Market Concerns anyone?

[ERICOPOLY]

Yellen says stocks are not in a bubble:

 

http://blogs.wsj.com/moneybeat/2013/11/14/yellen-on-stocks-this-isnt-a-bubble/

 

When asked specifically whether there is a federal role to support the stock market, Ms. Yellen provided a one-word answer: “No.”

[stahleyp]

Thanks for the link, Eric.

 

Admittedly,  I am somewhat comforted by the first sentence.

 

"Famous last words?"

 

It seems that everyone "knows" the market will crash when QE stops. Everyone also knew interest rates would be up by now in 2008/2009.

 

 

[alertmeipp]

Fed is helping ppl de-leveraging by devaluing the currency and creating liquidity. As a side result, all hard, earning generating assets should appreciate. I think they want weaker USD too.

[LC]

Fed is helping ppl de-leveraging by devaluing the currency and creating liquidity. As a side result, all hard, earning generating assets should appreciate. I think they want weaker USD too.

 

I agree. The only sensible result of QE I have seen is to inflate away debt or refinance at super low rates. Supporting the market or providing credit for economic growth is IMHO a more speculative perspective on the situation.

[Lance]

Yes, I'm more concerned now than I was this time last year.  However, I'm not buying bonds or going to cash, particularly after hearing Yellen's statements today.  I've been adding FFH and am selling more calls than puts.  Will probably add to a few of the gold miners I hold (GG and NEM) and might make an additional purchase into the Tocqueville Gold fund (TGLDX).  Also, I've increased my purchases into EM and Europe and decreased purchases in the U.S. in my 401k. 

 

Thanks

Lance

[giofranchi]

Nostradamus looked to the future, I am looking at the ground right under my feet.

 

Unfortunately, with a huge bank like BAC even the ground under my feet seems blurry to me… And honestly I cannot say if it is solid rock or quicksand… Just do once again something stupid like the Countrywide acquisition or the Merrill Lynch acquisition, and we go from solid rock to quicksand in a matter of days… Without great confidence in its management, I cannot invest… No matter what the reward might be.

 

Gio

 

[Uccmal]

Premfan said:

 

"I'm a bit concerned about how obamacare is going to affect profit margins. Besides that i feel the markets are reasonable."

 

Isn't it just a matter of going where the money is.  Obamacare should be net neutral to the overall economy.  Most of the s&p 500 companies already had plans in place for their staff, so I dont see it costing them much extra.  Certainly, the banks should be okay since they dont rely on a lower echelon supply chain as much as automakers or manufacturers do. 

 

 

[Uccmal]

In general I have been reducing positions and keeping out of debt.  I dont think we are far from a significant correction.  Markets just dont go up indefinitely. 

 

I dont expect it will be the debt ceiling.  My take is the Tea Party lost the last round, and they are done forever as a political force.  Corporations and Chambers of commerce have turned against them and are extorting the GOP to get the Tea Party in line.  So I anticipate the debt limits will just be passed. 

 

All that being said, I think it will be a correction, rather than a full blown bear market and recession.  From an economic perspective we are barely out of recession in North America, and other parts of the world are still there. 

[giofranchi]

All that being said, I think it will be a correction, rather than a full blown bear market and recession. 

 

I think even a market correction might be dangerous, because cannot exclude it could turn into a crash: as soon as the markets realize central banks cannot control prices indefinitely, all bets are off… at least, that’s how I see it!

 

Gio

 

[ERICOPOLY]

Nostradamus looked to the future, I am looking at the ground right under my feet.

 

Unfortunately, with a huge bank like BAC even the ground under my feet seems blurry to me… And honestly I cannot say if it is solid rock or quicksand… Just do once again something stupid like the Countrywide acquisition or the Merrill Lynch acquisition, and we go from solid rock to quicksand in a matter of days… Without great confidence in its management, I cannot invest… No matter what the reward might be.

 

Gio

 

 

Well, pick up a newspaper -- the banks can't make any acquisitions if they hold more than 10% of the deposits.

 

Fairfax however, can.  You want to read up on the C&F and TIG post-acquisition epoch.

[giofranchi]

Well, pick up a newspaper -- the banks can't make any acquisitions if they hold more than 10% of the deposits.

 

Well, I guess the rules of the game are constantly changing… I don’t like to think about rules that regulate a business as the reason why management won’t make big mistakes in the future… I much prefer to have faith in management’s process and abilities… But that’s me and only me! Just wanted to explain why I have such an hard time investing in BAC and others.

 

Gio

 

[rkbabang]

Well, pick up a newspaper -- the banks can't make any acquisitions if they hold more than 10% of the deposits.

 

Well, I guess the rules of the game are constantly changing… I don’t like to think about rules that regulate a business as the reason why management won’t make big mistakes in the future… I much prefer to have faith in management’s process and abilities… But that’s me and only me! Just wanted to explain why I have such an hard time investing in BAC and others.

 

You certainly aren't the only one who has been afraid of financial stocks since 2008, but where their is widespread fear there is opportunity. I'm too lazy to look up the exact wording, but you know the quote: Be greedy when others are fearful...

 

[hyten1]

gio, i hear your concern about banks especially of BAC's size.

 

however don't insurance company have similar risk to banks? its not like you are talking about MCD or PG.

 

insurance company and banks have very similar characteristics (take money in, get a return on that money)

 

i for one actually like banks better than insurance companies.

 

- Banks once they have low cost of funding (which can easily be determine and many of the big ones do, especially ones WEB likes etc.) all you have to worry about is the loan side of the equation

- insurance company on the other  hand, you really have to worry about both side and potential catastrophic disaster (obviously this does not apply to all insurance companies).

 

jmho

 

hy

 

EDIT: forgot one important thing, both take on leverage (this is important) :)

 

Well, pick up a newspaper -- the banks can't make any acquisitions if they hold more than 10% of the deposits.

 

Well, I guess the rules of the game are constantly changing… I don’t like to think about rules that regulate a business as the reason why management won’t make big mistakes in the future… I much prefer to have faith in management’s process and abilities… But that’s me and only me! Just wanted to explain why I have such an hard time investing in BAC and others.

 

Gio

[giofranchi]

You certainly aren't the only one who has been afraid of financial stocks since 2008, but where their is widespread fear there is opportunity. I'm too lazy to look up the exact wording, but you know the quote: Be greedy when others are fearful...

 

You are definitely right! And I am sure Eric made a killing with BAC and will go on making a ton of money! Yet, I will keep doing only the things I think I understand. No matter the possible reward that I see… If I don’t understand something, I stay away. With a time horizon of 40+ years I think the best risk management tool is to do ONLY what you think you understand. You will make mistakes anyway, but chances are they will be small enough and far in between. To play the game for 40+ years, concentrating on making the smallest number of errors possible, though won’t get you rich quickly, is imo the surest way to gradually build such a wealth, that not many in the end will be able to match.

 

Gio

 

[Uccmal]

Nostradamus looked to the future, I am looking at the ground right under my feet.

 

Unfortunately, with a huge bank like BAC even the ground under my feet seems blurry to me… And honestly I cannot say if it is solid rock or quicksand… Just do once again something stupid like the Countrywide acquisition or the Merrill Lynch acquisition, and we go from solid rock to quicksand in a matter of days… Without great confidence in its management, I cannot invest… No matter what the reward might be.

 

Gio

 

 

Well, pick up a newspaper -- the banks can't make any acquisitions if they hold more than 10% of the deposits.

 

Fairfax however, can.  You want to read up on the C&F and TIG post-acquisition epoch.

 

To fully understand FFh one needs to read all of the annual reports in detail.  Look for Midland Walwyn; the Lindsey, Morden, Helwig Cunningham saga.  At least go on with eyes wide open. 

[ERICOPOLY]

Well, pick up a newspaper -- the banks can't make any acquisitions if they hold more than 10% of the deposits.

 

Well, I guess the rules of the game are constantly changing… I don’t like to think about rules that regulate a business as the reason why management won’t make big mistakes in the future… I much prefer to have faith in management’s process and abilities… But that’s me and only me! Just wanted to explain why I have such an hard time investing in BAC and others.

 

Gio

 

I like to know that it's illegal for them to make another acquisition.  Faith is all you can go with sometimes, but in this case it's not necessary to have any faith.  You have law!  This also changes the culture, as the guys who get their jollies from making deals have been leaving the company (Moynihan recently commented on this).  They can only grow organically, it's brilliant!

 

Even Prem & his team reached for faster growth when they acquired TIG and C&F.  Once bitten twice shy, or are acquisitions in their very nature.  They are deal makers... the very name of the company is Fair and Friendly Acquisitions.

[giofranchi]

gio, i hear your concern about banks especially of BAC's size.

 

however don't insurance company have similar risk to banks? its not like you are talking about MCD or PG.

 

insurance company and banks have very similar characteristics (take money in, get a return on that money)

 

i for one actually like banks better than insurance companies.

 

- Banks once they have low cost of funding (which can easily be determine and many of the big ones do, especially ones WEB likes etc.) all you have to worry about is the loan side of the equation

- insurance company on the other  hand, you really have to worry about both side and potential catastrophic disaster (obviously this does not apply to all insurance companies).

 

jmho

 

hy

 

In fact, I have said “I think I understand”, not “I am sure I understand”… And I admitted I will make mistakes… If I were sure about something, I wouldn’t expect any error, would I? Therefore, let’s say that I think I understand FFH much better than I understand BAC, or even MCD and PG. Because I think I understand where management is steering the boat with FFH, while I clearly don’t know for the great majority of other companies, be it BAC, MCD, PG, etc.

 

Gio

 

[ERICOPOLY]

To play the game for 40+ years, concentrating on making the smallest number of errors possible, though won’t get you rich quickly, is imo the surest way to gradually build such a wealth, that not many in the end will be able to match.

 

Gio

 

Because the unleveraged returns from common stocks isn't enough, you've got insurance float to leverage it and get rich faster.  And that doesn't add risk?

[giofranchi]

Because the unleveraged returns from common stocks isn't enough, you've got insurance float to leverage it and get rich faster.  And that doesn't add risk?

 

Ok Eric, I give up! This thread is becoming once again a discussion about FFH, when at the beginning it had nothing to do with FFH… And I am tired of “playing the champion of lost causes”!! Let’s put it this way: you are making a ton of money with BAC 8), I am making no money with FFH :'(… Isn’t that enough for you?!?! Give me a break, I beg you! ::)

 

Gio

 

[frommi]

In fact, I have said “I think I understand”, not “I am sure I understand”… And I admitted I will make mistakes… If I were sure about something, I wouldn’t expect any error, would I? Therefore, let’s say that I think I understand FFH much better than I understand BAC, or even MCD and PG. Because I think I understand where management is steering the boat with FFH, while I clearly don’t know for the great majority of other companies, be it BAC, MCD, PG, etc.

 

Gio

 

I don`t really know if knowledge is allways helpfull in investing. I mean i know how BAC, MCD or PG is making money (and i doubt that you don`t know that), what else is there to know except the numbers? I really don`t care what management is thinking if i buy a great company, because when its a great company it doesn`t matter if its run by an idiot.

[giofranchi]

I don`t really know if knowledge is allways helpfull in investing. I mean i know how BAC, MCD or PG is making money (and i doubt that you don`t know that), what else is there to know except the numbers? I really don`t care what management is thinking if i buy a great company, because when its a great company it doesn`t matter if its run by an idiot.

 

Well, let’s just say that for the next 40+ years I will try to keep company with smart capital allocators who manage stable and predictable businesses (don't need to be great! Actually, I don't think I am very good at recognizing great businesses! ;) ). It might not be a wonderful strategy, but it is what makes me sleep soundly at night. Of course, it is me and only me!

 

Gio

 

[Liberty]

I don`t really know if knowledge is allways helpfull in investing. I mean i know how BAC, MCD or PG is making money (and i doubt that you don`t know that), what else is there to know except the numbers? I really don`t care what management is thinking if i buy a great company, because when its a great company it doesn`t matter if its run by an idiot.

 

It's a little harder than that, though, no?

 

A great company won't be a great investment at any price. Pay too much, and you won't do well (at least not until a long time, until the IV grows into the market valuation).

 

Being sure that a business is a great business isn't that easy either.

 

Newspapers were great businesses, until they weren't. I'm sure many thought that big banks were great businesses right before 2008.

 

I'm sure some idiot managers found great ways to ruin (at least temporarily) great businesses by diluting them via stupid acquisitions and creating lots of new shares, scaring away top employees with stupid policies, etc.

 

So knowledge about management and IV vs price is definitely crucial when investing. I recognize the Buffett sayings under what you are writing, and that's great. But these are mental models to get you to think about the right things, but they shouldn't be taken entirely literally. Reality is messier, something that you can see in Buffett's actions (he cares a lot about quality of management and price, and few businesses meet the 'great business' test, and he has encyclopedic knowledge of all the details of all the businesses he invests in, and of all those he doesn't too (he read IBM's Ks and Qs for 50 years before investing!).

[giofranchi]

I don`t really know if knowledge is allways helpfull in investing. I mean i know how BAC, MCD or PG is making money (and i doubt that you don`t know that), what else is there to know except the numbers? I really don`t care what management is thinking if i buy a great company, because when its a great company it doesn`t matter if its run by an idiot.

 

It's a little harder than that, though, no?

 

A great company won't be a great investment at any price. Pay too much, and you won't do well (at least not until a long time, until the IV grows into the market valuation).

 

Being sure that a business is a great business isn't that easy either.

 

Newspapers were great businesses, until they weren't. I'm sure many thought that big banks were great businesses right before 2008.

 

I'm sure some idiot managers found great ways to ruin (at least temporarily) great businesses by diluting them via stupid acquisitions and creating lots of new shares, scaring away top employees with stupid policies, etc.

 

So knowledge about management and IV vs price is definitely crucial when investing. I recognize the Buffett sayings under what you are writing, and that's great. But these are mental models to get you to think about the right things, but they shouldn't be taken entirely literally. Reality is messier, something that you can see in Buffett's actions (he cares a lot about quality of management and price and few businesses meet the 'great business' test and he has encyclopedia knowledge of all the details of all the businesses he invests in and all those he doesn't too).

 

Well, just look at the discussion about Mr. Buffett’s acquisition of XOM… Some people agree, others don’t… And it has always been so since I follow Mr. Buffett… I even remember prof. Greenwald who talked about the acquisition of Burlington as “madness”… Or something of the kind… No! To recognize a business that will be great in the future and to know when it should be bought is not easy at all! ;)

 

Gio

 

[frommi]

It's a little harder than that, though, no?

 

A great company won't be a great investment at any price. Pay too much, and you won't do well (at least not until a long time, until the IV grows into the market valuation).

 

Being sure that a business is a great business isn't that easy either.

 

Newspapers were great businesses, until they weren't. I'm sure many thought that big banks were great businesses right before 2008.

 

I'm sure some idiot managers found great ways to ruin (at least temporarily) great businesses by diluting them via stupid acquisitions and creating lots of new shares, scaring away top employees with stupid policies, etc.

 

So knowledge about management and IV vs price is definitely crucial when investing. I recognize the Buffett sayings under what you are writing, and that's great. But these are mental models to get you to think about the right things, but they shouldn't be taken entirely literally. Reality is messier, something that you can see in Buffett's actions (he cares a lot about quality of management and price, and few businesses meet the 'great business' test, and he has encyclopedic knowledge of all the details of all the businesses he invests in, and of all those he doesn't too (he read IBM's Ks and Qs for 50 years before investing!).

 

I didn`t say you should buy above IV. I would say numbers/IV ist the important part. When a great company is run by an idiot, you have much more upside potential than the other way round. Look for example at Microsoft, it is a great company with a moat and one of the strongest brands in the world. But it is not run by good management.

[Liberty]

It's a little harder than that, though, no?

 

A great company won't be a great investment at any price. Pay too much, and you won't do well (at least not until a long time, until the IV grows into the market valuation).

 

Being sure that a business is a great business isn't that easy either.

 

Newspapers were great businesses, until they weren't. I'm sure many thought that big banks were great businesses right before 2008.

 

I'm sure some idiot managers found great ways to ruin (at least temporarily) great businesses by diluting them via stupid acquisitions and creating lots of new shares, scaring away top employees with stupid policies, etc.

 

So knowledge about management and IV vs price is definitely crucial when investing. I recognize the Buffett sayings under what you are writing, and that's great. But these are mental models to get you to think about the right things, but they shouldn't be taken entirely literally. Reality is messier, something that you can see in Buffett's actions (he cares a lot about quality of management and price, and few businesses meet the 'great business' test, and he has encyclopedic knowledge of all the details of all the businesses he invests in, and of all those he doesn't too (he read IBM's Ks and Qs for 50 years before investing!).

 

I didn`t say you should buy above IV. I would say numbers/IV ist the important part. When a great company is run by an idiot, you have much more upside potential than the other way round. Look for example at Microsoft, it is a great company with a moat and one of the strongest brands in the world. But it is not run by good management.

 

I still don't think it's that easy. I would rather have been in Capital Cities in the 1970s rather than in CBS, or in Teledyne rather than worse managed conglomerates in the very same niche industries... Sometimes bad management just stays bad.