StokBlogs - Investors learning by example

Bought CB KR VAR WAG WMT . Sold BVN (made +140% gain)

Vooch — Tue, 08 Dec 2009 23:19:52 -0500

Bought CB 48.65 (1% weight)
KR 20.28 (1% weight)
VAR 45.54 (1% weight)
WAG 37.31 (1% weight in one account. bought this in two accounts.... The much larger purchase was bought at 37.00)
WMT 54.24 (1% weight)

Sold BVN for approximately 35.45 (made about +140% gain on this one!)

On Friday night, I calculated BVN at 99% of Intrinsic Value. My rule is to sell when it hits 80%, so it was way above that. Even though my order got cancelled yesterday, I placed it again today, even though it was -5% lower. Gold is unpredictable. However, I stayed disciplined, and got out when the price was above 80% of my Intrinsic Value calculation. I made a nice +140% profit on this one, and BVN was over 10% of my portfolio when I got out.

KR was Kroger. I already owned it, and it took about a -13% tank this morning before I added to my position. Combined, I'm down -3.57% now on this stock. They had bad news. I'm thinking about holding this for the long-term, so I didn't mind adding to it today. I figured this was the perfect opportunity to add to the position - when Mr. Market is depressed.

- Vooch

Book Review: Stocks for the Long Run and The Future for Investors.

buybackking — Mon, 07 Dec 2009 04:07:37 -0500

Both written by Jeremy Seigel. These are probably the 2 most useful books I have read on investing. The books discuss the long term results of investing in stocks since 1800. Much work has been done on graphs, stats, and research. Since 1800, 1900, or 1950 stock returns have beaten bonds or gold by a wide margin. However, I do think he misses a lot of stocks that end up broke. Also two stocks listed as S&P 10 are now bust, General Motors and Washington Mutual. There are a lot of hidden gems in these books, so I am going to stop my review here. Go to the library read them, then after you will buy them on amazon because they are that good.

He also writes about the coming crisis due to the fact the country is living longer. He even recognizes that it requires far fewer man-hours to make steel than 20 years ago - 4 m-hrs compared to 10 m-hrs. But, he fails to realize if you added the productivity gains of machines, farming, and minerals, humans would have to live to 200 years old for one to work as hard as someone in the 1950s. Increased life expectancy is actually good for the economy, in the sense that it adds new industries like health care and nursing homes. Industries that don't need to be artificial created with taxes like banking and NASA.

Inflation Expectations

pelcmarek — Sat, 05 Dec 2009 09:47:14 -0500

Prem Watsa, Chairman and CEO of Fairfax Financial Holdings, has often been referred to as “Canada’s Warren Buffett” due to his successful insurance and investing track record. However, in a recent interview with canada.com, Mr. Watsa expressed very different views regarding inflation compared to Warren Buffett’s recent statements on the subject.

Inflation Expectations

80% of the economy [the private sector] is de-leveraging. 20% is government stimulus. Companies are operating at 65% of capacity or utilization rate. Unemployment is rising. If in six to 12 months’ time, the stimulus and bailouts don’t work, and we are at zero interest rates, what then? We had 20 years of good, meaning no recession to speak of, and only one year of bad. We are not worried about inflation, just the opposite. If wages start to go up, there will be inflation. But there is lack of demand. That’s the problem.

Greenspan’s Legacy
The Greenspan policy was part of the problem. If Paul Volcker had been chairman of the U.S. Federal Reserve would this have happened? Not likely. He would have put interest rates up in 1996 when Greenspan warned about “irrational exuberance” and the tech bubble. Mr. Volcker would have let Long Term Capital Management go bust, raised interest rates and we never would have been in this current situation.

Status Update - Things are going great!

Vooch — Wed, 02 Dec 2009 23:42:02 -0500

In response to a question on ActiveValueTrader.com, I'm posting this snippet, so you can see what I'm doing in the markets today....

I'm still holding the SDS at a -14.67% loss currently, which is something I will continue to manage. The important thing about averaging down is you don't want to keep digging a hole when you're already in a hole. This means, don't average down for the sake of averaging down.

I don't consider my SDS position a mistake yet, especially since it's a minimal 1% weight. Since I do not consider it a mistake, I will wait for when the opportunity presents itself, and average down at that point.

If I thought SDS was a mistake, I would have sold it for a loss, without question.

For the past few months, I've been 90% long, 1% short, and 9% cash.

I'm holding two losers, larger than SDS. They are FSLR -21.76% (a 2% weight in my portfolio) and ISBC -24.92% (another 2% weight in my portfolio). The ISBC was from an arbitrage play that went bad on me. In fact, I think it's the only arbitrage play where I lost any money, and the jury is still out on whether I lose money on it or not.

I also have 2 other stocks in my portolio, which are also losing money: AZN -2.95% and GILD -4.76%.

The winners still in my portfolio are: BNI, BVN, CVX, ENDP, GOOG, JNJ, K, KFT, KO, KR, MBT, MCD, MOS, PEP, PG, SNN, SYK, WAG, WMT, and XOM.

Overall, my winners far outweigh the losers, especially BVN with a +165.65% gain and 10.56% weighting right now. I will be reevaluating BVN soon, as gold is in a manic phase. Manias can last a long time, and when the U.S.A. increases the money supply, via deficit spending, it only helps BVN, so I'm really not in a rush to look at it.

K, PG, and WMT are also heavy positions and winning.

- Vooch

Wal-Mart (WMT)

Vooch — Wed, 18 Nov 2009 02:16:48 -0500

With yesterday's news that Warren Buffett increased his position in Wal-Mart (WMT), I looked up the last 2 times I calculated Intrinsic Value for WMT:

4/12/09 $95.84/share

8/1/09 $117.47/share

These were my purchases across all accounts for 2009 for WMT:

8/3/09 $49.747537/share

8/5/09 $49.27/share (the big purchase)

8/6/09 $49.00/share

9/25/09 $49.725/share

Again, I think Buffett is paying less than 50 cents on the dollar (just like he did with BNI, recently).

- Vooch

Wal-Mart (WMT)

Vooch — Tue, 17 Nov 2009 23:21:58 -0500

Yesterday, it was disclosed Warren Buffett increased his stake in Wal-Mart (WMT).

WMT is my largest position in my real portfolios, and even here!

w00000000h000000000000!

http://www.gurufocus.com/news.php?id=76347

http://www.activevaluetrader.com/forums/index.php?topic=235.msg940#msg940

- Vooch

More on Burlington Northern Santa Fe (BNI)

Vooch — Tue, 03 Nov 2009 23:18:12 -0500

After hitting today's Home Run with BNI (+25% gain in 10 days), several people asked me what Intrinsic Value I came up with ten days ago for BNI, so I looked it up tonight, and the answer I arrived at, ten days ago, was $202.19/share.

I paid $79.085/share for BNI ten days ago. The merger is supposedly worth $100/share now, but time will tell.

It's amazing, but it looks like Mr. Buffett, in my eyes, wants to buy BNI for less than 50 cents on the dollar. Keep in mind, Intrinsic Value anticipates forthcoming periods of market euphoria, when Mr. Market reswings the pendulum in the opposite direction (ie. from a depressive-state to a manic-state).

My methodology is private right-now, but will be released to the public if/when I publish the book I've been writing since 2002. I believe I'm only a couple more years away before I'm ready to publish.

Anyways, I try to buy stocks for 40-50 cents on the dollar, just like Mr. Buffett.

To quote the master, Mr. Buffett himself:

"It's extraordinary to me the idea of buying dollar bills for 40 cents takes immediately with people or it doesn't at all. It's like an inoculation. If it doesn't grab a person right way, I find that you can talk to him for years and show him records, and it doesn't make any difference."

- Vooch

Burlington Northern Santa Fe (BNI)

Vooch — Tue, 03 Nov 2009 12:08:12 -0500

I hit another Home Run today!

As you learned here on October 23rd, I bought BNI.

Today, Warren Buffett announced that his is buying BNI for about $100/share.

I made about +25% in 10 days, and I hope you were able to join me. If you did, congratulations!

- Vooch

Dow vs. Gold the fallacy of Peter Schiff

buybackking — Sun, 18 Oct 2009 04:59:56 -0400

Although I admire Peter Schiff and hope he wins his senate seat. Hopefully he realizes income taxes are good. The growth of the 1950s was the result of 80% income tax rates. But what I am here today is to challenge his notion the the DOW will someday equal the price of gold. His notion is the DOW is based on U.S. stocks and that as Americans get poorer due to dollar losses, the DOW will go down.

First lets look at gold. The first column is the year. The 2nd column is metrics tons of gold in the world. The 3rd column is the increase in new gold supply due to mining. The 4th is the loss in gold due to manufacturing and dental. None of the numbers are referenced and not too accurate.

Gold Tonnes Gain Loss
1970 93500 2000 -500
2000 140000 2600 ¬500
2001 143000 2601 ¬500
2002 146000 2600 ¬500
2003 149000 2600 ¬500
2004 152000 2600 ¬500
2005 155000 2600 ¬500
2006 157000 2500 ¬500
2007 159000 2500 ¬500
2008 161000 2356 ¬500
2009 163000 2400 ¬500

The world population is currently 6.8 billion people. In 2000 is was 6.1 billion. During this time change the supply of gold increased 16%, the population increased 8.1%. It is estimate the supply of gold will increase another 100,000 tons before reserves become depleted and the cost of extraction will exceed the price of $1500. The value of gold is purely based on what people give it. For that reason you often hear advertisements on radio and t.v. to keep the demand up. Gold has not inflated in supply (2% per year) compared to any currency. As inflating currencies via increasing the national debt are the easy way to steal or tax savers.

Now lets look at a DOW stock. I chose Exxon-Mobil because it is the largest in market cap. The first column is year, the 2nd column is shares outstanding, the 3rd column is annual dividend, and the 4th column is yahoo finance adjusted price at end of August.

XOM
2000 6900 0.88 34
2001 6800 0.90 33
2002 6700 0.92 30
2003 6600 1.00 33
2004 6400 1.08 42
2005 6100 1.16 55
2006 5700 1.28 64
2007 5400 1.38 82
2008 5000 1.60 78
2009 4800 1.68 69

During this time shares outstanding were reduced 30.4% compared to the population increase of 8.1%. Assuming XOM puts out the same amount of oil as in 2000. It is easy to see the change price of a share XOM, should exceed that of the change in the price of an ounce gold on an inflation basis.

It should be noted. If the electric car gains foothold in the U.S., which everyone should hope due to the lower air pollution, it is entirely possible XOM will go the way of Circuit City - bankrupt. But, before that happens the DOW will replace the stock.

The rise in the price of gold is purely the result of hype and advertisement of the last decade. The fleeing of corrupt currencies as result of cutting income taxes. Yes, gold supply change is better than any fiat currency. But stocks can control their shares outstanding, thus if they are able to increase market share too, they should outperform gold. As long as the hype continues for gold, demand will rise and prices too. Governments can control their national debt too, thus supply of currency. They can increase taxes, cut spending, and pass balanced budget amendments to stabilize currency.

Charlie Munger vs Stanley Druckenmiller

pelcmarek — Tue, 06 Oct 2009 20:19:56 -0400

The partnership was hit hard in the vicious bear market of 1973 and 1974 when it fell 31.9 percent and 31.5 percent in back to back years. After this difficult experience, Charlie Munger followed Warren Buffett in concluding that he no longer wanted to manage funds directly for investors.

Led by Stanley Druckenmiller since 1981, Duquesne Capital's funds have never posted an annual loss. Since the fund's founding, Duquesne has averaged 37% annually.

“The way I play the game, if it looks like the markets are becoming less analyzable, you just don't play. Well, this has been a very toxic and hostile environment, so we're not playing that much.”

Soros has taught me that when you have tremendous conviction on the trade you have to go for the jugular. It takes courage to be a pig. It takes courage to ride profit with huge leverage.

Superior performance requires 2 key elements: preservation of capital and home runs. Druckenmiller is saying that in order to really excel you must take full advantage of situations when you are well ahead and running a hot hand.
Great track records are made by avoiding losing years and managing to score few double digits or triple digits years.

The queen in chess, which can move in all directions, is a far more powerful piece than the pawn, which can only move forward. [analogy: hedge funds vs. pension funds]

Was dead wrong entering 19 Oct. 87 with a leveraged long position. Market opened over 200 points lower, liquidated his entire position and went net short; and made a small profit.

PS: In 2008 Stanley Druckenmiller earned $260 million

Paolo Pellegrini - man behind John Paulson's bet

pelcmarek — Mon, 05 Oct 2009 01:26:22 -0400

By Richard Teitelbaum

Pellegrini engineered a massive bet against subprime mortgages that catapulted Paulson & Co. hedge funds to 2007 gains of as much as 590 percent -- and firmwide profits of more than $3.5 billion.

Mariner, hired Pellegrini as an analyst in early 2003. At the time, a Mariner hedge fund was trading collateralized debt obligations -- bundles of housing loans and other debt.

Pellegrini, then 47, approached Paulson in the summer of 2004, asking for a job. “He said, ‘My analysts are more junior than you,’” Pellegrini recalls. “I said I didn’t care.”

Paulson, who makes all investment decisions at the firm, orchestrated the research and assigned Pellegrini to look into housing -- something he was familiar with from his time at Mariner. The surest bet against the housing market would be to buy credit-default swaps on subprime mortgage-backed securities. CDSs are insurance-like contracts used, in this case, to speculate on the default of a bond.

Pellegrini says the critical question was whether adjustable-rate mortgages would default as they reset at higher interest rates. Pellegrini believed they would, so in April 2005 Paulson & Co. began buying CDSs in small amounts for its existing funds.

The first year the trade was in effect was a nervous time. “From early 2005 to early 2006, it wasn’t clear the trade was going to work,” Pellegrini says. “People thought we were throwing money down the drain. We asked, Are we missing something?” Pellegrini says he would wake up in the night pondering the trade.

Before he increased his bet, Paulson wanted proof of a housing bubble, and he thought Pellegrini could produce it.

Pellegrini and his colleagues zeroed in on numbers from the Office of Federal Housing Enterprise Oversight’s home price index from 1975 to 2000. He drew a regression line through the data points that showed prices would have to fall 30 percent to 35 percent just to get back to the historical trend.

The next step was to determine the relationship between home prices and defaults. Pellegrini hired a New York firm called 1010Data Inc. to help him integrate two databases: One, compiled by Santa Ana, California-based First American Corp. and called LoanPerformance, tracked 6 million securitized subprime mortgages.

The other was based on an S&P/Case-Shiller home price index, sorted by postal code. The combined database showed that even if home prices merely flattened, defaults would surge. “There was a very strong relationship between mortgage losses and home prices,” Pellegrini says.

As home prices continued to rise, Paulson & Co. took advantage, paying as little as 1 cent for every dollar of credit protection.

The asymmetry was incredible.

The housing market peaked in mid-2006.For the last half of 2006, Credit Opportunities gained 19.4 percent, according to investors. In 2007, it showed a 590 percent return. In 2008, a year when the average hedge fund lost 19 percent, Credit Opportunities posted an 18.3 percent return. Firm assets rose to $30 billion at the end of 2008 from $7 billion two years earlier.

World Economy May Completely Change within 50 years

buybackking — Fri, 02 Oct 2009 04:31:27 -0400

It is getting to the point that the world economy may be completely different in 50 years from cars, to energy, to telephones, to television.

It is entirely possible the entire car fleet switches to electric. The engines last long simpler, no pollution. Batteries can be completely recycled. A car might be so reliable that it lasts a 3 lifetimes with little repair. Automotive companies, gas companies, repair business would see a large drop in revenues.

Photovoltaics on the roof of your house can supply enough energy for both electrical use and heating. No more fuel oil, no more natural gas. In fact the wire to your house may not be needed with new batteries and super-capacitors. This might lead to increased global warming a pv panels are black and might add to the albedo of the earth. But either way to prevent an ice age is more important than global warming.

It is pretty apparent the world is going wireless. He who owns the spectrum is a good long-term play. The question is how far they can take broadband on the wireless spectrum. The wired phone service is not necessary. The only real use is broadband. Which leads to tv. You can get pretty much a simple internet service like vunow where you can watch hulu, blip tv, and youtube, and hundreds of other channels over the internet. Some in 1080p quality. Thus phone, internet, radio, movies, and tv will become broadband services.

Debt deflation laboratory of the Baltics

pelcmarek — Thu, 24 Sep 2009 10:48:25 -0400

Property prices in Estonia's Hanseatic capital of Tallinn have fallen by 59pc from their peak in the Baltic boom, a remarkable state of affairs for an EU country nestled against Russia on the most dangerous fault line in Europe

Cost per sq.m has dropped from €1,611 (£1,455) to €669 since April 2007, according to Ober-Haus Real Estate Advisors. Swedbank says up to 30pc of its mortgages in Estonia are in negative equity. Recent loans are in euros – not the local kroon.

Professor Ülo Ennuste from Tallinn University says the private net wealth of Estonia's people has fallen below zero. I know of no other country in the world where this has occurred, though Latvia may be deeper in hock. Estonia's foreign debt is 116pc of GDP, second highest in Eastern Europe.

It is not a good moment for the poster-child of the flat-tax revolution, but those crowing the end of "Margaret Thatcher's Baltic Model" neglect half the story. Estonia's euro peg is anything but free-market. It makes Tallinn dance, awkwardly, to Frankfurt's distant tune. It stoked the boom by enticing people to borrow cheap at eurozone rates: it is now prolonging the bust.

The economy will contract by 14.5pc this year, twice as bad as Iceland (OECD forecasts). Industrial production has fallen 28pc. The unemployed receive half their former pay for a few months, then benefits fall to £12 a week. The shock awaits this winter. Chief victims will be ethnic Russians on the lower rungs of industry.

Most governments would try to cushion the blow. Estonia is instead pushing through yet another austerity package to keep the budget deficit below the EMU ceiling of 3pc of GDP. Such is the totemic appeal of euro entry in 2011.

"This is an absolutely mad policy," Mr Ennuste told an Open Europe Forum. "We're in a vicious circle where thousands more lose their jobs and don't pay taxes, so there have to be more cuts. We need fiscal relief packages at once. This makes nobody happy but the Kremlin."

The government could spend more. The national debt is just 5pc of GDP. It chooses not to do so. Such ultra-orthodoxy shows admirable discipline. Estonians will be a shining example to us all if they pull it off – and hold their society together.

"Estonia's credit rating (A-) is going to rise against other countries next year," said economy minister Johan Parts. "The next phase of the global crisis is how states are going to manage their huge deficits."

Dag Kirsebom, the author of Hard Landing: a Fairy Tale of the Rise and Fall of the Estonian economy, said the elites had lost the plot. "They are complacent, and they shouldn't be. We're in a downward spiral but all they are focused on is joining euro.

"The free-market model worked great for 15 years and then they ruined it with crazy lending. Did Margaret Thatcher say you should borrow money from Swedish banks to buy German cars? I don't think so. They screwed up, and now it is too late. They need to let the currency fall to reflect the damage already done."

The euro is more than a currency ambition for Estonia. Like joining Nato, it is part of a national strategy of locking into every part of Europe's security system as quickly as possible to keep Russia at bay.

What puzzles me is the strange serenity in the ministries. Officialdom seems to think it enough that they have managed to defend their peg without recourse to the IMF, and that their neighbour has collapsed even faster.

"The situation in Latvia is a tragedy," said Mr Parts. "Nobody will lend them any money except the IMF, and it has the same menu whether you are Latvia or Zimbabwe. The big difference between us and the rest of the Baltics is that we had a buffer of reserves, and we didn't run budget deficits in the good times."

Mr Parts quoted Aristotle to defend Estonia's currency peg: "Give me a single fixed point and I can move the globe". But is the euro the right "fixed point" when the currencies of Sweden, Russia, Poland, Ukraine have plunged around you? The official view is that exports are not sensitive to the exchange rate. This overlooks the suffocating effect of deflation in a post-bubble economy saddled by debts and wage levels that raced ahead of productivity. The country faces an "internal devaluation" within the EMU bloc to right the ship again. Such cures are painfully slow, and very damaging to democratic solidarity.

Edward Hugh from Baltic Watch advises the four fixed-peggers – Estonia, Latvia, Lithuania, and Bulgaria – to bite the bullet and negotiate a joint devaluation against the euro rather than suffer the political agonies of deflation.

Estonia's leaders will hear none of it. They can defend the peg as long as reserves last at the central bank. They have the firepower to hold the line, but does that make it a wise policy?

Charlie Munger was hit hard........

pelcmarek — Tue, 22 Sep 2009 19:34:56 -0400

Munger ran the Wheeler, Munger investment partnership from 1962 to 1975. It did exceptionally well for the first eleven years, compounding at 28.3 percent gross vs. 6.7 percent for the Dow, without a single down year.

But the partnership was hit hard in the vicious bear market of 1973 and 1974 when it fell 31.9 percent and 31.5 percent in back to back years.

This decline was despite as Charlie puts it, "having its major investments virtually sure of eventually being saleable at prices higher than the quoted market prices." The partnership rebounded strongly in 1975, rising 73.2 percent, bringing the overall record over fourteen years to 19.8 percent vs. 5.0 percent for the Dow.

After this difficult experience, Charlie followed Warren in concluding that he no longer wanted to manage funds directly for investors (Warren had closed his own partnership in 1969). Instead they decided to build equity through stock ownership in a holding company-Berkshire Hathaway.

De Margerie Says Oil Is Overvalued Based on Supply (TOTAL CEO)

pelcmarek — Tue, 22 Sep 2009 19:07:37 -0400

http://www.bloomberg.com/avp/avp.htm?N=ceo&T=De%20Margerie%20Says%20Oil%20Is%20Overvalued%20Based%20on%20Supply&clipSRC=mms://media2.bloomberg.com/cache/vK4X1rFhjqts.asf