Anyone interested in having our own Barron's Roundtable about investing in 2013? I'll start with my thoughts, and will love to hear yours:Berkshire. Well I have officially joined the cult and now BRK-B’s make up 50% of my investable assets. I really feel like the downside is limited at these levels, and if the last time Mr. Buffett initiated a buyback is any indication, than forward returns from these levels should be quite satisfactory (according to Tilson, BRK soared 83% in the year following the last buyback). While I highly doubt this type of return will occur, a 25% adjustment upwards could happen very quickly if Mr. Market changes its bearish tone towards the insurance industry. And I do believe that has been the major headwind to BRK that many people aren’t talking about, in addition to the Gates Foundation constant selling pressure. But regardless, BRK does look attractive here and I also like the added in hedge against bad things happening the economy. If the market does tank again, we can feel confident that Warren will deploy some of that $40 billion to shareholders advantage. It’s a nice roundabout put option. Speaking of insurance, on a price/book basis insurance stocks are at multi-decade lows, driven partly because of a fear of catastrophic weather evens being the new normal, and partly due to interest rates being so damn low. If you take Metlife as an example, the stock currently trades at half its book value, yet since 2001 it has typically traded between 1 and 1.3x book. If BRK is on sale, Metlife is on a fire sale. I’m very bullish on a MET, AFL, and AIG “buy and look 5 years from now” trade. What will 2013 bring for Apple? A chartist would tell you that things aren’t looking good for Apple, but who really knows for sure. My big problem with Apple has always been replicating the big pile of earnings. I am much more confident about the willingness of a consumer to spend $2,000 a year at Costco then at Apple. Are most people going to drop $400 on a smart phone year after year after year? Probably not. And that brings me to another problem that is inherent in nearly all technology companies, namely how Wall Street is enamored by what may happen rather than what actually does happen with stocks. Look at any nearly tech stock over the last 20 years, and you’ll see that price flies high at future growth potential, and then the xyz company actually reaches that potential and no one is interested anymore and valuations get cheap relative to earnings (see MSFT, INTC, CSCO). That is why Apple really needs to go out and do to the TV what they did to the mp3 player and cellular phone.If Apple designs a TV that is touch screen, looks like an aesthetically pleasing mirror hanging on the wall until you turn it on, and caters to an on demand customer they will revolutionize the industry and will pose a major threat to cable companies. (Almost like an iTunes impact). The hype that this type of product will generate will send Apple shares soaring. Anything short of this and I think Apple investors are going to be disappointed going forward.In terms of the stock market in general as it pertains to global macro events, I’m still bullish. The market is reacting differently to the fiscal cliff than it would have in 2009, 2010, or 2011. People are still skiddish about the economy and therefore the wall of worry is still being climbed, but the panic selling simply is not occurring like it would have a couple years ago had this type of event been taking place. I take that as a sign that we are going higher in 2013 and could possibly see all-time highs sometime in the coming year. Once animal spirits return in full-fledge, then I will start to get nervous. Let’s come back a year from now and see if I’m right.Highest conviction picks for 2013 in no order: BRK, AIG, CELG, MET, AFLStay away from: Japanese YenWishing everyone a very happy, healthy, and prosperous 2013!
Look at any nearly tech stock over the last 20 years, and you’ll see that price flies high at future growth potential, and then the xyz company actually reaches that potential and no one is interested anymore and valuations get cheap relative to earnings (see MSFT, INTC, CSCO). That is why Apple really needs to go out and do to the TV what they did to the mp3 player and cellular phone.Apple is a little different because despite the enthusiasm today, the valuation is not at the kind of elevated levels that existed in the tech world at the turn of the century. Microsoft, for example, went on to perform very well as a business but the stock price stagnated due to multiple compression. At least at Apple it is fairly certain that if the business can continue to grow earnings over the next decade the stock price will follow. That is a significant difference. Of course, Apple is starting out at a very high level of earnings and compounding earnings at this level at an attractive rate for a decade results in some pretty mind boggling numbers. I'm quite confident in saying that if Apple can double earnings, the stock price should at least double and we'll have our first trillion dollar company. I'm much less confident regarding Apple's ability to double earnings from here or, for that matter, exactly what their product line up will even look like in 5-10 years.
Forgive me oh board for not having the analytical skills of the rest of the people I enjoy being with here on this Board. However, I have had my late afternoon Malt and have decided to put my 2-Euros in. By the way, Happy New Year... about to happen here in two-hours here in Germany.AppleTim has decided on some major turn-a-bouts now that he is firmly in charge. (He is developing a spunky little attitude - good for him I say as he has a big job.) He has decided that he no longer needs to worry about exclusivity. He shops at Walmart occasionally and he has no issue with giving them a price break. His "later to be released" Walmart quote as he shook hands with the CEO... "Hey Mike, duke yourself out selling our stuff". (They will.) He is not surprised when the Apple Stores report that they have no issue with Walmart invading their space. Two separate food groups. (He figured it out in 2012 - the Apple Store group shops at Whole Foods, the rest at Walmart. (Essentially he decided to make the Christmas deal with Walmart mid year.)Insurance BusinessI agree with Steve above - Insurance (and the banks of course) has been "knocked out" and will make some kind of come back this year. In the meantime, we have some of the best insurance people in the World in our little Berkshire community. Things bode well.Oil & GasAmerica has come the full circle... very quickly. Even faster than anyone suspects, we will develop our nat gas and oil resources. (Perhaps unfortunately ? without a lot of government policy help.) Amercians, as Warren says, can work wonders. People are figuring out how to make things happen - generally small town USA has sharper teeth and ideas than our elected officials. People are starting to move aggressively, Ford finally figured out that America wanted small, high mileage cars... T Boones is starting to look like someone ahead of his time. As much as they have ignored him in the last couple of years, they will adore him starting this year. Refineries do very well in 2013 and beyond. Buy some of the people involved in Nat Gas engines - this is going to transform transportation. Nat Gas Trucks are not going to be just hauling garbage - they are headed cross country. Oil producers in the middle of America decide that the lower prices are fine, they do not need Brent pricing to do well and they become even more industrious without pricing complaint. Railroads continue to respond quickly to oil transport needs. However, Gas Pipeline manufacturers will quickly determine that 2014 may be a record year. (Unfortunately FERC takes a little longer than we wish. However the Government will be very cooperative with the timely FERC approvals. People in the industry - pipe purchasers - even comment to the positive.) WaterThis resource is about to come to the top of the problem pile: spell it H2O: How To Organize, Prioritize and Conserve. People have to start thinking about how to conserve, keep it clean, recycle economically and use less. It will become expensive very soon - even as we become more energy capable, our water resources become in focus. Water will start becoming a serious issue in 2013. Desalination becomes a very serious topic and lo-and-behold, there are "serious" discussions starting in the USA about additional dam projects. (Starting in the northern states - they have no water shortages, only too much of it.)Berkshire HathawayWarren will have a sore shoulder by the time of the annual meeting from the Elephant Gun going off. It will be a major deal but will not impede any of the other good things happening in the Company. It will be a good year for the Company - barring any recessionary problems - the stock will continue to work its way toward 1.4 Book in 2014. Buybacks will not be of a major consequence. Warren will discuss dividends at the next annual meeting. (Not because he needs to but because he wantsto give the Company a plan for the future.) Warren is putting all of the ducks in a row... he is becoming very comfortable with his place in the World and will continue to "mix-it-up" with the rest of the world - talking, instructing, sounding hokey at times but always being nearly always right. He loves his job, his country and his little spot light in the American media.Happy New Year from Hutschenhausen!
A few safe predictions (financial and some non-financial):- The Philadelphia Eagles will hire a new coach, but will again have a losing season- Peyton Manning will throw at least one touchdown pass in the playoffs- there will be tension in the middle east- there will be more discussion on CNBC concerning Facebook, Groupon and Zynga than there will be concerning Barrett Business Systems, Arden Group, or Heartland Financial.- Berkshire will complete a very large new acquisition. (going out on a limb or cliff with this one)- True faithful Value investors will be well rewarded once again.Best wishes to all in 2013!swp.s. don't forget to go on line late tonight to print out your special Berkshire dividend. Since I am not a Berkshire holder, I will have to just look on in envy.
When talking about predictions I am reminded of this comment by Dr. Michael Burry:"The only prudent position regarding the future of financial markets is not to have a position."
For 2013:It will be another good year for Berkshire Hathaway.It will be a better year for some other companies.People will enthusiastically point this out to BRK owners who usually will politely listen and may, if feeling generous, explain why holding BRK is an excellent idea.I read in an article about Mr Santulli that Mr Buffett told him, "You only need to get rich once." But people have trouble telling when they are rich enough and don't want to believe in black swan events.Happy New Year!
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