Present Value of Future Cash Flows
- Thread starter craft
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Spent an hour or so searching this afternoon! Looks rare and out of print unfortunately. Fairly expensive. Might monitor ebay for a few weeks and see if it appears at a reasonable price.
Craft, from your posts to date, you come across as a business analyst not a portfolio manager, i therefore recommend you sell due to business performance issues not weighting issues. As you advised me - one master! As long as you are taking into account the big picture from a business risk perspective, everything should work out just fine.
Personally i allocate capital as % of my net worth. I do not care how many different businesses i hold, i care more about the % of my net worth that is in a business where i am a minority shareholder with no control.
Actually you buy it direct from Charlie Munger's website. It is still expensive however.
http://www.poorcharliesalmanack.com/
Also can buy "The Most Important Thing" which McLovin recommended earlier.
Munger also recommends a number of fascinating books which I have read on broader topics such as psychology, social Darwinism, biographies, etc. They are mostly listed here:
http://www.amazon.com/Books-Recommended-by-Charlie-Munger/lm/SP7BNI47VM8O
http://www.amazon.com/Books-Recommended-by-Charlie-Munger/lm/SP7BNI47VM8O
Thanks Hesking for both the recommendations and the purchase information. I was on that site, for some reason missed the "orders" section. Hmm.
also Read BRK letter to shareholder every year, it is my most eager read every year and it's FREE ...
and he archives all the letter going back many decades, if you haven't read them you can spend a good few hours on them.
http://www.berkshirehathaway.com/letters/letters.html
Every year Warren has something to say and this year he talked about Gold, previous year he talked about leverage, corporate advisers derivatives, complex products etc... etc...
you can skip all the business reporting and go straight to his wisdom it usually a 1-3 page long ...
and the strange thing is when he start mentioned these stuff it start to unravel and blow up
Probably. But we have also been in a very long period of cheap bonds, perhaps because equities were so much more attractive. Using the example of US Treasuries, real yields have been falling for decades after having spiked during the era of stagflation. I think it's wholly unrealistic to expect anything much above 0% in real terms over the long run for treasuries, or similar assets. If risk is positively correlated with reward then it seems to be an aberration of history that an asset approaching "risk free" was yielding 3-4%+ over the inflation rate.
Just my
This is US spreads over CPI. average for that period is 2.9%.
0% doesn't compensate for time preference/term risk or the fact that CPI isn't the most robust measure of inflation (Just ask an Austrian economist)
Inflation/Disinflation is the main game in town not spread beyond it.
This is the exact risk I'm grappling with. I'm not trying to maximise anything through weighting the portfolio. My one master is business perspective - but I need to weigh my lack of information and control.
V
Have and will continue to consider the points you make. I may expand on some of the points you raise if I get my thoughts clear. My lack of response to your points is not a lack of appreciation or consideration of your post.
Thanks
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I agree with this. I wouldn't have the confidence to hold a single position of 25% of my portfolio. To be honest, it's a risk I need not take.
What exposure per company do you set at the time you buy in and what size would you let something grow to before thinking about reweighting?
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Usually between 5-10%. To be honest, I've never had the situation you are in. I see your dilemma. Personally, above 20% I'd be starting to get concerned. It's difficult because at the time your analysis looks sound. But I see it more as recognition that I'm a minority shareholder and have to spend a fair amount of time "connecting the dots" between reality and what management says. Perhaps it would also depend on the type of business, strong recurring revenues might lead me to allow it take up a larger maximum before I started to rebalance it (the theory being that strong recurring revenues don't stop overnight).
Sorry, not a great answer. Maybe I need to think more about this.
Hi craft,
This might be too technical for you, but the guys at GestaltU have done huge amounts of work on rebalancing and the 'rebalancing phenomenon', Shannons demon, etc.
This article is a good place to start
http://gestaltu.blogspot.com.au/2011/12/rebalancing-japan.html
But the whole blog has huge amounts of info on rebalancing.
If the blog is too technical, or too long to read I will summarise for you:
Mechanical rebalancing every N months can be hugely beneficial natural portfolio mechanism for both increasing profits and reducing risk.
Craft,
I spent sometime thinking about this. Ultimately my greatest concern is permanent loss of capital and the decrease in my net worth, even if a business has a robust business model there is always the possibility of something causing a catastrophic failure of the business and losing capital. I therefore think the question is best answered by asking yourself how much are you comfortable losing due to a catastrophic failure of one of your holdings? Remember as a business grows, the probabilities of continued business success and your future return on capital change over the course of time - it is possible that the more success a business has the more likely things could actually go wrong!
IMO a maximum 10% of my net worth at time of buying sounds right to me and letting it grow to a maximum of 20% of net worth for a high conviction position seems right. If you a long term business analyst investor I think any rebalance need only be done every 6 months around HY/FY report dates.
Hope this helps.
Cheers
Oddson
Another perspective on the equity risk premium.
Current position is represented by the yellow cross.
What gets my attention is that we are in uncharted waters since the floating of the dollar, prior to that the data presents problems for drawing comparisons. It might just be my misplaced sense of adventure but I love uncharted waters.
Current position is represented by the yellow cross.
What gets my attention is that we are in uncharted waters since the floating of the dollar, prior to that the data presents problems for drawing comparisons. It might just be my misplaced sense of adventure but I love uncharted waters.
Is that chart based on equity returns or equity yield?
Yield = Trend market earnings [exponential trend of all my earnings history] / Monthly XAO close.
Equity risk premium = 'above yield' minus the monthly close of the 10YR Government bond yield.
It would be interesting to compare equity risk premium against a measure of investor sentiment. I know it sounds a bit fluffy, but the number of negative articles in the media, public surveys etc. The combination of high equity risk premium AND negative investor sentiment would be the green light to go on a buying spree.
Sometimes AFR Smart Investor does surveys and produces the results. Interesting reading how other people are allocating capital and their views on the future.
Cheers
Oddson
Sometimes AFR Smart Investor does surveys and produces the results. Interesting reading how other people are allocating capital and their views on the future.
Cheers
Oddson
