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

To: Paul Senior who wrote (43886)	8/11/2011 9:25:39 PM
From: Mr.Gogo	Read Replies (2) \| Respond to of 78478

Paul, From what I have read so far, even value investors get out of the market if they consider it overvalued. Buffet in his early years for example. I still cannot understand how they were considering the market overvalued. Buffet could not find companies that he would invest in and he dissolved his partnership. Benjamin Graham had a formula. Mr. Womack was looking at the panic as a sign to buy and the exuberance as a sign to sell. Some american president (forgot his name) got out of the market before the crush in 1923 when the boy who was polishing his shoes gave him a stock tip. Jurgis once said that his wife wanted to invest and for him this was a sign... I personally got out when i read about mr. Womack and the letters of Jeremy Grantham to his shareholders. Just my observation... Georgi

To: Paul Senior who wrote (43886)	8/11/2011 11:28:59 PM
From: geoffrey Wren	2 Recommendations Read Replies (1) \| Respond to of 78478

Paul: I was referring to crazy days when apparently fantastic buys are available. People say they have no cash. But they can raise cash by selling something that is more reasonably priced. Stock picking individuals are always choosing among stocks in investing. Pretty much anytime I buy something I am selling something else to do it. Normally that might be a weeklong process. All that gets compressed in crazy days. I will give an example of something I did on Tuesday (or was it Monday). UMH was holding up well. I checked and it was down something like 10% in the correction that started last Friday, while CWH was down 30% or so (I own both stocks and so previously had an understaning of them). Now one might say this was rapid efficient market adjustments and that CWH was more exposed to a financial meltdown. But I feel that the efficient market theory loses traction in flash crashes, especially for thinly traded stocks, and we should look upon those times as opportunities even while our stomachs turn in seeing all the red on the holdings page. My feeling was that CWH had become a relatively better holding and sold some UMH and bought CWH. So far it has worked out. It was a gamble, but so was doing nothing. Anyway my point is that if you think a stock is ridiculously underpriced, then sell another stock that you think is just somewhat underpriced to buy it. More generally, I was not advocating market timing. My point was that holding a large cash reserve is sort of like betting on both black and red at the roulette wheel. If the wheel is tilted and you think you see a pattern, then make up your mind and just bet one color. Another point I would make is many bonds have stable enough prices. Such a bond is near enough to cash and should be sold if one sees opportunity. Thanks for your comments. This is a worthwhile board. One of these days I suspect I will be buying SVU which gets a mention here from time to time.

To: Paul Senior who wrote (43886)	8/11/2011 11:50:40 PM
From: Difco	1 Recommendation Read Replies (3) \| Respond to of 78478

To all: Discussion over cash holdings continues... On December 17, 1959 Ben Graham delivered a speech at UCLA with the topic: "Stock Market Warning: Danger Ahead!" At the time he compared the PE ratio of 18.2x to the 1929 high of 19.0x and stated that "The more it changes the more it's the same thing." He was a decade early! On May 29, 1969 Warren Buffett wrote a letter to his partners that he's liquidating the partnerships as he was discouraged by the investing environment. At the time, Buffett said he would put much of his own money in municipal bonds. He was about 3 years early! From this we can derive the following: value investors move into a defensive position when the market is at a high value investors are often early (same thing on the buy side - so if you feel you buy early, you are in good company) How about on the way down: In 1929 Ben Graham did fine, but he didn't foresee the 1929-1932 fall the followed. It took him until 1937 to restore his financial position as it was in 1929. In 1974 Warren Buffett was buying so much that he said the following: "I'd run of of gas. I has used all the $16 million of cash I got out of the partnership to buy stock in Berkshire and Blue Chip. So all of a sudden I woke up one day and had no money at all." It's harder for me to conclude on this, but it seems that from this experience Buffett felt that money is never enough during the downturn and at some point you'll run out of it. IMO everybody on this thread does a good job excluding the overall market and instead we focus on the market of specific securities we know enough about that we could estimate a margin of safety. For example, Paul and I, we like Volkswagen a lot: back in 2009 it declared plans by the year 2018 to become the largest auto manufacturer in the world (i.e. production of about 10 million cars a year) and achieve an operating profit margin of 8% (it has since revised that it would achieve it probably by 2015). At the time most people thought this was crazy, but looking closer at the numbers I figure that the Germans know what they are talking about. First, VW was the first foreign car manufacturer to enter China back in the 1980s, thus has an established position and name. It also has entered the Indian market through its 19.9% ownership in Suzuki and its sales in the US are less than 200,000; this spells growth. If VW is correct and if we assume that the average price of all its vehicles would be 25,000 euros and it sells 10 million of them - this results into 250 billion euros in annual sales. When we apply the 8% of operating profit margin, this yields 20 billion. If 50% of that goes for interest expense and taxes, we're still left with 10 billion euros. Last year's profit was 7.2 billion euros, so it's not that unrealistic. When you consider a cash pile of 20 billion euros sitting on the balance sheet, the current valuation of 50 billion euros starts to look silly - but that's based on my assumptions. So at these levels it's a buy and I really don't care if it goes much lower because I plan to stick to it. (Remember that this is a cyclical, so if the world economy turns sour, autos will be some of the first to go down and figuring out when to sell on the way up won't be easy either and also if the euro goes down we'll be scooping up the shares with cheap euros). Then why do I have cash equivalents - I like being liquid a bit and also I just think I haven't had my best idea yet. This is a risky proposition, because I might be waiting for a long time but hopefully not forever - I'm still debating on how to approach that and this conversation has been a good medium.