torsdag 24 mars 2016

Den relativt okända investeraren Frank K Martin

Frank K Martin är ingen direkt välkänd placerare, trots hans fenomenala riskjusterade avkastning. Frank K Martins böcker Speculative Contagion och A Decade of Delusions består av utdrag från Martin Capital Managements kvartalsrapporter och årsredovisningar. A Decade of Delusions är uppföljaren till Speculative Contagion och inkluderar Frank K Martins skrifter mellan 1998-2010.

"Differentiating this book's perspective from others is that it will not reflect on what happened with the clarity and certainty of hindsight, along with the sanctimonious demeanor often in evidence when events are dispassionately viewed in retrospect. Rather the book is intended to capture in vivid detail the emotions that had the upper hand as the speculative contagon spread, often rendering rational thought dumbstruck if not impotent." (Speculative Contagion, preface iii)

Nedan följer rubrikerna från hans bok A Decade of Delusions. Nedanstående rubriker bör ge en viss överblick över Frank K Martins tankar under åren. Jag tror nedanstående rubriksättning var den som Frank K Martin använde i realtid i sina årsredovisningar, men jag kan inte garantera någonting. Underrubrikerna är åtminstone tagna direkt från årsredovisningar och andra skrifter.

(Från preface till A Decade of Delusions)




Inför finanskrisen föreslog Frank K Martin i ett utkast att fonden skulle köpa put optioner mot amerikanska investmentbanker. Fonden köpte aldrig optionerna eftersom det ansåg vara för spekulativt för klienterna. Frank K Martin köpte förstås själv put optioner, och avkastning var absurd.

Motivation för att köpa optionerna följde längre ner i utkastet:

(...)copious amount of leverage made possible by sometimes fleeting liquidity, and the increased complexity in financial innovation (...) The companies about which I am writing are the major investment banks on Wall Street: Goldman Sachs, Bear Stearns, Lehman Brothers and Merrill Lynch, and so forth  (...) It`s hard for me to imagine, however, that the major players  on Wall Street can avoid a body blow to their balance sheets and income statments should the system under which they are operating malfunction in unison. Should that occur i expect their shares to drop dramatically. " (A Decade of Delusion)

Det kan vara viktigt att poängtera att Frank K Martin aldrig skicka ut brevet till klienterna då "the kitchen cabinet" inte delade den extrema oron han kände. Martin förväntade sig att optionerna i ett bästa scenario skulle öka i värde 25 gånger och den slutgiltiga avkastningen blev till och med högre än så. Martin poängterar dock att han först i efterhand förstod hur bankrutt de amerikanska investmentbankerna var och att ovanstående inköp handlade mycket om tur. Frank K Martin har förstås inte rätt i allt, men han har en tendens att få rätt, om än efter en viss tid.

Som jag poängterat tidigare är jag inte särskilt begåvad och jag förstår inte varför någon normalbegåvad individ skulle vilja läsa mina tankar framför en begåvad individs tankar, därav:

Läs Martin Capital Managements senaste årsredovisning. En av fördelarna med Frank K Martins skrifter är att insikterna inte är begränsade till enbart värdeinvestering.

Under den tredje genomläsningen av årsredovisningen började jag göra utdrag. Ganska snart hade jag 33% av rapporten i mitt inlägg och då kan man istället läsa hela rapporten. De mest insiktsfulla tankarna finnes nedan:

"One would never have been capable of preparing for the financial crisis bear market without being able to at least vaguely comprehend the impending collision of various disparate elements. Among the many that were quantifiable were the emerging residential real estate bubble, abetted by reckless financial innovation (concurrent with a once-in-a-lifetime debt supercycle), and the continuation of an overly accommodative experimental monetary policy. The combination had the characteristics of a complex system in a critical state

(...) A continuation of the accommodative monetary policy that preceded the last bear market, eight years of ultra-low interest rates, both nominal and real, stabilized the last crisis, but their continued application seems to have destabilized everything else since. Interest rates are used to price risk. In the current environment, the risk-pricing mechanism is broken. The S&P valuation levels foretell longer term future returns that are likely to be de minimis. The link between the market and the quantifiable elements of the economy and the financial system is not often this tenuous.

(...)The amalgamation of investors that we call markets have their seasons of recklessness—whether because of excitement over the latest innovation or, as of late, years of cumulative, yield-starved desperation—when they carelessly disregard risk in pursuit of return. When millions of investors obsess over some mass delusion, reinforcing each other’s convictions contagiously, amplified by feedback loops, market prices become disassociated from underlying values.

(...)Quite unlike the 1930s, the “technology innovation” bubble’s 50% decline in the S&P from March 2000 through July 2002 had only a muted impact on investor sentiment. The damage was not universal, being confined largely to the information technology sector representing 30% of the S&P’s value at the peak (and 13% at the bottom). The accompanying “growth recession” was comparatively mild as the Fed again intervened, driving short-term rates down from 6.5% in October 2000 to 1% by November 2003. Because the damage was not ubiquitous, most investors quickly shed any remnants of the fleeting glass-is-half-empty fears and embraced the “financial innovation” bull market in housing and stocks. The “easy money fool’s rally” ensued, ending four years later in 2007. There was no dead low-tide moment.

The six months of purgatory from September 2008 to March 2009 again did not crush the momentum of the speculative contagion that had been building over time. Within a year of the bear-market low in March 2009 and the recession’s end three months later, risk taking ramped up at an unexpected clip during what may be remembered as the now seven-year-long, wide-open-spigot, “monetary intervention” bull market. Once again, the inevitable was postponed.

Entering 2016: A Bizarre World Addicted to Easy Money
The reigning delusion has been the elixir of artificially low interest rates. Ever since the Crash of 1987, the Fed has injected speculators with an “upper” every time a market swoon threatened to spill over into the real economy, with each hit needing to be stronger than the last. Finally, paranoid over the possibility of a repeat of the 1930s, the Fed progressed from syringe to IV drip in 2008, drugging short-term interest rates to zero and strong-arming longer-term rates lower through multiple quantitative easing (QE) programs. Going from high to high, investors have never been subjected to the withdrawal pains, which are the human cost of detoxification. December’s baby step toward raising short-term rates, and the equivocation about the course of rates ahead, makes Dr. Yellen the monetary physician who is administering methadone at the inconsequential rate of 10 mg per day. If we are ever to have a sound basis for rational expectations and stability to return to the capital markets, the drug of artificially low-cost credit must be withheld and the addicts must hit rock bottom, “recover[ing] their senses slowly, one by one.” If weaning a large cadre of financial junkies is not the Fed’s greatest nightmare, it should be.

(...)Natural disasters like the record-setting Mississippi River flood now under way (as of this writing), the Fukushima tsunami in 2011, and the Haiti earthquake in 2010 that killed over 100,000 are deemed so unlikely that they are called 100-year events. Each had a presumed 1% probability of occurring within any given year. Importantly, if any one of these tragedies had not occurred in 99 years, the probability in the 100th year would still be 1%.

Man-made destruction, however, is a different animal. The Great Depression nearly a century ago decimated America’s financial and economic income and wealth. The devastation lingered for 10 years. It might be reasonable to call a business calamity of that magnitude a 100-year event. Unlike most events in nature, however, depressions are no more random than the volcano that inches year by year toward the earth’s crust and finally erupts. The probability of both bursting on the scene increases over time

... When the U.S. plunged into financial crisis in 2008, it was like so many stacked dominoes toppling. The essential point here is that the dominoes had gradually and unceremoniously grown in number over time. The progressively more complex financial system had reached a critical state, like a dangerous accumulation of snow on a mountainside, or a forest that over the years had accumulated an ever-thicker floor of dry tinder. Any complex system can remain in a critical state for a long time. However large or small, all it needs is a catalyst to start the chain reaction.

(...) This truth of human nature cannot be overstated: There are no new eras, only new errors.

(...)Hans Christian Andersen’s well-known fable is about a mass social delusion. The emperor’s vanity made him susceptible to the entreaties of impostors who sell him an imaginary suit of clothes that will be invisible to all but those who are “in the know.” Since neither his minions nor, eventually, his subjects wanted to admit that they were not privy to the special or secret information that he possessed, the charade cascaded into public spectacle. Centuries later social psychologists have given the phenomenon an educated name: pluralistic ignorance. Put simply, it is where no one believes, but everyone believes that everyone else believes. 

A classic example is in a classroom setting where, after having presented the students with difficult material, the teacher asks them whether they have any questions. Even though most students do not understand the material, they may remain silent. The students interpret the lack of questions as a sign that the other students understood the material and, to avoid being publicly exposed as the stupid one, are reticent to ask questions themselves. Each student is aware of his or her ignorance with respect to some facts—but believes that other students are not ignorant of those same facts. Pluralistic ignorance understandably can lead to errors on a grand scale. It’s a social phenomenon for people to make systematic errors in judging other people’s private attitudes. Nowhere is this more apparent today than in the public’s perception of the U.S. Federal Reserve System, a secretive and largely unaccountable monopoly, with an unprecedented experimental monetary policy of driving the price of credit to zero for the last eight years and counting. Even though we ordinary folk grasp the illusion of the proverbial “free lunch,” the Fed’s material is infinitely more imposing than that presented by the aforementioned teacher. We assume that others are privy to the special powers that the Fed possesses, and thus we suspend our disbelief. No one believes, but everyone believes that everyone else believes. 

This herding process is abetted by the imperial power of the Fed over an individual’s free thinking and reasoning. As we have already seen, most people are ready to believe expert opinion even when those opinions contradict their matter-of-fact judgment. To be sure, confidence in the power of the Fed is not without basis or precedent. The prevailing prescription of applying the monetary palliative to truncate episodic maladies big or small began with Alan Greenspan in 1987 and continues (unexposed) to this day.

(...)Andersen’s emperor (for better or worse, he was in power for life or until deposed) had no choice but to march in stately procession before his subjects, parading in his underwear, his vanity exposed but with no place to hide. By contrast, today’s monetary royalty has felt no obligation to hang around in office for eventual humiliation. Greenspan passed the baton to Bernanke just as the subprime crisis was erupting, and less than two years before the Great Recession. Bernanke, in revolving-door fashion, dished the hot potato crown to ambitious Janet Yellen in early 2014, just as the great unwinding of the process of monetary extremism was set to begin, its unintended effects still ahead." (Martin Capital Managements Annual report 2015, länk)

tisdag 8 mars 2016

Amerikanska bolag rapporterar allt mer fiktiva vinster

I USA rapportera företagen allt mindre tillförlitliga siffror, vilket illustreras av nedanstående graf från WSJ (via Jesse Felder). Genom att även presentera Pro-forma earnings kan företagen ge en mer fördelaktig bild än vad GAAP tillåter, eftersom "engångskostnader" kan exkluderas. Gapet mellan GAAP och Pro-forma börjar bli oroväckande stort och Pro-forma "vinsterna" är nu drygt 33% större än vinsterna under GAAP.

(GAAP mörkblå)

Men som Carl Icahn påpekade i "Danger Ahead", så är inte ens GAAP earnings tillförlitliga:

"...And even GAAP earnings are suspect" (Icahn)

(Min fetstil i nedanstående artikel från WSJ)

"Overall S&P 500 earnings under GAAP came to $787 billion last year, S&P Dow Jones Indices estimates. That is $256 billion less than the pro forma estimate of $1.04 trillion. "(
Om ovanstående siffror stämmer och mina siffror om S&P 500s market cap stämmer, så värderas i dagsläget USA största index (2015 årsresultat) till:

p/e ( under GAAP)= 23,6
p/e (under Pro-forma)= 17,9

Förmodligen ligger den rättmätiga bilden någonstans där emellan.

I dagsläget bör man vara extremt försiktig när man betraktar amerikanska företag och genomgående göra egna bedömningar av vilka kostnader som bör inkluderas/exkluderas vid en värdering.

Jesse Felder fortsätter sitt inlägg med att poängtera hur den underliggande vinstutvecklingen varit för S&P 500 sedan finanskrisen. Jesse Felder betraktar mått som är mindre manipulerade än vinsten efter skatt.

"However, it’s very important to note that earnings before the effects of buybacks and management-fudged, “pro forma,” adjustments have essentially gone nowhere since 2012 even while stock prices have soared 50%. In this light, it’s very difficult to argue stocks are anywhere close to, “fairly valued,” relative to earnings."  

Blå linje anger EBITDA per aktie och gul anger S&P 500.

Så inte nog att vinsterna kan vara cykliskt förhöjda, utan dessutom rapporterar bolagen väldigt optimistiska "alternativa vinster". Förmodligen är inte alla Pro-forma justeringar värdelösa, men när avvikelsen blir så här stor bör man ifrågasätta justeringarna......

Jesse Felders inlägg finnes här.

Ofta kan företagen hjälpa placerare genom att visa hur stor andel av omsättningsökning som uppstod till följd av valutavinster eller dylikt. Däremot blir det missvisande när bolag gör "big baths" för att bokföringsmässigt kunna rapportera högre vinster framåt eller negligerar återkommande nedskrivningar.

"The problem, say accounting specialists, is that the clean numbers may be whitewashed versions of reality. That's because the excluded charges can signal that past profits were overstated. For instance, when companies take big charges to write off assets, this often means they weren't depreciating those assets quickly enough in previous years. And when companies write off bad loans they had made to customers to finance purchases, it can mean the previously recorded sales and profits generated by those loans existed only on paper.
Scant Consistency
"It's scary," says Douglas Carmichael, an accounting professor at Baruch College in New York. "Since there's no uniformity as to what goes into pro forma earnings, there's no comparability. It's just an undisciplined number that's at the heart of the calculation."" (
Avskaffa papperspengar?
Centralbankerna tror att om de sänker räntorna får lågt kan det leda till att sparare tar ut sitt kapital och lägger kapitalet där hemma. Sådana uttag skulle lätt kunna destabilisera det finansiella systemet vilket centralbankerna fruktar, kolla bara på Grekland. Men om centralbankerna kan avskaffa papperspengar skulle de kunna sätta väldigt låga räntor utan någon risk för att människor skulle kunna ta ut fysiska pengarna ur banken. Bill Gross tankar är i vilket fall väldigt intressanta:

"But central bankers seem ever intent on going lower, ignorant in my view of the harm being done to a classical economic model that has driven prosperity – until it reached a negative interest rate dead end and could drive no more. In addition, government policymakers seem to be setting up future roadblocks for savers. There is a somewhat suspicious uniform attack on high denomination bills of global currencies. Noted economists such as Larry Summers; respected journalists such as the FT’s Gillian Tett, central bankers such as Mario Draghi – all seem suddenly concerned that 500 Euro or 10,000 Yen Notes are facilitating drug dealers and terrorists (which they are). But what’s an economist/central banker doing opining on law enforcement? It appears that the one remaining escape hatch for ordinary citizens is being closed. Money in a mattress will heretofore be associated with drugs/terror. The cashless society which appears over the horizon may come sooner than the demise of the penny! Give a 500 Euro/take a 500 Euro is in our future I guess. Both that and the lowly penny will be equally scorned.

And that’s not the end of it. If negative interest rates fail to generate acceptable nominal growth, then the Milton Friedman/Ben Bernanke concept of helicopter money may be employed. How that could equitably be distributed nationally or worldwide I have no idea, but the opinion columns are mentioning it more and more often, and on Twitter, the “Likes” are increasing in numbers. Can any/all of these policy alternatives save the “system”? We shall find out, but current evidence of the past 7 years’ experience would support only a D+ report card grade. Barely passing. As an investor though – and as a citizen in this election year – you should be aware that our finance based economic system which like the Sun has provided life and productive growth for a long, long time – is running out of fuel and that its remaining time span is something less than 5 billion years." (Bill Gross)

Veckans komiska inslag står Donald Trump för.

Waterboarding=Skendränkning (en tortyrmetod)

"The best argument against democrazy is a five-minute conversation with the average voter" (Churchill)

Egentligen vet jag för lite för att uttala mig om Trump, jag får återkomma i frågan.