Bargains.

Plenty to had now. Swing you bum!

20bn into Goog.

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and MKL

BRK, KMX, GOOG, MKL, BAM

Problem is, they seem to become more and more of a bargain as the weeks go by.

Meaning they are all in a downtrend.

BRK 52 week high is 362. Now it is 275. How low can it go?

Didn’t Jim say he was all-in on DITM calls on BRK? Stock guru has conviction.

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Every Friday is an options expiration nowadays and we often get a lot of fake-outs each way to try to generate some transactions. I don’t fuss too much over mid-day moves on Fridays.

Berkshire at $600 Billion is a good enough deal, but as a component of the S&P 500 and a bunch of financial indices / ETFs, it will move around with the index for the most part. It’s not so cheap it is implausible that it will get cheaper.

Fairfax Financial at $11.5 Billion USD is a great price. Both companies will do fine with higher interest rates. Fairfax will probably do more than fine with rising rates.

There are plenty of good companies trading at attractive prices for those looking to make new investments. I am not finding 3.45% 10 year government bonds a tempting alternative to equities but who knows. The Whole Foods building by my house just sold at a 4-cap so someone must be happy to lock in those rates.

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Didn’t Jim say he was all-in on DITM calls on BRK? Stock guru has conviction.

All I said was that all my Berkshire position was calls : )
I also have other positions and a pile of cash sitting in the corner.

Still, my models suggest that, if the future rhymes with the past, Berkshire offers a reasonable chance of inflation plus 12-20% in the next year, average model about inflation + 17%.
Think of that as the number the model thinks is a 50/50 chance of beating or missing.

I hate to admit it, but if Berkshire goes a bit lower I might pick up a few out-of-the-money calls.

Jim

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WHY GOOGLE?

WHY GOOGLE AT THIS PRICE?

why google at this price?

Two cents.

Well, extrapolation is always fraught.
But as a rule of thumb, if the growth rate, ROE and net margins are all over 20%, but the P/E is under 20, a good outcome can usually be expected.
Add in that the business is unkillable and makes absolute oceans of profit.

An attack by the anti-monopolist government departments is probably a good sign.
If you’re making so much money that it’s unseemly, things generally turn out well, even if they break you into pieces.
Standard Oil, IBM, Microsoft.

Alphabet’s earnings do slide up and down a bit over time, but using price-to-sales as a second metric, it’s currently about 28% cheaper than the five year average.

Is it conventionally cheap? No, not really. Earnings yield of 5%.
But premium goods sometimes deserve a premium price.
Any multiple in the teens seems attractive until their growth in value per share shows serious slowing.
That could happen immediately. Also, the price could go much lower for a while–who knows?
But the chances of not making money from here seem very remote. It’s mostly a matter of how much you’ll make, and how long it will take.

A random chart
https://gs.statcounter.com/search-engine-market-share/all/eu…
Market share Google: 92.36%
Market share #2, Bing: 3.57%

Jim

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Thank you!

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A quality company trading at a PE of 20 with 20% earnings growth is a much better prospect than a mediocre company at a PE of 10 with 10% earnings growth.

1 dollar of earnings growing at 10% for 10 years equates to 2.59

1 dollar of earnings growing at 20% for 10 years equates to 6.19

Even with multiple expansion vs static PE the quality business is streets ahead. Eg

20 x 2.59 equals 51.8 dollars.
20 x 6.19 equals 123.8 dollars.

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i bought some paohy.
The Porsche holding company own 30% of VW (50% voting power), and will hold about 30% of Porsche IPO stock (half this 30% is indirectly through their holding of VW. The other half they plan to buy in the IPO)

VW is very cheap, trading at 4x PE and has assets like Limbos and 75% of Porsche the car after the IPO. PAOHY is trading at 30% discount of its VW holdings. So it’s a 70 cents on a deep value asset.

But the annoying thing is this is a German ADR. And German ADR’s tax is withhold at 26%, which is 11% higher than the 15% tax US investors pay. One can get the tax refunded but has to file bunch of paperworks and submit to German tax agency. One of the paperwork is tax certificate from the broker (my broker charge 50 EUR per line). Anyone has done this?

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I have baba, Uber, paohy, hog, pkx, and Jpm.

Besides baba and paohy, I really like Uber too. It’s a business model that quite unique. When there’s a recession, more people want to become its drivers. The company just provides softwares— they don’t pay for cars oils etc…

VW is very cheap, trading at 4x PE and has assets like Limbos and 75% of Porsche the car after the IPO. PAOHY is trading at 30% discount of its VW holdings. So it’s a 70 cents on a deep value asset.

I hope you realize that VW ist not run for the benefit of the common shareholder. It’s essentially a government controlled company with the main goal of maximizing employment and investment in the state of Lower Saxony. Due to a special law Lower Saxony (and the unions) can block every important decision.
Culture at the company is toxic, i.e. management by intimidation and there is a lot infighting going on between different factions. It’s not only a management problem, a help yourself mentality is common among workers as well, e.g. a team is called at night to fix a production problem and they bill several hours instead of the couple of minutes it took them to do the job.
If you treat it as the stinkin cigar butt it is it may be good for a puff, just be careful it may transmit ugly diseases :wink:

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Maxthetrade, thanks for your reply.
It’s very good insights.

Half of POAHY‘a value will be Porsche the car company. And VW pays a 4% dividend. So that give me some downside protection. But you are right about VW’s culture, I will keep this position reasonably sized.

A quality company trading at a PE of 20 with 20% earnings growth is a much better prospect than a mediocre company at a PE of 10 with 10% earnings growth.
1 dollar of earnings growing at 10% for 10 years equates to 2.59
1 dollar of earnings growing at 20% for 10 years equates to 6.19…

Though true, there is a hidden gotcha worth considering.

There are certainly many firms that manage 20%/year growth for a decade: we can see it in the history.
But there are no firms for which that level of continued growth is predictable a decade into the future.

A prudent expectation would be that the growth rate will taper during the decade, maybe slowing to 10% or something.
Plus, it’s perhaps overgeneralizing, but firms growing at 20% are inherently less predictable than slower growing firms, as a rule of thumb.
Meaning it prudent to require even a bit more margin of safety.

Conversely a 10% growth rate is more likely to be plausibly sustainable.
Other things being equal, you don’t have to pencil in nearly as much tapering in the growth rate.

Your conclusion remains valid, but less than certain because in the real world you have to have prudent projections.
And the conclusion can reverse, depending on the specific assumptions.
Compare 20% growth tapering to 10% starting at P/E 20, versus 10% growth tapering to 6.5% starting at P/E 10.
The slow grower gets you the higher return if by chance they trade at the same multiple at the end of the decade.

Jim

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1 dollar of earnings growing at 10% for 10 years equates to 2.59

1 dollar of earnings growing at 20% for 10 years equates to 6.19

This presumes the growth rates continue. In fact, high growers tend to shrink growth rate over time, regression towards the mean and all that.

When the 20% grower slows to 10% not only do you not get the full extra earnings growth, but you also tend to get P/E compression to reflect the lower growth rate, so you get hit twice and may make less than the slower growth company gains you, if the slower growth company stays steady.

The market responses are highly non-linear. Market prices are trying to destroy all “bargains”. On the one hand, high growth companies will have a “gravity” pulling on the “weighing machine” portion of their price which is based on the ultimate height to which their earnings will rise. This is reflected in a higher and higher P/E ratio measured against current earnings.

The entire “argument” between value and growth investors is whether the multiple expansion is so high that you mostly will make money staying away from high-multiple companies, or whether the growth will be so high that the future price will exceed the current price even after multiple contraction is considered.

For example, Tesla doubles its sales about every 2 years. At a P/E of 106, if they can keep this up for 3 more doublings they are a reasonable deal now, and if they keep it up for 4 or more more doublings, they are a screaming bargain right now.

R:)

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20bn into Goog.

“The Economist” about threats to Google’s/Meta’s ad business:

https://www.economist.com/business/2022/09/18/the-300bn-goog…

Even with a short term drop off I still believe both will be the “go to” Google for search and Meta for network effect. This will keep advertisers coming back. Meta also need to start monetising their users more aggressively and this is where I see future growth prospects too.

Even with a short term drop off I still believe both will be the “go to” Google for search

DuckDuckGo is my default search engine.

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