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Doug Kass's Killer Shorts - Barron's

About a year later, I'd say Kass's calls look pretty far off the mark. He seems like the kind of guy who's more interested in being contrarian and looking smart than making the maximum amount of money. All of his shorts were atypical calls and few are down more than the SPY (down ~35% since his article) while many have outperformed the SPY significantly.

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.

Three Stocks To Be Held To Infinity and Beyond

So much poor reasoning in these responses. I realize the original article isn't perfect, but:

johnj0522: Your point is irrelevant. The 150 shares of GE in 1987 would be 1821 shares today. The author misspoke but it doesn't affect the conclusion of the argument. He didn't double-count splits. Google Finance (and some other financial sites too) adjusts for splits going backwards to make these calculations easier.

multiple posters about dividends: this article isn't about dividends. It's about returns ex-dividends, because those are easier to calculate and the author is trying to make the point that these stocks were acceptable holds even without thinking about the dividends (if you reinvest they become excellent investments, in hindsight).

Reckless: You can look this up yourself. Gannett is about flat, but anyone who held print media through the highs this company hit in 2005 is a buffoon who deserves to lose his money. With the dividends at least he's still making a profit. Citigroup is up more than 4x from 1987 (and you could have gotten it at the same price or cheaper as late as 1992), before you even look at the dividends, which are pretty big. Maybe you could work harder at cherry-picking?

RobertM73: You are as wrong as a person can be. Read any history of investing and you will see that anyone who invested intelligently during the 30s made tons of money in the 40s and 50s. That's why people like Graham and Fisher are famous - they made their fortunes in those markets. Even from the peak of 1929 it wouldn't take until anywhere near the late 60s for investors to be made whole. Even if you use the ridiculous metric of ex-dividend DJIA (which is a narrow, price-weighted, subject-to-change index that no one should base generalities off of), the Dow hit its 1929 price peak in 1954. Of course, nobody in the world invested all their capital at the peak of the 1929 market and then did nothing for the next 25 years except spend dividend checks, so actual investor returns were massively positive for this period because the '30s created buying opportunities and dividends kept compounding.

those bemoaning inflation/talking up gold: Show me the asset class that provides better risk-adjusted long-term real returns than stocks and I will be happy to invest some money in it. It sure isn't gold, which is lucky if it matches inflation and provides any real return whatsoever. If you bought gold at its peak in 1980, you were just made whole this year, in NOMINAL terms with NO dividends. You've had a block of metal in your house for 28 years and now its purchasing power has been eaten up by inflation. If you want to talk about mustering a flat real return in the long term,, you would have had to buy gold at one of those times when no one else way buying it and held it for the nice 2000s run we've had. I realize it looks good in the last ten years, but that's because you've caught an sentiment-driven uptrend in an commodity asset with minimal function that produces no earnings. Gold cost more in real dollars in 1980. Gold cost roughly the same amount in real dollars as far back as 1974. What makes you think that this is a logical investment to buy and hold?

American Express Calls Investment Banks' Bluff

Oh yeah, one more thing: price matters. You only talk about your subjective opinions of the companies, with no regard for the price they're selling at. Every major financial is still available at a discount to historical prices, reflecting the fact that they aren't out of the woods yet and some will never make it out. To make a useful assessment you have to compare price to value. The price has bounced so fast in the last week because prices were ridiculous. Now the next development is harder to call, but it's not a clear-cut sell/short situation with some potential bargains still out there.

American Express Calls Investment Banks' Bluff

The only thing you're right about is the one objective part of your article: Citigroup's results are horrible. The fact that they're participating in a rally led by profitable companies like BAC and WFC is just an indication that a lot of investors aren't reading the reports and instead trading financials as a basket on momentum.

Otherwise your article is emotionally-driven and short on facts. You don't tell us anything insightful about credit quality or earnings drivers for these companies. AmEx is a bit different from companies in the mortgage business, since AmEx loans are collateralized by people's desire not to have a low credit score (almost irrelevant, in today's environment of scare credit and more pressing financial concerns) whereas mortgage loans are collateralized by the roofs over people's heads (fairly valuable for most people, and a forecloseable asset in the event of default). When someone defaults on an AmEx loan, the whole thing the company can collect is one more name and address to sell to the collection agency for pennies on the dollar. When someone defaults on their mortgage, their bank gets a house, which should eventually be worth significantly more.

Also your comparison of AmEx cardholders to V and MC cardholders is spurious because most people have no more than 1 AmEx card (since they're issued by only one company) and many V/MC cards (since they're issued by every bank, stores, lenders, etc.). Also, even if your data point were comparable, I'm not quite clear on how people who charge a lot present less credit risk than people who charge a little, absent any information on net worth or income.

I understand that banks have exposure to second liens and uncollateralized consumer debt, but they have much less of it and much more stable business than a pure credit card company.

Bank of America vs. Banco Santander: Whose Dividend Is Secure?

Ganesh - the problem with looking only at net income is that all the net income doesn't belong to you, in the sense that you can determine how it is used. The company could spend the money on a corporate jet, fail to buy insurance, and crash it into the side of a mountain. Dividends belong to you because they are cash payments. Earnings often have to be spent on future capex or acquisitions that may or may not be profitable. Even worse, a lot of managements speculate unsoundly with retained earnings. Dividends still matter. P/E matters too. But why would we limit ourselves to one number?

Bank of America vs. Banco Santander: Whose Dividend Is Secure?

In case anyone missed it, FGFM is being sarcastic. Not only is 9.7 is the wrong number, but it is impossible for the yield to be different in different currencies, since we need to convert both share price and dividend amount using the same conversion factor. Of course the share price and yield are vulnerable to currency swings, but at today's share prices the yield has to be the same regardless of currency.

Also, I want to note the ridiculousness of comparing Spain and the UK (two nations with long histories, more sustainable development patterns, and livable cities) to Florida and Vegas - a state and a city with less than 100 years of significant history, built on cheap gas prices and easy access to water from far away for irrigation and drinking. There's simply no comparison, though of course we should look closely at any markets before investing in a bank that services them.