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Thought Bubbles from the Deep

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DeepState said:
Is there anything tangible you can offer about how you came to this conclusion?
Click to expand...

Well as tangible as I am comfortable with.

I'm arguing that investors/traders are valuing a company on a daily basis.
KMD is no different.
For it to drop 50% in price and needing a 100% increase to return to old highs
I personally think that My and miners sentiments are being played out in the perceived
value of the company.

You can argue till your blue in the face that book value indicates its a bargain but unless
the masses agree (And one day they might) Its not going to return to anything like old highs.
In Fact it will have trouble closing the last gap---but hey what do the masses know?

If things change Ill see it all in good time---just like everyone else.

 

Yep, perceptions have certainly changed. They went from dire in 2012 to ebullient in 2013/14 and are seemingly dire once again. Somewhere along the line, these sentiments were proved to be very wrong as they created opportunity for less sentimental investors.

I can't be certain that this is the situation today. It just seems more likely than not based on what I can see is happening to sentiment which is not reflected in the actual developments as visible in the accounts but are extrapolations of things better regarded as transient than permanent when examined. Future developments can surprise in either direction, but would have to keep disappointing a lot to justify current poor sentiment and pricing. It could happen. What is the likelihood? The market is pricing 'this time it is different'.

Each of your arrows occurs in synch with fundamental developments that are quite clear, even if the reactions seem a bit much in aggregate. That last capitulation occurred when brokers nearly blanket downgraded the stock. Take a look at why...ask yourself if it makes any sense. The rationale looked a little light, to say the least. Still, change generates brokerage....

Generally, you'll find stocks that go up in greater number over a reasonable time-frame not measured in minutes, hours or days, amongst those whose sentiment is appalling and argued on that basis alone without reference to what it is actually worth, particularly if the best argument in support of the poor sentiment is that there is poor sentiment. Poor sentiment is a hunting ground for under-priced opportunities. It is when sentiment ignores fundamental concerns when the greatest opportunities are present.

What has been useful here is to highlight just how bad sentiment is without a whole lot of argument in relation to stock valuation. If sentiment is already so poor, there is buffer. SKC can see that. Even your chart shows that the price has found a level. I agree with at least that aspect. We'll see how the fundamentals roll out over the years ahead and whether sentiment is an accurate reflection or not.

As for being a rip-off:

Kathmandu Men's shirts -




North Face Men's shirts -




Which is the rip-off?
 
DeepState said:
Currently reading "Margin of Safety" by Seth Klarman of Baupost Capital on the advice of a seemingly retired ASF poster 'Sinner' - who is one seriously high-IQ guy. OMG. Some people here are right out of the box.
Click to expand...

Thanks for the compliment. I am retired because despite a handful of good names on this forum I find the value derived in aggregate to be negative due to other names.

Re your question on GDP and EPS...Hussman has done good work on this. If you look at most of his "shorthand" valuation methods (shown here http://www.hussmanfunds.com/wmc/wmc130318.htm) you can see there is an assumption (for US stocks) of 6.3% PA EPS growth.

This is calculated as the long term peak to peak historical measure of both GDP and EPS growth.

Unfortunately too busy to find the "Weekly Market Comment" which explains how this works. There are 52 WMC per year with articles going back pre 2000, so a lot to sift through.

Some quick googling turned up:

http://www.hussmanfunds.com/rsi/expectationscontext2.gif

and

http://www.hussmanfunds.com/html/peak2pk.htm

I suggest googling terms like "hussman gdp eps peak-to-peak" or similar.

In about 1 month it's likely I will be finishing my Directorship at the company I'm working for. If you're interested in hiring me as an analyst, I would work for $150,000
 
D/S

Don't disagree with anything you've said.
But half yearly snap shots of the books are a look back at the previous 6 mths.

NOW----may take until the next reporting or the one after.

Things can and do change and not be reflected in the books. While a level has been found and you have argued that there is potentially more upside than down---there is also the potential for another gap down.(If reporting is poor).

Personally Id rather see some clear signs of recovery (in the chart) before sitting in a position in anticipation that all is good and everyone will realise their foolishness.
 
DS, very interesting observations as usual.

I have one question - how have you converted those qualitative observations into a quantitative measure to determine future profitiability of the business? This is something I am currently battling with my fundamental systems I'm developing, I would be interested in hearing how you approach this issue - particularly using KMD as an example.

Funny thing is, I bought $500 worth of gear last weekend at KMD. This seasons stuff is actually quite fashionable and I got suckered into their sales technique - can't resist anything that says 40% off most stock...
 

Simply add it on first then take off whatever you like.
 
I do not get to the snow as often as I would like, but there is no way me or any of my mates would wear Kathmandu
 
fiftyeight said:
I do not get to the snow as often as I would like, but there is no way me or any of my mates would wear Kathmandu
Click to expand...

No way me and my mates would wear luxury lingerie either.... Still:




Price Comparison:

VAN-BE




KMD-AU









Brings a whole new perspective on the concept of Summit Club.
Hope all is good with you 58.
 
I tapped that reply out on a break at work, not my best attempt at English.

I know which business I would rather be involved with.

First Alan Joyce and now Twiggy... I really need to pick better companies to work for haha. On the plus side, I will have some time in front of a screen again
 

Pls PM me with contact details and a couple of suitable times for me to call. I'd be happy to take you through it and discuss your efforts.
 
Full of admiration for this bold innovation by Vanguard. Surprised/disappointed it has not been taken up to a much larger degree:



 
I was not aware but can indeed make a difference.a + for vanguard.
 

Thanks for this reference Sinner.

Weird that Hussman would assume EPS growth matches nominal GDP growth (I agree with his assertion that 6.3% is too high for the level of productivity gains being realized nowadays). In a closed economy, that would only happen if all innovation occurred within the existing companies, none from new companies entering the economy. Further, these companies would never dilute as they grew. Certainly, it is plausible for total corporate profits to grow at the same rate as the economy, but that is different to EPS growth.

Something of interest from MSCI Barra:

 

It's an assumption/inference made with full understanding of the shortfalls (the important bit is to know the assumptions and be explicit about them), that basically over the long term, peak to peak (which is a very different measure from correlation between the two timeseries), they match.
 

It's great to see you actively posting again.

From reviewing your links (esp the Peak 2 Peak one, thx again) and cross referencing the data with Shiller and Damodran, it appears that he is looking at an index of total earnings growth on the S&P 500. This will track nominal GDP if corporate profit share is a constant proportion of nominal GDP and the share which is listed is roughly unchanged (one reason why Buffett probably regards market cap to GDP as a valuation indicator, I think).This figure will be higher than EPS growth for the companies that are presently (were previously) available to investors. The MSCI study (2010) and another one from Arnott & Bernstein (2003) both show that dilution effects will result in a linked year to year EPS growth being about 2% below nominal GDP.

Neither figure is right or wrong, unless used incorrectly and without appropriate knowledge of the assumptions. However, if someone is going to use an assumption which represents earnings growing at about nominal GDP, then they really should make allowance for financing that growth in your calculations when assessing value.
 
From Stanley Fisher, Vice-Chair of the US Fed:



It appears that incentives and behavioural issues combine to produce financial crises. These appear to be an underlying cycle in the functioning of a monetary/credit system within a fairly broad range of political settings.

Efforts to make the system safer simply move risk to a new place. In re-shaping risk, it may be that there are fewer crises. However, those that occur, because the system is believed to be safer, may be more severe when participants find their assumptions of heightened safety and security of the system are challenged.

More than ever, it is important to insure tail events.
 
From FT:







I just love how international relations works...
 
I sympathise with China. It's Eastern approaches are completely controlled by the US. Great powers, and rising super powers need to be given space. America needs to realise this.
 
McLovin said:
I sympathise with China. It's Eastern approaches are completely controlled by the US. Great powers, and rising super powers need to be given space. America needs to realise this.
Click to expand...

+1. I just enjoy how the clear underlying developments and purposes of action are disguised in oblique language and said with a totally straight face. It's not unique to China whatsoever.
 
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