najdorf's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/199374/comments http://seekingalpha.com/article/175166-apple-s-at-t-deal-setting-the-record-straight?source=feed#comment-778616 778616 Thu, 26 Nov 2009 13:31:21 -0500 http://seekingalpha.com/article/174744-ge-is-david-hartzell-s-highest-conviction-holding-here-s-why?source=feed#comment-773646 773646
The unfortunate reality of our current recession is that consumption hasn't yet shrunk enough - people are still spending like they used to in spite of being unemployed or losing chunks of their income (see the big WSJ article about this a couple weeks ago). That means that marginal retailers are still hanging on with only moderately decreased sales. There are plenty of retailers who cannot sustain any increased pressure from their lenders or any further drop in sales - everyone is counting on a big holiday season, which is why you see so much hype about it in media. You will see retail/commercial bankruptcies in the beginning of 2010 - the question is just how severe.

Even currently, as I walk around NYC I see lots of prime vacancies that in the boom times would have been snapped up. Anyone who hasn't been in NYC commercial real estate since the bad old days has no idea how cash-flow negative they can go. Neighborhoods that are beautiful and high-rent today were vacant wastelands before the 80s.

As to GE, if you assume that everything is going to be fine of course it's a great buy at trough valuations. But to pretend it's some kind of sure bet is to decieve yourself based on the name and history of the company. Cheap stocks are cheap for a reason. If you can analyze ALL the factors and feel that you can forsee a better future, they are the best opportunities. But when they're so dependent on the economic cycle and access to the credit markets, you can't guarantee yourself a good return the way you can with a less dependent investment. Even more importantly, with necessarily limited current knowledge there's no way to predict where GE will be a year from now. A smart investor would be willing to hold it for as long as it takes to reach fair value, knowing that in the meantime one is getting the cashflow at a cheap price and has the opportunity to reinvest it at a desirable rate of return. ]]> Mon, 23 Nov 2009 13:20:31 -0500
The unfortunate reality of our current recession is that consumption hasn't yet shrunk enough - people are still spending like they used to in spite of being unemployed or losing chunks of their income (see the big WSJ article about this a couple weeks ago). That means that marginal retailers are still hanging on with only moderately decreased sales. There are plenty of retailers who cannot sustain any increased pressure from their lenders or any further drop in sales - everyone is counting on a big holiday season, which is why you see so much hype about it in media. You will see retail/commercial bankruptcies in the beginning of 2010 - the question is just how severe.

Even currently, as I walk around NYC I see lots of prime vacancies that in the boom times would have been snapped up. Anyone who hasn't been in NYC commercial real estate since the bad old days has no idea how cash-flow negative they can go. Neighborhoods that are beautiful and high-rent today were vacant wastelands before the 80s.

As to GE, if you assume that everything is going to be fine of course it's a great buy at trough valuations. But to pretend it's some kind of sure bet is to decieve yourself based on the name and history of the company. Cheap stocks are cheap for a reason. If you can analyze ALL the factors and feel that you can forsee a better future, they are the best opportunities. But when they're so dependent on the economic cycle and access to the credit markets, you can't guarantee yourself a good return the way you can with a less dependent investment. Even more importantly, with necessarily limited current knowledge there's no way to predict where GE will be a year from now. A smart investor would be willing to hold it for as long as it takes to reach fair value, knowing that in the meantime one is getting the cashflow at a cheap price and has the opportunity to reinvest it at a desirable rate of return. ]]> http://seekingalpha.com/article/174002-electronic-arts-will-lead-the-gaming-industry-when-the-time-comes?source=feed#comment-766641 766641
The only company I trust in the video game space is Nintendo. They only sell products that are directly, immediately profitable. They are committed to a dividend policy. I've enjoyed every console and marquee title they've released and they never seem to have the problems that other companies do. While Nintendo is going to go up and down based on console cycles and the vagaries of taste, at least the management is equipped to deliver profits to shareholders rather than just making a bunch of cool, unprofitable games and messing around with M&A to cloak how much the shareholders are getting hosed. ]]> Wed, 18 Nov 2009 23:24:27 -0500
The only company I trust in the video game space is Nintendo. They only sell products that are directly, immediately profitable. They are committed to a dividend policy. I've enjoyed every console and marquee title they've released and they never seem to have the problems that other companies do. While Nintendo is going to go up and down based on console cycles and the vagaries of taste, at least the management is equipped to deliver profits to shareholders rather than just making a bunch of cool, unprofitable games and messing around with M&A to cloak how much the shareholders are getting hosed. ]]> http://seekingalpha.com/article/172969-hedge-funds-aren-t-all-about-alpha-just-mostly?source=feed#comment-758056 758056
However, to the extent that you look for alpha - which of course is in the title of the site and is central to Graham and Dodd value investing - hedge funds have done much better than mutual funds. I haven't read the underlying book, but I am surprised that the numbers for hedge funds are that good even with all the lousy hedge funds opened during the boom.

This article and my comment are not defenses of lousy hedge funds. Just because the funds are under-regulated and have higher fees doesn't mean it should offer better returns - the opposite, in fact. But to think that long-only equity mutual funds with 1% fees and dullard, sheep-like managers can achieve better risk-adjusted returns than a quality hedge fund with reasonable fees that actually hedges (puts, CDS, shorting, etc.) is silly. There are idiots trading in our markets...of course smart people are going to profit by selling to them. It's impractical to think that even a very smart individual investor with a million-dollar portfolio is going to replicated a hedge fund portfolio on his own - it's still very hard for an individual to access cheap margin, shorts, and advanced options plays with decent commisions/spreads. Even bonds are hard to get decent pricing on if you're not a professional. ]]> Thu, 12 Nov 2009 22:07:45 -0500
However, to the extent that you look for alpha - which of course is in the title of the site and is central to Graham and Dodd value investing - hedge funds have done much better than mutual funds. I haven't read the underlying book, but I am surprised that the numbers for hedge funds are that good even with all the lousy hedge funds opened during the boom.

This article and my comment are not defenses of lousy hedge funds. Just because the funds are under-regulated and have higher fees doesn't mean it should offer better returns - the opposite, in fact. But to think that long-only equity mutual funds with 1% fees and dullard, sheep-like managers can achieve better risk-adjusted returns than a quality hedge fund with reasonable fees that actually hedges (puts, CDS, shorting, etc.) is silly. There are idiots trading in our markets...of course smart people are going to profit by selling to them. It's impractical to think that even a very smart individual investor with a million-dollar portfolio is going to replicated a hedge fund portfolio on his own - it's still very hard for an individual to access cheap margin, shorts, and advanced options plays with decent commisions/spreads. Even bonds are hard to get decent pricing on if you're not a professional. ]]> http://seekingalpha.com/article/170485-utilities-get-dividends-paid-in-euros?source=feed#comment-744383 744383
Japan has a lower rate than the Europeans, around 8% I believe - I don't mind eating this on Nintendo or Toyota in an IRA.

There are two major problems that can arise for U.S. holders who hold international dividend stocks. First, in the IRA the issue is that the IRS doesn't care what happens inside the account - usually a benefit to the taxpayer but here a detriment because you can't take a credit against your U.S. taxes to make up for the foreign taxes. That is, international stocks in an IRA typically become taxable (internationally). As above, the only exception I know of among major nations is the U.K. Second, in a taxable account you may run into mismatches between the U.S. and international dividend tax that hurt returns or add hassles. As long as the U.S. and the foreign country have agreed on a 15% dividend tax rate (e.g. France above), the international stock acts similarly to a U.S. stock once you take the foreign tax credit on your 1040. If the other country automatically withholds at a higher rate, you have to apply to them for a refund which you may or may not be able to get and which may or may not be worth your time. The IRS is not in the business of making you whole on this transaction because they want you to do the legwork. ]]> Wed, 04 Nov 2009 11:21:19 -0500
Japan has a lower rate than the Europeans, around 8% I believe - I don't mind eating this on Nintendo or Toyota in an IRA.

There are two major problems that can arise for U.S. holders who hold international dividend stocks. First, in the IRA the issue is that the IRS doesn't care what happens inside the account - usually a benefit to the taxpayer but here a detriment because you can't take a credit against your U.S. taxes to make up for the foreign taxes. That is, international stocks in an IRA typically become taxable (internationally). As above, the only exception I know of among major nations is the U.K. Second, in a taxable account you may run into mismatches between the U.S. and international dividend tax that hurt returns or add hassles. As long as the U.S. and the foreign country have agreed on a 15% dividend tax rate (e.g. France above), the international stock acts similarly to a U.S. stock once you take the foreign tax credit on your 1040. If the other country automatically withholds at a higher rate, you have to apply to them for a refund which you may or may not be able to get and which may or may not be worth your time. The IRS is not in the business of making you whole on this transaction because they want you to do the legwork. ]]> http://seekingalpha.com/article/170466-alternate-business-models-that-drive-retail-brand-value?source=feed#comment-742442 742442 Tue, 03 Nov 2009 11:37:51 -0500 http://seekingalpha.com/article/170836-buffett-s-big-rail-buy-what-it-means-for-berkshire-shareholders?source=feed#comment-742427 742427
Also bear in mind that RRs transport over 40% of goods in the US, are more efficient than trucking/air, and are a primary mode of transportation in developed areas such as Europe, Japan, and the urban East Coast of the U.S. So we're not exactly talking Dr Quinn Medicine Woman stuff here. ]]> Tue, 03 Nov 2009 11:33:05 -0500
Also bear in mind that RRs transport over 40% of goods in the US, are more efficient than trucking/air, and are a primary mode of transportation in developed areas such as Europe, Japan, and the urban East Coast of the U.S. So we're not exactly talking Dr Quinn Medicine Woman stuff here. ]]> http://seekingalpha.com/article/168500-wells-fargo-is-doing-worse-than-it-seems?source=feed#comment-728344 728344
The lesson of the crisis w/r/t deposit banking is that if you rate chase at small banks who have to pay high rates to attract funding, you face a significant risk of either rate cuts when they stabilize or having to deal with the vagaries of the FDIC takeover process. The FDIC or the banks they re-sell to can cut rates and terms, make you do a lot of extra paperwork and mailing, etc. People who want clarity and simplicity are often banking with the TBTF banks. ]]> Sat, 24 Oct 2009 11:46:57 -0400
The lesson of the crisis w/r/t deposit banking is that if you rate chase at small banks who have to pay high rates to attract funding, you face a significant risk of either rate cuts when they stabilize or having to deal with the vagaries of the FDIC takeover process. The FDIC or the banks they re-sell to can cut rates and terms, make you do a lot of extra paperwork and mailing, etc. People who want clarity and simplicity are often banking with the TBTF banks. ]]> http://seekingalpha.com/article/166251-what-hedge-funds-are-buying-and-selling-now?source=feed#comment-716114 716114
That said, I'm sure that if you know CRE very well you can find some disasters. However, there's typically going to be a floor under the losses because real estate is worth something even under the worst of circumstances - you're going to do better shorting tech companies with no revenue or financials levered 30-1 than any of the CRE companies that have some revenue and less leverage.

Also, remember that America has such a love affair with entrepreneurship and real estate that no matter how bad things get, idiots will appear to hold up prices. People will open marginal businesses or buy up vacant space at 5% off right up until the collapse of our economic system. I could walk down my street and show you ten restaurants that will never be profitable and ten stores that couldn't pay the owner a decent salary even if they turned over their whole inventory every week, but hope springs eternal.

Eskin: Since gold and silver as investments have essentially no fundamentals (no earnings, no fixed rate of exchange for other goods, no risk of short supply relative to actual demand), the pricing of them is arbitrary and entirely sentiment-driven. We could easily decide that gold is worth 5x silver, 10x silver, 100x silver, or 1000x silver. It doesn't matter which one we choose, except that it would obviously affect how miners invest their capital. Trying to guess whether gold or silver is a better "value" is a mug's game.

I would also assess that investing in something which produces no cashflow (metals) is pretty foolish, but I suppose that there are two possible perspectives:

1. You think that the world as we know it will collapse and paper money will end. In that case, you probably want to steer away from anything other than physical gold. You'd also probably derive more benefit from guns, canned food, and a secure, stable place to live, but maybe once you have all these things some gold bars buried in a safe might be better than the alternatives.

2. You think that paper money will continue, but people will continue to place a higher and higher value on gold based on fear/greed. You are a Beanie Baby investor. Good luck with that. ]]> Thu, 15 Oct 2009 08:37:35 -0400
That said, I'm sure that if you know CRE very well you can find some disasters. However, there's typically going to be a floor under the losses because real estate is worth something even under the worst of circumstances - you're going to do better shorting tech companies with no revenue or financials levered 30-1 than any of the CRE companies that have some revenue and less leverage.

Also, remember that America has such a love affair with entrepreneurship and real estate that no matter how bad things get, idiots will appear to hold up prices. People will open marginal businesses or buy up vacant space at 5% off right up until the collapse of our economic system. I could walk down my street and show you ten restaurants that will never be profitable and ten stores that couldn't pay the owner a decent salary even if they turned over their whole inventory every week, but hope springs eternal.

Eskin: Since gold and silver as investments have essentially no fundamentals (no earnings, no fixed rate of exchange for other goods, no risk of short supply relative to actual demand), the pricing of them is arbitrary and entirely sentiment-driven. We could easily decide that gold is worth 5x silver, 10x silver, 100x silver, or 1000x silver. It doesn't matter which one we choose, except that it would obviously affect how miners invest their capital. Trying to guess whether gold or silver is a better "value" is a mug's game.

I would also assess that investing in something which produces no cashflow (metals) is pretty foolish, but I suppose that there are two possible perspectives:

1. You think that the world as we know it will collapse and paper money will end. In that case, you probably want to steer away from anything other than physical gold. You'd also probably derive more benefit from guns, canned food, and a secure, stable place to live, but maybe once you have all these things some gold bars buried in a safe might be better than the alternatives.

2. You think that paper money will continue, but people will continue to place a higher and higher value on gold based on fear/greed. You are a Beanie Baby investor. Good luck with that. ]]> http://seekingalpha.com/article/159498-five-north-american-natural-gas-buys?source=feed#comment-663670 663670
Specifically on ECA, the one I know, debt is under control and the company is good at hedging. Pretty solid investment here although I'd prefer to add in the 40s.]]> Sun, 06 Sep 2009 02:48:33 -0400
Specifically on ECA, the one I know, debt is under control and the company is good at hedging. Pretty solid investment here although I'd prefer to add in the 40s.]]> http://seekingalpha.com/article/144934-dividends-vs-stock-buybacks?source=feed#comment-559859 559859
IBM and MSFT are different cases because they don't have GE's debt load or risky assets. Their cash flows are about as stable and predictable as they get outside of utilities, their debt is low-rate and manageable, and their reserves are adequate. There's no good reason they shouldn't repurchase shares. IBM has done a great job generating positive returns since 1998 when many tech companies have destroyed shareholder value with poor acquisitions and strategies. They also have seriously increased the dividend in recent years. MSFT has been somewhat less successful, I think because they haven't found the right way to enter new markets and drop unprofitable businesses (example: MSFT continuing to burn money online while IBM exits a weak laptop business to focus on software). But even still, many many stocks have done worse than MSFT, and the share price has been on a decent run of late. You have to remember that good buybacks increase real returns (you hold a larger share of a profitable company) while share prices reflect lots of speculative factors (people would pay ridiculous multiples of earnings in the late 90s - the bursting of the bubble was due to a shift in this perception rather than MSFT or IBM management errors).

Lightway: Please explain how IBM and MSFT could have grown larger than their current size by reinvesting more cash in their business (remembering that both carry large cash balances even as it is). I would argue that MSFT in particular currently is in too many businesses with lower margins than their home and office software - internet search, gaming, etc. I would rather see the company run as a cash-flow generator that investors can direct to their own investments in independent tech smallcaps than see MSFT make a bunch of overpriced acquisitions or internal growth initiatives that get lost in a huge corporate culture. ]]> Tue, 23 Jun 2009 22:08:09 -0400
IBM and MSFT are different cases because they don't have GE's debt load or risky assets. Their cash flows are about as stable and predictable as they get outside of utilities, their debt is low-rate and manageable, and their reserves are adequate. There's no good reason they shouldn't repurchase shares. IBM has done a great job generating positive returns since 1998 when many tech companies have destroyed shareholder value with poor acquisitions and strategies. They also have seriously increased the dividend in recent years. MSFT has been somewhat less successful, I think because they haven't found the right way to enter new markets and drop unprofitable businesses (example: MSFT continuing to burn money online while IBM exits a weak laptop business to focus on software). But even still, many many stocks have done worse than MSFT, and the share price has been on a decent run of late. You have to remember that good buybacks increase real returns (you hold a larger share of a profitable company) while share prices reflect lots of speculative factors (people would pay ridiculous multiples of earnings in the late 90s - the bursting of the bubble was due to a shift in this perception rather than MSFT or IBM management errors).

Lightway: Please explain how IBM and MSFT could have grown larger than their current size by reinvesting more cash in their business (remembering that both carry large cash balances even as it is). I would argue that MSFT in particular currently is in too many businesses with lower margins than their home and office software - internet search, gaming, etc. I would rather see the company run as a cash-flow generator that investors can direct to their own investments in independent tech smallcaps than see MSFT make a bunch of overpriced acquisitions or internal growth initiatives that get lost in a huge corporate culture. ]]> http://seekingalpha.com/article/143235-the-economy-is-so-bad-even-pawn-shops-are-suffering?source=feed#comment-547340 547340 Mon, 15 Jun 2009 12:26:38 -0400 http://seekingalpha.com/article/77756-doug-kass-s-killer-shorts-barron-s?source=feed#comment-484914 484914
If one had a short bias as of last May, one could have done much better shorting just about any financial other than BRK/WFC/AXP - look at BAC, C, WM, AIG, FNM, FRE, WB, etc over the year. I know all about hindsight, but if your thesis is that financials are s**t why would you short the strongest and ignore much weaker companies still trading at decent prices? Why not short people who are in the same business as BRK with more leverage and less competence?

Likewise in consumerland: if the consumer is weak, why would you short toothpaste and cereal instead of cars and luxury goods? You could have done much better shorting GM or most clothing retailers. Auto sales can fall a lot faster than cereal sales and GM has been obviously over-levered and unprofitable for years, yet the shares were over 20 a year ago (I was surprised too).

He also totally missed the fact that commodities were in a bubble last spring/summer. Short CHK, FCX, etc.

Overall it seems that Kass overlooked the fact that the best shorts are companies with broken business models, over-exuberant speculative action, or excessive leverage - you want some chance that the stock explodes completely if you're going to take the risk of shorting. While you might make 10-20% shorting companies that will experience moderate but survivable business declines in the worst economic conditions in decades, this is a pretty terrible short list given the shorts that were available last year. It would seriously take you a while to find worse shorts than these - even MCD, WMT, and most utilities are down over 1 year. I didn't make any short calls last year, but I'd like to think that even I would have stumbled across one true disaster in a list of 10 shorts a year ago. None of his picks have even come close to blowing up. ]]> Thu, 30 Apr 2009 22:48:09 -0400
If one had a short bias as of last May, one could have done much better shorting just about any financial other than BRK/WFC/AXP - look at BAC, C, WM, AIG, FNM, FRE, WB, etc over the year. I know all about hindsight, but if your thesis is that financials are s**t why would you short the strongest and ignore much weaker companies still trading at decent prices? Why not short people who are in the same business as BRK with more leverage and less competence?

Likewise in consumerland: if the consumer is weak, why would you short toothpaste and cereal instead of cars and luxury goods? You could have done much better shorting GM or most clothing retailers. Auto sales can fall a lot faster than cereal sales and GM has been obviously over-levered and unprofitable for years, yet the shares were over 20 a year ago (I was surprised too).

He also totally missed the fact that commodities were in a bubble last spring/summer. Short CHK, FCX, etc.

Overall it seems that Kass overlooked the fact that the best shorts are companies with broken business models, over-exuberant speculative action, or excessive leverage - you want some chance that the stock explodes completely if you're going to take the risk of shorting. While you might make 10-20% shorting companies that will experience moderate but survivable business declines in the worst economic conditions in decades, this is a pretty terrible short list given the shorts that were available last year. It would seriously take you a while to find worse shorts than these - even MCD, WMT, and most utilities are down over 1 year. I didn't make any short calls last year, but I'd like to think that even I would have stumbled across one true disaster in a list of 10 shorts a year ago. None of his picks have even come close to blowing up. ]]> http://seekingalpha.com/article/130457-where-have-all-the-buybacks-gone?source=feed#comment-459831 459831
You should only hate options if your management is moronic and corrupt, and you shouldn't invest in companies for which you believe the management to be moronic and corrupt. Paying a great manager in long-term, slow-vesting options at the current market price with a holding requirement is just like paying him in cash, except you motivate him or her even more to make the company perform. If your manager isn't worth it, advocate your point of view to your board. If your board is cutting corrupt deals or looking the other way while management cashs out millions in options while running the business into the ground, fire them. If you can't make action happen, sell the stock to a greater fool and look for a decent investment instead.

The problem is not the buybacks; it's the dilution from overcompensation of poor executives. Buybacks are fantastic if the purpose is to increase the amount of FCF available to continuing shareholders, which can support either further profitable business expansion for a more concentrated group or greater dividends. However, in order for the buyback to work the shares of the company have to be cheaper than those of other companies and cheaper than the immediate direct capital investment options.

For instance, imagine a great business that trades for 5x FCF - unless you can find an expansion plan that yields greater than 20% immediate safe returns, why wouldn't you buy back some shares with the available cash? Why would you pay a dividend to shareholders so they have to pay tax and then go through the hassle of finding a new investment or paying a commission on more shares of something they already own?

Now, there may not be many companies that actually fit the criteria for buybacks - many of the best companies are regularly over-priced in the market and would do better with internal expansion or dividends to income-oriented shareholders. But there's no sound reason to philosophically object to buybacks of all kinds. ]]> Sat, 11 Apr 2009 11:20:52 -0400
You should only hate options if your management is moronic and corrupt, and you shouldn't invest in companies for which you believe the management to be moronic and corrupt. Paying a great manager in long-term, slow-vesting options at the current market price with a holding requirement is just like paying him in cash, except you motivate him or her even more to make the company perform. If your manager isn't worth it, advocate your point of view to your board. If your board is cutting corrupt deals or looking the other way while management cashs out millions in options while running the business into the ground, fire them. If you can't make action happen, sell the stock to a greater fool and look for a decent investment instead.

The problem is not the buybacks; it's the dilution from overcompensation of poor executives. Buybacks are fantastic if the purpose is to increase the amount of FCF available to continuing shareholders, which can support either further profitable business expansion for a more concentrated group or greater dividends. However, in order for the buyback to work the shares of the company have to be cheaper than those of other companies and cheaper than the immediate direct capital investment options.

For instance, imagine a great business that trades for 5x FCF - unless you can find an expansion plan that yields greater than 20% immediate safe returns, why wouldn't you buy back some shares with the available cash? Why would you pay a dividend to shareholders so they have to pay tax and then go through the hassle of finding a new investment or paying a commission on more shares of something they already own?

Now, there may not be many companies that actually fit the criteria for buybacks - many of the best companies are regularly over-priced in the market and would do better with internal expansion or dividends to income-oriented shareholders. But there's no sound reason to philosophically object to buybacks of all kinds. ]]> http://seekingalpha.com/article/130456-must-know-criteria-for-picking-inflation-proof-high-dividend-stocks?source=feed#comment-459822 459822
I wouldn't expect a lot of dividend growth out of T and VZ until they finish dividing up the country, grinding out weaker competition, and building infrastructure to support good nationwide access. But the current yield is pretty nice and there's not much risk of a cut. ]]> Sat, 11 Apr 2009 11:00:42 -0400
I wouldn't expect a lot of dividend growth out of T and VZ until they finish dividing up the country, grinding out weaker competition, and building infrastructure to support good nationwide access. But the current yield is pretty nice and there's not much risk of a cut. ]]> http://seekingalpha.com/article/128206-true-religion-overreaction-on-wall-street?source=feed#comment-443544 443544
It's great that they can finance their expansion out of free cash flow, but haven't you seen this story before? That's your money, going to opening stores rather than paying you dividends. Do you think this management is different from every other retail management in history and won't over-expand in pursuit of yearly growth, cash out their options at the top, and then leave you holding the bag?

Retail businesses can be a cash cow at the right size, but when I see a beaten-up retail stock of a company selling overpriced goods that is expanding massively into a recession, I stay away. Hate to think about what happens to this company when they have to start discounting to move inventory and keep up sales.

Retail stocks can be nice for smart traders because lost souls following Peter Lynch like to buy what they know all the way up - of course people who buy $200 jeans probably don't know a lot about how to value a stock. If you want to try to trade the momentum swings, go for it. But don't tell us it's some great value find. Unloved retail stocks don't have the same potential as unloved industrials to bounce back cyclically - they need the consumer love and the market love because their competitive advantage is nothing more than marketing/brand image. ]]> Sat, 28 Mar 2009 15:28:10 -0400
It's great that they can finance their expansion out of free cash flow, but haven't you seen this story before? That's your money, going to opening stores rather than paying you dividends. Do you think this management is different from every other retail management in history and won't over-expand in pursuit of yearly growth, cash out their options at the top, and then leave you holding the bag?

Retail businesses can be a cash cow at the right size, but when I see a beaten-up retail stock of a company selling overpriced goods that is expanding massively into a recession, I stay away. Hate to think about what happens to this company when they have to start discounting to move inventory and keep up sales.

Retail stocks can be nice for smart traders because lost souls following Peter Lynch like to buy what they know all the way up - of course people who buy $200 jeans probably don't know a lot about how to value a stock. If you want to try to trade the momentum swings, go for it. But don't tell us it's some great value find. Unloved retail stocks don't have the same potential as unloved industrials to bounce back cyclically - they need the consumer love and the market love because their competitive advantage is nothing more than marketing/brand image. ]]> http://seekingalpha.com/article/124623-berkshire-hathaway-proof-that-the-cds-market-is-irrational?source=feed#comment-418450 418450
Over the past year+, every step downwards in pricing has been accompanied by bottom calls and inflows from value investors (private equity, Buffett's buys, foreign investment in C/MS, equity offering from GE & WFC, etc.). The fact that companies have continued to move downwards each time is due to very real problems in our economy and within these companies. On the back end some companies will survive and rise quickly in price, but more may still fail. At the start of this crisis people were saying things like "Sure WB and WM have problems, but C and BAC can NEVER fail; it's a sure double from current prices (~20 and ~35) if you can hold for 5 years". Does anyone still want to ride that train?

Investors may have become irrationally fearful about some companies (look at current pricing on MSFT/JNJ/T/VZ/etc - not as exciting as the banks but hard to imagine negative returns or returns inferior to treasuries for much longer) - but there are real reasons to be fearful about banks. People were scared to invest in banks long before anyone concieved of CDSs; the US had regular financial crises in any economic downturn for the first 150 years of its history. One of the major causes of this crisis was that we forgot that fear of banks after the success of reforms like FDIC and the relative lack of pain for large US banks in the S&L bailout/early 90s recession. ]]> Sun, 08 Mar 2009 18:14:16 -0400
Over the past year+, every step downwards in pricing has been accompanied by bottom calls and inflows from value investors (private equity, Buffett's buys, foreign investment in C/MS, equity offering from GE & WFC, etc.). The fact that companies have continued to move downwards each time is due to very real problems in our economy and within these companies. On the back end some companies will survive and rise quickly in price, but more may still fail. At the start of this crisis people were saying things like "Sure WB and WM have problems, but C and BAC can NEVER fail; it's a sure double from current prices (~20 and ~35) if you can hold for 5 years". Does anyone still want to ride that train?

Investors may have become irrationally fearful about some companies (look at current pricing on MSFT/JNJ/T/VZ/etc - not as exciting as the banks but hard to imagine negative returns or returns inferior to treasuries for much longer) - but there are real reasons to be fearful about banks. People were scared to invest in banks long before anyone concieved of CDSs; the US had regular financial crises in any economic downturn for the first 150 years of its history. One of the major causes of this crisis was that we forgot that fear of banks after the success of reforms like FDIC and the relative lack of pain for large US banks in the S&L bailout/early 90s recession. ]]> http://seekingalpha.com/article/117821-verizon-a-great-buying-opportunity-barron-s?source=feed#comment-372767 372767
Note that this is not the same situation as a bank, which uses a lot of short-term funding and is dependent on credit quality of its debtors. VZ has lots of long-term debt and has had no problem issuing more lately. The economy would have to get much, much worse for people to start cancelling phone service to the extent necessary to make Verizon unable to service its debt. ]]> Sun, 01 Feb 2009 18:37:11 -0500
Note that this is not the same situation as a bank, which uses a lot of short-term funding and is dependent on credit quality of its debtors. VZ has lots of long-term debt and has had no problem issuing more lately. The economy would have to get much, much worse for people to start cancelling phone service to the extent necessary to make Verizon unable to service its debt. ]]> http://seekingalpha.com/article/117651-kla-tencor-bad-earnings-a-good-reason-for-having-gaap?source=feed#comment-372164 372164
Quarterly accounting earnings are just not all that accurate or important for companies that depend mostly on intangibles and technology. What matters is cash flow and the ability to provide returns to shareholders. Tech companies constantly have to make guesses about the future value of technologies, intangibles, and research, and these guesses are inaccurate ALL THE TIME. Even a non-tech company has to guess unguessable things like the level of future catastrophe losses, the percentage of mortgages that won't be repaid, forex rates, and commodity prices. All kind of companies are taking writedowns on this stuff, and some of them indicate real problems while others are irrelevant. Asset prices and sales of specialized products can shift very fast due to issues outside of a company's control.

However, no company was ever brought down by accounting writedowns alone - companies fail because they can't service/roll their debt or they can't produce adequate cash-flow out of their assets to justify their cost structure and shareholder investment. KLAC has no debt coming due until 2018 and can afford to pay their interest, so what you should be looking at is whether they'll be able to cut costs and whether they can rebuild sales. It's not as easy as just reading the GAAP earnings number.

Here's another way to look at GAAP earnings - KLAC shareholders are down $20/share over the last year (based on share prices). It's hardly shocking that in that economic climate, the company has to record GAAP losses - but they are simply recognizing what the share price already told them. Any other semi company is in the same position (who's up over the last year?), whether their accountants tell them they have to take a writedown or not. The earnings power of all companies in the field are at least temporarily impaired, whether they did acquisitions recently or not. This is why share prices are down across the board. You have no evidence that KLAC management is better or worse than every other semi company management that has seen their business degenerate over the last year.

This is all easy to see. What's hard to see is this: what happens next? I don't mean next quarter - most of the value of a stock is based on things that happen 5 and 10 years from now. The fact is that no one knows in a field like semis unless they have some insight into the technology and actual information about management and R&D, rather than guesses based on a GAAP number. ]]> Sat, 31 Jan 2009 17:26:32 -0500
Quarterly accounting earnings are just not all that accurate or important for companies that depend mostly on intangibles and technology. What matters is cash flow and the ability to provide returns to shareholders. Tech companies constantly have to make guesses about the future value of technologies, intangibles, and research, and these guesses are inaccurate ALL THE TIME. Even a non-tech company has to guess unguessable things like the level of future catastrophe losses, the percentage of mortgages that won't be repaid, forex rates, and commodity prices. All kind of companies are taking writedowns on this stuff, and some of them indicate real problems while others are irrelevant. Asset prices and sales of specialized products can shift very fast due to issues outside of a company's control.

However, no company was ever brought down by accounting writedowns alone - companies fail because they can't service/roll their debt or they can't produce adequate cash-flow out of their assets to justify their cost structure and shareholder investment. KLAC has no debt coming due until 2018 and can afford to pay their interest, so what you should be looking at is whether they'll be able to cut costs and whether they can rebuild sales. It's not as easy as just reading the GAAP earnings number.

Here's another way to look at GAAP earnings - KLAC shareholders are down $20/share over the last year (based on share prices). It's hardly shocking that in that economic climate, the company has to record GAAP losses - but they are simply recognizing what the share price already told them. Any other semi company is in the same position (who's up over the last year?), whether their accountants tell them they have to take a writedown or not. The earnings power of all companies in the field are at least temporarily impaired, whether they did acquisitions recently or not. This is why share prices are down across the board. You have no evidence that KLAC management is better or worse than every other semi company management that has seen their business degenerate over the last year.

This is all easy to see. What's hard to see is this: what happens next? I don't mean next quarter - most of the value of a stock is based on things that happen 5 and 10 years from now. The fact is that no one knows in a field like semis unless they have some insight into the technology and actual information about management and R&D, rather than guesses based on a GAAP number. ]]> http://seekingalpha.com/article/116733-on-buffett-back-riding?source=feed#comment-368038 368038 www.berkshirehathaway..... I realize that it's not up to date, but I think it pretty effectively makes the point that Buffett has done very well with some stock selections: Washington Post, Coke, and AXP/WFC if they ever come back (doing better than other financials anyhow - we'll see). He made a great medium-term trade in PetroChina a few years back. He started in GEICO as a stock investor, although he eventually made it a fully-owned BRK company. He played FNM/FRE very intelligently and got out at the right time. Of course everything he's bought in the last couple years is down, when every stock is down, but that doesn't mean stock picks haven't been effective. Think about the investments that 20 years of Coke dividends have funded.

More importantly, I can't think of a major Buffett stock holding that has totally blown up. He has achieved the returns without taking big risks. Anybody can buy a basket of pharmaceuticals with drugs in testing or trade tech startups during the bubble and possibly get lucky - but they're going to also lose big chunks of money at times. Buffett hasn't picked positions that lost big sums of money. ]]> Tue, 27 Jan 2009 16:46:53 -0500 www.berkshirehathaway..... I realize that it's not up to date, but I think it pretty effectively makes the point that Buffett has done very well with some stock selections: Washington Post, Coke, and AXP/WFC if they ever come back (doing better than other financials anyhow - we'll see). He made a great medium-term trade in PetroChina a few years back. He started in GEICO as a stock investor, although he eventually made it a fully-owned BRK company. He played FNM/FRE very intelligently and got out at the right time. Of course everything he's bought in the last couple years is down, when every stock is down, but that doesn't mean stock picks haven't been effective. Think about the investments that 20 years of Coke dividends have funded.

More importantly, I can't think of a major Buffett stock holding that has totally blown up. He has achieved the returns without taking big risks. Anybody can buy a basket of pharmaceuticals with drugs in testing or trade tech startups during the bubble and possibly get lucky - but they're going to also lose big chunks of money at times. Buffett hasn't picked positions that lost big sums of money. ]]> http://seekingalpha.com/article/116005-google-beats-for-q4?source=feed#comment-363698 363698
If options are nothing more than a way to throw money at employees regardless of whether the company's owners (shareholders) make any money, then let's just throw money at the employees and stop playing games. I would vote against the BoD of any company that recommended repricing of employee options in a time when shareholders and profits are hurting. It's wrong. Salary and employee ownership are two entirely different concepts. ]]> Fri, 23 Jan 2009 00:05:45 -0500
If options are nothing more than a way to throw money at employees regardless of whether the company's owners (shareholders) make any money, then let's just throw money at the employees and stop playing games. I would vote against the BoD of any company that recommended repricing of employee options in a time when shareholders and profits are hurting. It's wrong. Salary and employee ownership are two entirely different concepts. ]]> http://seekingalpha.com/article/115525-the-scariest-chart-ever?source=feed#comment-361562 361562
1. Health care products - ABT, JNJ, MMM, XRAY, PFE, MRK.
2. Computer software - ORCL, MSFT, IBM, plus a million smaller companies
3. Advanced industrial products - GE, EMR, MMM, ETN
4. "Cool" brands - NIKE, KO, PEP, YUM, MCD, music/movie industries
5. Airplanes/defense tech - BA, LMT, RAY, NOC
6. Computer/communication... hardware - AAPL, TXN, INTC

You might think that our banks will pull us down, but the only things worse than American banks are everyone else's banks. Japanese banks haven't had decent profits in 20 years. European banks went in for subprime/bad CDOs/crooks like Madoff at a level that no one over here did. ]]> Wed, 21 Jan 2009 01:40:26 -0500
1. Health care products - ABT, JNJ, MMM, XRAY, PFE, MRK.
2. Computer software - ORCL, MSFT, IBM, plus a million smaller companies
3. Advanced industrial products - GE, EMR, MMM, ETN
4. "Cool" brands - NIKE, KO, PEP, YUM, MCD, music/movie industries
5. Airplanes/defense tech - BA, LMT, RAY, NOC
6. Computer/communication... hardware - AAPL, TXN, INTC

You might think that our banks will pull us down, but the only things worse than American banks are everyone else's banks. Japanese banks haven't had decent profits in 20 years. European banks went in for subprime/bad CDOs/crooks like Madoff at a level that no one over here did. ]]> http://seekingalpha.com/article/115425-how-the-iphone-and-poor-management-contribute-to-apple-s-downfall?source=feed#comment-361550 361550
AAPL is very straightforward about their earnings and doesn't try to inflate the numbers for the short-term boost. I respect that. The stock will eventually reach a fair value. However, it might not be as high as you think, what with:

1. Strong competition with lower prices on their major products (NOK, RIMM, plus all the computer makers).
2. Massive damage to the U.S. consumer.
3. Long-term aversion of investors to no-yield, high volatility stocks after last year's debacle.

The best thing Apple could do would be to return some cash to shareholders or invest in some venture capital/private equity. The tendency of big tech to stockpile cash at tiny interest rates is one of the biggest value destroyers of the last 10 years. MSFT has seen the light and should do pretty well going forward, but AAPL and GOOG have to get moving. It's not all bad to go into this sort of economic crisis with a cash hoard, but it's shameful to go out of it with one. At today's prices AAPL could buy out plenty of other companies - maybe Bank of America should become Bank of Apple. ]]> Wed, 21 Jan 2009 01:17:21 -0500
AAPL is very straightforward about their earnings and doesn't try to inflate the numbers for the short-term boost. I respect that. The stock will eventually reach a fair value. However, it might not be as high as you think, what with:

1. Strong competition with lower prices on their major products (NOK, RIMM, plus all the computer makers).
2. Massive damage to the U.S. consumer.
3. Long-term aversion of investors to no-yield, high volatility stocks after last year's debacle.

The best thing Apple could do would be to return some cash to shareholders or invest in some venture capital/private equity. The tendency of big tech to stockpile cash at tiny interest rates is one of the biggest value destroyers of the last 10 years. MSFT has seen the light and should do pretty well going forward, but AAPL and GOOG have to get moving. It's not all bad to go into this sort of economic crisis with a cash hoard, but it's shameful to go out of it with one. At today's prices AAPL could buy out plenty of other companies - maybe Bank of America should become Bank of Apple. ]]> http://seekingalpha.com/article/115009-tech-bellwethers-looking-cheap?source=feed#comment-357201 357201 ]]> Thu, 15 Jan 2009 23:35:26 -0500 ]]> http://seekingalpha.com/article/113133-kraft-foods-time-to-put-this-cash-cow-out-to-pasture?source=feed#comment-351692 351692
The reason people like WB like Kraft is that it produces steady cashflow. The debt is a little high, but borrowing costs are low for this company - why not? If they ever finish this restructuring and get focused on incrementally pushing up pricing and share for core brands you're going to see nice steady growth.

The stock has been overpriced periodically in the last few years up in the mid-high 30s. In the 20s the dividend makes it worthwhile. ]]> Sat, 10 Jan 2009 11:44:37 -0500
The reason people like WB like Kraft is that it produces steady cashflow. The debt is a little high, but borrowing costs are low for this company - why not? If they ever finish this restructuring and get focused on incrementally pushing up pricing and share for core brands you're going to see nice steady growth.

The stock has been overpriced periodically in the last few years up in the mid-high 30s. In the 20s the dividend makes it worthwhile. ]]> http://seekingalpha.com/article/113965-sears-is-holding-strong?source=feed#comment-351554 351554
Sears is just not a good business - it has poor brand image, disgruntled employees, and few customers. You can't make money investing in poor businesses at prices anywhere above clearly dirt-cheap (like below cash on the books). Even Warren Buffett failed to make much on floundering department stores investments. ]]> Sat, 10 Jan 2009 08:31:42 -0500
Sears is just not a good business - it has poor brand image, disgruntled employees, and few customers. You can't make money investing in poor businesses at prices anywhere above clearly dirt-cheap (like below cash on the books). Even Warren Buffett failed to make much on floundering department stores investments. ]]> http://seekingalpha.com/article/112230-fear-and-loathing-in-2009?source=feed#comment-338448 338448
whisperonthewind: Do you know anything about banking? Why would banks pay 4 or 5% for standard deposits that could depart any day when the government is essentially handing out free money? Are you that stupid? Many banks are issuing new mortgages at 5% and below - where do you think their interest margin is going to come from if they start paying equally high rates on deposits?

I should know: You already know that you were wrong once (driven and derided by greed in July - selling WFC for 20? What did you think, that we were never going to have any banks again? You should go into business as a contrarian indicator!). Now you're wrong again. WFC is not the First National Bank of Purple Unicorn-Land. They were in every type of bad lending - interest-only, subprime, Alt-A, HELOC, no-doc, ARM, etc. Maybe they didn't go as far into the joys of negative-am ARMs as Wachovia, but they remedied that mistake by purchasing them. Why would you trust any bank's marks when all of them have had to take further writedowns and loss reserves every quarter for the past year? Of course financial bulls will eventually be right, but it doesn't really matter if you're right about one bank (which you accidentally sold) 10 years from now when your other investments have blown up along the way.]]> Fri, 26 Dec 2008 01:24:22 -0500
whisperonthewind: Do you know anything about banking? Why would banks pay 4 or 5% for standard deposits that could depart any day when the government is essentially handing out free money? Are you that stupid? Many banks are issuing new mortgages at 5% and below - where do you think their interest margin is going to come from if they start paying equally high rates on deposits?

I should know: You already know that you were wrong once (driven and derided by greed in July - selling WFC for 20? What did you think, that we were never going to have any banks again? You should go into business as a contrarian indicator!). Now you're wrong again. WFC is not the First National Bank of Purple Unicorn-Land. They were in every type of bad lending - interest-only, subprime, Alt-A, HELOC, no-doc, ARM, etc. Maybe they didn't go as far into the joys of negative-am ARMs as Wachovia, but they remedied that mistake by purchasing them. Why would you trust any bank's marks when all of them have had to take further writedowns and loss reserves every quarter for the past year? Of course financial bulls will eventually be right, but it doesn't really matter if you're right about one bank (which you accidentally sold) 10 years from now when your other investments have blown up along the way.]]> http://seekingalpha.com/article/112226-kuwait-and-dow-chemical-deal-will-get-done-despite-opposition?source=feed#comment-338442 338442
1. Dow gets hosed even worse than they already are by the Kuwaitis and ultimately has to accept poor terms in the K-Dow deal.

2. Dow borrows a ton of money at high rates.

3. Dow completes ROH deal at absurd full price.

4. Management pays itself huge bonuses for deal-making "success".

5. Dow fails to delivers synergies and struggles to endure a long downturn in the chemical industry.

In this scenario, Dow has no alternative but to cut the dividend and might have to sell assets at fire sale prices in order to service debt and keep capital-hungry businesses alive. Dilutive share issue probably follows. Bankruptcy is not likely but possible.

The problem here is that the Kuwaitis and ROH have all the leverage in the negotiations due to Dow's insistence of taking on transformative change in the midst of the worst economic downturn since the Depression. Without both deals Dow is just another plodding chemical company with no edge. The Kuwaitis have already been able to talk Dow way down on price, while Liveris and Co. have obviously indicated that they're so desperate for Rohm that they'll do anything. If management had any sense they'd go to Rohm and say "Take 70 or watch us release a statement saying we're re-evaluating the deal, followed by your shares going to 30." Of course, if they had any sense they never would have cut a deal at 78 (massive premium to ROH's all-time high, of course) during the worst market downturn since the depression. ]]> Fri, 26 Dec 2008 01:01:35 -0500
1. Dow gets hosed even worse than they already are by the Kuwaitis and ultimately has to accept poor terms in the K-Dow deal.

2. Dow borrows a ton of money at high rates.

3. Dow completes ROH deal at absurd full price.

4. Management pays itself huge bonuses for deal-making "success".

5. Dow fails to delivers synergies and struggles to endure a long downturn in the chemical industry.

In this scenario, Dow has no alternative but to cut the dividend and might have to sell assets at fire sale prices in order to service debt and keep capital-hungry businesses alive. Dilutive share issue probably follows. Bankruptcy is not likely but possible.

The problem here is that the Kuwaitis and ROH have all the leverage in the negotiations due to Dow's insistence of taking on transformative change in the midst of the worst economic downturn since the Depression. Without both deals Dow is just another plodding chemical company with no edge. The Kuwaitis have already been able to talk Dow way down on price, while Liveris and Co. have obviously indicated that they're so desperate for Rohm that they'll do anything. If management had any sense they'd go to Rohm and say "Take 70 or watch us release a statement saying we're re-evaluating the deal, followed by your shares going to 30." Of course, if they had any sense they never would have cut a deal at 78 (massive premium to ROH's all-time high, of course) during the worst market downturn since the depression. ]]> http://seekingalpha.com/article/107990-berkshire-s-puts-not-such-a-great-idea?source=feed#comment-315238 315238
Of course BRK could have made more money selling puts today, but their invested capital/collateral is zero, meaning as long as stocks don't stay low for 20 years whatever profit they make will equal an infinite ROIC. ]]> Wed, 26 Nov 2008 02:05:45 -0500
Of course BRK could have made more money selling puts today, but their invested capital/collateral is zero, meaning as long as stocks don't stay low for 20 years whatever profit they make will equal an infinite ROIC. ]]> http://seekingalpha.com/article/107338-4-unbelievable-stock-charts-freeport-mcmoran-alcoa-peabody-and-goldman-sachs?source=feed#comment-313077 313077
Come on. If your only business is selling copper, gold, moly, etc. and the price of those items declines, your earnings will decline. If they decline far enough you'll go bankrupt. What kind of liquidation of FCX's assets could you run in this climate? You really want to bet that there's anything left over for equity-holders if we don't see a commodity comeback? The only thing keeping FCX afloat is that they come across some gold while mining minimally profitable copper. ]]> Sun, 23 Nov 2008 15:40:28 -0500
Come on. If your only business is selling copper, gold, moly, etc. and the price of those items declines, your earnings will decline. If they decline far enough you'll go bankrupt. What kind of liquidation of FCX's assets could you run in this climate? You really want to bet that there's anything left over for equity-holders if we don't see a commodity comeback? The only thing keeping FCX afloat is that they come across some gold while mining minimally profitable copper. ]]>