Brad Ferris

Brad Ferris
Contributor since: 2008
Company: Triage Capital Management Incorporated
Thanks for the positive feedback everyone!
Thanks Bob. That may have been an edit by the SA staff as the original post on my blog has the last sentence written differently.
The purpose of a margin of safety is to build a discount into the price I pay for a stock. If it doesn't work for you don't use it. It works very well for me as one metric in assessing whether a price is appropriate or not. It's not my sole decision making criteria; simply a tool to help me be successful.
Index investing is a completely different approach than individual portfolio creation of equities (stocks). Index investing is low cost, gain or lose with the market and try not to do any better. For many people this is the best passive investing approach. It is not intended for active investors. Index investing is for those who want to buy and rebalance only once or twice a year.
Thanks jweissman. It was an important point to make! Just because a sotck is already cheap doesn't mean that a margin of safety exists; it could be cheap for a reason!
Yes but that's what distinguishes a value investor for someone with another approach. There aren't too many equities I invest in because of safety. I'd rather make 6-10% consistently each year while never losing money than have wild swings in my returns.
I think its a simple situation of Buffett realizing the worth of a well run company and having little problem overpaying (by today's standards) for future earnings that will be much higher than today's. He has shown this ability time & time again because he rationalizes his purchases different than most investors. BNI is a very good company, but don't except 30% returns for the next 10 years; it's not that type of company. What it will offer is a very good operating foundation for BRK to diversify out of so much insurance and consumer products companies. Essentially someone has to ship all that Coke, Kraft Dinner and JNJ Baby Shampoo :)
Emerging markets won't replace the US consumer in the next 5 years, but certainly the trends in population & economic growth indicate that they'll play a much bigger role in how goods and services are targeted by international companies. The US consumer (and government) has many problems right now, but EM's aren't in a position, yet, to take over as the dominant consumer over the next few years.
Taxes are going to rise or new taxes will be created as all levels of government attempt to deal with their revenue shortfalls.
This rally has been remarkable, but with unemployment so high (and still rising) I think the earnings will be the continuing force driving markets higher. If earnings don't grow at a rate that the market feels is either sustainable or indicative for a true recovery then we could see a substantial pull back of 10-15% over the next few months.
Good introductory content on options. I agree with DGI though on reading Taleb for insights into how options work and how to make them profitable in your investing activities.
Jake2: I didn't recommend LQD nor suggested it was my "first choice". I simply listed some options for investors that had a relatively cheap MER and had diversification in different sectors.
Being down 5.92% on a group of corporate bonds over the past six months would have beaten the market handily. Did you include distributions?
Thomas: Thanks.
Jimmy: Bonds are issued by companies at a part value - what an investor pays includes costs and commissions and can be more or less on the open market. Feel free to take the time to re-write your own post on corporate bonds highlighting all this "misinformation" and we'll compare notes.
I appreciate the honest comments Chasam.
There are items in the full analysis that don't appear in this public analysis that add important insights into the company. One example would be the situational analysis which in my view is quite positive on the company's future prospects. My views on the Wyeth deal I make no effort at hiding: I think it stinks. I think PFE overpaid for a set of assets that just replace Lipitor's revenues and add to the clutter of their product portfolio.
I'm not opposed to management wanting to get lean & mean; my concern is the speed & severity of the cutting that current management have taken. Pfizer operates in an industry where intellectual capital comes at a premium: Genentech has benefited from greatly from a certain ex-Pfizer employee leaving (who had an important role in developing Lipitor).
Kindler is a gifted manager and has a strong background in operations. I just question the acquisition at this point in their restructuring and the price they paid.
CNR is the Canadian ticker on the TSX and the common name I use for the company since I am a Canadian author. If you notice early in my original post (on my site) I refer to Canadian National Railway as (CNR;CNI). The Seeking Alpha editors took that out. As for my disclosure I own CNR (TSX), not CNI (NYSE).
Stryker is diversified in about a 60/40 split between their large Ortho products & other medical supply/device products. They are still largely dependent on Orthopedic implants for the majority of their business and in an economically sensitive environment companies (hospitals) may be more conservative in their capital expenditures for medical stretchers, endoscopy supplies or OR materials.
The point I am making is no company is economically insensitive and when evaluating Stryker an investor needs to be aware of all revenue sources for the company and the economic challenges each segment faces.
Mark - On my website I have a series titled, "Taking Stock in IGM" where I publish a version of my stock analysis process. While it's conducted for a Canadian company this is a process I repeat for all stocks I own/analyze.
That's a great analysis Jae - especially demonstrating how poor the numbers in the Income Statement are for Crocs.
Margins matter and I think investors don't pay enough attention to them. That's where money really matters for companies and you can have all the hype in the world for a product or service, but margins always tell the story about the sustainability of the business model.
Captainess,
I like your reference to stocks/industries as economically sensitive. I often refer to them as "Recession Resistant" rather than the frequently used "proof". I wrote about this on my blog a few months ago also. Proof gives the perception that something is invincible and no company has that luxury (to my knowledge). As great as a moat may be, it is still susceptible to economic pressures from costs, revenues & inflation.
Thanks for the comment andyn. I still think the company will post a profitable 2009, but with expectations high I feel the market could possibly punish the stock if it's not able to meet its targets.
Very well written post!
No...it won't be enough. For the simple reason that in part they're still attempting to stimulate consumption and bad companies need to die. It's really that simple. A WFC or JPM needs to come in & buy Citi for cents on the dollar and acquire its deposits and functional business segments. There's just far too much financial supply and when we see meaningful failures I think that is when stimulus begins to work. Interest rates are already historically low. Consumers and businesses are conserving cash because their cost/ability to secure financing is so high.
Fair analysis and presentation. I think tresuries have further to go than investors think - look how long certain individuals were talking about the commodity and/or credit bubble over the last 5 years.
Thanks for the compliment U338219,
Have you read the full analysis on the company via my website? How much of your network/portfolio is in KO at the moment if you don't mind me asking. Interesting that you own both Berkshire & Coca-Cola....do you own more shares of other Buffett holdings?
You learn from failure and systemic risks aside I believe bad companies (unsustainable business models) should be allowed/encouraged to fail. What's the point of putting up more money for them to carryon with the promise of future success when we all know that's not possible?
It's amazing really that investors don't demand better transparency for the money they entrust to those who manage their money. Investors need to demand stronger oversight and conflicts of interest need to be weeded out of the regulators so the proper job can actually be done. This would never fly in the pharmaceutical industry or with many of the largest regulated utility companies.
I think margins really tell the story here. A drop in demand isn't something new for KO and they've traditionally done a masterful job of protecting both their gross & profit margins during down periods. Sales have even held up rather well and I don't see consumer weakness as a real threat for the company. Commodity prices are now coming down so raw material costs should abate. KO also has holdings in bottling operations so they're not 100% exposed to costs as many believe.
I think everyone benefits over the long-term if GM fails. Clearly there will be hardships in the short-term, but what's really at issue is the viability of a business. Chapter 11 is the solution to that, not more money for restructuring.
Unions, management, government and a host of other contributors have all aided in the demise of these three former auto giants. Its difficult to place blame solely on one and we shouldn't dwell in the past to solve the problems of the future.
The bottom line is that the 3 NA autmomakers have a cost base well above their competition, have not been on the leading edge of innovation and have far too much supply.
If all three of those components are not addressed in any federal funding agreement then we'll find ourselves right back here shortly once again.
The prudent financial decision would to be to allow these companies to file for chapter 11 and protect jobs by providing interim funding for continued operations but making it very clear that a sustainable business model is the only option. The government should take an invested interest if they're putting taxpayer money into these failing businesses and the management of all should be dismissed. There are a number of past executives from 3M, GE and other industrial giants who don't need to know how to build cars to build a functional business globally.
I'm not sure why the KPMG news is any surprise to investors who took the time to read up on the leveraged-buyout details over a year ago. I don't have any invested interest in BCE, but you have to wonder after watching this stock drop so dramatically if the deal has any chance of going through now.
Only 3x? That's hardly worth the effort. I'd have to leverage those up at least 100 times to even be close to on par with what the investment banks were doing only a few short years ago ;) (haha)
- Bad Management
- Bad balance sheet
- Bad risk assessment
- Bad timing
Clear the board, put in a new CEO and sell off anything that's non-core on this gigantic beast of a bank. Their derivative & mortgage portfolio will likely turn out to be a bull in a china shop & unless the government has an endless supply of crazy glue there will be a lot of broken dishes yet to come.