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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (22914)	12/30/2005 8:28:23 PM
From: Dave	Read Replies (2) \| Respond to of 78748

Paul, RE: Housing Many people believe that a house is the "best" investment one will ever make. On average since the late 70's, houses have appreciated at a real rate of 2.5% per annum. Of course, the real reason why houses are the "best" investment one can ever make is the gov't subsidies, i.e. leverage and writeoffs (both interest expense and gains). To me, 2.5% ain't that great, but some are willing to accept less; take TIPS for example. I am in the camp that we could see a flat line in real estate for a while and, my rationale for this conclusion, is that people do not like selling the house for less than they paid for it! Remember, at settlement, if selling for a "loss", one has to write a fairly large check to the mortgage company (assuming that one is upside down on their loan). Furthermore, to add insult to injury, one cannot write off their loss on their income taxes. The key to understanding the home builder sector in my opinion is this: In the 80's when interest rates were double digit, home builders were building at least 2x as many homes as they are now! Furthermore, while there could, in fact, be speculation on either coast of the U.S., does not mean that houses will not be built and sold profitably between the coasts. Lastly, even those people with negative amortizing loans or IOs will not have their "dose of reality" in 5 or so years. As such, while the market for pre-existing houses may slow, the economics behind the home builders will continue to be good since it really doesn't cost "that" much to build one given the imbedded nature of the costs, i.e. land. RE: Oil That really depends upon where you are in that sector, i.e. upstream/downstream. If a company's business model is more upstream, they are levered more to the price of crude. If they are more downstream, they are levered more to the "spread", i.e. difference between crude and refined products. Regarding your chart, I believe you are relying too much on history. If you believe that oil comes from dinosaurs (there is another theory by the way), the large, integrated oils are "under" investing in E&P activities. Since there is a limited amount of oil in the ground (given the dinosaur theory) they will run out of oil and, as such, so will their source of revenue. What will happen in the future, I have no idea. However, if you are of the belief that oil comes from dinosaurs, over time the marginal cost of production/extraction of a drop of oil will continue to increase. But, those that under-invested in E&P activities will run out. RE: Value Investing (You didn't mention this, but I've seen some exchanges) I think this is where we disagree. As "Value Investors", I assume that we have all read the same books such as Security Analysis and The Intelligent Investor which have provided us our basic framework for investing such as the principles of Mr. Market and the Margin of Safety. I believe that where we differ is how we define "value" and that is fine. The key to investing is to buy a stream of cash flows when they are priced cheaply and sell that stream of cash flows when they are priced dearly. The "art" of this game is to determine when such stream is cheap or dear. That is precisely why investing is more of an art than a science. RE: "And I have been wrong - many, many times" So have I; however, I have a feeling that your slugging percentage is pretty darn good! Happy New Year. Regards, David P.S. You still holding WHR?

To: Paul Senior who wrote (22914)	1/6/2006 10:23:50 AM
From: Madharry	Read Replies (1) \| Respond to of 78748

I have not analyzed the homebuilders so I dont know what happens if rates skyrocket and home prices collapse. its possible that r/e owners are hedging the value of their homes by short selling the homebuilders. The oil companies stock dropping seems ridiculous to me. everything i have read indicates that the oil companies are making investment decisions based on oil in the 25-30 range. even rationales i am hearing from intelligent people and analysts for selling oil stocks seem specious to me. a good friend of mine who made a lot of money in oil in 2005 said he sold a lot of it took money off the table and was going to reinvest it gradaully. An analyst on CNBC said that although she like energy fundamentally she was underweight bacause of sentiment.