"Now clearly this Russion Oligarch money was stolen, from the people of Russia, so it's up for grabs."
The dilemma is what to do next. We know that 20% of the population smokes marijuana, an offence punishable by 5 years imprisonment, but finding out who smokes and who doesn't takes a lot of work. So, should we randomly pick 20% of the people and toss them in jail, or should we send every citizen, smoker or not, to jail for one year, spreading the pain more evenly? Clearly, _someone_ has to pay for all that weed smoking.
Arkansas Best: Want A Trucking Company For Free? [View article]
Ah, the wonders of GAAP.
Generally Accepted Accounting Principles allows a company to account for its assets based on a simple depreciation formula, rather than price its assets based on a realistic market price. A ten year old truck bought for $200k could sit on the books valued at $120k, even though you wouldn't be able to find a buyer for it if you asked for $50k. A warehouse you purchased for $5 million in 1999 when the market was hot would show as a $4M asset, despite the fact that you can buy an identical property next door for under $1M.
But the fun doesn't end there. The value of those tangible assets is only meaningful if they could be separated and sold, unencumbered. Alas, that is not the case. Labour agreements with the unions forces the transferral of those costly obligations to whoever buys the assets as part of an operating company. The value of those liabilities, which might very well exceed the value of the assets, doesn't have to appear on the company's balance sheet, but certainly affects the valuation potential buyers attach to the entire company.
I'm not saying that Arkansas Best is not a good investment, just that going by book value--tangible or not--is not a useful tool in valuing this type of company as a going concern.
The Pursuit Of Mediocrity - Fallacy Of Dollar Cost Averaging And The Abuse Of Indexing [View article]
Good article!
I think the problem with randomly-timed purchases versus dollar cost averaging is that most investors tend to pick the worst time to purchase stocks - during market euphoria, usually near the local peak of the price curve.
Much of the current literature promoting dollar cost averaging uses the assumption that without such a tactic, the investor's money sits in cash until the opportunity to invest presents itself. With such an absurd assumption, the conclusion is foregone.
> If you think that the cost of capital for the market is about 9%
Why 9%? I've seen this number used elsewhere, but never explained. Your entire model seems to hinge on this one key number, which you provide without explanation.
Triple-B long-term corporate paper is now yielding under 5%. This means that any reasonably healthy company can now borrow money for 20 years at a 5% interest rate - and the inflation is already priced in.
Using the current 5% cost of capital, rather than the historical 9%, flips the entire picture around. Based on your model, current market valuation implies negative growth. Even a stagnant or slowly contracting market would reward investors for taking the equity risk.
Arkansas Best: Want A Trucking Company For Free? [View article]
> We are supposed to buy a company that just degraded to it's all time low?
Not at all! Wait until the stock doubles in price, and then buy it. I mean, why pay $7.40 for a stock when you can pay $15? Who wants to buy stocks when they're cheap anyway, right?
Also, in 1997, the stock traded under $5, so based on your system, it's still OK to buy it now, and then stop buying when it gets too cheap to buy.
Crisis on. S&P 500 futures -1% and the euro -1.2% as Brussels "faced with a drowning member state, instead of throwing the Cypriot people a lifebuoy, (throws) a millstone around its neck." EU leaders risk triggering bank runs in Cyprus (and elsewhere?) by going after bank depositors to fund the country's bank bailout. [View news story]
It takes decades to build trust in a regime's respect for property rights, and one stroke of a legislator's pen to destroy it. Cyprus just made sure it will be years before any investor--domestic or foreign--trusts their capital markets enough to put his money there.
Any bailout is a waste of money. If the Cypriot leaders are determined to scuttle the ship, even Germany is powerless to stop them, and would be a fool to try.
Did The Brazilian Courts Just Shoot The Country's Oil Industry In Both Feet? [View article]
A fine of $3 million for every barrel of oil spilled, or $71,000 for each gallon of oil - this is a bit reminiscent of the arbitrary tax grabs that chased some companies out of Russia.
Brazil is usually seen as a rule-of-law nation, but this story makes me seriously doubt that perception.
Fair Value for the S&P: It's Not 440 [View article]
Good article. The coat store example is brilliant!
Multiplying the trailing GAAP earnings by 15 implies an expectation that those one-time impairment charges of 25-80% of the original value of holdings will recur each and every year indefinitely. Regardless of market valuations, such a scenario is an arithmetical impossibility.
Risk Parity: A Bullet-Proof Investment Strategy? [View article]
The theory behind beta-weighted portfolio composition has been around for decades. While there is some merit in controlling the beta of the overall portfolio, it is important to remember that volatility and risk are not the same thing. The two terms are often used interchangeably, but some of the least volatile instruments carry the most risk.
For example, even if we assume all US treasuries will be paid off in full, if inflation starts soaring in the latter half of this decade, the real, inflation-adjusted value of a 10-year note upon maturity would be a fraction of what you pay for it now. A "risky", highly-volatile common stock, on the other hand, is more likely to retain its value in the face of inflation.
Optimizing one's portfolio for optimum expected return divided by volatility is an interesting exercise, but not necessarily a very useful strategy for maximizing profits. And it is certainly not "bullet-proof" in any sense of the phrase.
"This is a nuclear war on savings and wealth," writes Jefferies' David Zervos of the Cyprus bailout. "This is a policy move you expect from a dictatorial regime ... not in an EU member state. If the EU governments can clandestinely expropriate 7-10% of their (citizens' savings) after the close of business on Friday night, what else are they capable of doing ... Why keep your money at a Spanish or Italian bank when you can jump to Germany or France ... Why even keep money in the EU banking system at all." [View news story]
> Its Cyprus... who cares?
True, Cyprus is a tiny economy. But if the rest of Europe see how the EU allows the Cypriots to get away with such blatant treaty violations, I'm sure other European nations--much bigger ones--might think of trying the same. And when that starts, the only safe place for money in Europe is Switzerland, outside the EU.
A Remarkably Safe Way To Play The Apple Earnings Announcement [View article]
"Most people don't have $50,000 sitting around with which to buy 100 shares of a stock"
Really? You still go through an $80-a-trade full-service broker who makes you trade NASDAQ shares in board lots?
You should check out these things called online discount brokers and ECNs - they're happy to let you trade odd lots, even a single share of AAPL, with commissions as low as $1 per trade. It's a new thing - only been around about 20 years or so. Give it a look when you get a chance.
"so naturally, options are a viable alternative for a high-cost stock such as AAPL."
Actually, options (and single-stock futures) are the only time you're effectively forced to take a position in multiple of 100 shares of the underlying. Your advice is self-defeating.
Petrobras' (PBR) first quarterly loss in 13 years has more to do with the real's depreciation than recurrent factors, CEO Maria das Gracas Foster says. The company lost 1.35B reais ($666M) vs. an expected 2.94B-real profit, and the need for international financing means heavy exposure to the dollar. Production gains of 1.5% in the past year (to 2.62M bpd) marked the slowest rate since 2007. (Beyondbrics: It's not just the FX) [View news story]
Petrobras' business is stable enough that it's easy to hedge out any currency or interest rate exposure. Failure to do so is essentially an active bet on the currency. If Petrobras chooses to be in the business of betting on forex, this latest quarter loss is an operational loss, not a finance one.
As Joe Leahy correctly points out, a bigger problem is how the Brazilian government helps itself to Petrobras' wallet by forcing the company to supply gasoline below cost. This is a subtle form of nationalization. Anyone would be a fool to invest in a company that has the government's hand so deep in its pocket.
Debt to whom? If you owe a dollar to your bank, who in turn owes a dollar to another bank, who owes a dollar to the government, that one dollar debt is counted three times. Much of the world's debt is counted more than three times.
A person, company or country can be leveraged. The world as a whole cannot, by definition, be leveraged. For every debtor there is a creditor. Once again, an article published with the sole purpose of inspiring panic in people who don't have basic knowledge of economics.
Berkshire's report is one of the most honest and forthcoming in the industry. When Buffett screws up, he is the first to admit it and ask for shareholder forgiveness.
Buffett does better with companies he owns outright than with shares of publicly traded companies. The reason for that is that while he is a great investor, he is an even better leader and mentor. People working for him are trying much harder to do a good job than those reporting to a short-sighted, disinterested board of directors.
Opportunities in a High Correlation World [View article]
otbricki: The Talmud was only 1500 years ago, and since Jews were forbidden from charging each other interest, the last one third was to be in ready-to-use cash on hand.
Also keep in mind that 1500 years ago, most of the world's economic productivity came from agriculture, so keeping a third of your investments in land made more sense then than it does today.
The Talmudic scholars were brilliant people, but you cannot blindly apply their investment advice to today's economy without first understanding the underlying conditions that prompted it.
Yes, Stealing Really Is That Bad [View article]
The dilemma is what to do next. We know that 20% of the population smokes marijuana, an offence punishable by 5 years imprisonment, but finding out who smokes and who doesn't takes a lot of work. So, should we randomly pick 20% of the people and toss them in jail, or should we send every citizen, smoker or not, to jail for one year, spreading the pain more evenly? Clearly, _someone_ has to pay for all that weed smoking.
Arkansas Best: Want A Trucking Company For Free? [View article]
Generally Accepted Accounting Principles allows a company to account for its assets based on a simple depreciation formula, rather than price its assets based on a realistic market price. A ten year old truck bought for $200k could sit on the books valued at $120k, even though you wouldn't be able to find a buyer for it if you asked for $50k. A warehouse you purchased for $5 million in 1999 when the market was hot would show as a $4M asset, despite the fact that you can buy an identical property next door for under $1M.
But the fun doesn't end there. The value of those tangible assets is only meaningful if they could be separated and sold, unencumbered. Alas, that is not the case. Labour agreements with the unions forces the transferral of those costly obligations to whoever buys the assets as part of an operating company. The value of those liabilities, which might very well exceed the value of the assets, doesn't have to appear on the company's balance sheet, but certainly affects the valuation potential buyers attach to the entire company.
I'm not saying that Arkansas Best is not a good investment, just that going by book value--tangible or not--is not a useful tool in valuing this type of company as a going concern.
The Pursuit Of Mediocrity - Fallacy Of Dollar Cost Averaging And The Abuse Of Indexing [View article]
I think the problem with randomly-timed purchases versus dollar cost averaging is that most investors tend to pick the worst time to purchase stocks - during market euphoria, usually near the local peak of the price curve.
Much of the current literature promoting dollar cost averaging uses the assumption that without such a tactic, the investor's money sits in cash until the opportunity to invest presents itself. With such an absurd assumption, the conclusion is foregone.
Is The Current Market Overvalued? [View article]
Why 9%? I've seen this number used elsewhere, but never explained. Your entire model seems to hinge on this one key number, which you provide without explanation.
Triple-B long-term corporate paper is now yielding under 5%. This means that any reasonably healthy company can now borrow money for 20 years at a 5% interest rate - and the inflation is already priced in.
Using the current 5% cost of capital, rather than the historical 9%, flips the entire picture around. Based on your model, current market valuation implies negative growth. Even a stagnant or slowly contracting market would reward investors for taking the equity risk.
Arkansas Best: Want A Trucking Company For Free? [View article]
Not at all! Wait until the stock doubles in price, and then buy it. I mean, why pay $7.40 for a stock when you can pay $15? Who wants to buy stocks when they're cheap anyway, right?
Also, in 1997, the stock traded under $5, so based on your system, it's still OK to buy it now, and then stop buying when it gets too cheap to buy.
Crisis on. S&P 500 futures -1% and the euro -1.2% as Brussels "faced with a drowning member state, instead of throwing the Cypriot people a lifebuoy, (throws) a millstone around its neck." EU leaders risk triggering bank runs in Cyprus (and elsewhere?) by going after bank depositors to fund the country's bank bailout. [View news story]
Any bailout is a waste of money. If the Cypriot leaders are determined to scuttle the ship, even Germany is powerless to stop them, and would be a fool to try.
Did The Brazilian Courts Just Shoot The Country's Oil Industry In Both Feet? [View article]
Brazil is usually seen as a rule-of-law nation, but this story makes me seriously doubt that perception.
Fair Value for the S&P: It's Not 440 [View article]
Multiplying the trailing GAAP earnings by 15 implies an expectation that those one-time impairment charges of 25-80% of the original value of holdings will recur each and every year indefinitely. Regardless of market valuations, such a scenario is an arithmetical impossibility.
Risk Parity: A Bullet-Proof Investment Strategy? [View article]
For example, even if we assume all US treasuries will be paid off in full, if inflation starts soaring in the latter half of this decade, the real, inflation-adjusted value of a 10-year note upon maturity would be a fraction of what you pay for it now. A "risky", highly-volatile common stock, on the other hand, is more likely to retain its value in the face of inflation.
Optimizing one's portfolio for optimum expected return divided by volatility is an interesting exercise, but not necessarily a very useful strategy for maximizing profits. And it is certainly not "bullet-proof" in any sense of the phrase.
"This is a nuclear war on savings and wealth," writes Jefferies' David Zervos of the Cyprus bailout. "This is a policy move you expect from a dictatorial regime ... not in an EU member state. If the EU governments can clandestinely expropriate 7-10% of their (citizens' savings) after the close of business on Friday night, what else are they capable of doing ... Why keep your money at a Spanish or Italian bank when you can jump to Germany or France ... Why even keep money in the EU banking system at all." [View news story]
True, Cyprus is a tiny economy. But if the rest of Europe see how the EU allows the Cypriots to get away with such blatant treaty violations, I'm sure other European nations--much bigger ones--might think of trying the same. And when that starts, the only safe place for money in Europe is Switzerland, outside the EU.
A Remarkably Safe Way To Play The Apple Earnings Announcement [View article]
Really? You still go through an $80-a-trade full-service broker who makes you trade NASDAQ shares in board lots?
You should check out these things called online discount brokers and ECNs - they're happy to let you trade odd lots, even a single share of AAPL, with commissions as low as $1 per trade. It's a new thing - only been around about 20 years or so. Give it a look when you get a chance.
"so naturally, options are a viable alternative for a high-cost stock such as AAPL."
Actually, options (and single-stock futures) are the only time you're effectively forced to take a position in multiple of 100 shares of the underlying. Your advice is self-defeating.
Petrobras' (PBR) first quarterly loss in 13 years has more to do with the real's depreciation than recurrent factors, CEO Maria das Gracas Foster says. The company lost 1.35B reais ($666M) vs. an expected 2.94B-real profit, and the need for international financing means heavy exposure to the dollar. Production gains of 1.5% in the past year (to 2.62M bpd) marked the slowest rate since 2007. (Beyondbrics: It's not just the FX) [View news story]
As Joe Leahy correctly points out, a bigger problem is how the Brazilian government helps itself to Petrobras' wallet by forcing the company to supply gasoline below cost. This is a subtle form of nationalization. Anyone would be a fool to invest in a company that has the government's hand so deep in its pocket.
New from The Economist: a Global Debt Clock. At 10:37 today, global debt totalled $35,014,935,027,853. [View news story]
A person, company or country can be leveraged. The world as a whole cannot, by definition, be leveraged. For every debtor there is a creditor. Once again, an article published with the sole purpose of inspiring panic in people who don't have basic knowledge of economics.
Buffett's Financial Bets [View article]
Buffett does better with companies he owns outright than with shares of publicly traded companies. The reason for that is that while he is a great investor, he is an even better leader and mentor. People working for him are trying much harder to do a good job than those reporting to a short-sighted, disinterested board of directors.
Opportunities in a High Correlation World [View article]
Also keep in mind that 1500 years ago, most of the world's economic productivity came from agriculture, so keeping a third of your investments in land made more sense then than it does today.
The Talmudic scholars were brilliant people, but you cannot blindly apply their investment advice to today's economy without first understanding the underlying conditions that prompted it.