'Twas the day before Christmas, when all through the land
Not a trader was stirring, and isn't that grand;
The markets were recovered from the depths of despair,
In hopes that we'd never revisit that scare;
Hedge fund managers were nestled all snug in their beds,
While visions of met high water marks danced in their heads;
And mutual funds in their performance, and I on the sell side
Had finally settled down after capital raises left us just fried.
In December in the markets there arose such a clatter,
I sprang to my Bloomberg to see what was the matter.
Away to Dubai the news flew like a flash,
Reporting debt extensions, investors feared the next crash.
The moon on the breast of the Palm Island sand
Gave the luster of guarantees from the other Emirates hand,
When, what to my wondering eyes should appear,
But a wine induced flashback of the events of last year,
The year had a poor start, with this deep deep recession,
I felt at that moment we were in a Great Depression.
But more rapid than eagles the Fed programs they came,
And Bernanke whistled, and shouted, and called them by name;
Now, TAF! Now TALF! Now CAP and low rates!
On, MMIF! On AMLF! On SCAP! There’s no time for debates!
To the stress test results! To the capital shortfall!
Now raise away! Raise away! Raise away all!
As dry dollars that before the wild hurricane fly,
When they meet with a bank stock, mount to the sky,
So up to "normalized earnings" the investors they flew,
With a sleigh full of funds for bonds and equities too.
And then in a twinkling I saw in the banks
The lifting and raising as buyers closed up their ranks.
As I drew in my bear claws and was turning around,
Down the stairs all the bankers came with a bound.
They were dressed all in suits from the heads to their feet,
And their clothes were all rumpled and they really looked beat;
Huge bundles of stock they had flung on their backs,
And they looked like peddlers opening their packs.
Investors eyes -- how they twinkled! Their demand it was strong!
Their appetites whetted! They craved to be long!
These droll great big deals were drawn up in great haste,
Since the window was open there was not a moment to waste;
The bulk of these deals were held tight by the street,
And the rally it encircled the globe like a wreath;
Hybrids and credit had a nice round rally,
That extended the move for those keeping a tally.
Things rapidly felt better, a right jolly move,
That shook out the bears who were caught in their groove;
A drop in the VIX and tightening spreads,
Soon gave me to know I had nothing to dread;
Data began to improve as liquidity went straight to work,
And sent markets yet higher, then we got a small jerk,
As Dubai meant sovereign debt widened out,
Markets had a twitched, having a moment of doubt;
The Fed sprang to its sleigh, to low rates have a bow,
And away the fears flew with new highs for the Dow
So with great joy after this year fraught with great fright
I say HAPPY CHRISTMAS TO ALL AND TO ALL A GOOD-NIGHT"
Monday, December 28, 2009
Thursday, December 17, 2009
Thoughts from Wayne Jett
FED PREDICAMENT EASES
Dollar Improves Slightly
By Wayne Jett © December 16, 2009
When America’s dominant elite began purging certain of Wall Street’s big players in 2008, Federal Reserve chairman Ben Bernanke stepped into the breach. He didn’t volunteer. He was taken there by the czar of purges, Treasury secretary and Goldman Sachs ex-CEO Henry Paulson. The experience must have changed his worldview, particularly his idea of the Fed’s place in the pecking order.
What Bernanke saw at the Bear Stearns tactical session was financial sausage-making. Securities & Exchange Commission chairman Christopher Cox was so shocked that he never came to another such session; something about concern on his part that he was supposed to be enforcing the securities laws.
The Purges of 2008
Bernanke was not expendable, as Cox was. Paulson needed the Federal Reserve to pump $25 billion in cash into Bear and guarantee another $29 billion or so of its financial assets before all of it was given to J. P. Morgan Chase, essentially for a big kiss. Did anyone mention that Morgan Chase is the giant international bank historically controlled by Rockefellers and Rothschilds?
Morgan Chase got fat on Bear, and Bear’s shareholders got skinned while Paulson held them upside down by their feet. Then the purge czar struck again, and again. Fannie Mae, Freddie Mac, Lehman Bros., AIG, National City (Ohio’s biggest bank), Merrill Lynch, Wachovia, Washington Mutual – each fell to his ax. The shareholders of these financial giants ate dirt as hundreds of billions of their invested capital poured into the pockets of fraudulent traders, thanks largely to “innovative” derivatives trading which counterfeited and “watered” their capital stock.
Chairman Bernanke dutifully waded from one slaughter to the next, doing as he was told, which meant providing financial backing for whatever terms the purge czar set for gifts to intended beneficiaries. Morgan Chase alone got both Bear Stearns and Washington Mutual, the Seattle-based national home mortgage lender. Morgan Chase’s CEO subsequently told his shareholders 2008 was the bank’s best year ever.
WaMu’s takedown emitted just as much stench of the purge czar as the other deals mentioned, even at the time. Recent reporting from Seattle investigators reveals FDIC’s Sheila Bair served as spearhead for the move against WaMu, which was seized when the firm had $29 billion in net liquidity, almost twice the five percent liquidity required. Subpoenas issued in bankruptcy proceedings are going after emails of others involved, including Morgan Chase and Goldman Sachs. Even without subpoena power applied by any criminal law enforcement agency, seizure of WaMu has all the earmarks of federal complicity in destruction of one private company for benefit of another.
The Fed’s Balance Sheet
As these financial purges were orchestrated, Chairman Bernanke found the Federal Reserve with a much enlarged balance sheet showing assets of an unprecedented nature. On his signature, the Fed advanced over $1.3 trillion for securities of varying nature, when the Fed’s total assets previously were $850 billion. Bernanke has been unwilling to say who sold him the securities, what prices were paid, or how prices were determined.
If the Fed were just another private bank, perhaps keeping confidences would seem acceptable. But the Fed, unlike other banks, prints the money it spends under license of the U. S. government. Every dollar issued by the Fed makes every other dollar held by Americans (not to mention people around the world) worth less than would be the case if the new dollar didn’t exist. This explains why some, even in Congress, want Bernanke to detail what he did with the $1.3 trillion before he is confirmed by the Senate for another term as Fed chairman.
When Bernanke was spending the money, he said he had no choice but to do it. Clearly someone made choices, because some banks were saved and some were slaughtered. As in Animal Farm, some banks are more equal than others, and the differences are not always apparent on their financial statements.
“De Plan, De Plan”
Bernanke also indicated he had a plan for extracting the new liquidity from the economy before the dollar’s value is swamped by it. But in a Senate hearing last week, Senator Jim Bunning revealed Bernanke told him by letter he has no such plan. Perhaps, again, the Fed chairman just doesn’t wish to talk about it.
In order to drain the $1.3 trillion in new liquidity, the Fed must dispose of the acquired assets at prices at least as high as were paid for them. If the assets were to prove worthless, the Fed simply could not drain the liquidity because it would have nothing to sell for it.
As previously reported here, the Fed bought those assets because their prices were being fraudulently manipulated lower by various maneuvers which created “toxic” images for them. The banks which owned the “toxic assets” were endangered by manipulation of their own share prices. The Fed bought in order to shield the assets and the banks from further attack, because the Fed itself was immune for naked short selling of its shares.
As previously warned, too, any sale of these “toxic assets” by the Fed might restart the bear attacks on their value and on the banks. In order for the Fed to proceed with confidence to market the assets and withdraw so much excess liquidity, fraudulent trading practices must be stopped. On this point a modicum of good news appears as a light in a tunnel.
Positive Developments
Bloomberg News reports leveraged loans rated below BBB- by S&P or below Baa3 by Moody’s have risen 49.3% in value this year, after falling 28.2% in 2008. BBB rated loans are said to be priced presently at about 55 cents on the dollar. Higher rated loans fell less, and have also recovered, rising from 69 cents to 89 cents on the dollar.
This is good news for Bernanke and the Fed, which might even sell the formerly toxic assets at a significant profit. If that were to happen, the Fed could actually strengthen the dollar by draining more dollars than it created to buy the assets. In reality, the Fed probably would not destroy those dollars, since its practice is to give excess “earnings” to the Treasury to spend. The markets noticed, of course, as the dollar recovered somewhat from above $1,200/oz gold.
The strong price recovery of collateralized debt obligations can be traced to incremental changes in market conditions which enabled their prices to be beaten down. By demand of Congress, the FASB modified or clarified its Rule 157, which had required “mark-to-market” accounting the value of these assets. The ABX.HE index was outed somewhat as an unreliable indicator of real market value of such assets. The SEC repealed its “Madoff exception” regulation which so importantly assisted bear attacks on financial shares, as it permitted market makers in credit default swaps and options to hedge by selling shares short without borrowing or delivering the shares sold within a definite time limit.
Reforms Left Undone
Each of these reforms was absolutely essential to achieve the meager amount of recovery, or slowing of the drop, seen in 2009. But so much more remains undone. Reform of oil price manipulation passed the House, but only in a larger bill containing more bad than good. By past performance of Wall Street and Congress, all of the good is likely to be stripped from the bill, assuming the Senate acts and legislation actually makes it to conference. Meanwhile, the SEC still has done nothing to stop High Frequency Trading (front-running all trades) or to restore the Uptick Rule, and is unlikely to act unless Congress requires it by statute.
Confirmation of Bernanke’s re-nomination as Fed chairman is due to be considered by the Senate on December 17, but may be delayed by request of an individual senator. A rumor is out that he may withdraw his name. Even with the positive development reported above, what he learned the past 22 months may lead him to think the predators are not finished. ~
Dollar Improves Slightly
By Wayne Jett © December 16, 2009
When America’s dominant elite began purging certain of Wall Street’s big players in 2008, Federal Reserve chairman Ben Bernanke stepped into the breach. He didn’t volunteer. He was taken there by the czar of purges, Treasury secretary and Goldman Sachs ex-CEO Henry Paulson. The experience must have changed his worldview, particularly his idea of the Fed’s place in the pecking order.
What Bernanke saw at the Bear Stearns tactical session was financial sausage-making. Securities & Exchange Commission chairman Christopher Cox was so shocked that he never came to another such session; something about concern on his part that he was supposed to be enforcing the securities laws.
The Purges of 2008
Bernanke was not expendable, as Cox was. Paulson needed the Federal Reserve to pump $25 billion in cash into Bear and guarantee another $29 billion or so of its financial assets before all of it was given to J. P. Morgan Chase, essentially for a big kiss. Did anyone mention that Morgan Chase is the giant international bank historically controlled by Rockefellers and Rothschilds?
Morgan Chase got fat on Bear, and Bear’s shareholders got skinned while Paulson held them upside down by their feet. Then the purge czar struck again, and again. Fannie Mae, Freddie Mac, Lehman Bros., AIG, National City (Ohio’s biggest bank), Merrill Lynch, Wachovia, Washington Mutual – each fell to his ax. The shareholders of these financial giants ate dirt as hundreds of billions of their invested capital poured into the pockets of fraudulent traders, thanks largely to “innovative” derivatives trading which counterfeited and “watered” their capital stock.
Chairman Bernanke dutifully waded from one slaughter to the next, doing as he was told, which meant providing financial backing for whatever terms the purge czar set for gifts to intended beneficiaries. Morgan Chase alone got both Bear Stearns and Washington Mutual, the Seattle-based national home mortgage lender. Morgan Chase’s CEO subsequently told his shareholders 2008 was the bank’s best year ever.
WaMu’s takedown emitted just as much stench of the purge czar as the other deals mentioned, even at the time. Recent reporting from Seattle investigators reveals FDIC’s Sheila Bair served as spearhead for the move against WaMu, which was seized when the firm had $29 billion in net liquidity, almost twice the five percent liquidity required. Subpoenas issued in bankruptcy proceedings are going after emails of others involved, including Morgan Chase and Goldman Sachs. Even without subpoena power applied by any criminal law enforcement agency, seizure of WaMu has all the earmarks of federal complicity in destruction of one private company for benefit of another.
The Fed’s Balance Sheet
As these financial purges were orchestrated, Chairman Bernanke found the Federal Reserve with a much enlarged balance sheet showing assets of an unprecedented nature. On his signature, the Fed advanced over $1.3 trillion for securities of varying nature, when the Fed’s total assets previously were $850 billion. Bernanke has been unwilling to say who sold him the securities, what prices were paid, or how prices were determined.
If the Fed were just another private bank, perhaps keeping confidences would seem acceptable. But the Fed, unlike other banks, prints the money it spends under license of the U. S. government. Every dollar issued by the Fed makes every other dollar held by Americans (not to mention people around the world) worth less than would be the case if the new dollar didn’t exist. This explains why some, even in Congress, want Bernanke to detail what he did with the $1.3 trillion before he is confirmed by the Senate for another term as Fed chairman.
When Bernanke was spending the money, he said he had no choice but to do it. Clearly someone made choices, because some banks were saved and some were slaughtered. As in Animal Farm, some banks are more equal than others, and the differences are not always apparent on their financial statements.
“De Plan, De Plan”
Bernanke also indicated he had a plan for extracting the new liquidity from the economy before the dollar’s value is swamped by it. But in a Senate hearing last week, Senator Jim Bunning revealed Bernanke told him by letter he has no such plan. Perhaps, again, the Fed chairman just doesn’t wish to talk about it.
In order to drain the $1.3 trillion in new liquidity, the Fed must dispose of the acquired assets at prices at least as high as were paid for them. If the assets were to prove worthless, the Fed simply could not drain the liquidity because it would have nothing to sell for it.
As previously reported here, the Fed bought those assets because their prices were being fraudulently manipulated lower by various maneuvers which created “toxic” images for them. The banks which owned the “toxic assets” were endangered by manipulation of their own share prices. The Fed bought in order to shield the assets and the banks from further attack, because the Fed itself was immune for naked short selling of its shares.
As previously warned, too, any sale of these “toxic assets” by the Fed might restart the bear attacks on their value and on the banks. In order for the Fed to proceed with confidence to market the assets and withdraw so much excess liquidity, fraudulent trading practices must be stopped. On this point a modicum of good news appears as a light in a tunnel.
Positive Developments
Bloomberg News reports leveraged loans rated below BBB- by S&P or below Baa3 by Moody’s have risen 49.3% in value this year, after falling 28.2% in 2008. BBB rated loans are said to be priced presently at about 55 cents on the dollar. Higher rated loans fell less, and have also recovered, rising from 69 cents to 89 cents on the dollar.
This is good news for Bernanke and the Fed, which might even sell the formerly toxic assets at a significant profit. If that were to happen, the Fed could actually strengthen the dollar by draining more dollars than it created to buy the assets. In reality, the Fed probably would not destroy those dollars, since its practice is to give excess “earnings” to the Treasury to spend. The markets noticed, of course, as the dollar recovered somewhat from above $1,200/oz gold.
The strong price recovery of collateralized debt obligations can be traced to incremental changes in market conditions which enabled their prices to be beaten down. By demand of Congress, the FASB modified or clarified its Rule 157, which had required “mark-to-market” accounting the value of these assets. The ABX.HE index was outed somewhat as an unreliable indicator of real market value of such assets. The SEC repealed its “Madoff exception” regulation which so importantly assisted bear attacks on financial shares, as it permitted market makers in credit default swaps and options to hedge by selling shares short without borrowing or delivering the shares sold within a definite time limit.
Reforms Left Undone
Each of these reforms was absolutely essential to achieve the meager amount of recovery, or slowing of the drop, seen in 2009. But so much more remains undone. Reform of oil price manipulation passed the House, but only in a larger bill containing more bad than good. By past performance of Wall Street and Congress, all of the good is likely to be stripped from the bill, assuming the Senate acts and legislation actually makes it to conference. Meanwhile, the SEC still has done nothing to stop High Frequency Trading (front-running all trades) or to restore the Uptick Rule, and is unlikely to act unless Congress requires it by statute.
Confirmation of Bernanke’s re-nomination as Fed chairman is due to be considered by the Senate on December 17, but may be delayed by request of an individual senator. A rumor is out that he may withdraw his name. Even with the positive development reported above, what he learned the past 22 months may lead him to think the predators are not finished. ~
Wednesday, December 9, 2009
Fidelity Comments
The Great Depression was actually two depressions. It started with World War One, which essentially bankrupted Europe in the 1920's. The
U.S.—via the Fed—lent a helping hand by extending easy money to Europe, around 1925-1927. However, in a classic example of the "laws
of unintended consequences," some of this easy money ended up in our own stock market, thus contributing to the massive bubble that burst
in 1929. This episode shows that the concept of "moral hazard" is not new. It existed as far back as the 1920's.
When the bubble burst in 1929, it unleashed a wave of deflationary debt deleveraging onto the U.S. economy, much like occurred in 2008
after the housing bubble burst. However, during the 1930's the Fed was on the gold standard, which made it impossible to just open up the
liquidity spigot like it did last year. In fact, the gold standard acted somewhat like a straight jacket and the Fed actually raised rates for a while,
which is obviously the last thing you one should be doing during an economic crisis. This "policy error" undoubtedly contributed to the 87%
blood bath in stocks from 1929 to 1932.
Bernanke knows this well, which is probably why he responded with such overwhelming force in the fall of 2008 following the collapse of
Lehman. Not only did the Fed lower rates to zero, but it expanded the monetary base. We call this "quantitative easing" or more simply
"printing money”.
The idea behind quantitative easing is that the Fed creates (out of thin air) excess banking reserves. Those reserves end up on the balance
sheet of the banks, who are then supposed to lend out these new reserves to consumers and businesses. That triggers what is known as the
money multiplier, which then expands the money supply and brings the economy back to life, and creates inflation (which under those
circumstances is a desired outcome).
The problem back then was that the Gold Standard prevented the Fed from doing this, until Franklin D. Roosevelt (FDR) came into power in
1933. FDR realized that the gold standard was limiting his ability to respond to the crisis, and in April of 1933 he changed it. He did this by
making it illegal to own gold. Holders of gold had to turn in their bullion and they received the stated conversion price of $20/oz. FDR then
changed the conversion price to $35/oz, and with the stroke of a pen he increased the money supply by 60% and devalued the dollar at the
same time. That was the catalyst for a 150% rally in the stock market and several years of very strong economic growth.
U.S.—via the Fed—lent a helping hand by extending easy money to Europe, around 1925-1927. However, in a classic example of the "laws
of unintended consequences," some of this easy money ended up in our own stock market, thus contributing to the massive bubble that burst
in 1929. This episode shows that the concept of "moral hazard" is not new. It existed as far back as the 1920's.
When the bubble burst in 1929, it unleashed a wave of deflationary debt deleveraging onto the U.S. economy, much like occurred in 2008
after the housing bubble burst. However, during the 1930's the Fed was on the gold standard, which made it impossible to just open up the
liquidity spigot like it did last year. In fact, the gold standard acted somewhat like a straight jacket and the Fed actually raised rates for a while,
which is obviously the last thing you one should be doing during an economic crisis. This "policy error" undoubtedly contributed to the 87%
blood bath in stocks from 1929 to 1932.
Bernanke knows this well, which is probably why he responded with such overwhelming force in the fall of 2008 following the collapse of
Lehman. Not only did the Fed lower rates to zero, but it expanded the monetary base. We call this "quantitative easing" or more simply
"printing money”.
The idea behind quantitative easing is that the Fed creates (out of thin air) excess banking reserves. Those reserves end up on the balance
sheet of the banks, who are then supposed to lend out these new reserves to consumers and businesses. That triggers what is known as the
money multiplier, which then expands the money supply and brings the economy back to life, and creates inflation (which under those
circumstances is a desired outcome).
The problem back then was that the Gold Standard prevented the Fed from doing this, until Franklin D. Roosevelt (FDR) came into power in
1933. FDR realized that the gold standard was limiting his ability to respond to the crisis, and in April of 1933 he changed it. He did this by
making it illegal to own gold. Holders of gold had to turn in their bullion and they received the stated conversion price of $20/oz. FDR then
changed the conversion price to $35/oz, and with the stroke of a pen he increased the money supply by 60% and devalued the dollar at the
same time. That was the catalyst for a 150% rally in the stock market and several years of very strong economic growth.
Friday, December 4, 2009
Marty Whitman & Joe Huber
Here’s a quick article from the great portfolio manager Marty Whitman. I sold most of the holdings I had in his fund last year because he held onto some stocks way too long. Whitman talks about the value one should pay when buying a stock. It’s not a bad way to buy stocks—provided the underlying assets don’t drop in value. They did last year. Whitman gave $25 million to my alma mater—Syracuse School of Management.
Also, I have a link to my friend Joe Huber’s mutual fund. Joe broke off from Hotchkiss & Wiley and put out his own shingle. One of his funds is up 81% year-to-date, number one according to the Wall Street Journal. If you want to talk to Joe, let me know.
http://online.wsj.com/fund/page/fund_scorecards.html?classification=106&returnTime=Daily_Tr_1Y~best&submit.x=1
StreetDogs: It will take more than a 45% loss to subdue this 85-year-old man
Published: 2009/12/03 06:47:47 AM
MARTIN Whitman, the 85-year-old chief investment officer of Third Avenue Fund, who once described it as “better than the toll booth on George Washington Bridge”, lost 45% of his fund last year.
Prior to 2007, Whitman, who is a legend at picking over the balance sheets of troubled companies in search of hidden treasures, had achieved a track record of approximately 17% a year going back to 1990.
Despite having lost 24% of the fund’s value during 1998 and 1999, Whitman — who calls himself the “safe and cheap” investor — only buys at a “big” discount to net asset value.
His definition of net asset value being what a company would sell for in a takeover or on auction.
So, how much of a discount? “Don’t pay more than 50%-60% of what a business is worth,” he advised in a 2006 interview.
“It is … crazy to pay more than 60c on a dollar for noncontrolling interests in businesses. Outsiders always face agency problems.”
Besides cheap, Whitman also wants a strong balance sheet; competent, shareholder-oriented management as well as “understandable and honest disclosure documents”. Balance sheets are much more important than the income statement, he says.
“Security analysis would be simpler if one focuses on the balance sheet while placing no emphasis on the income statement and earnings estimates.”
Whitman has developed the following rules of thumb for valuating various companies :
n Financial services: book value.
n Small banks: 80% of book value.
n Insurance: adjusted book value.
n Real estate: independent appraisal value.
n Operating companies: 10 times peak earnings or less than net asset value.
n Tech companies: twice book value, less than 10 times peak earnings, twice revenue and more cash than liabilities.
Whitman also doesn’t believe in traditional growth investing . “We are growth investors, too,” he says. “We buy into the kind of growth that is not generally recognis ed while most other growth investors buy into generally recognised growth and have to pay up for that.” The key is to figure out the value of future growth.
“Many people on Wall Street know the price of everything but the value of nothing.”
In a recent Shareholders Letter, Whitman says there are at least three lessons investors should have learned from the 2007- 08 debacle:
n Not to invest in the common stocks of companies that need continuous access to capital markets, especially credit markets. “The short sellers have become too powerful.”
n Not to borrow money to finance portfolio holdings. “Prices … are just too capricious to permit this activity to be undertaken safely.”
n Fund redemptions interfere with portfolio management, “forcing fund managers to sell precisely when they should be buying”.
Also, I have a link to my friend Joe Huber’s mutual fund. Joe broke off from Hotchkiss & Wiley and put out his own shingle. One of his funds is up 81% year-to-date, number one according to the Wall Street Journal. If you want to talk to Joe, let me know.
http://online.wsj.com/fund/page/fund_scorecards.html?classification=106&returnTime=Daily_Tr_1Y~best&submit.x=1
StreetDogs: It will take more than a 45% loss to subdue this 85-year-old man
Published: 2009/12/03 06:47:47 AM
MARTIN Whitman, the 85-year-old chief investment officer of Third Avenue Fund, who once described it as “better than the toll booth on George Washington Bridge”, lost 45% of his fund last year.
Prior to 2007, Whitman, who is a legend at picking over the balance sheets of troubled companies in search of hidden treasures, had achieved a track record of approximately 17% a year going back to 1990.
Despite having lost 24% of the fund’s value during 1998 and 1999, Whitman — who calls himself the “safe and cheap” investor — only buys at a “big” discount to net asset value.
His definition of net asset value being what a company would sell for in a takeover or on auction.
So, how much of a discount? “Don’t pay more than 50%-60% of what a business is worth,” he advised in a 2006 interview.
“It is … crazy to pay more than 60c on a dollar for noncontrolling interests in businesses. Outsiders always face agency problems.”
Besides cheap, Whitman also wants a strong balance sheet; competent, shareholder-oriented management as well as “understandable and honest disclosure documents”. Balance sheets are much more important than the income statement, he says.
“Security analysis would be simpler if one focuses on the balance sheet while placing no emphasis on the income statement and earnings estimates.”
Whitman has developed the following rules of thumb for valuating various companies :
n Financial services: book value.
n Small banks: 80% of book value.
n Insurance: adjusted book value.
n Real estate: independent appraisal value.
n Operating companies: 10 times peak earnings or less than net asset value.
n Tech companies: twice book value, less than 10 times peak earnings, twice revenue and more cash than liabilities.
Whitman also doesn’t believe in traditional growth investing . “We are growth investors, too,” he says. “We buy into the kind of growth that is not generally recognis ed while most other growth investors buy into generally recognised growth and have to pay up for that.” The key is to figure out the value of future growth.
“Many people on Wall Street know the price of everything but the value of nothing.”
In a recent Shareholders Letter, Whitman says there are at least three lessons investors should have learned from the 2007- 08 debacle:
n Not to invest in the common stocks of companies that need continuous access to capital markets, especially credit markets. “The short sellers have become too powerful.”
n Not to borrow money to finance portfolio holdings. “Prices … are just too capricious to permit this activity to be undertaken safely.”
n Fund redemptions interfere with portfolio management, “forcing fund managers to sell precisely when they should be buying”.
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