Entries Tagged 'Commentary' ↓

Last week I wrote about my ten favourite fund managers letters. Writing about those letters made me realise how reliant I have become on RSS feeds and email. One of my favorites from that list don’t offer an RSS or email option. Consequently a month can fly past before I remember to check the site.

Well no more I say! To ensure I read the invaluable Hussman Funds Weekly Market Comment and to provide it via RSS feed and hopefully via email, I will link John P Hussman’s weekly comments here.

This week is ominously entitled Something is About to Give
“The stock market remains relatively overbought in an unfavorable Market Climate, which continues to pose substantial downside risk… There’s a relatively high degree of complacency here, reflected by the suppressed level of implied volatility and the general consensus that bad news has been priced into stocks…
In short, I remain convinced that the market has not yet priced in the recognition that the U.S. economy is in a recession. To the extent that such recognition hasn’t occurred yet, there’s a risk that significant downside will be realized at the point that investors capitulate to that view.
The residual (and I believe, misplaced) confidence that the U.S. has dodged a recession, coupled with a growing recognition that foreign economies are turning lower, has triggered a burst of surprising strength in the U.S. dollar over the past couple of weeks.” Read more at Hussman Funds

Given today’s general dearth of beaten-down assets outside of residential real estate and financial institutions, investing gradually probably won’t cause you to miss great opportunities. But it will keep you out of trouble and ensure that you have capital with which to take advantage of any bargains ahead. In my book, going slow here makes the most sense.

You can read the whole 12 pages here, I assure you it will be time well spent.

It is good to see my current thinking and portfolio stance validated, yet at the same time this train of thought is getting close to the consensus. Everyone is predicting a slow global economy until at least 2010. Can they all be right?

Do I think we’ll see 4,000? Nope. Do I think we’ll see the equivalent of 4,000 corrected for long-term market growth? I don’t know, but it seems likely that we will eventually see the equivalent of such a low point. John TwinDeltaTandem

Wow…so clear when someone like John lays it out. Kaboom the path is clear. Investing at low points is an easy path to market out-performance. Using margin at low points is the accelerant.

This thread on the BMW Method Board at TMF shows a remarkable dire consensus. I feel compelled to remark that on the few occasions predictions come true they are usually short lived.

I am slightly in cash. Around 10%. The FI portfolio is 79% cash and buying. If you’re finding reasons not to buy in the current market and though bought confidently in the last two years then you are taking a difficult path to investment success.

If we wash dramatically lower from here then I’ll start to use margin. That is the time to use margin safely. Unfortunately most people us margin in bull markets. To some extent they are right, you want to be in margin and looking to pare back that margin during the early phases of a bull market. You just don’t want to get caught on margin any were in sight of a market peak.

If you are in cash now, well down! You’ve done better than me on this ride down, my cash got to around 20%. I did choose cash instead of an index fund when starting the portfolio as that was clearly the best position to be in. All it takes is a few right calls down the years while keeping the mis-steps as small as possible.

Beware the negative consensus.

Buy on Fear.

Tune out the noise, what do you know is right.

I wonder what the rest of the thread offers. I like most of the suggestions thus far:

1. Be a cheap and recoverable lesson that he will never forget. qazulight
2. Most of what Dan said was probably true, but hey smell the roses the entire world stinks of power and greed. The pigs are at the troths.
3. “When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished by how much he’d learned in seven years.” Mark Twain lptj suggestions on the mechanics of how to deal with SS18 was good
4. I like Wendy’s suggestion
   Tell him to put half into an online savings account at Countrywide, which yields 3.35%.
   Tell him to put the other half into BAC, which currently yields 11.8%.

Interesting re-reading the first part the consensus is not so dire after all. Only a couple gloomy posts. Most seem balanced and wise.

The FI Fund is 18.68% up on the ASX200.

Cheers
Dean

In short resources and more resources.

As I mentioned in my last post I attended a retirement seminar last week. The seminar was about borrowing by superannuation (retirement) funds (DIY Super Funds). While the presentation was of some interest, I found my discussion over drinks with Andrew Smith and David Bruty from the Equity Trustees Asset Management Team of more interest.

Their view was the best place for new investments remained the resource sector. They believed the resources boom had ten years more to go and that a slow down or recession in the U.S. would not slow the boom. Their opinion was that internal consumption in China and to a lesser extent India would pick up any slack form a slowing U.S.

I asked whether that meant it was different this time? Continue reading →

My ten day investing brain dump will recommence in a few days.

I occasionally wonder why more people aren’t wealthy or at least heading there. For anyone or any family on above average income it is easy to get rich. If my basic understanding of statistics is correct that’s 50% of people who should retire wealthy and should retire early!

When I go into a large bookstore I see hundreds if not thousands of books all dedicated to helping people become wealthy. There is clearly no mystery surrounding how to become wealthy and yet despite buying lottery tickets week in week out most people can’t be genuinely interested in becoming wealthy. Heck, most people seem to struggle just getting by. Is it lack of interest, is it ignorance, is it laziness?

Wealth is all about time. Continue reading →

I have launched, or at least taken the first wobbly steps on, a new blog.

Fusion Options Analysis will be my options analysis out loud on positions I’m considering for my personal holdings. Another reason for launching a second WordPress on my site is to use it as a testing ground for new themes. The theme may change from time to time.

Cheers
Dean

The Microsoft board has been accused in some quarters of poor capital allocation. There is plenty of evidence to support this, not least the recent Yahoo bid, the $6B cash purchase of aQuantive and the Gucci loafer in the door at Facebook. When Microsoft paid $240M for a 1.6% stake in Facebook it was valuing a company with $140M in revenues and $30M in profits at over $15B. Some may excuse that sort of stupidity as strategic, to me it’s just plain stupid. All three deals have one thing in common, an absolute ludicrous overpayment which will not have a good return on investment for Microsoft shareholders.

So why isn’t Warren Buffett on the Microsoft board?

Buffett is considered one of the best capital allocators around, so why wouldn’t his good mate Bill Gates get him on board? After all Bill sits on the Berkshire board. Interestingly Yahoo President Susan Decker also sits on the BRK board. I wonder if Warren is chiding them like children who can’t share their toys. The cynical amongst us may suggest that the Microsoft board wouldn’t want Buffett on the board as they’d see him as a real party pooper. “Oh come on Warren why can’t we pay five times what this company is worth”, “Warren can’t you see the intrinsic value is making us in charge of an even bigger company, that’s the value!”

I view Microsoft as good, but not fantastic value at the current $29.20. I believe people are overestimating the short term threats to Microsoft, while others are underestimating the long term threats. This is due to a common human trait of overestimating what can be done or will happen in a single year while underestimating what can be achieved or will happen in a decade. In investing I like to consider both the near and long term. In valuing Microsoft right now I think good comparisons can be drawn to newspapers ten years ago. Softie will continue to churn out prodigious amounts of free cash over the coming years, one estimate I saw called for $54B in FCF over the next three years. Using a discounted cash flow model with conservative inputs I view MSFT as good value with a 10-20% margin of safety. I would be interested in buying if the board could demonstrate some capital allocation prowess. Walking away from the Yahoo deal is a step in the right direction.

This thread on the Liquid Lounge Board at the Motley Fool covered most of the current arguments on MSFT.

BMW Method 20 year chart for MSFT

          AVE      CUR     RETURN                    6-MO
TICKER   CAGR     CAGR     FACTOR      RMS   PRICE    CHG
---------------------------------------------------------
MSFT    24.5%    19.7%       2.14    -1.17   29.24   -12%

Cheers
Dean

Loving it! $500M first week, called a brutal and satirical masterpiece equal to films like “The Godfather,” beat Halo 3’s $400M record.

This company was a slam dunk earlier this year as I posted about on Rule Breaker boards and went long in CAPS at $13.67.

I wouldn’t buy now, but am holding as the EA offer was an opportunistic low ball. TTWO is worth 20% more right now.
2008 eps consensus $1.50, with analysts raising targets recently.
The ERTS offer has pinned TTWO to around $26 since late Feb, the current sales the share price would have made it at least this high without the ERTS bid, if anything the price is now constrained by the bid.

If you don’t own TTWO then stay alert in case ERTS pull out of the deal and there are suddenly more sellers. TTWO in the low twenties would be good. Unless there is also a large material change in TTWO’s business I’d buy more there. For now I hold and in these markets will be happy getting the 20%. Preferably I’ll still own TTWO next Jan so long term CGT kicks in.

Dean

Tomorrow I’ll be asking Why Isn’t Buffett on the Microsoft board? Though it is exciting to see Reed there. (my eldest is another Reed)

And hopefully I’ll figure out how to link my CAPS profile to this blog.