Comments for Yes and Not Yes

Comment on What does Japan have going for itself? by El Toro

El Toro — Sat, 03 Dec 2011 20:10:19 +0000

What it has going for it is that it is the cheapest stock market in the world on many long-term valuation metrics, as GMO and others have discussed. Enron and WorldComm didn’t mean that fraud was pervasive in US public companies and the same will be true in Japan – fraud is part of human nature but it is usually infrequent (If any country were to be singled out though I think it should be China). I was looking at a company last week in Japan with Current Assets – Total Liabilities that were 120% of the market cap, a 4% dividend yield, trading at 3.5x TTM net income and 6x its five year average net income (it’s been profitable every year). It does not have the typical characteristics of a fraud (it has consistent capital outflows in the way of dividends and no equity or debt raises). I agree with you about the macro issues, but you can’t dispute that there are lots of companies that are very very cheap, much cheaper than anywhere else in the world including Europe. If they devalue the currency stocks could still do well in USD terms over the next 5 years – especially exporters with revenues in other currencies. If they default, atypical for a fiat monetary system, it’s a harder call. At some price anything’s a buy though!

Comment on Magic: The Gathering and Investing by Jeffrey Dow Jones

Jeffrey Dow Jones — Wed, 21 Sep 2011 16:35:23 +0000

Doug, this is spot on. When I was a kid, my friends & I spent a lot of time at the local hobby shop and I was one of the first people in our city to start playing Magic. The skills one develops as a player absolutely translate to the world of business and investing. Magic was a good game because it incorporated deep strategic and tactical elements, and though luck played a role from match to match, over the long run, skill would always triumph. Just like investing in the markets.

It’s not just Magic, though. I think it’s games in general. One of my favorite studies in this space was all the work Nick Yee did years ago on World of Warcraft, and how people were using the lessons they learned as a guild officer in their real life roles as middle-managers. Again, I could just be biased because I’ve spent my entire life playing games of every sort. But I think the experience we get from playing games is absolutely relevant and helpful. At least if you look for it.

Today I co-manage a hedge fund and write a weekly newsletter. There’s not a day that goes by where some element or lesson I learned as a game-player isn’t incorporated in the actions I actually perform.

Hope you don’t mind if I steal this idea and expand on it. I want to do a bigger newsletter about the relevant lessons I’ve learned from playing games.

Comment on Now is the Time to Buy, Not to Bail by Gordo

Gordo — Tue, 09 Aug 2011 15:47:27 +0000

Could not agree more. This is the underlying message I am now spreading to one and all. Market activity and pack-mentality enmass-stock selling is just not logical. I work in the lower end of banking and finance in Australia, grass-roots level, but I have to do something. Very frustrating.

Regards,
Gordo.

Comment on Thoughts on Berkshire by Doug

Doug — Sat, 11 Jun 2011 21:33:33 +0000

@anon:

Thanks for posting your comment. I think you are spot on about the optionality that Berkshire’s cash provides—I should have mentioned that in the post. It does not seem to me that the market appreciates the fact that Berkshire has the ability to respond quickly in crisis situations or that Berkshire has the ability to easily purchase almost any business for the right price.

Comment on Thoughts on Berkshire by eclecticvalue

eclecticvalue — Sat, 11 Jun 2011 05:16:28 +0000

Thank you Doug!!! If I didn’t see this post today, I would not have bought Berkshire for a cheap price.

Comment on Thoughts on Berkshire by anon

anon — Fri, 10 Jun 2011 15:40:24 +0000

You are spot on! Besides the standalone value of insurance operations and all operating businesses, I think the optionality created from large cash balance, huge cash flow, and one of the best (THE best?) capital allocators having his hands on all this is not reflected in the price… One of the most compelling situations in the market in my opinion.

Comment on Why Leaders Don’t Learn From Success by Henry Oliner

Henry Oliner — Sun, 03 Apr 2011 18:12:13 +0000

success is knowing what worked yesterday

Comment on Investment Opportunities Resulting From the Japan Quake by Marco

Marco — Mon, 14 Mar 2011 18:01:17 +0000

Maybe the steel producers from US would be a good choice, what do you think?

Comment on Is There Anything Assuring About Assured Guaranty? by Doug

Doug — Sat, 05 Feb 2011 02:36:48 +0000

Adam, I don’t recall saying AGO was more skillful than the others, but I’ll admit you could certainly imply that from the way I wrote. However, whether it’s luck or skill, they still did a better job compared to the others.

I’m not sure how large the structured finance team is, but my understanding is that the SF portfolio is in runoff, so I’m not sure why they would need a “large” number of people to take care of it.

You are correct on the penetration rate—it is pretty abysmal, but I also do not believe it will remain at current levels forever.

Thanks for the reply and keep on visiting the site!

Comment on Is There Anything Assuring About Assured Guaranty? by Adam

Adam — Thu, 03 Feb 2011 14:31:18 +0000

It’s ridiculous to say that AGO did a better job of underwriting and managing credit risk during the financial crisis than their rivals. The truth is that they got lucky: AGO was not AAA/Aaa (they had a Aa+ from Moody’s), so the banks refused to trade CDS with them for trading book accounting purposes. AGO got lucky. When the others (MBIA/AMBAC/FGIC) lost their AAA’s, AGO started taking on stupid risks (they had the largest exposure of second lien mortgage ABS of ANY monoline). I can’t say much about the equity going forward, other than to say that they still employ an entire structured finance team and will never do a SF deal again and their municipal “monopoly” penitration rate is [I believe] in the single digitis, down from 50%+ when the monolines were busy in 2007. The only thing that can be said is that they are very liquiid, and their insured debt should not default any time soon; I would say I can’t think of a scenario where they would default on an insurance policy in the next 30 years.