Investing Archives - Page 2 of 4

7 Proven Books on Personal Finance to Take Control of Your Money

Did Warren Buffett Really Buy Gold?

August 16, 2020 by Frugal Prof

Did Warren Buffett Really Buy Gold?

Many people on Fintwit (Financial Twitter) and even in the Financial Media are reporting that Warren Buffett bought gold. Let’s evaluate the facts.

Warren Buffett traded Goldman Sachs for gold in Berkshire Hathaway’s newly revealed portfolio, says Fortune

The fact is that Berkshire Hathaway revealed a stake in a gold mining company, Barrick Gold, a Canada-based mining company. So, he didnt buy gold.

And Berkshire Hathaway is no longer just Warren Buffett. There are now three portfolio managers. Todd Combs was hired in 2010 after running a small hedge fund (more here). As well as Ted Wechsler in 2016, another hedge fund alum. (more here).

In his investor letter for 2013, Buffett praised Weschler and Combs for outperforming his stock picks for the year “by a lot”; hiring them “was one of my best moves,” he said in his 2015 letter.

Putting his money where his mouth is, Buffett has given the pair more freedom: Each now controls $9 billion of the Berkshire portfolio.

So, its possible one of them found Barrick attractive.

Relevant Articles:

More moves by Berkshire:

Besides dumping Goldman outright, Berkshire sold shares in other banks, cutting his position in JPMorgan Chase by 61%, and trimming his holdings in Wells Fargo and PNC.

Buffett has been quite Bearish on Gold over the years:

Buffett Statements on Gold:

1998 Harvard Speech: “(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

2009 CNBC Interview:
“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you.
Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money, and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.”

To understand Buffett’s value style of investing, here is an article on his mentor Benjamin Graham – The Dean of Value Investing

Hopefully, Buffett will clarify the acquisition of Newmont by Berkshire so that investors have more information.

We will see.

The Politicization of the Stock Market

August 13, 2020 by Frugal Prof

2008: We need $800M or the World is going to end

2020: We need $5.2T or the world is going to end

The inescapable lesson of 2008 is this: if the Federal Reserve can lower interest rates and re inflate the real estate market and stock market, then why wouldn’t you keep lowering interest rates to make the stock market go even higher?

This is what President Trump has gotten. And he is willing to take interest rates negative to keep this charade going.

The Federal Reserve is printing money and supporting the stock market, the real estate market, and the corporate bond market.

In July, the Fed bought up more bonds from blue-chip companies including Microsoft and Coca-Cola, while it added junk debt and made loans to a ski resort and casino in the Pocono Mountains. (CNBC)

Free Money from the Fed:

The US is awash in liquidity from the Treasury and the Federal Reserve. As the election is now getting closer, there is chatter about more “free money.” More stimulus checks. Infrastructure plans. More PPP. And President Trump wants negative interest rates.

Negative Interest Rate Policy: The Fed is flirting with Negative Interest Rate policy, a radical failed experiment everywhere it has been tried.

Japan’s stock market is flat for the last 30 years. Their economy is irrelevant. Their government owns their economy via ETF purchases. Most international mutual funds and indexes do not even include Japan. It is irrelevant.

For now, Powell is pushing back on the idea. But his track record of bowing to the wishes of the President is pretty weak.

Relevant Articles:

Sam Zell is Selling:

Sam Zell mentioned last month that he was quite cautious about the future.

“Too many people are anticipating a kind of V-like recovery,” said in an interview with Bloomberg Television.

“We’re all going to be permanently scarred by having lived through this.”

Just as the depression left behind a generation that couldn’t shake the experience of mass unemployment, hunger and desperation, the burdens this crisis has forced on society may be similarly hard to forget.

Zell, 78, said it won’t be easy for people to live as they did before the “extraordinary shock” of the pandemic.

Marc Lasry is cautious:

Billionaire investor Marc Lasry says the market isn’t pricing in a recession that will last ‘for a while’

“If you’re going to have all these people unemployed, it’s hard to end up coming out of a recession until that changes.

It’s going to be a difficult couple years,” Lasry said, adding “I just don’t see people that are out of work spending money.” More here

The stock market is now above 150% of GDP.

Does creating a new stock market bubble actually help the real economy? The real economy is businesses, bars, and restaurants that are going bankrupt. How does creating a new generation of stock speculators help anyone?

CNBC: Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk

‘Monumental volumes’

The major online brokers saw a major jump in new users during the coronavirus sell-off, bolstered by zero commissions and fractional trades.

The quarter included 27 of the 30 highest volume days in Schwab’s history.

Well it does help President Trump. For now.

Chart of the Day – Apple Price vs Growth

August 12, 2020 by Frugal Prof

It’s amazing how much information can be presented in one simple chart.

Today we have Apple.

It’s a very good company. And has benefited from the Corona Virus. Many workers have been forced to work from home and Apple offers quality computers and IPads that fill this important need.

And yet, the shares have gone parabolic. The company has added $800B in market Cap in a few months. The market cap of the company is almost larger than the entire Russell 2000.

What we see so succinctly in this one chart is the P/E ratio (price to earnings) contrasted with the company’s growth rate. Apple now offers new investors a P/E of 33 with hardly any growth.

Caveat emptor (Buyer beware)

Relevant Articles:

It’s Never Happened Before in Stock Market History and it just Happened

June 8, 2020 by Frugal Prof

This has Never Happened Before in Stock Market History and it just Happened

This is the fastest snap back rally in stock market history. And not by a little. By nearly 7 to 8 times.

Since 1929, selloffs of 35% with an 85% recovery have happened 7 times. The average snap back recovery takes a year and a half. This One took 74 days. (Via TastyTrade Research)

Of course, this is an election year and President Trump needs to run on a strong economy. So, between the PPP Program and the Fed $4 Stimulus, there has been a tsunami of liquidity thrown at this market.

Negative Interest Rate Policy: The Fed is flirting with Negative Interest Rate policy, a radical failed experiment everywhere it has been tried.

For now, Powell is pushing back on the idea. But his track record of bowing to the wishes of the President is pretty weak.

The Fed has gone so far as to buy junk bonds of the lowest rated companies in order to save the US economy. An unprecedented move likely to be questioned for years to come.

And of course, the stock market is not the economy. Not even close. As I discussed in a previous post, large companies listed on the exchanges benefit from the liquidity much more than smaller businesses. They also benefit from geographic diversification. Some areas were hit harder than others. And some areas weren’t hit very hard at all by Covid.

The real question is can it last. The jobs report included many workers who are about to be let go from theor jobs. The job gains were stores like Home Depot and grocery chains that needed additional help. Both of those trends are temporary trends. And the jobs report does not qualify better jobs. A job is a job. But is a job stocking shelves at Safeway equal to an oil and gas engineer? Probably not in economic terms.

I can tell you anecdotally that I run value screens frequently and there are very few stocks that are truly undervalued.

5 Stocks the The Big Short Investor Michael Bury is buying here

However, The United States has become much more attractive as an investment locale mostly as other countries in Europe and Asia have struggled and become much less attractive to capital.

Germany, japan, and Hong Kong are prime examples of countries that institutions are nervous to invest in or are leaving altogether.

As stated previously, due to the social unnrest of recent weeks, real estate has taken on a new risk profile. The real estate market is much less attractive in major cities.

Stocks don’t exist in a vacuum

Institutions like pension funds and insurance companies constantly evaluate the risk of all assets.

Stocks, Bonds, Real Estate and others.

Riots have gotten so severe in the past 5 days, especially in New York that it has altered the risk premium for real estate.

I believe this will be permanent. I’m an optimist. But things have changed for cities. It doesn’t matter if we’re speaking about commercial buildings or residential properties. The costs, risks, and insurance have all gone up.

No one could have imagined the scenes we are witnessing in New York City. Businesses in areas like SoHo and Madison Avenue have been destroyed. They are less attractive now. To continue operating these stores, you will need serious enhanced security measures.

And even with that extra security, it is nearly impossible to combat what we have seen. A security guard cannot fight off 7 looters at one time. Have you seen the footage? And this behavior may not be going away. We have 40M unemployed.

Small businesses are being destroyed. Literally and figuratively.

Small restaurants and bars are in serious trouble. I keep reading of closings. In Los Angeles, after three months of lockdown, bars and restaurants were allowed to open this past Saturday. Widespread looting occurred. Many stores on Melrose Avenue and in Santa Monica were destroyed. After a three month period with no revenues.

What small business can survive that hardship? Its heartbreaking and devastating.

Are we heading towards an America dominated by chains like Applebees and Chilis? There will be much less diversity of choices in bars and restaurants that’s for sure.

Public companies have access to capital. They can negotiate better lease terms. They have flexibility. And they win when the local bars and restaurants close.

It is not much of a stretch to say that the safety and security of the S&P 500 makes it the only game in town. Especially when compared to the pathetically low interest rats provided by bonds.

Relevant Articles:

Buffett is Selling:

Its possible that Berkshire Hathaway has sustained losses in its catastrophic insurance portfolio. It’s also possible he sees a serious recession on the horizon.

Either way, he has a mountain of cash ~ $130B and is still raising more. Even if you don’t believe Buffett is at the top of his game, its worth considering why he is so cautious right now.

Warren Buffett: Buffett has sold stakes in airlines and in Goldman, Sachs.

Warren Buffett announced he had sold his entire airline stake on the premise that he wasn’t sure if air travel would return in two or three years.

That’s the most bearish assessment anyone has heard from Mr. Buffett in quite some time. But, few investors or Algorithmic programs paid much attention to him these days.

Sam Zell is Selling:

Sam Zell mentioned this week that he was quite cautious about the future.

“Too many people are anticipating a kind of V-like recovery,” said in an interview with Bloomberg Television.

“We’re all going to be permanently scarred by having lived through this.”

Zell, 78, said it won’t be easy for people to live as they did before the “extraordinary shock” of the pandemic.

CNBC: Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk

‘Monumental volumes’

The major online brokers saw a major jump in new users during the coronavirus sell-off, bolstered by zero commissions and fractional trades.

The quarter included 27 of the 30 highest volume days in Schwab’s history.

Robinhood users soar

Robinhood — millennial favored stock trading app — saw a mind-blowing 3 million new accounts in the first quarter, despite glitches and crashes on heavy trading volume days.

When novice investors ruch into a market as experienced legends take their profits, it rarely ends well. Will this be the exception? Stay tuned.

Riots and Looting Fuel Stock Market Rally – Here’s Why

June 4, 2020 by Frugal Prof

Riots and Looting Fuel Stock Market Rally – Here’s Why

Stocks don’t exist in a vacuum

Institutions like pension funds and insurance companies constantly evaluate the risk of all assets.

Stocks, Bonds, Real Estate and others.

Riots have gotten so severe in the past 5 days, especially in New York that it has altered the risk premium for real estate.

Had you suggested this scenario to a real estate investor, they would have scoffed that the scenario might be plausible for one bad night or two. But no one would believe you that New York city would have 4 consecutive nights of pure riots.

Teens looting every single store in Manhattan non stop for days. It just happened.

The New Normal:

High End Luxury stores could move to appointment only shopping. Where you need an appointment to enter the store. Police have made it clear they will not protect property. So, you have to implement your own protections. And all of that costs money.

Instead of public access at street level, shoppers could be buzzed in by security or given an access code to enter. Street level stores – once premium real estate; is now less attractive.

Many will ask – do we even need a store at all?

Electronic Stores could move to a light imprint model: You can test a phone or laptop in the store. But they have little or no inventory. They send it to you. So a company like Best Buy would need stores at half the size they have now. Could a smaller chain of electronics stores move to this model? Probably not. Again, it is a win for the large companies that have access to capital and can pivot to a changing retail environment.

Looters were targeting drug stores. Because drugstores have pharmacies with Oxycontin and other drugs.

Its very likely pharmacies would move to an online format. You can speak with a pharmacist but they send you the pills.

Amazon recently acquired pillpack to enter this space.

Amazon benefits from these events. And they could deliver drugs within one day in most places. Drugs are a profit center. Many drug stores would close under this scenario. Amazon will be a fierce competitor in this space.

Who needs stores?

Companies will re-evaluate the cost benefit analysis of stores themselves. Do we really need them? How many do we need? How much theft (inventory shrinkage) can we afford? How high will the insurance costs be. Insurance doesn’t cover riots.

Virtual Reality

Although its not here yet, virtual reality is coming. And it is likely to alter the way we shop anyway.

The real reason the stock market is so strong.

Large businesses vs Small Businesses.

Small businesses have had the worst three months ever. Most have been closed due to Corona Virus. Many didn’t qualify or receive PPP funds. Then, the looting began. It has been horrific for small businesses.

It’s been bad for large businesses too but they are insulated due to size, scale, access to capital and geographic diversification.

Small businesses have been hit much harder by each of these waves.

And each time, large public companies gain.

Their small business competition is being destroyed. Literally and figuratively.

What small business can survive that hardship? Its heartbreaking and devastating.

Are we heading towards an America dominated by chains like Applebees and Chilis? There will be much less diversity of choices in bars and restaurants that’s for sure.

Again, public companies have access to capital. They can negotiate better lease terms. They have flexibility. And they win when the local bars and restaurants close.

Multiply this all over the economy and you see why Large companies listed on stock exchanges are doing well (and some hitting new highs) when the economy is in rough shape and there are 40M unemployed.

Stay safe.

If you enjoyed this article, please subscribe to my e-mail list.

Experienced Investors are Selling While Novice Investors Rush Into Stocks

May 27, 2020 by Frugal Prof

That which isn’t good for the hive, isn’t good for the bee.

Marcus Aurelias, Meditations

Experienced Investors are Selling While Novice Investors Rush Into Stocks

At some point, even lay people begin to wonder what is happening with the stock market.

We have massive unemployment. Large parts of the economy aren’t even open for business. Disneyland isn’t reopening for 7 weeks and when they do, the restrictions will be so onerous, that it will be nearly impossible to make money.

So, how has the stock market has a parabolic run over the past 5 weeks that leaves the Nasdaq and many stocks at or near ALL TIME HIGHS?

Free Money from the Fed:

Negative Interest Rate Policy: The Fed is flirting with Negative Interest Rate policy, a radical failed experiment everywhere it has been tried.

For now, Powell is pushing back on the idea. But his track record of bowing to the wishes of the President is pretty weak.

Why Buffett is Selling:

Its possible that Berkshire Hathaway has sustained losses in its catastrophic insurance portfolio. It’s also possible he sees a serious recession on the horizon.

Either way, he has a mountain of cash ~ $130B and is still raising more. Even if you don’t believe Buffett is at the top of his game, its worth considering why he is so cautious right now.

Warren Buffett: Buffett has sold stakes in airlines and in Goldman, Sachs.

Warren Buffett announced he had sold his entire airline stake on the premise that he wasn’t sure if air travel would return in two or three years.

That’s the most bearish assessment anyone has heard from Mr. Buffett in quite some time. But, few investors or Algorithmic programs paid much attention to him these days.

Sam Zell is Selling:

Sam Zell mentioned this week that he was quite cautious about the future.

“Too many people are anticipating a kind of V-like recovery,” said in an interview with Bloomberg Television.

“We’re all going to be permanently scarred by having lived through this.”

Zell, 78, said it won’t be easy for people to live as they did before the “extraordinary shock” of the pandemic.

Marc Lasry is cautious:

Billionaire investor Marc Lasry says the market isn’t pricing in a recession that will last ‘for a while’

“If you’re going to have all these people unemployed, it’s hard to end up coming out of a recession until that changes.

It’s going to be a difficult couple years,” Lasry said, adding “I just don’t see people that are out of work spending money.” More here

Who the Hell is Buying Stocks?
Novice Investors for one.

BARRONS: Day Trading Has Replaced Sports Betting as America’s Pastime.

It Can’t Support the Stock Market Forever.

CNBC: Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk

‘Monumental volumes’

The major online brokers saw a major jump in new users during the coronavirus sell-off, bolstered by zero commissions and fractional trades.

The quarter included 27 of the 30 highest volume days in Schwab’s history.

TD Ameritrade — which is set to be acquired by Schwab — said last month that retail clients opened a record 608,000 new funded accounts in the first quarter, with more than two-thirds of those opened in March.

The e-broker’s new accounts proved to “skew younger” over the last quarter,” TD Ameritrade chief market strategist JJ Kinahan told CNBC.

“Perhaps because they’re home or perhaps because of furloughs, they also have time to dedicate to their investments that they didn’t necessarily have before,” Kinahan added.

ETrade, which is set to be acquired by Morgan Stanley, saw a gain of 363,000 accounts in the quarter, a company record.

Robinhood users soar

Robinhood — millennial favored stock trading app — saw a mind-blowing 3 million new accounts in the first quarter, despite glitches and crashes on heavy trading volume days.

It never ends well when the novice investors are running into the Wall Street casino while the experienced investors are looking for the exits.

Be careful my friends.

5 Undervalued Stocks “Big Short” Investor Michael Burry is Buying

May 26, 2020 by Frugal Prof

Michael Burry – the famed investor portrayed by Christian Bale in “The Big Short” – added 5 new stocks to his hedge fund portfolio in the first quarter, according to a 13F filing from last week.
While Burry’s largest holding remains Gamestop, $GME he added new stakes in companies that were negatively impacted by the coronavirus pandemic, like Boeing.
Burry’s Scion Asset Management has $387 million in assets under management as of March 31.

*Legal Disclaimer: Information provided herein for educational purposes only.

Ticker: JACK

Sector: Consumer Discretionary

Position Market Value: $10.5 million

Percent of Scion’s Portfolio: 12.21%

Price: $66.49

P/E: 18

Source: SEC 13F filing

Comments; The stock is all the way back at $66, but its possible he bought it when it was in the 20’s.

With $7 per share in cash purchasing the shares in the 20’s would give him a purchase in the neighborhood of 3X cashflow, which is extremely reasonable.

Relevant Articles:

Facebook

Ticker: $FB

Price: $234.91

P/E: 32

Sector: Communications

Position Market Value: $10.0 million

Percent of Scion’s Portfolio: 11.62%

Source: SEC 13F filing

Comments: Doubtful that he bought the shares for the new Shop feature, since it was just announced and has been a Huge catalyst sending the shares higher.

However, it’s possible he saw the CoronaVirus adding new customers or building in new habits for existing customers.

Not an undervalued situation except as it is undervalued relative to growth.

3. Boeing

Ticker: $BA

Sector: Industrials

Position Market Value: $8.95 million

Percent of Scion’s Portfolio: 10.39%

Comments; Many investors had their eye on Boeing. There is the potential for the airline segment to recover and Boeing would be a big beneficiary. Definitely a contrarian play that requires intestinal fortitude due to the risk.

4. The Michael’s Companies

Ticker: $MIK

Sector: Consumer Discretionary

Position Market Value: $5.27 million

Percent of Scion’s Portfolio: 6.11%

Source: SEC 13F filing

Comments; Michael’s is another contrarian play. Hard to resist since with nearly $2 in earnings and a $3 share price, its obviously undervalued.

Relevant Articles:

5. umber The Discovery ChannelTicker: DISCA

Sector: Communications

Position Market Value: $6.8 million

Percent of Scion’s Portfolio: 7.90%

Source: SEC 13F filing

Comments; With a share price of $20 and nearly $3 in earnings, this leaves the shares with a miniscule p/e of only 6.

As with most media companies, the area of concern would be the debt. And discovery still has a lot.

Always a worthwhile exercise to review what exceptional investors are buying.

Powell Comments Sends Stock Market Lower – Fed Sees Significant Downside Risks

May 13, 2020 by Frugal Prof

Powell Comments Sends Stock Market Lower – Sees Significant Downside Risks

“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” The Fed Chair said in a speech released Wednesday morning.

We played this game back in September. Do you remember?

Fed Chair Powell gave a speech where he hinted that there would be no more stimulus coming and even mentioned an intention to reduce the Fed’s Balance Sheet. This was back when the Fed’s balance sheet was only a couple Trillion Dollars. Now, its near $6T.

Anyway, the stock market never likes to hear that the party is coming to an end. Even when the party started back in 2009 and has been kept going by accomodative Fed policy to placate Presidents and help them get re-elected.

Yes, I’m talking to you, Janet Yellen. And now Jerome Powell has become pretty impressive at his job of trying to keep Trump in office for another four years.

The real test of Fed Chair is whether they can handle a stock market temper tantrum. Powell folded so quickly back in September that it was beyond embarrassing. It is now affectionately known as the Powell Pirouette. And not only did stocks regain their 19% losses, but they got all the way back to All Time Highs.

This brings us to this week. All investors are speculating whether the Fed will take us where no respectable country has gone before – NIRP (Negative Interest Rate Policy).

Today, Powell seems to hint that more could be done but that NIRP (Negative Rate Interest Policy), where a bondholder pays for the privilege of owning a bond and receives no interest, is not coming soon.

The issue is that the Fed Chair (all recent Fed Chairs) have a lousy track record of standing up to the market when they decline sharply. Fed Chairs usually give in. And this one is no different. It remains to be seen.

Stay tuned

Relevant Articles:

Financial Media is in Denial about the Real Economy

May 11, 2020 by Frugal Prof

Financial Media is in Denial about the Real Economy

As most of you know, we began this crisis in a financial bubble.

The Fed lowered interest rates while the stock market was at all time highs. A 20% dive in the stock market in September resulted in the “Powell Pirouette.” The Fed chair managed to reassure investors that he was willing to do whatever it took to restore the stock market, please the President, and ensure a Trump victory.

All of this resulted in a 34% vertical move in the stock market back to All Time Highs. One of the most ridiculous moves in stock market in history.

Cheers

CEO’s, for their part were using 105% of cashflow to do stock buybacks at lofty valuations.

Bob Iger from Disney earned $771M during this time. He was so appreciative that he left the company a day after the Corona Virus became a national emergency. What a guy. Now, many of the CEO’s from the airlines are seeking federal money or bailouts in spite of their buybacks.

Stock buybacks were designed as a strategy for companies that were undervalued to use their capital in a strategic manner.

Not anymore.

And since Warren Buffett has popularized this strategy, it’s disappointing that he is so quiet on this issue. Would it be so hard for Mr. Buffett to have raised the alarm that stock buybacks at 105% of cashflow is a dangerous practice that represented greed and short term thinking. I think not.

Relevant Articles: