Frustrating market

[Kiltacular]

Some absolutely terrific posts in this thread.  The info. / outlook from our friends giofranchi and txitxo in Italy and Spain, respectively, is (for me) as good [read: better] than I've gotten anywhere.

 

In particular, txitxo's read on how the Euro must play out for Germany / Spain / Italy has been terrific.

 

Of course, Packer has smartly asked for some names from txitxo and he'll be the one that makes money from this thread.  :D

 

My approach is more like gio's.

 

Nevertheless, I very much enjoy these international outlooks...please keep them coming (wherever you live).

[giofranchi]

  Well, I just think, as Templeton said, that you should try to buy "at the point of maximum pessimism", at at least as close to it as you dare to get...

 

I understand, and I have learnt by heart Mr. Templeton’s teachings! But I cannot believe in contrarianism for contrarianism sake… I MUST always understand what I am doing. The idea of circle of competence always comes first for me, even before the idea of contrarianism…

 

Yet, here I must again make a distinction between trading and investing. Basically, I look at trading as a zero sum game: someone exploits someone else’s mistakes, while no true wealth is created, beyond the one that already exists. My idea of investing, instead, is finding an asset with the potential to create much wealth in the future, and keeping that asset until its full potential has been exploited. Trading is much more short-term, because valuation mistakes tend to be corrected in 1 or 2 years. Investing, instead, is more long-term, because even the best of operations need time to create lasting wealth.

So, if you trade, contrarianism really could be your best friend! In a year or two anything could happen! Actually, even if a depressed stock deserves to be depressed (because it really is a bad business!), in the short-term you could count on the market to make the opposite mistake and bid the price of its stock up! ;) An oversold condition truly tends to be bought, while an overbought condition truly tends to be sold… so, a shrewd trader might make a lot of money that way!

Investing is different: if you invest, you must understand the quality of the operations you are buying, and the quality of the people you are partnering with. Contrarianism might be useful just as a very attractive entry point.

 

Of course, also investing, to be successful, must rely on some sort of mistake, but I call it a “judgment” mistake, instead of a “valuation” mistake. Entrepreneurs (read investors) recognize value where other people don’t see anything. That’s why they tend in general to create wealth and theirs is not a zero sum game. Furthermore, that’s why I usually like investing much more than trading: because “judgment” mistakes tend to be much bigger than “valuation” mistakes, even if they are much less frequent, and even if they take much more time to be “revealed” and corrected. That’s why you could have invested only once in Berkshire in the early ‘70s and compounded your capital at a 20% annual rate, while a million trading decisions in the meantime would hardly have achieved the same result.

 

giofranchi

[txitxo]

Some absolutely terrific posts in this thread.  The info. / outlook from our friends giofranchi and txitxo in Italy and Spain, respectively, is (for me) as good [read: better] than I've gotten anywhere.

 

In particular, txitxo's read on how the Euro must play out for Germany / Spain / Italy has been terrific.

 

Of course, Packer has smartly asked for some names from txitxo and he'll be the one that makes money from this thread.  :D

 

My approach is more like gio's.

 

Nevertheless, I very much enjoy these international outlooks...please keep them coming (wherever you live).

 

Thanks. As most people here, I've learned a lot from this board, so I'm glad if somebody finds useful how we see things from the ground...

[giofranchi]

In late 2012 I purchased BARRATT DEVELOPMENTS PLC ORD GBP0.10 for 1.88 pounds. It's now about 3.20.

 

Great trade, Ron! Congratulations!! ;)

 

Hmmm… I must absolutely enlarge my circle of competence… the more I read the posts on this board, the more I realize that mine is a minuscule, almost invisible to the naked eye!, circle of competence…

 

giofranchi

 

[txitxo]

 

I understand, and I have learnt by heart Mr. Templeton’s teachings! But I cannot believe in contrarianism for contrarianism sake… I MUST always understand what I am doing. The idea of circle of competence always comes first for me, even before the idea of contrarianism…

 

Yet, here I must again make a distinction between trading and investing. Basically, I look at trading as a zero sum game: someone exploits someone else’s mistakes, while no true wealth is created, beyond the one that already exists. My idea of investing, instead, is finding an asset with the potential to create much wealth in the future, and keeping that asset until its full potential has been exploited. Trading is much more short-term, because valuation mistakes tend to be corrected in 1 or 2 years. Investing, instead, is more long-term, because even the best of operations need time to create lasting wealth.

So, if you trade, contrarianism really could be your best friend! In a year or two anything could happen! Actually, even if a depressed stock deserves to be depressed (because it really is a bad business!), in the short-term you could count on the market to make the opposite mistake and bid the price of its stock up! ;) An oversold condition truly tends to be bought, while an overbought condition truly tends to be sold… so, a shrewd trader might make a lot of money that way!

Investing is different: if you invest, you must understand the quality of the operations you are buying, and the quality of the people you are partnering with. Contrarianism might be useful just as a very attractive entry point.

 

Of course, also investing, to be successful, must rely on some sort of mistake, but I call it a “judgment” mistake, instead of a “valuation” mistake. Entrepreneurs (read investors) recognize value where other people don’t see anything. That’s why they tend in general to create wealth and theirs is not a zero sum game. Furthermore, that’s why I usually like investing much more than trading: because “judgment” mistakes tend to be much bigger than “valuation” mistakes, even if they are much less frequent, and even if they take much more time to be “revealed” and corrected. That’s why you could have invested only once in Berkshire in the early ‘70s and compounded your capital at a 20% annual rate, while a million trading decisions in the meantime would hardly have achieved the same result.

 

giofranchi

 

  Gio, you seem to equate trading with speculation. Since this is becoming a discussion about morals, I am going to quote The Book: "Investing as an operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative". Written by the same guy who, after a lifetime of investing, decided to invent mechanical investing and abandon G&D investing.

 

I really don't know who contributes more to the economy...the person who allocates capital to an obscure, struggling but deserving small cap...or the person holding the coattails of great investors? It is outside of my circle of competence...

 

 

 

[giofranchi]

  Gio, you seem to equate trading with speculation. Since this is becoming a discussion about morals, I am going to quote The Book: "Investing as an operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative". Written by the same guy who, after a lifetime of investing, decided to invent mechanical investing and abandon G&D investing.

 

I really don't know who contributes more to the economy...the person who allocates capital to an obscure, struggling but deserving small cap...or the person holding the coattails of great investors? It is outside of my circle of competence...

 

Not at all! Imo, speculation is something yet different. Speculation is the belief that someone will buy me out at an higher price… because of a trend, because of a fad, because of momentum, etc., but NOT because I have recognized a mistake and I am correcting it!

 

The way I see speculation: somone will buy me out at a higher price, irrespective of "valuation" or "business judgment".

 

The way I see trading, a “valuation” mistake is being addressed.

 

The way I see investing, a “business judgment” mistake is being addressed.

 

I have no idea which among speculation, trading, or investing contributes more to the economy… sincerely, I don’t care.

My only point was to emphasize when contrarianism might be (almost) always very useful and effective: and I think it is when you are addressing a “valuation” mistake, when you are trading.

 

By my idea of speculation, if you think of it for a moment, contrarianism might be even less useful to the speculator, than it is to the investor! :)

 

giofranchi

 

[txitxo]

  Gio, you seem to equate trading with speculation. Since this is becoming a discussion about morals, I am going to quote The Book: "Investing as an operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative". Written by the same guy who, after a lifetime of investing, decided to invent mechanical investing and abandon G&D investing.

 

I really don't know who contributes more to the economy...the person who allocates capital to an obscure, struggling but deserving small cap...or the person holding the coattails of great investors? It is outside of my circle of competence...

 

Not at all! Imo, speculation is something yet different. Speculation is the belief that someone will buy me out at an higher price… because of a trend, because of a fad, because of momentum, etc., but NOT because I have recognized a mistake and I am correcting it!

 

The way I see speculation: somone will buy me out at a higher price, irrespective of "valuation" or "business judgment".

 

The way I see trading, a “valuation” mistake is being addressed.

 

The way I see investing, a “business judgment” mistake is being addressed.

 

 

  All value investing is, by definition, about valuation mistakes. Mr Market can be wrong about the assets (deep value, cigar butts, etc.), about the growth prospects (moats, quality, etc.) or about both. When that happens, there is a higher than average probability (not a certainty) that the price of the stock will go up. You can identify cheap companies by "human" inspection, or by using statistical indicators, which tend to work better in many areas. And that's all there is to it.

 

  Of course, sometimes people need to add some narrative, even mystic, to increase conviction, fight biases, etc. That's OK if it works. But that doesn't change the essence of the process. 

 

 

 

[rjstc]

In late 2012 I purchased BARRATT DEVELOPMENTS PLC ORD GBP0.10 for 1.88 pounds. It's now about 3.20.

 

Great trade, Ron! Congratulations!! ;)

 

Hmmm… I must absolutely enlarge my circle of competence… the more I read the posts on this board, the more I realize that mine is a minuscule, almost invisible to the naked eye!, circle of competence…

 

giofranchi

 

Giofranchi; I shamelessly stole this idea along with EXOR, and BMW preferred from an online value conference held online from Europe late last year. Also one on Japanese stocks where some very good ideas came up that I have taken advantage of. For the largest bulk of my funds I do somewhat like you do. Pick smart allocators, put money with them, then sit back and let them work their magic over a long period of time.

[giofranchi]

  All value investing is, by definition, about valuation mistakes. Mr Market can be wrong about the assets (deep value, cigar butts, etc.), about the growth prospects (moats, quality, etc.) or about both. When that happens, there is a higher than average probability (not a certainty) that the price of the stock will go up. You can identify cheap companies by "human" inspection, or by using statistical indicators, which tend to work better in many areas. And that's all there is to it.

 

  Of course, sometimes people need to add some narrative, even mystic, to increase conviction, fight biases, etc. That's OK if it works. But that doesn't change the essence of the process.

 

Yes, I agree!

Yet, I find a difference between saying “ok, this company is selling below liquidation value, it is worth more dead than alive, I will put 2% of my assets in it, and I will build a portfolio of 50 stocks all with the same characteristics” , and saying “this company can grow BV per share at (choose a number) % annual for the next 10 to 15 years, I know just a few businesses in which I can put the same confidence, and I will concentrate my assets in those few businesses”.

The first sentence requires almost no business judgment, it just requires statistical cheapness and diversification. The second one, instead, requires a lot of business reasoning.

And, please, don’t misunderstand me. I want to make this very clear: what you have called “riding the coattails of great investors” might sound to the trader a bit detrimental… to the businessman, instead, shrewd allocation of capital is the number 1 feature he always wants, no requires!, to see in any enterprise. No matter what the enterprise engages in doing or producing, without a CEO who constantly thinks about the maximization of ROIC, the businessman should stay away. Because strategic thinking about capital and resources allocation by the CEO is the number one predictive element hands-down!

 

giofranchi

 

[Uccmal]

Very good thread.  Its really nice getting local colour. 

 

Looking at depressed preferred shares where the dividend may have been suspended, or not, is there anything coming up in Spain or Italy.  I did extremely well with RBS preferreds in a similar situation.

 

 

[Palantir]

I'm happy the market is up, but now I feel like I should be selling something.....

[cogitator99]

I'm happy the market is up, but now I feel like I should be selling something.....

 

And how do you feel now Palantir?