Berkshire, Recession, Blogs, New Years Resolutions
– Geoff Gannon has a nice post on the importance of the man at the top. A good company that produces cash but has management that cannot allocated it properly, will disappoint investors.
– If we say it enough, will it happen?
– The anniversary of the birth of blogs……….
– These always end up being such a joke..
Here is the weeks “Top 10” at Value Investing News
This is a stock report (13 pages, PDF format) I recently wrote on USG.
The Wintergreen Fund’s David Winters will tell us why he continues to emphasize international investing. And Jim Grant, the Editor of Grant’s Interest Rate Observer will pull no punches about the outlook for the credit markets in 2008.
Long post on Berkshire Hathaway’s “business model” – how it grows and why the model works even if Buffett isn’t at the helm.
Marty Whitman and Al Zucaro, stock pickers with a knack for buying low, may be dripping in sweat after they snapped up U.S. mortgage insurers that shed more than 40 percent of their value in the past three months.
Does the upcoming break up of Altria represent any value for shareholders?
Barron’s thinks Loews is selling below net current asset value and shares could benefit nicely form a spinoff of their Lorillard tobacco unit.
As usual, there are multitudes of opinions concerning the stock market, and if you focus only on your data and reasoning, you will be right more often than you are wrong.
In typical fashion, Warren Buffett made some big acquisitions last week, and he made them quickly. The ever-patient Buffett can wait years to do a deal, but when he finds something he likes, he needs only days, sometimes just minutes, to wrap things up. This past week was no exception.
I don’t know many people who’d be happy to get a phone call from the IRS. I did not think I’d count myself as one either. But right after I wrote above article about refund anticipation loans (RAL), I got a return call from the IRS’s office of Procedure and Administration, the entity that released the ‘Advance notice of proposed rulemaking’.
Warren Buffett has added over 500,000 shares in 4 transactions
Berkshire Hathaway’s (BRK.A) Warren Buffett is buying Burlington Northern (BNI) again.
In an SEC filing Berkshire’s National Indemnity subsidiary added 240,000 shares at $77.89 on 1/8, 435,000 shares at $77.12 on 1/9 and 46,100 shares at $77.78 on 1/10.
This follows an earlier disclosure today.
The purchases bring Berkshire’s total holdings to 61,580,218 shares
Disclosure: None
Most folks hail the low dollar vs foreign currencies as making our exports cheaper for foreign buyers, thus helping our economy. True, but it also has a very real negative effect that currently is doing far more damage.
The price of oil (USO) from Saudi Arabia, Iran an the rest of the world is priced in dollars. Why does this matter? When the value of the dollar falls, as it has precipitously the past several years, it costs more dollars to buy things from other nations. The largest of those purchases we make? Oil.
In fact, had the dollar simple kept pace with the Euro this decade, the price of oil today would be sitting at a very comfortable $57 a barrel. Had it been pegged to gold, the per barrel price would be in the $30 range. Make you think.
The result? Companies like Dow Chemical (DOW) are moving production overseas where “inputs” (read:oil) are cheaper. One cannot fault Dow for this, its survival depends on these actions. Companies like Coca-Cola (KO) has enjoyed profit runs as the goods they sell in foreign nations are now bringing them increased profits as those overseas currencies are converted into increasingly more dollars.
While a cheap dollar may make some exports more appealing to other countries, the increased cost to the average consumer here at home from heating oil, gas prices, and all the products derived from oil, it is a losing game.
Here is the real danger. We are entering a political season with the following scenario developing. Higher taxes and lower interest rates. What this effectively does is provide consumers with less of a asset that itself is decreasing in value. That is a VERY bad scenario. Think of the late 70’s and Carter.
If we have to raise taxes, (we don’t, politcos just think we do)then in order to offset the effect of consumers having less money, we then have to make that money more valuable by keeping interest rates at least where they are now or raising them the crush inflation. Inflation matters, as Berkshire Hathaway’s (BRK.A) Warren Buffett like to say “It does not matter how many dollars I have, it matters how many hamburgers I can buy with those dollars”. That is the effect of inflation.
So, what to do? Stop the dollars decline and stop the decreasing of interest rates. The fall in the the dollar must be stopped. Any benefits we get from the increase in exports, is crushed by the added cost of products and losses in jobs as energy prices force firms to move to other nations.
Here is the good thing. Oil trades in the futures markets. Simply put, it trades basded on where people “think” prices will be. With the dollar constantly falling, that thought process is always to the upside. If market participants actually believed the dollar would strengthen and that trend was going to become the prevailing one, there would be an immediate reversal in the current upward march in the price of oil.
The bad thing is that in order for this to happen, Bernanke & Co. at the Fed must not only disappoint the market, he must pull the rug out from under it. He must allow the excess liquidity to evaporate and must hold rates (higher than now eventually) to crush inflation. Both of those actions would exacerbate the housing situation and cause the market to tank.
It would be the best thing in the long run though…
Disclosure: Long Dow
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1- Has Lampert “Lost It”?, Did Buffett?
2- Eddie Lampert, World’s Worst Third World Dictator? Come on, Herb!!
3- MFP Investor’s Micheal Price on Sears Holdings
4- Autozone Easily Beats Estimates. Is Lampert a Genius Again?
5- Did Lampert Dump Burnett?
6- Walmart.com Blows away Competition.
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Here are the top 10 from VIN
In a live interview this morning on CNBC’s Squawk Box, Warren Buffett called his purchase of a big Marmon stake as a “bet on America over a long time.” He also revealed that while he has been approached by financials companies about buying a stake, “we have not seen a deal that causes me to start salivating.”
Greenblatt’s calculation of ROIC in TLBTBTM is a useful quick and dirty tool but when it comes to really analysing companies it may need some adjustments to give a clearer picture.
In 2005, Seth Klarman of Baupost Capital warned a group of Wharton business school students that a new class of “value pretenders” had emerged. Klarman, whose fund has earned more than 20% annual returns on more than $5 billion in holdings, provided the following description: “These investors apply a dip strategy.
More bad news for WAMU. SEC is investigating the possible use of inflated appraisals.
“If they are in the strike zone at all, the business ‘pitches’ we now see are just catching the lower outside corner. If we swing, we will be locked into low returns. But if we let all of today’s balls go by, there can be no assurance that the next ones we see will be more to our liking. Perhaps the attractive pries of the past were the aberrations, not the full pries of today.
VALUEPLAYS NOTE: Read a similar post from February at ValuePlays
Rockefeller and Buffett parallel
Diversity Breakdowns and Invisible Vulnerability. For he who is acquainted with the paths of nature, will more readily observe her deviations; and, vice versa, he who has learned her deviations will be able more …
DVW is currently trading at a 14% discount from its acquisition price. This provides a relativley risk free 14% return in just a few months.
Insight on why he is investing in Asia, with Marty Whitman, Third Avenue Management and CNBC’s Erin Burnett
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The week’s top picks from VIN. Ever heard of Warren Buffett?
Geoff Gannon writes this blog post in response to Barron’s “Sell Buffett” cover story. The post looks at a fair value for Berkshire (BRK.A) shares and finds that there is currently no real “Buffett premium” baked into the stock price. In fact, if Buffett gives Berkshire another 9 years, Berkshire may end up being a bit undervalued at the latest price of $143,000 per “A” share.
Two months ago in my Financial Times column, I listed some of the things I have learnt about the stock market over the years. I likened the market to a game of online poker, with anonymous opponents and continuously evolving probabilities. I received some good reader feedback, so this month I’ve decided to revisit the topic. Here are a few more things I’ve learnt about the stock market.
Whitney Tilson and Glenn Tongue, co-portfolio managers of T2 Partners, presented on November 29, 2007 at the 3rd Annual New York Value Investing Congress to a standing- room-only crowd at Rose Hall in the Time Warner Center. This link will take you to their presentation, which also argues that Berkshire Hathaway is somewhat undervalued but offers an immense margin of safety.
Legg Mason Value has been a stinker the past two years. But Bill Miller is a gifted manager. Bet on him to rebound. By Steven Goldberg
First Eagle is reopening two of their funds and several other value funds have recently been reopened. Could this be a sign that managers are find more value opportunities?
“Forget about the upcoming presidential primaries; it’s already election night at Nautilus (NLS) – and the early exit polls favor the challenger.” Geoff Gannon reports on the proxy fight between activist hedge fund Sherborne investors and the incumbent board of Bowflex maker Nautilus.
The Peridot Capitalist chimes in on the Berkshire Hathaway valuation debate and actually thinks the shares are even more overvalued than Barron’s. The debate rages on…
Here is the Barron’s story that everyone is talking about today regarding Berkshire Hathaway’s value. Access to this story should now be free.
Jeff Matthews responds to Barron’s recent “Sell Buffett” cover story. He focuses on issues other than valuation, and points out that Berkshire is not harder to understand than many other businesses, despite its complexity. Most importantly, Buffett actually does communicate extensively with shareholders – he just doesn’t do quarterly conference calls for Wall Street analysts.
Berkshire Hathaway shares are under a lot of pressure today after a cover story in Barron’s over the weekend recommended, “Sell Buffett: Sorry, Warren, Your Stock’s Too Pricey.” (The piece itself is still behind a paid subscription firewall, but will become free content this afternoon.)
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Why is it good news? It simply means it is no longer needed.
At the request of Hank Paulson, Head of The Treasury Department, Bank of America (BAC), Citigroup (C) and J.P. Morgan (JPM) had been working to set up the SIV fund since September. It was proposed to buy assets from so-called structured investment vehicles (SIV’s), removing the direct risk from the banks.
The fact that the banks feel it is no longer needed is very good news indeed. It means the write downs for the SIV’s at the institutions can’t go much lower. These things ARE worth something. Citigroup’s decision to put them on the balance sheet also is a very good event. They will provide clarity.
I have been stumping for financials since about October. They will be the big winners next year and our next purchases will be in the sector again. Currently we own Citi (C), Wachovia (WB) and Goldman Sachs (GS). Goldman is an automatic buy under $200, Citi under $30 and Wachovia under $39.
Our next purchases will be a troubled mortgage lender and a Buffett favorite.
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It was a really good week at Value Investing News
I’m always surprised by the sweeping generalisations made by financial commentators during times of market distress.
at prices ranging from $0.1654 to $0.2601 per share.
This study will change your investing career
Western Sizzlin is no mere restaurant franchise. This company is run by Sardar Biglari who is transforming the business into an efficient capital allocation machine. I take apart the company’s financials and estimate that its intrinsic value is about $28 per share. Read how I do it.
This is a transcript and video clip of the second part of Warren Buffett’s live interview this morning on Squawk on the Street with CNBC’s Becky Quick. In this section, Buffett talks about the super-SIV proposal, the Bush administration’s plan to encourage lenders to freeze some variable mortgage rates and about why he supports Hillary Clinton and Barack Obama for president.
In a live interview with CNBC’s Becky Quick a few minutes ago, Warren Buffett predicted “enormous divergence” ahead in the stock performance for financial companies. In response to a question about whether financials might be the best-performing stock sector next year, Buffett advised against buying financials as a group. He said some will do well but others have done some “really dumb things.”
Todd Sullivan looks at Harley Davidson’s China opportunity
The stock market is falling, or is it the sky? At this writing the answer’s debatable. Treasury yields are collapsing, the price of gold is soaring and oil keeps closing in on $100 a barrel. The U.S. dollar is under siege, Fannie Mae and Freddie Mac are on the skids and the economy-stopping word “no” is on the lips of our formerly fearless lenders.
Glenn and Tilson’s presentation on the EMC stub, Resource America and Berkshire Hathaway.
“He’s up there with the senior executives who steered these major institutions the wrong way,” said David Dreman, chairman and chief investment officer of Dreman Value Management LLC.
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Wachovia (WB) CEO Ken Thompson said something on Wednesday no other bank has stepped up to say yet.
At a Goldman Sachs conference in New York he said is confident that the bank’s dividend is safe and he is “comfortable” that his bank will “grow earnings” in 2008, but gave no specific forecast.
On the same day in a regulatory filing, the bank said securities backed by loans dropped in value in the past two months at a rate equal to the decline in the July-September period. At that time Wachovia took a $1.34 billion hit. In October they said the value had fallen by $1.1 billion and they now project a $240 million writedown for November to cover the difference. The assets being classes being written down include commercial mortgage, leveraged finance, consumer mortgage and structured credit products, including subprime residential mortgage backed securities (“RMBS”) and collateralized debt obligations having RMBS as collateral.
The bank also doubled the amount it expects to set aside to cover bad loans in the fourth quarter to $1 billion.
Here is where we can understand the sentiment of the market. The Fed’s action today injected liquidity into the markets and will lower LIBOR, reducing the non-performing loans in all these writedowns, Wachovia came out and said they will grow earning next year and the dividend is safe. Good news, right? No. The only thing the market is focused on is the write-downs. This is witnessed by Merrill Lynch downgrading Wachovia shares Wednesday morning to “Sell” from “Neutral.” The stock is trading down almost 3%.
Wachovia now trades at 9 times current earnings that will grow next year and yields 5.8%.
Thompson must be real confident considering the current bank CEO situation out there to say the things he said. If either the dividend gets cut OR earning do not grow, Thompson will most likely find his head on the chopping block. Operating under the assumption he is not actively seeking that event, one must conclude both events are “in the bag’ so to speak. That is not to say the the dividend will be increased or that earnings grow by more than a penny, it is to say that a major deterioration from here is doubtful.
Berkshire’s (BRK.A) Warren Buffett said yesterday that he expected “major divergences” in financials results during the next year. With earnings declines expected across the sector, the fact that Wachovia will grow them, it should be one of the winners in the category.
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Here are the week’s favorite reader posts at Value Investing News
Todd Sullivan looks at the commentary surrounding Lampert today and compares it to what was written about Warren Buffett in the late 90’s
Todd Sullivan looks at Wal-Mart’s online success
This is Part 2.
Eddie Lampert Issues Letter to Sears Associates
Finally what BillyT and others saw as inevitable
Delta is filing for bankruptcy and is equity holders can expect to receive nothing.
It’s true. To be a value investor, you must be a Wall Street outcast. You are required to be a member of the chess team and the audio-visual club. You spend prom night at the mall’s video arcade.
If you never thought you’d see the day when kids played cards at school, think again. It’s happening – and helping kids develop important critical thinking skills. Fueling this in-school card craze is Microsoft Chairman and bridge enthusiast, Bill Gates, who along with Berkshire Hathaway founder, Warren Buffett, pledged $1 million in support of creating a youth bridge program.
Metal working and service industry sits pat in the middle of high demand for metal products and rapidly consolidating and value growing mining and metal producing sectors but is still relatively undervalued. This should change in the coming years as this sector enters into the consolidation and restructuring phase
This is why I think Citigroup is in a world of hurt….as of right now. If top managers like Ackermann don’t want the job then who does.
With all the bashing of Sears Holdings (SHLD) Eddie Lampert recently, I was reminded by a reader of an article from Barron’s in 1999 about the demise of Berkshire Hathaway’s (BRK.A) Warren Buffett.
The whole article can be found here:
The lead sentence goes “After more than 30 years of unrivaled investment success, Warren Buffett may be losing his magic touch.”
It then continues,
“Shares in Buffett’s Berkshire Hathaway are set to experience their first annual decline since 1990 and their second-worst year of performance, relative to the Standard & Poor’s 500 Index, since Buffett took control of what had been a struggling New England textile maker in 1965.
At around $54,000 a share, Berkshire’s Class A stock is off 23% in 1999, against an 18% return for the S&P 500 (including dividends). Berkshire has been hurt this year by weak operating results at its core insurance operations and by a rare annual drop in the company’s famed investment portfolio, which includes such stocks as Coca-Cola, Gillette and American Express .
Warren Buffett’s distaste for technology has soured performance.
But there’s more to Berkshire’s weak showing than just the operating and investment performance. To be blunt, Buffett, who turns 70 in 2000, is viewed by an increasing number of investors as too conservative, even passe. Buffett, Berkshire’s chairman and chief executive, may be the world’s greatest investor, but he hasn’t anticipated or capitalized on the boom in technology stocks in the past few years.”
Now, hindsight always being 20/20, in retrospect this article is just foolish and Buffett was indeed proven correct as shares have almost tripled since then. Great long term investors do not “lose it” overnight, they just have a bad year. Now, here is the important part. The bad year is not necessarily because they made bad investments, it is because the market during that year went against those investment. The two are not directly related.
In fact, for investors like Buffett and Lampert, the two must be at times indirectly related. Unless they are, there can be no “value investing” as all securities at all times are accurately valued.
Let’s not forget that even with Sears’ recent slide, it is still up over 100% since Lampert combined the companies 2 1/2 years ago. Sears as a retailer is not “dead” as folks like to say. The retail environment has deteriorated dramatically the last year with virtually all retailers save Target (TGT) and Wal-Mart (WMT) suffering dramatic declines.
Since Sears is the nations #1 appliance seller (over 25% market share and 40% of revenues), the housing situation has hurt it more so that the other retailers (seen Home Depot’s (HD) or Lowes (LOW) results lately?). These are high price, high margin items and this is the principle reason for the earnings situation. When housing turns around in 2008, Sears EPS will jump dramatically as at the rate Lampert is buying shares, there ought to be almost 20% less of them on the market by then.
Sears is not “dead”. How can the #1 appliance seller be a dead retailer? Can it get much better? Sure. Is putting Lands End “store in a store” concept a winner? Yes. But let’s not forget, there are 2600 locations and currently just over 200 have the concept. That is not going to turn a $53 billion operation around in a quarter. It takes time to retrofit locations and order merchandise to stock them. On this scale that process takes a year, not months. The expansion of the concept was announced in March and already the number of locations has already more than doubled.
Is Lampert on the right track? Yes he is. Lands End results have been setting record year after year. People love the stuff.
Sears is being hit on both ends with appliance sales suffering and retail clothing suffering to. Both segments of retail are being hit and with Sears largely into both, their hit is worse. Now, the same can be said of the turnaround in both, when the resume, Sears gets a double boost.
Lampert is thinking like an owner of a company, not a short term investor. That is a god thing for those of us who like to think the same way,
Does Autozone’s (AZO) earnings report today is sending shares up 15% today (up 9% for the past year). Does Sears Holdings (SHLD) Chairman’s Eddie Lampert’s near 40% stake in the company now mean he is a genius again? I can’t help but notice CNBC has not mentioned ONE TIME TODAY his stake in the company. Mistake? I think not.
Does anyone else find it odd that post after post has hit the blogsphere and the mainstream media bashing Lampert’s investments almost hourly for the past three weeks, today’s news has been met with a deafening silence?
Where are all the pundits today? Are we done piling on? If a bad 9 months means Lampert has offically “lost it” then a 16% gain in one day by the same infantile logic must mean he is an uber-investor once again, no?
This is the problem with short term thinking. I makes you stupid. Nobody is “what they did today”, there are what they have done up until this point. Investors like Bill Miller, Berkshire Hathaway’s (BRK.A) Warren Buffett and Lampert, who have produce decades of market beating return just do not lose it. Investing is not like baseball where a power pitcher turns a certain age and the skills just go. If anything, age and the knowledge that come with it help investors.
CNBC is really disappointing me today. It is one thing to bash an investor and even another to use “questionable” comparisons to make your point, but it is ethically vapid to then not be “fair and balanced” (wrong network?) when events turn.
It just comes down to a credibility issue, they are losing it.
