Thursday, April 2, 2009

This is one of those days that makes you scratch your head...

After seeing the headline "Wall Street Jumps on G20 Hope, Mark-to-Market Change; Dow Above 8,000" I have to step back and scratch my head for a minute. It seems like all the G20 nations can do is print money to fix the problem, and re inflate the bubbles that have already occurred. Now, I am certainly not saying that the markets will be lower in 5 years than they are now-I don't know. It is unfortunate that we won't have any real idea what would have happened had we taken a more responsible course of action by letting things deflate for a bit and then let things naturally get back on track.

I also don't understand why there is such a freak out over Mark to Market accounting either... While I understand that it can be useful to repeal in order to give a 'good feeling' to investors and lenders-I am reminded of Charlie Munger:

"If you mix raisins with turds, they're still turds."

I would be willing to say that mixing securities that are overvalued on a balance sheet is mixing turds in with the other good raisins that a company has... Governmental issues aside, having a company's books be easier to understand isn't a bad thing. As value investors, shouldn't we be in favor of a company being more transparent with what their liquidation value might be? Why don't people take a look into the earnings statement to see how much of the earnings impairment was due to non-cash charges that may or may not be economically viable?

All things told, it seems like a bunch of stocks that have been on my value radar have become a lot more expensive (though, still seem to be good deals). ZINC, SHLD, KSWS, and SOAP all seem to have done quite well in the past week(s). Present holdings like SNS and ITEX have recently exploded in ways that I have been pleasantly shocked about (as far as how quickly they rose, not the fact that they closed some of the gap between price and full value).

For the sake of us buying more cheap securities, I hope that this rise in security prices is some form of a bull trap. I now feel less at ease when buying stocks than I did just a few months ago, when things were in a virtual free fall.

In a relatively unrelated matter, at the end of the month, I am gonna be in Indianapolis for the SNS annual meeting-if anyone is gonna be there, shoot me an email and we'll talk stocks.

Disclosure: Long SNS and ITEX.

4 comments:

Jae Jun said...

I too really hope that this is a bear market rally.

My portfolio has improved quite dramatically and its additional proof that I don't lose as much as the market yet still outpace it by a good margin when it is recovering.

I just need the opportunity to buy more.

halfhenry said...

I wish that "let things deflate for a bit" was as easy as you put it.

widemoatinvesting said...

I'm with Jae Jun--bear market rally.

But, when you buy good businesses at good prices, then you don't need to worry about the market too much.

If you have SNS and ITEX, why not buy WEST and allocate capital to one of your other favorites?

Joshua Wallis said...

Ragnar,

Do you have any thoughts on SNS' operating cashflows going forward?

If we can get back to 2006-2007 at 50M, and a Biglari capex of 5M. SNS would have larger margin of saftey than ITEX would at current prices. Notwithstanding, Biglari is a much better capital allocator than Mr. White.

Great site, keep it up!

(sorry of this double posted)