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Owen

Owen
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  • Potential Acquisition Targets For Berkshire Hathaway [View article]
    Impressive work, Brad!

    I reached some of the same results when I applied what I believe to be Buffett's criteria. However, there were a few differences in the filters I applied:

    1. Buffett doesn't care about a company's beta. As per Ben Graham's writings, the volatility of a company's stock price is the friend of the intelligent investor. The reason his current portfolio includes low beta stocks is that he likes companies with predictable earnings, and those tend to have stable prices. It is entirely possible, though, that his next purchase will be a highly volatile stock -- as long as Buffett believes he can forecast its earnings.

    2. Buffett doesn't look at things like PEG ratio. He certainly cares about growth, but there is no set threshold. He'll invest in a company with zero growth, if the price is right. His favourite example is a toll bridge.

    3. Dividend, and dividend growth rate, are minor considerations to Buffett. Since he sees shares as representing ownership of a business, he doesn't care how much of his retained earnings are distributed as dividends. In fact, for tax optimization, he'd prefer earnings were retained and reinvested rather than paid out as dividends. That's not the case when he buys preferred shares, of course, as he doesn't see that as owning the business.

    4. He will not buy a business like Broadcom, for the simple reason that he can't forecast what that business will look like in ten or twenty years. While he surprised many people by purchasing IBM, Broadcom relies more heavily on constantly changing technologies, and it is not at all clear whether they have an enduring moat.

    5. I could be wrong, but I find it hard to imagine Buffett buying a company that does most of its business with one customer, particularly one as finicky as the Pentagon. That's why I think Raytheon is an unlikely candidate.

    6. Buffett's experiences in the retail sector made him weary of department stores. Walmart is a notable exception that he likes mostly for their independence from labour unions. Macy's doesn't enjoy such freedom, and its mixed history will likely scare him off. The same is likely true for VFC - the failure of the shoe company he once bought will likely keep him away from such companies. His 2002 purchase of Fruit of the Loom was at highly distressed prices, which isn't the case with VFC.

    7. One of his favourite criteria you completely ignored is the judicious use of debt. Viacom, with a 3:1 debt to equity ratio, and interest payments of 11% of its pretax operating income, is an unlikely candidate. Of course, you already eliminated it for other reasons.
    Jun 25 08:22 AM | 2 Likes Like |Link to Comment
  • AutoCanada: An Easy Short [View article]
    "How do you get those discounted future cashflows in a reasonable time if you buy a stock that doesn't pay a large dividend?"

    And that's another difference between an investor and a trader. As an investor, I don't need dividends to give a company value. If a company I own has retained earnings, it has value. I don't need to move money from one of my pockets to another to create the appearance of value. I'd rather the company use its retained earnings to expand the business or buy back stock.

    A trader, on the other hand, doesn't consider the shares he holds to be a fractional ownership of an actual business. If "they" don't pay him a dividend, he has no use for "them", no matter how much money the company makes.

    Berkshire never paid any dividends, and possibly never will. Is it worthless?

    Also, there is no such thing as "reasonable time" in TVM calculations. A zero-coupon 30-year bond is still worth a considerable amount today, despite not showing any cashflows for the next 30 years.

    I know you are unfamiliar with these valuation methodologies. It's a good thing that you are. As Keubiko and Weighing Machine mentioned, it's helpful to have someone take the opposite side of our trades.
    Jun 19 03:09 PM | 1 Like Like |Link to Comment
  • AutoCanada: An Easy Short [View article]
    "What is the difference between trading and investing? Can you define it?"

    Investing is buying for $80 an asset with a discounted future cashflows of $100.

    Trading is buying for $80 something you believe you'd be able to sell to someone else for $100. Whether it has future cashflows, or can even be considered an "asset" is of no importance.

    Most traders don't even how to calculate the present value of a future cashflow. And as long as there are others like them, perhaps it doesn't matter.

    "Isn't the purpose of buying or selling (shorting) any stock to make money?"

    So is the purpose of buying lottery tickets. Would you also refer to that as "investing"? Perhaps I'm asking the wrong guy.
    Jun 19 01:56 PM | 1 Like Like |Link to Comment
  • AutoCanada: An Easy Short [View article]
    "And Canadians LOVE dividend payers, especially those that grow those dividends over time."

    Yes, they do, which often results in such ridiculous valuations. As I said, that's a good thing.

    "Another American who thinks the people, investors, markets, are the same in both places?"

    Me? Last I checked, Toronto was still a part of Canada. That said, I'm pretty sure the basic laws of value investing work the same way on both sides of the 49th parallel.
    Jun 16 05:43 PM | 1 Like Like |Link to Comment
  • AutoCanada: An Easy Short [View article]
    @funnyzguy, Benjamin Graham's Value Investing methodologies have worked not just for Buffett buying shares of companies he didn't outright purchase, but for many of the most successful investors who ever lived.

    "Value trap" usually refers to buying companies with a nominally low P/E, not for staying away from companies with excessively high P/E. But I'm glad you believe we are all wrong. After all, we need someone to take the opposite side of our trades.
    Jun 16 01:57 PM | Likes Like |Link to Comment
  • AutoCanada: An Easy Short [View article]
    Alan, I don't see anything about valuation in any of the sources you cited.

    These are all brokers looking at the current price, the growth rates, and picking a "price target". That's basically saying, if you were foolish enough to buy the company at 50 times its $1.50 earnings now, chances are someone would be foolish enough to buy it at 50 times $2 earnings next year.

    If that's how you make your investment decisions, fear not. You are in the company of millions of others who look at nothing other than charts.
    Jun 16 12:31 PM | Likes Like |Link to Comment
  • AutoCanada: An Easy Short [View article]
    "Valuations matters."

    Not to Alan Robert Ross. In his 1400-word analysis of the company, there is not a single reference to the stock price, P/E, P/B or any other valuation metrics. The word "growth", on the other hand, appears 11 times.
    Jun 15 10:12 AM | Likes Like |Link to Comment
  • AutoCanada: An Easy Short [View article]
    "But other than being a well managed, fast growing company focused on the most in-demand brands and models, in the fastest growing part of the country, that pays its shareholders a dividend they increase each quarter...it sound like a wonderful short."

    I know you meant this sarcastically, but the sentence is correct as stated. It _is_ a well-managed, growing company with an increasing dividend. That does not, however, mean it is worth any price. Even the most successful companies with the most promising future have a fair price. Paying above that price is a fool's game.

    Of course, many fools have amassed fortunes doing exactly that - overpaying for stocks, and selling to a greater fool. If you can do so consistently, you have no use for fundamental analysis or value investing methodologies.
    Jun 15 08:53 AM | Likes Like |Link to Comment
  • Fishy Business At Pingtan Marine Enterprise [View article]
    " It makes me wonder why anyone would be excited to hold the empty pieces of paper."

    See, people say things like that, but then, for no good reason, the Shanghai Pudong Science Corporation swoops in and buys them for $22.60 a share.
    Jun 13 10:11 PM | 1 Like Like |Link to Comment
  • Fishy Business At Pingtan Marine Enterprise [View article]
    You know, the author of this article wrote a thorough, 4000-word analysis of the company here, scanning its financial statements, and highlighting all its suspicious dealings.

    But it wasn't until you shouted "SCAM SCAM SCAM SCAM" that I realized something might be questionable with this company. Thank you, marxlago, for your insightful observations, without which we would all be lost.
    Jun 13 01:17 PM | 3 Likes Like |Link to Comment
  • Fishy Business At Pingtan Marine Enterprise [View article]
    Dude, you should really have that caps-lock key looked at.
    Jun 13 01:10 PM | Likes Like |Link to Comment
  • Fishy Business At Pingtan Marine Enterprise [View article]
    "SCAM SCAM SCAM SCAM - HOPE YOU HAVE SELL AT OPEN"

    WHY ARE YOU SHOUTING?

    Say something of interest to others, and they'll listen to you even if you whisper.
    Jun 13 01:04 PM | Likes Like |Link to Comment
  • Priceline buying OpenTable for $103 per share [View news story]
    For a fraction of that cost, Priceline could have set up a similar or better service. It's not like Priceline will benefit from the "OpenTable" brand name - most have never even heard of it.

    Business cycle peaks see the oddest mergers and acquisitions.
    Jun 13 09:11 AM | 1 Like Like |Link to Comment
  • Retrophin: An Attractive Short Candidate Due To Numerous Red Flags [View article]
    ...and we're back to reality.

    If you took off on vacation a week ago and got back today to look at RTRX, you'd find it about a dollar lower than where you left it, as if this little publicity stunt and flurry of announcements never happened.

    Yes, they have (maybe) some extra breathing room, but are still burning though cash at the same rate, or maybe slightly faster than we thought before.

    Of course, what you would have really missed is the little orgy we had here last Friday, where the company's steadfast fans were celebrating the 30% spike that day, and predicting the imminent death of all short sellers. Wasn't that fun?

    I'm sure those people are still around. They'll pop their head up next time Mr. Shkreli orchestrates a little drama for our benefit.
    Jun 3 03:04 PM | Likes Like |Link to Comment
  • Warning Signs For Kodiak Oil And Gas [View article]
    Good analysis, Christoph, even if it's not immediately actionable.
    Jun 2 01:23 PM | 1 Like Like |Link to Comment
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