple math. Suppose AMZN's book value is $10 per share, and it issues equity at $200 per share and doubles the share count, what is the book value now? It is $105 per share! Who can create value faster than this? Buffet clearly cannot! ;) Then if the market thinks OMG, AMZN is much cheaper now than before, buy a ton! Then the stock price will jump to maybe $400.

 

 

Those kind of companies' IV has little to do with BV and thus the effect on IV is much smaller. It's substantial but I don't see how they could exploit this forever. Do you have examples of extreme cases that were able to double share price a few times? I doubt they are out there and if they are it simply won't be for the capital injection but market perception of the company / simple momentum.

 

 

 

OT: Bought some ITM SD leaps.

 

Is CRM not a good example? They are making reckless acquisitions, so eventually they will go really bad.

But assume they can issue shares at such extreme multiples and have our champ ERICOPOLY on the board to manage all the acquisitions, won't you agree that over the past few years, their IV would be growing?

My point is, when these kinds of ridiculous companies trade at 100x IV, and they issue shares to acquire companies trading at 0.5x IV, doesn't this increase their own IV significantly?

 

Oh yes of course. But that is assuming they actually do something valuable (even if overpaying) with the cash they get from issueing new shares. I assumed your hypothesis stopped after they issued shares. So they just hoard cash or use it for internal capex.

[indirect]

AOL actually did just that in dot com bubble by merging with Time Warner. However it was still overvalued.

[muscleman]

Rimm's "intrinsic value" is likely dropping....why would you buy more? People seem to assume that IV is fixed and certain while price is variable....but IV seems to be pretty variable when it comes to these tech stocks...

 

I disagree.  IV doesn't change.  Your perception of IV changes along the turbulent path of discovery.  You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing.  No.

 

To get the IV prediction accurate with a higher batting average, and thus fewer investment mistakes, stick to businesses that are more predictable.  (that's a "Duh" comment).

 

I guess that by definition of the term "predictable business", you then realize that your IV number is a "prediction of the business"... well, more of the obvious.

 

I would say IV changes in some cases and doesn't in other cases.

For example, due to the fact that AMZN is trading at extremely inflated multiples for prolonged time, it is able to issue a small amount of equity to do a lot of things. The IV increase whenever it issues the equity at such extremely inflated multiples. You can run some simple math. Suppose AMZN's book value is $10 per share, and it issues equity at $200 per share and doubles the share count, what is the book value now? It is $105 per share! Who can create value faster than this? Buffet clearly cannot! ;) Then if the market thinks OMG, AMZN is much cheaper now than before, buy a ton! Then the stock price will jump to maybe $400.

 

 

Those kind of companies' IV has little to do with BV and thus the effect on IV is much smaller. It's substantial but I don't see how they could exploit this forever. Do you have examples of extreme cases that were able to double share price a few times? I doubt they are out there and if they are it simply won't be for the capital injection but market perception of the company / simple momentum.

 

 

 

OT: Bought some ITM SD leaps.

 

Is CRM not a good example? They are making reckless acquisitions, so eventually they will go really bad.

But assume they can issue shares at such extreme multiples and have our champ ERICOPOLY on the board to manage all the acquisitions, won't you agree that over the past few years, their IV would be growing?

My point is, when these kinds of ridiculous companies trade at 100x IV, and they issue shares to acquire companies trading at 0.5x IV, doesn't this increase their own IV significantly?

 

Oh yes of course. But that is assuming they actually do something valuable (even if overpaying) with the cash they get from issueing new shares. I assumed your hypothesis stopped after they issued shares. So they just hoard cash or use it for internal capex.

 

Take a look at CRM for example. They keep acquiring smaller companies, and each quarter, Benioff brags about another "Incredible", or "Monster" quarter because of the revenue growth.

Normally this kind of companies won't just issue shares and hold the cash. They would issue shares to acquire smaller companies.

My hypothesis does not stop because this is a continuous process. After they issue shares and acquire smaller companies, their revenue grows and their share prices goes up. Then they can do this same thing again and again.

Eventually the boom will turn into bust because they can no longer find such smaller companies to buy to justify the growth, or because the smaller companies trade at higher multiples as well, or some crisis happens and their share price tanks.

[ERICOPOLY]

Rimm's "intrinsic value" is likely dropping....why would you buy more? People seem to assume that IV is fixed and certain while price is variable....but IV seems to be pretty variable when it comes to these tech stocks...

 

I disagree.  IV doesn't change.  Your perception of IV changes along the turbulent path of discovery.  You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing.  No.

 

To get the IV prediction accurate with a higher batting average, and thus fewer investment mistakes, stick to businesses that are more predictable.  (that's a "Duh" comment).

 

I guess that by definition of the term "predictable business", you then realize that your IV number is a "prediction of the business"... well, more of the obvious.

 

I would say IV changes in some cases and doesn't in other cases.

For example, due to the fact that AMZN is trading at extremely inflated multiples for prolonged time, it is able to issue a small amount of equity to do a lot of things. The IV increase whenever it issues the equity at such extremely inflated multiples. You can run some simple math. Suppose AMZN's book value is $10 per share, and it issues equity at $200 per share and doubles the share count, what is the book value now? It is $105 per share! Who can create value faster than this? Buffet clearly cannot! ;) Then if the market thinks OMG, AMZN is much cheaper now than before, buy a ton! Then the stock price will jump to maybe $400.

 

 

Those kind of companies' IV has little to do with BV and thus the effect on IV is much smaller. It's substantial but I don't see how they could exploit this forever. Do you have examples of extreme cases that were able to double share price a few times? I doubt they are out there and if they are it simply won't be for the capital injection but market perception of the company / simple momentum.

 

 

 

OT: Bought some ITM SD leaps.

 

Is CRM not a good example? They are making reckless acquisitions, so eventually they will go really bad.

But assume they can issue shares at such extreme multiples and have our champ ERICOPOLY on the board to manage all the acquisitions, won't you agree that over the past few years, their IV would be growing?

My point is, when these kinds of ridiculous companies trade at 100x IV, and they issue shares to acquire companies trading at 0.5x IV, doesn't this increase their own IV significantly?

 

The future is the future.  On a rolling basis, it is revealed.  Intrinsic value didn't change, you merely witnessed managerial actions that were part of a past future, and this were always reflected in IV. You merely updated you estimate based on revealed information.

 

To more accurately estimate IV, you need to listen to Buffett's list of what he looks for in an investment with low hurdle.

[muscleman]

Eric, are you arguing that if a business is trading at 100x IV, it doesn't change the future IV if it acquires another business trading at 0.5x IV, or 10x IV?

 

The other question I have is why did you just buy ITM LEAP for SD? I remember not a long time ago you mentioned that you did not understand drilling a hole into the ground, so you would not touch companies like SD?

 

[boilermaker75]

Rimm's "intrinsic value" is likely dropping....why would you buy more? People seem to assume that IV is fixed and certain while price is variable....but IV seems to be pretty variable when it comes to these tech stocks...

 

I disagree.  IV doesn't change.  Your perception of IV changes along the turbulent path of discovery.  You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing.  No.

 

To get the IV prediction accurate with a higher batting average, and thus fewer investment mistakes, stick to businesses that are more predictable.  (that's a "Duh" comment).

 

I guess that by definition of the term "predictable business", you then realize that your IV number is a "prediction of the business"... well, more of the obvious.

 

I would say IV changes in some cases and doesn't in other cases.

For example, due to the fact that AMZN is trading at extremely inflated multiples for prolonged time, it is able to issue a small amount of equity to do a lot of things. The IV increase whenever it issues the equity at such extremely inflated multiples. You can run some simple math. Suppose AMZN's book value is $10 per share, and it issues equity at $200 per share and doubles the share count, what is the book value now? It is $105 per share! Who can create value faster than this? Buffet clearly cannot! ;) Then if the market thinks OMG, AMZN is much cheaper now than before, buy a ton! Then the stock price will jump to maybe $400.

 

 

Those kind of companies' IV has little to do with BV and thus the effect on IV is much smaller. It's substantial but I don't see how they could exploit this forever. Do you have examples of extreme cases that were able to double share price a few times? I doubt they are out there and if they are it simply won't be for the capital injection but market perception of the company / simple momentum.

 

 

 

OT: Bought some ITM SD leaps.

 

Is CRM not a good example? They are making reckless acquisitions, so eventually they will go really bad.

But assume they can issue shares at such extreme multiples and have our champ ERICOPOLY on the board to manage all the acquisitions, won't you agree that over the past few years, their IV would be growing?

My point is, when these kinds of ridiculous companies trade at 100x IV, and they issue shares to acquire companies trading at 0.5x IV, doesn't this increase their own IV significantly?

 

The future is the future.  On a rolling basis, it is revealed.  Intrinsic value didn't change, you merely witnessed managerial actions that were part of a past future, and this were always reflected in IV. You merely updated you estimate based on revealed information.

 

To more accurately estimate IV, you need to listen to Buffett's list of what he looks for in an investment with low hurdle.

 

I think the future is more probabilistic than that. If you could restart today 100 times and let the future unfold, I think you would get 100 different futures and hence 100 different "IVs." Probably some very drastically different IVs. At any initial set of conditions, the best you can do is your best guess at the most probabilistic IV.

 

For instance, in 20 years the probability of BRK's IV being > $1 trillion might be 90%, but the probability that BRK is bankrupt might be 0.00001%. (I made up these numbers as I was typing.) So either might unfold, but I know where I am placing my bet.

[ERICOPOLY]

Eric, are you arguing that if a business is trading at 100x IV, it doesn't change the future IV if it acquires another business trading at 0.5x IV, or 10x IV?

 

The other question I have is why did you just buy ITM LEAP for SD? I remember not a long time ago you mentioned that you did not understand drilling a hole into the ground, so you would not touch companies like SD?

 

Now, I know you have powers of seeing the future with your $9 forecast on MBI, so now I worry that you are confusing a vision taken from one of these spirit talks with events already passed.  This worries me a little given that I truly know nothing about SD.  In truth, to date I have not purchased any calls on SD.

 

Back to the "argument" of mine, I continue to stand by the definition of "future", and that all present actions of management are incorporated in a past future.

 

I grew up on the words of the great philosopher Yoda, who effectively said "difficult to see is the future, always changing it is".  Buffett talks about one foot hurdles -- he knows we can only make an estimate of IV, thus one needs to be WISE about what to throw in the Too Hard pile.  Too hard to make a reasonably accurate prediction!

[constructive]

Is CRM not a good example? They are making reckless acquisitions, so eventually they will go really bad.

But assume they can issue shares at such extreme multiples and have our champ ERICOPOLY on the board to manage all the acquisitions, won't you agree that over the past few years, their IV would be growing?

My point is, when these kinds of ridiculous companies trade at 100x IV, and they issue shares to acquire companies trading at 0.5x IV, doesn't this increase their own IV significantly?

 

Realistically I think CRM is more like 5x IV, and their acquisitions are more like 2-3x IV. Not as much value creation, and the differential could dry up quickly.

[muscleman]

Eric, are you arguing that if a business is trading at 100x IV, it doesn't change the future IV if it acquires another business trading at 0.5x IV, or 10x IV?

 

The other question I have is why did you just buy ITM LEAP for SD? I remember not a long time ago you mentioned that you did not understand drilling a hole into the ground, so you would not touch companies like SD?

 

Now, I know you have powers of seeing the future with your $9 forecast on MBI, so now I worry that you are confusing a vision taken from one of these spirit talks with events already passed.  This worries me a little given that I truly know nothing about SD.  In truth, to date I have not purchased any calls on SD.

 

Back to the "argument" of mine, I continue to stand by the definition of "future", and that all present actions of management are incorporated in a past future.

 

I grew up on the words of the great philosopher Yoda, who effectively said "difficult to see is the future, always changing it is".  Buffett talks about one foot hurdles -- he knows we can only make an estimate of IV, thus one needs to be WISE about what to throw in the Too Hard pile.  Too hard to make a reasonably accurate prediction!

 

Oh, my apologies! I thought you bought some SD leaps, but after I flip back to the previous two pages, I found it was tombgrt who bought the leaps. :P

 

Yeah, I do have a $9 forecase for MBI. But given that I sold my MBI around $10 one week right before the settlement, I kicked myself really hard about that, so this time the forecast could be wrong again. :P

If you view the IV in this way, I think I kind of agree with you then. This means companies like AMZN and CRM will fall into the too hard pile, because it is very unlikely to figure out what kinds of acquisitions they will make, at what price, and what will their stock's multiple be at that time.

[muscleman]

AOL actually did just that in dot com bubble by merging with Time Warner. However it was still overvalued.

 

I am not using my explanation to justify purchase of AMZN or CRM. I am just trying to explain what is actually happening with these pumpers, and why their overvalued price may continue to be overvalued for a few more years.

On the other hand, if we can find a fairly valued or even undervalued company that may kick off this kinds of boom/bust cycle, then it will be a great time to buy. If this cycle does not get kicked off, we lose no money. If it does get kicked off, we may make a lot of money. I have a 7% position in NOV, and I am investigating more to see if NOV fits this boom/bust cycle.

[twacowfca]

In the last couple of weeks we've been buying more cash and more index puts.  Not much upside if the market goes up. but our portfolio could actually increase in value if the market takes a dive because of the quality of our main holdings.  :)

 

We threw in the towel yesterday and closed out most of our hedges at a relatively small loss because we obtained what we think is additional informed prior information to add to our Bayesian analysis to assess probabilities about where the market is headed in the future.  The answer is : we don't know.  There  is  substantial upside based on one body of prior outcomes and  substantial downside based on another body of prior outcomes.  In the meantime, it's quite possible that the market could tread water for a while.

[JBird]

What sort of inputs go into your Bayesian analysis?

[twacowfca]

What sort of inputs go into your Bayesian analysis?

 

One body of prior evidence is what typically happens at the end of a super credit cycle,  Reinhart and Rogoff , Richard Koo stuff.  The other body of evidence is what happens specifically in the US as the Fed starts to turn off the taps after a long period of easing when interest rates were  absolutely or relatively low, for example in the mid 1950's or in the mid 1990's.  In those cases, there was a rotation out of low yielding bonds as bond holders started to experience mark to market losses when interest rates began to rise.  Before long, some of  those funds found their way to a different asset class with a much  higher earnings yield that wasn't in a downtrend. Eventually, that led to bubbles, but in the meantime, the stock market doubled or tripled.  :)

 

Time will tell which storyline comes true.  Meanwhile, I think we will tone down speculating on the market direction in the absence of important, new information and hold stocks in great businesses that are attractively priced or otherwise hold cash.  Boring, Warren Buffett style investing.  :)

[CorpRaider]

Anyone starting to sniff around the (copper) miners?  I'm in no rush but am starting to gently tap the tires on RIO and SCCO.  Can't touch FCX anymore because I believe CEO used it as his personal piggy bank to bail out distressed E&P co's..

[alertmeipp]

I got in to Taseko mines.

[xxx1313]

I bought some shares of Nevsun Resources and Mawson West. Both low-cost producers, but with high political risk (Africa). Never saw stocks so cheap before on an EV/CF or EV/FCF basis!

[ericd1]

Anyone looking at coal mining?  KOL eft nearing 2009 lows.

[Palantir]

Do you guys try to diversify between sectors? I find good opportunities in tech (ORCL), but I'm already like 40% in technology....

[greenwave]

Anyone looking at coal mining?  KOL eft nearing 2009 lows.

----------

Eric -

What are your thoughts on WLT ?

 

As I understand it ,...they were hit hard by the market after reconsidering  & canceling their plans to refinance some of their near term debt ,... as they got caught up in the recent ramp up in their proposed bond offerings interest rates . (and of course Obama's new plans to "OVER-REGULATE" all coal powered energy plants  in the future ).

 

Just previous to that , there was very significant insider buying at ~$17 to $ 18  or so .

 

greenwave