This (WSJ: Decline of PE Ratio) is a pretty fluffy article...
However, the key implication is that more and more investors may be turning away from valuation in an effort to predict the macro-environment. This is encouraging news for bargain-hunters like myself.
I worry considerably about the macro-environment. However, as one investor once said, 'philosophize macro; invest micro'... as more investors worry about the macro-environment, I firmly believe that stocks will become cheaper and cheaper. Once PE reaches 6x (1949) or 7x (1974), then it will be time to buy again... and buy alot! Whether deflation or inflation, once valuations reach that levels I believe we should buy the best companies America has to offer (ie Coke, Proctor Gamble, Johnson & Johnson, Intel, etc.), as it's difficult to imagine a world without their products... and if such a world existed, I'm not sure I would want to be around to see it!
Currently at 12x-14x PE, I would want to see stocks fall by at least 50% before I'm ready to confidently say its time to buy. In fact, considering that earnings will likely decline (considerably) in some future scenarios, we may well see a decline of greater than 50% before prices become truly attractive. Buckle up!
Aug 30, 2010
Aug 18, 2010
Dying of Money - Complete Notes
I've found it too tedious to post individual notes separately. I would have liked to embed the google doc into this blog, but Google engineers apparently still have some things to figure out (are u listening?) Therefore, the complete notes can be found in the link below...
Dying of Money - Complete Notes
Dying of Money - Complete Notes
Aug 17, 2010
GLOI = Disaster!
Well, not 24 hrs after my estimate of $3.00-$4.00 in potential value at GLOI, (mis)management comes out on their conference call to spit in my face...
Eric Weinstein of Chancellor Capital spent quite a bit of time on the CC questioning the various numbers. In my opinion, management did not seem too concerned about shareholder wealth (the warning signs were there earlier, I did not accurately discount this).
Based upon these figures, I would probably anticipate somewhere around $2.50-$3.00 in future distributions. Apparently I was not the only one who was taken a bit back by the discrepancy between some simple arithmetic, and management's more advanced financial accounting...
Eric Weinstein of Chancellor Capital spent quite a bit of time on the CC questioning the various numbers. In my opinion, management did not seem too concerned about shareholder wealth (the warning signs were there earlier, I did not accurately discount this).
Aug 13, 2010
GlobalOptions Group (GLOI)
GLOI provides risk management services to the government, and operates through a variety of subsidiaries. Recently, GLOI has sold off a number of their subsidiaries (mostly to management-related entities... hmmm). In either case, the table shows the pro forma balance sheet after the sale of three of their four primary businesses...
In effect, the company is now in possession of roughly $21M in cash and notes receivable (plus some potential earnouts based upon contract renewal negotiations anticipated to take place in Aug-2010)... proceeds from the asset sales. In addition, their remaining business is Bode, an industry leader in DNA forensics. This business was purchased for $12M several years ago, and has been growing at a very rapid rate.
On August 13th, the company announced the sale of Bode (again to management related entities). The sale price was approximately $24.5M cash (there is also potentially $5M in earnouts which I believe have very little value based upon historical Bode revenue levels). The company no longer has any significant operations, and has announced intent to return proceeds of the sale back to shareholders. Below, I provide my estimate of the approximate value of the current GLOI entity...
I anticipate roughly $3.17 to $4.00 in potential value in GLOI stock. I am assuming that the assets/liabilities of GLOI still remaining at the time of the Bode sale will be transfered to the new company. In addition, this does not take into account any potential transaction costs & tax liabilities that may arise.
The company anticipates the sale to close by Q4-2010, so I believe that we may anticipate a sizable dividend sometime in Q1 or Q2 of 2011.
In effect, the company is now in possession of roughly $21M in cash and notes receivable (plus some potential earnouts based upon contract renewal negotiations anticipated to take place in Aug-2010)... proceeds from the asset sales. In addition, their remaining business is Bode, an industry leader in DNA forensics. This business was purchased for $12M several years ago, and has been growing at a very rapid rate.
On August 13th, the company announced the sale of Bode (again to management related entities). The sale price was approximately $24.5M cash (there is also potentially $5M in earnouts which I believe have very little value based upon historical Bode revenue levels). The company no longer has any significant operations, and has announced intent to return proceeds of the sale back to shareholders. Below, I provide my estimate of the approximate value of the current GLOI entity...
I anticipate roughly $3.17 to $4.00 in potential value in GLOI stock. I am assuming that the assets/liabilities of GLOI still remaining at the time of the Bode sale will be transfered to the new company. In addition, this does not take into account any potential transaction costs & tax liabilities that may arise.
The company anticipates the sale to close by Q4-2010, so I believe that we may anticipate a sizable dividend sometime in Q1 or Q2 of 2011.
Buffett Giving Pledge - Capitalism & Distorted Results
Continuing from Speech by Warren Buffett on Charity...
My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I've worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate's distribution of long straws is wildly capricious.The ultimate lucky winners of our current system are capital allocators. Those who can efficiently make decisions may be rewarded with vast riches. Unfortunately, doing what is efficient is not always doing what best serves our neighbor. After all, saving the lives of others and teaching future generations must certainly be at least as beneficial to society as being able to pick stocks... (if you doubt this, imagine a society without heroes/teachers and then another society without stockpickers... which would you rather live in?)
Aug 11, 2010
Buffett Giving Pledge - Biological Time
Speech by Warren Buffett on Charity...
However, like other commodities, time can sold/exchanged, much to our detriment. In fact, many who are 'successful' in this world, often have made just such an exchange. In lieu of spending time with/for others, they have devoted themselves to their crafts... whether that be sports, politics, business, religion, etc (time is the universally accepted currency).
Even those of us who are not at the 'top of the ladder', we have often made bad trades with our time... minutes spent reading pointless articles/tabloids/boxscores (or writing blogs), hours spent playing video games & watching tv, days spent in mindless cubicles with no sense of fulfillment, years spent not loving the people right next to us...
I am not trying to say that all success is bought at the price of time with family, nor that we are all mini-fiends forever scheming of ways to assassinate time (though I imply both).
However, that time (even in the non-physics-Einstein-relativity-light sense) is one of the most important tools/gifts at our disposal is something I believe wholeheartedly. To those who give their time in the service of neighbors, I salute you!
...More than 99% of my wealth will go to philanthropy during my lifetime or at death. Measured by dollars, this commitment is large. In a comparative sense, though, many individuals give more to others every day... this pledge does not leave me contributing the most precious asset, which is time. Many people, including -- I'm proud to say -- my three children, give extensively of their own time and talents to help others. Gifts of this kind often prove far more valuable than money. A struggling child, befriended and nurtured by a caring mentor, receives a gift whose value far exceeds what can be bestowed by a check...This passage touches on the subject of biological time. As any old/dying man can attest, what they most wish for was more time to spend with friends and loved ones (alternatively, the most common regret is likely not spending enough time with friends & family). Biological time is the most special/precious of commodities we have - it comes only from God. Unlike most other assets, biological time, once lost/sold, can never be repurchased (despite Juan Ponce de Leon's most ardent attempts).
However, like other commodities, time can sold/exchanged, much to our detriment. In fact, many who are 'successful' in this world, often have made just such an exchange. In lieu of spending time with/for others, they have devoted themselves to their crafts... whether that be sports, politics, business, religion, etc (time is the universally accepted currency).
Even those of us who are not at the 'top of the ladder', we have often made bad trades with our time... minutes spent reading pointless articles/tabloids/boxscores (or writing blogs), hours spent playing video games & watching tv, days spent in mindless cubicles with no sense of fulfillment, years spent not loving the people right next to us...
I am not trying to say that all success is bought at the price of time with family, nor that we are all mini-fiends forever scheming of ways to assassinate time (though I imply both).
However, that time (even in the non-physics-Einstein-relativity-light sense) is one of the most important tools/gifts at our disposal is something I believe wholeheartedly. To those who give their time in the service of neighbors, I salute you!
Usury is the derivation of profit from biological time, which is linked to life, considered sacred, God-given and divine, leading to excessive worrying about money instead of God, thus subjugating a God-given sanctity of life to man-made artificial notions of material wealth
Aug 2, 2010
Statistical Democracy
From Greek Mythology...
Athena was the goddess of civilization, wisdom, justice, freedom, democracy, among other things. She sprang forth from the head of her father, Zeus... from there we have, according to the Greeks, the roots of human civilized society. From this spectacular mythology, the democratic Greek city-states, beginning with non-other than Athens herself, have changed the course of human society.
To American Society...
Today, no nation better personifies the democratic spirit than the United States of America. Having taken up the mantle left by the Greeks, the U.S. has been the bastion of democratic rights since its founding roughly 200 years ago (democracy took a 'brief' interlude following the collapse of Greco-Roman civilization).
However, many observers (present company included) have remarked upon the continuing decay of the integrity of the American democracy. This is a contentious point, and could serve as the purpose of great discussion on any occasion. However, let us presume that, left to its own devices, democracy as it existed (back in the days of the Founding Fathers) may cease to exist (if it has not done so already). Let us also dare to presume that any alternative form of society is not preferable to that which is the cerebral offspring of Zeus, and was made famous in 1776 - therefore, democracy is worth saving...
Note: When I refer to the democracy of the Founding Fathers, I refer to the spirit of the democracy, which is admittedly a vague idea. I do not necessarily refer to the exact process of democracy, which should in my opinion change from generation to generation, as new (and better) methodologies present themselves...
Presenting, Statistical Democracy!
But then, what could we possibly do? It seems too much to expect every member of society to become fully-versed in all the various matters (or at least most essential) that go into running a country... is there a feasible solution to this impossible predicament?
Here, we must turn to a field that is utilized in every field, except the political vote: statistics. Wonderful was the day that this finer science was discovered! I say that it is (long past) good time that we applied statistics to save the foundation of this fine nation, as well as democracies everywhere (at least everywhere with a sizable population)!
Disclaimer: The devil is in the details, and I do not mean to gloss over the sordid details of such a radical proposal. However, the idea is interesting enough that I wanted to put it on paper in theory...
General Theory...
Athena was the goddess of civilization, wisdom, justice, freedom, democracy, among other things. She sprang forth from the head of her father, Zeus... from there we have, according to the Greeks, the roots of human civilized society. From this spectacular mythology, the democratic Greek city-states, beginning with non-other than Athens herself, have changed the course of human society.
To American Society...
Today, no nation better personifies the democratic spirit than the United States of America. Having taken up the mantle left by the Greeks, the U.S. has been the bastion of democratic rights since its founding roughly 200 years ago (democracy took a 'brief' interlude following the collapse of Greco-Roman civilization).
However, many observers (present company included) have remarked upon the continuing decay of the integrity of the American democracy. This is a contentious point, and could serve as the purpose of great discussion on any occasion. However, let us presume that, left to its own devices, democracy as it existed (back in the days of the Founding Fathers) may cease to exist (if it has not done so already). Let us also dare to presume that any alternative form of society is not preferable to that which is the cerebral offspring of Zeus, and was made famous in 1776 - therefore, democracy is worth saving...
Note: When I refer to the democracy of the Founding Fathers, I refer to the spirit of the democracy, which is admittedly a vague idea. I do not necessarily refer to the exact process of democracy, which should in my opinion change from generation to generation, as new (and better) methodologies present themselves...
Presenting, Statistical Democracy!
"Convinced that the people are the only safe depositories of their own liberty, and that they are not safe unless enlightened to a certain degree, I have looked on our present state of liberty as a short-lived possession unless the mass of the people could be informed to a certain degree." -Thomas JeffersonThough no king of the Greek gods, an interesting idea birthed from my own cranium while riding home with my roommate. I hold the opinion borrowed from that of Jefferson that the entropy of our current democracy stems directly from the citizenry. I have often bemoaned the lack of understanding that current voters possess (present company included). Without the requisite knowledge, we're left to vote on such outward (inconsequential) characteristics as what party they represent, what race they are, or what they promise (woe is us who believe!)
But then, what could we possibly do? It seems too much to expect every member of society to become fully-versed in all the various matters (or at least most essential) that go into running a country... is there a feasible solution to this impossible predicament?
Here, we must turn to a field that is utilized in every field, except the political vote: statistics. Wonderful was the day that this finer science was discovered! I say that it is (long past) good time that we applied statistics to save the foundation of this fine nation, as well as democracies everywhere (at least everywhere with a sizable population)!
Disclaimer: The devil is in the details, and I do not mean to gloss over the sordid details of such a radical proposal. However, the idea is interesting enough that I wanted to put it on paper in theory...
General Theory...
- Voting would no longer be open to the general populace
- insert "gasp!"
- Voters would be randomly selected 1-2 years prior to each election
- Approximately 1000 voters would probably be enough
- I think it is better that the voters remain anonymous
- Voters would be removed from their occupation, on paid leave
- They could be handsomely compensated (this is tricky...)
- Spend the next 1-2 year rigorously studying all issues
- Work independently to form opinions
- 40-60 hr work weeks at minimum
- Research staff available to provide info... not opinions
- If identity of any voter is compromised, they are replaced
- All compensation would be returned
- Harsher punishments may be appropriate
- (I realize family would prob know, but I'll throw that under 'Detail' for now)
In effect, the idea is that the voters would now consist of a sample of 1,000 which would represent the general population of the U.S. However, after this selection, they will no longer simply be regular citizens, but through learning they will become 'super voting citizens'... essentially they will be armed with knowledge to make educated votes for the rest of the majority.
We can't possibly educated the masses, but we can try to educate a select few, and have them vote in place of the masses...
"That's insane!"
There's two major precedences for this that I can recall...
- Military service - voting in this case would be akin to the draft... those who are drafted who perform their civic duty to the country by studying like crazy to become a super-voter...
- Jury duty - speaking of civic duty, this is essentially the way portions of our legal system currently works. Think of it as selecting the President through a jury of peers. The functions would be very similar... the super-voters act as jurors who would become extremely educated on the merits of the candidates... and they would ultimately decide the outcome of the election...
*puts on flame-deterrent suit*
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