tag:blogger.com,1999:blog-5389144729834496735.post412041525055725448..comments2024-03-17T05:15:55.634-04:00Comments on The Brooklyn Investor: Buffett on Market ValuationUnknownnoreply@blogger.comBlogger44125tag:blogger.com,1999:blog-5389144729834496735.post-21387338371866264622016-07-10T12:30:35.277-04:002016-07-10T12:30:35.277-04:00Perhaps it is not so much about market valuation b...Perhaps it is not so much about market valuation but rather the valuation of the stock price. I usually will focus on PEG as a guideline.Value Investorhttp://valueinvestingsingapore.sgnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-40262542090935584932015-04-28T09:15:06.810-04:002015-04-28T09:15:06.810-04:00If only I had Buffett's deep knowledge in fund...If only I had Buffett's deep knowledge in fundamental analysis... Of course, technical analysis plays a pivotal role in trading but fundamental analysis gives another aspect of an investment.Alanhttp://binaryoptionsxpert.com/signals/noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-66042563918864764802014-10-28T14:41:15.944-04:002014-10-28T14:41:15.944-04:00Hi,
That may be so. I thought it was GDP and I ...Hi, <br /><br />That may be so. I thought it was GDP and I see references to Buffett indicator being against GDP but I haven't looked at the original article so I'm not sure. <br /><br />But either way, it wouldn't make much difference. You are correct in what you say about what GNP includes but GDP doesn't. If you look at the two, though, they are very close. I was wondering why, but then realized that it is because GNP has a deduction of production within the U.S. owned by foreignors. <br /><br />The stock market has no such deductive component so the stock market to GNP ratio would still have a similar distortion to one compared to the GDP. <br /><br />Thanks for dropping by! <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-2703705632475460092014-10-28T14:26:31.687-04:002014-10-28T14:26:31.687-04:00kk, recall the ratio is market cap/GNP, NOT GDP.
...kk, recall the ratio is market cap/GNP, NOT GDP.<br /><br />GDP includes everything that is generated within the physical United States.<br /><br />GNP includes everything that is generated by Americans period - this includes foreign sources of income.<br /><br />So your point about GS or Google having international revenue does not apply to GNP because that would, in fact, be part of GNP. So, the market cap/GNP ratio, I think, is very well applicable today.<br /><br />In fact, if you look, you'll see that US GNP is higher than GDP.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-80219040537901404962014-10-11T06:35:53.922-04:002014-10-11T06:35:53.922-04:00Thanks for the comment. That's a very good po...Thanks for the comment. That's a very good point and many people said the same thing a while back. But interest rates have already been far lower for far longer than anyone ever imagined back in 2008/2009.<br /><br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-50217852909858049252014-10-11T05:42:40.797-04:002014-10-11T05:42:40.797-04:00Hi,
I want to make a short remark for this articl...Hi,<br /><br />I want to make a short remark for this article. <br />You are comparing Japan and the US for interest rates going forward which I found unwise. Why? Because when Japan has first hit low rate era in 90's, they have the back up of public savings. The people savings were and still are in the government bonds. While for the US, it is not so. Hence my disagreement.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-41190290169441867252014-10-08T19:09:25.652-04:002014-10-08T19:09:25.652-04:00At the time of the Sun Valley conference near the ...At the time of the Sun Valley conference near the top of the internet bubble, that is.CorpRaiderhttps://www.blogger.com/profile/14548638697951241406noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-76085844366734554852014-10-08T19:06:12.197-04:002014-10-08T19:06:12.197-04:00Hi KK,
Buffett made some comments about his use o...Hi KK,<br /><br />Buffett made some comments about his use of the market cap to GDP ratio at the Fortune MPW conference. It is on youtube if you're interested. Nothing earth shattering or anything but I thought it was interesting that he seems to indicate that the ratio is not particularly special, just was one that did a good job of demonstrating the froth at the time.CorpRaiderhttps://www.blogger.com/profile/14548638697951241406noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-50396920288222784382014-10-05T08:52:02.513-04:002014-10-05T08:52:02.513-04:00Hey, great blog, I like it. I think inflation is a...Hey, great blog, I like it. I think inflation is always there und will be more in the future. When the interests rates starts to grow, everythink will be moving. And then the stock markt goes down and the first losers are companies like Facebook or Tesla, where the P/E is over 50. <br /><br />For those who want to visit a german blog about value investing, please visit my little blog: http://valueinvesting2020.blogspot.de/Value Investing 2050https://www.blogger.com/profile/04448763664662801073noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-34893921271648308792014-10-03T11:49:55.839-04:002014-10-03T11:49:55.839-04:00Yeah, as I reread my comment it was not clear abou...Yeah, as I reread my comment it was not clear about stocks not going up with rates. I meant to say that it hasn't gone up as much as rates has gone down. Using Buffett's method, stocks would still beat (or close to) bonds at 40x p/e because the earnings yield of 2.5% would be similar to bond yields. But of course, I doubt Buffett would ever call 40x p/e fair, but who knows... kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-91444219752672934362014-10-03T11:40:12.116-04:002014-10-03T11:40:12.116-04:00That was an interesting comment by Buffett. Howev...That was an interesting comment by Buffett. However, I will note that those pensions have positions in less than 10 stocks. That is a lot different than buying the S&P like he advised his wife's trustee to do. <br /><br />I'm not sure I follow about stocks not being bid up because of rates. Stocks have pretty much tracked QE. You will notice stocks ran up with QE 1 and then sold off after it ended. They ran up after QE 2 and sold off after it was targeted to end. Then QE 3 came out with no end date and stocks really took off. QE is ending soon. We will see how equities react to the final taper shortly. <br /><br />I'm not a macro investor. Macro is impossible and I learned the hard way. I just don't have a lot of good ideas right now and I don't see a lot of cheap stocks out there. There are always a few, but it's not easy to find a good idea right now. On the other hand, I see a lot of very expensive stocks and momentum stocks that need everything to go right to justify the current valuation. I'm not a short seller, but this is probably an idea rich environment for one. anonymoushttps://www.blogger.com/profile/08473194825911220953noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-36940683722097131022014-10-03T11:18:29.872-04:002014-10-03T11:18:29.872-04:00Good points. I don't disagree. You will noti...Good points. I don't disagree. You will notice, though, that the market didn't bid up equity valuations as interest rates went down. I would be really worried if the stock market did go up to 30-40x earnings for sure... <br /><br />It was interesting to hear that Buffett has 100% of pension assets (that he manages) in equities; no bonds, no cash. (If you look at the pension assets in the 10-k, that's not true, but that's because there are pensions that are not managed by Buffett himself). <br /><br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-32926417300600459072014-10-03T11:06:47.998-04:002014-10-03T11:06:47.998-04:00Charles DeVaulx at IVA, formerly at First Eagle, m...Charles DeVaulx at IVA, formerly at First Eagle, made a great point about low interest rates the other day in a conference call. He used Charlie Munger's old algebra adage, invert always invert. So instead of bidding up stocks because interest rates are low, let's invert. Why are interest rates so low? In a world of low/no economic growth, fair to expensive valuations, and generationally low interest rates, shouldn't I demand a higher margin of safety when buying equities instead of bidding them up because interest rates are low? Interest rates might be low because there are large imbalances in the world. Interest rates might be low because there is still a threat of deflation, which is not good for equities. Interest rates might be low because growth is slowing around the world. I think this is an interesting way to frame the dilemma.anonymoushttps://www.blogger.com/profile/08473194825911220953noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-58020276564108925712014-10-02T17:46:25.889-04:002014-10-02T17:46:25.889-04:00I think you are right. They are guiding 4.80-5.65...I think you are right. They are guiding 4.80-5.65 in adjusted EPS for full year 2014 and it's trading at under $55, so that's a 9.7x - 11.5x p/e; that's pretty cheap if they keep growing. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-23741067825412373792014-10-02T15:38:39.576-04:002014-10-02T15:38:39.576-04:00I'd be interested to hear your thoughts. In ad...I'd be interested to hear your thoughts. In addition to BRK, Greenblatt has it as one of his top holdings in Gotham Enhanced Return. Also the company is selling at a price that is less than what both of them started building positions at. I think it has the potential to be a very good cloning opportunity. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-89160834933999459692014-10-02T08:12:15.207-04:002014-10-02T08:12:15.207-04:00Hi,
Yes, I did go back and read some annual repo...Hi, <br /><br />Yes, I did go back and read some annual reports etc... and it looks like a really well run company with a nice shareholder base (including BRK), but haven't gotten to the point of making a post about it. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-53292261805438179602014-10-01T17:02:42.722-04:002014-10-01T17:02:42.722-04:00Hello Brooklyn Investor: Did you ever look into CB...Hello Brooklyn Investor: Did you ever look into CBI. It would be great to read your investment thesis on that company.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-49054157956400561612014-09-26T07:42:06.289-04:002014-09-26T07:42:06.289-04:00Hi,
Good question. I think domestic production ...Hi, <br /><br />Good question. I think domestic production by foreigners is deducted so it still isn't apples to apples.kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-85679701115035762872014-09-23T22:55:46.136-04:002014-09-23T22:55:46.136-04:00KK -- it's been a while since I studied Macro ...KK -- it's been a while since I studied Macro Econ, but I think the question was on GNP and if my memory serves right, whereas GDP looks at the total amount of 'stuff' that is produced in the US, GNP looks at stuff made by US persons, irrespective of location of that production. <br /><br />Whether BUD as an inverted corp still counts as a US person, I don't really know. But I think GNP tries to deal with a lot of the shortcomings you mentioned regarding GDP. (For example in looking at the total scope of companies like Goldman and Google.) Dnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-83418901914717282392014-09-23T17:48:02.921-04:002014-09-23T17:48:02.921-04:00Hi,
That's an interesting question. Since I ...Hi, <br /><br />That's an interesting question. Since I tend to look at things stock for stock, it doesn't worry me much. For example, if I like BAC or JPM due to their valuation, what difference does the market cap/GDP ratio make? Not much. OK, so sometimes it might be indicative of irrational exuberance and that might be bad news for the market and economy in general. <br /><br />So I do tend to look and read about those things. But the market cap/GDP in particular is not that interesting to me because of all the globalization going on. At one time, BUD was a primarily U.S. domestic beer business. Now it's an internatinal mega-brewer. Goldman Sachs was a primarily domestic/U.S. investment bank, but now gets more revenues outside the U.S. (or close). <br /><br />Google is a mega-cap that gets a lot of revenues outside the U.S. too. <br /><br />Every time there is a cross border merger, the U.S. stock market capitalization (versus domestic GDP) expands. <br /><br />I also understand that other metrics (like profit margins) are at historical highs and seemingly unsustainable. Maybe they are too high and unsustainable. I don't know. <br /><br />But what I do know is that the approach to investing that I subscribe to doesn't try to guess what is going to happen to the market according to these measures.<br /><br />In any case, I am sort of always concerned with the market, lol... When it's high, I worry we will crash, and when it's cheap like in early 2009, I worry that we will plunge into a depression and cheap stocks are not cheap enough... <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-72784556993353130032014-09-23T17:09:06.082-04:002014-09-23T17:09:06.082-04:00Have you given any thought to Buffetts favorite va...Have you given any thought to Buffetts favorite valution metric Maket Cap/GNP? We have surrpased 2008 levels and approaching 2000 bubble levels. Does this give you pause for conern? Thanks. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-12194078533032562232014-09-19T10:18:32.237-04:002014-09-19T10:18:32.237-04:00Totally agree... Returns will obviously be lower ...Totally agree... Returns will obviously be lower going forward from a higher price. There is no question about that. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-33771248764574584112014-09-19T09:52:31.384-04:002014-09-19T09:52:31.384-04:00I appreciate the reply. I was surprised by Buffet...I appreciate the reply. I was surprised by Buffett's recommendation to his wife's trustee. I would have guessed that he would instruct the trustee to buy Berkshire shares with the money. Regardless, Buffett's expectations from his recommended portfolio were not high, see below.<br /><br />“You also revealed something in the annual letter this year, where you said, you laid out the terms of your will, what you’ve set aside for your wife. Which, I didn’t know any of this,” Quick said.<br /><br />To which Buffett responded: “Well, I didn’t lay out my whole will. . . . I did explain, because I laid out what I thought the average person who is not an expert on stocks should do. And my widow will not be an expert on stocks. And I wanna be sure she gets a decent result. She isn’t gonna get a sensational result, you know? And since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that’s left to her? Part of it goes outright, part of it goes to a trustee. But I’ve told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments. And the reason for the 10% in short-term governments is that if there’s a terrible period in the market and she’s withdrawing 3% or 4% a year you take it out of that instead of selling stocks at the wrong time. She’ll do fine with that. And anybody will do fine with that. It’s low-cost, it’s in a bunch of wonderful businesses, and it takes care of itself.”<br /><br />I agree that his current stock holdings will not earn 15% pre-tax, but he didn't buy most of them at today's levels. He has also referred to many of them as permanent holdings.<br /><br />I agree with the poster above. One can't bid up stocks to much higher than average valuations with low interest rates as a justification and expect historical average returns from stocks. There is no free lunch. Bidding up stocks because interest rates are low will result in a relative return advantage over bonds, but a lower than average return from stocks based on history. One can't ignore the math.anonymoushttps://www.blogger.com/profile/08473194825911220953noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-71636157037904587702014-09-19T06:47:33.554-04:002014-09-19T06:47:33.554-04:00Hi,
Good points. Buffett also said he likes to...Hi, <br /><br />Good points. Buffett also said he likes to pay 9-10x pretax earnings for businesses and Munger said something similar recently at the DJCO meeting; that they like to buy things that yield 9% pretax. <br /><br />Buffett also does say that most people should be in an index fund. He said that in the most recent annual report too, that his wife's trust will be 90% S&P 500 index fund and 10% cash. And he wrote that with the market not too far from current levels.<br /><br />Also, keep in mind that he wants to earn 15% pretax return to buy something, but there is no way his current stock holdings are going to return 15% pretax over time from here (but he still continues to own them). <br /><br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-22066733205195150512014-09-18T22:57:01.966-04:002014-09-18T22:57:01.966-04:00(It's kind of stunning to think that Buffett, ...(It's kind of stunning to think that Buffett, in 1981, seemed to be saying stocks aren't worth 7x p/e but says they are reasonably valued now (or at least he said so relatively recently)). <br /><br />Buffett was correct saying that a 14% tax-free municipal was a better relative value than stocks at a 7x p/e. 14% tax-free outperformed the market over the subsequent 30-years. Regardless of what Buffett says about stocks relative valuation versus bonds to the public, that isn't how he has invested during the majority of his career. Here is a video of Buffett biographer Alice Schroeder (https://www.youtube.com/watch?v=cJfFGRxd-Pw). She states that Buffett wants a 15% pre-tax return. That is Buffett's hurdle rate. He doesn't care about relative valuation. He wants a 15% pre-tax return. If anyone thinks they can get a 15% pre-tax return buying the S&P at today's valuation, I want what they are smoking. Buffett's recent comments about stocks have been carefully worded as a relative argument. Read them word by word. He is very deliberate when he makes public comments. In private, I have no doubt he would say that stocks are expensive in absolute terms.anonymoushttps://www.blogger.com/profile/08473194825911220953noreply@blogger.com