YouSaid · the spoken record

John Hempton

lines on the record: 55
first: 2019-08-19
most recent: 2019-08-19
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“So my gut reaction is probably leave half the money to do something else with, right? And in some sense, rebalance, a 60-40 portfolio would be a reasonable assumption. And actually pay up for quality because I think not because you do better paying up for quality, but you'll probably lose less, which is, you know, and, you know, over a very long period of time. My guess is the quality stocks will still produce returns that are adequate if your idea of adequate is low single digit.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“You're asking someone that's finding it extremely easy to find shorts at the moment and extremely hard to find longs, how I invest long at the moment This is not an easy question. If you go back to the height of the tech bubble, if you bought the top five names and you held them to now, you did okay. If you bought names 20 to 35, you did terrible. It feels bad to pay a big price for quality, but in retrospect it's worse to pay an even bigger price for junk.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Adjust out the depreciation because it was a plant that I didn't pay for. I was paying 20 cents a share. The people who paid for the plant paid $1.80 a share. From my perspective, the earnings were 7 cents a share. For the next 10 years, and that's roughly how it turned out, except some rich guy bought control of the company and diverted the cash flows for his own use. But there was a perfect instance where I should ignore the GAP accounts and I should just look at what's really going on. And the world is full of those instances, right? But it's also full of people who, like Valiant, will ask you to ignore the Gauderma royalty. Now, the Gauderma royalty is absolutely patently obvious that you shouldn't ignore it. And, you know, when you're late in a bull market and people are hyping things, they'll ask you to ignore the most silly things ever. Byron was the example of a company which was lossmaking as far as the eye could see and was still”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“So the company was never going to recover. In fact, it was going to lose money. But it was making about eight cents a share of operating cash flow, offset by the amortization of this plant. So it was declaring losses. But it had built up about 20 cents a share of cash after all the debt. Trading at 20 cents and was making seven cents of cash flow a year was going to make losses forever. Now the first adjustment was just”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“They had these enormous projections for how much money they were going to make about selling these synthetic sapphires. And that didn't work out that way. Firstly, the Russians copied the plans, so you could buy synthetic sapphires from other places. And the military establishment copied the plants. And they also started selling synthetic sapphires. And then women started looking down their nose at synthetic sapphires anyway. And so you didn't get a big price premium for them, even though they were flawless. You got a discount for them. In fact, a sort of flawed natural sapphire traded at a premium to a flawless, beautiful synthetic one.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“But these were originally jewels And I can only remember the numbers in price per share, but they'd spent about $1.80 per share building this whopping big plant. And they were amortizing the plant off, which was about 20 cents a share a year.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“There are times that adjusted earnings make sense. I'll go right back to very beginning of my stock picking career. This was a very, very much bearded value investor thing that a 22-year-old might think about. There was a company in Australia called Byron. And Byron invented the process for making synthetic emeralds, which, in fact, these things have turned up to be kind of useful if you could make them large enough, you might make a synthetic sapphire as a screen for a mobile phone, which would make a sort of unscratchable screen. They are used for the nose cone of cruise missiles. And the reason that they're extremely hard and abrasive and the military doesn't care what they pay for them, but you can run the guidance system through the nose cone of the missile so you can see through it without putting, you know, it's a sort of unbreakable window on a missile that's going extremely fast.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Valiant wasn't making gap profits. In fact, I always feel like pulling them up right now. But the first gap profit that Valiant made was after it blew up. And in fact, it was writing off deferred tax liabilities and writing off earnouts. There were no gap profits.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“They had bought a business essentially from Nestle from memory. And they were selling stuff that goes in women's lips to make their lips puffier. But every dollar of sale they had to send five cents of that, just a small amount back to Nestle because they owed them a royalty. When they were working, they're adjusted a bit throughout. They didn't include that. Now, it's an expense, right? Every dollar you sell, you have to send five cents back. If you sell an extra dollar, you have to send five cents back. Now they capitalize their estimated value of that and excluded it from their adjusted EBITDA. We found another one that was like that and another one that was like that”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Valiant was a series of opaque accounts It had all the famous adjusted earnings. And you could not work rationally from the adjusted earnings back to gap earnings. You just had to trust them on that. The other thing about Balium was that it was trading at 10 times sales and it was buying companies at 10 times sales. And 10 times sales is my favourite magical number. You really, really need to be good to justify ten times sales. That Scott McNally quote is just burned into me. You had this thing trading at 10 times sales, buying things at 10 times sales with accounts that made no sense. The first thing we did was we tried very hard to reconcile the adjusted bit the number to the abit denumber. And we found instances where they were lying. There's no ifs or buts about this. The first one we found was a trivial one. It was the Gauderma royalty.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, but then you've got Charlie Munger as your investor. So they made a whole lot of money when the markets were really low, and Charlie went and bought things with it. And in fact, if you go look at it, it bought almost all of its Wells Fargo on a single day, one day from the absolute bottom of the Wells Fargo stock price. And the real trick to that business is not only does it make money at the right time, but you have a really wise guy who invests money at the right time. The dollar doesn't care much how you make it. It cares like crazy when you make it.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Liquidation businesses by contrast make money at the wrong time. So, you know, the extreme version of that is Charlie Munger's company, the Dow Newswire, and it publishes bankruptcy notes. It's a legal publisher in the U.S. And Charlie owns Charlie Munger, not Berkshire owns a very large amount of them. the company and Charlie is the chairman of the board and he has an annual meeting where all the hair-ejested value investors go and you know hairy faced value investors go and they all listen to Charlie and Charlie doles in out wisdom but the real trick with that company is it makes okay money over a cycle but it makes it all when bankruptcy's hard”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“You got to the point here where looking just at historic numbers that Carrie went to zero. This is of course irrational because the defaults all happen at the wrong time. If you held double B's for a very long time, you got that 1.7% on average, but you've got all your defaults selectively in 2002 and 2009. Cash in 2002 and 2009 is worth more than cash in 2006 and 2019 because you can turn that cash into money into the market at very low valuations. So whilst you've got a premium over very large periods, the premium wasn't well timed. You really want to make money at bear markets so you can use that money to buy things. It's really important one of the problems with business that lose money in bad times is that they lose money at the wrong time.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“The credit market is sometimes open historically at the B level and it's almost never open at the CCC level. This cycle I have seen CCCs issue debt many times and single bees issue debt a lot. Now the maths of it historically and again these are very rough numbers because the junk debt people will probably laugh at my naivety here. But the maths of it is that BBs used to trade at about 300 basis points spread over treasuries. So you got paid 300, 310 basis points a year for holding it. But you had a 35% cumulative default over 10 years, so you'd lose 3.5% of them a year, but you'd get a 50% recovery. The cost of it of owning the junk debt in credit was about 1.7% a year and you've got about 3% a year. So there's a 1.3% carry for owning junk debt. That's a reward on a diversified portfolio. It makes some sense as a banker.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“10 year cumulative default rate the company's rated single bee is about 50%. And the rating agent, and I'm going to get the exact words here, the rating agency definitions are kind of interesting. It's investment grade if under the wide range of circumstances it's going to repay you. junk or double b if there are reasonably likely circumstances in which it won't repay you in other words you'll get repaid if something doesn't go wrong the seas they invert that which is under the wide range of circumstances you won't get repaid and that the shorthand is you will get repaid if things go right And the credit market is almost always open at the BBB level. When the credit market closes at the BBB level, the economy has very real and very sudden problems.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And G is my poster child for a company that has impaled itself on stop buybacks. And you can go back to that tree and I've got it. It's a wonderful document. The Trean activist pitch for GE when GE was about $30 a share. Essentially the pitch was the same as every other activist pitch which is that they should leave her up and buy even more stock, right? Well had they followed that advice GE would now be a bit fat round zero. GE is your poster child for bad buybacks. I've got a longish list of companies that have bought themselves back to a balance sheet which I would consider single B and often they're rated single B. If you go back through long periods of history the 10 year cumulative default rate for companies rated B is about 35%.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, you can argue about what the missteps are. One of the missteps, for instance, is selling all the brands. And once upon a time, there was a GE appliance in every household pretty well in the Western world. And that was a pretty good branding exercise. And now those GE appliances don't exist. And they just got rid of them because they were low margin businesses, but it got rid of Mindshare. There are all sorts of little mistakes that they made along the way. But the biggest mistake by far was that they just bought back way too much stock.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“had General Electric only bought back $100 billion of stock, not $130, we wouldn't be having this discussion about General Electric. It would still be a perfectly okay company. It would be a less good company than it was, and it's clearly made missteps along the way, the biggest of which is probably buying Ulstham.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Tobacco sales halved, the number of Americans smoking has halved over sort of 25 years. And Philip Morris is like up 10x or 15x, some big number. And the reason essentially is that they got some pricing power and they bought back lots of stock at cheap prices. And that works all day. At the other end, you have a company which was very admired once and made the mistake of buying back $130 billion of stock over a decade and a half. General Electric”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And they're done badly by some of the companies I like as well. At this time, I'd be very jaundiced about a company that's incurring debt to buy back stock because you could have done that a lot more rationally a while back. I have examples of companies that have bought back stock beautifully over the years. If you have a look at the tobacco companies, the tobacco companies for years and years and years traded at a very sharp discount because people thought tobacco was a bad idea. They're right.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“It is very rare that you find a really good business with really fast growth prospects. So in fact, historically, the companies that I liked by generally generate excess cash and they generally return it. Collectively, the market's insane at this. If you look at aggregate buybacks over the last 30 years, buybacks are highest when the market's high and they're lowest when the market's low. The stock market went into net issuance mode during the GFC when the stock market was at its all-time low. And at the moment it's at all time record buyback levels. Whilst they like companies that do buybacks, I'm quite aware that on average buybacks are done very badly.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, not knowing what else to do with your money is actually the sort of half of the course for really good companies. And if you have a look at Krota, its ROE is 30, 40, whatever it is. It's a very big number. Its return on assets is enormous, but it can't grow. So what's it do with it? It's money. It either does an acquisition or returns it in a dividend or a buyback.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a famous photo of Paul Tudor Jones. He's a young guy, he's a trader. And in the back of his picture, it's just stenciled on a piece of paper hanging crooked in the office is the phrase, losers average losers. And one end of the world, you have Warren Buffett that says, if you loved it at $10, you should be buying more at $6. And at the other end, you have Paul Tudor-Jones saying losers average losers. And they're both right in times. Hairy chested value investors, also hairy chested ones. Get themselves into trouble by doubling down and doubling down and doubling down again. The most famous example, of course, is Bill Miller, who doubled down on AIG many times to bankruptcy. And Bill Miller had a record where he outperformed the S&P, I think, for 18 straight years and then gave back all the excess performance in one.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“If I go back to that article, The Economist, which basically described Lloyds as having the problem of just generating way too much capital, making way too much profit. And it had so much profit that it didn't know what to do with it all. And so it was buying back stock or giving it to shareholders in huge gobs. If you told me that 10 years later that bank would be bankrupt, I would not have believed you If I'm wrong about Krota, it's going to derate by half. If I'm wrong about a bank, I'm going to get a big fat zero. The other thing is that changes the risk management. You know, there's a Warren Buffett saying that if you liked it $10, you should really love it at $6, so you should buy more. And every hairy-faced value investor does that, right? That is, they buy on the way down.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Specialty chemicals is an area that I know a lot about. And I can't find anyone that I like that's trading at less than four times EV to sales. And this is true of business after business in area that I have genuine expertise. Now, I know that there must be some cheap sector out there, but it's not one that I have expertise in except for banks. And banks are a scary one because with banks when you're wrong you're really, really, really wrong.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Now, the way we choose stocks hasn't changed, which is we start with the business model. I'm not interested in owning a bank, but I am interested in owning a bank in an oligopolistic market. Because there's something that it's got. I'm not interested in owning a commodity chemical company, but I am interested in owning a specialty chemical company that has something that makes you not want to change to the competitor. We start with that and then we go to the valuation. And the problem is at the moment that every time I go to the valuation, I start getting this slight queasy feeling in my stomach. I used to get uncomfortable buying specialty chemical companies at two and a half times EV to sales. And I now get uncomfortable buying them at four times EV to sales.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“So you have a small part of the big thing, it's the critical ingredient, it has lots and lots of pricing power because the brand manager doesn't want to change. The other thing is the brand that it's selling to is an incredibly fat margin product. So when you're selling a fat margin ingredient to a fat margin product company, you just sort of make double margin. And Krota may be the best chemical company I've ever seen. I start with a model like that. The only problem is that Kroter also trades at five times revenue and revenue is not growing very fast. And it is a chemical company, right? It's not quite the 10 times revenue that Sun was at the height of the dot-com bubble. The data valuation that should make you comfortable.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Tests find the contaminated batches as well, right? So that it knows, and it's never had a product recall, and its testing procedures are extremely rigorous. And if the question is, do you pay 25 cents for the commodity one or 50 cents for the croter ingredient and your $50 l'Oreal face cream? It's a no-brainer for the L'Oreal brand, right? They're going to buy the Krota product.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Now Crater has a fairly high switching cost. Sheep do things that are nasty. They walk through paddocks, which have herbicides and pesticides in them. And if you are not careful, you'll get the herbicides and pesticides into the face cream. And a sort of bad day for a L'Oreal brand manager might be recalling your product because it has pesticides in it. So if you're the L'Oreal brand manager, you want to be really sure of the provenance of your supply chain. Krota buys almost all the Walgreese from all the sheep in Australia and New Zealand. It buys it in China and its small batch processes it and it does the chaos monkey type testing where it puts contaminants in it to make sure that”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Helena Rubenstein, you may not know, was an Australian. She grew up in sheep country in western Victoria, and she originally started making cosmetics from Greece she extracted from sheep sheds in Australia. It also all stunk. The first company that pulled out the active ingredient was Crota, which was a little company in Goul East Lancashire and sheep country in the north of England. And you all know the name of it, it's Lanlin. But there's about 70 derivatives of lanolan. And Lanolan is the basis of the modern face cream industry because it made a face cream that worked and didn't stink.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Which we own. And Cruda makes active ingredients for cosmetics. It does a lot of other things, but the original ingredient product was active ingredients for cosmetics. It turns out that there are recipes, almost every face cream, that can answer the medical question visibly reduces the appearance of wrinkles, has in it ingredients that are extracted from walgrease. Now there are Egyptian recipes for Walgrease, makeups or cosmetics, and they will stunk. And so the woman would put this really smelly face cream on and sleep somewhere a long way away from her husband.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm always on the lookout. Problem is I don't have any. Well, I have a few, but I don't want to talk about them. And the other thing is if I told you what I thought about them, I'd sound insane. The other thing is that if they're not going that direction, I want to sell them before they derate. So it's not in my interest to tell anybody for the same reasons it wasn't in Jeff Bezos' interest to tell anybody. The second sort of model that I look at all the time is What we call the trifecta. If you are a small but important part of a big thing, you're a consumable and you have a high switching cost, you make a packet of money. The problem with these trifectors, and I'll give you a nice example, there's an English one called Crota.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“98% of people, and to some weirdo out there, they might think, oh my God, I want to get there too. And so he induced competition. If your Jeff Bezos in 1992, the job is to grow as fast as possible subject to the constraints you don't run out of cash and you want to get big before your competition get there. And the problem with that from a value investor's perspective is that the optimal profitability is zero. So what you have to do is buy high growth, zero profit company that doesn't tell you what its direction is. This is the hardest thing in the world to do.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, I tend not to start with the valuation at all. My general view is I start with the business. And there are some business models that you just want to own at some stage. The best business model in the world is will develop global scale, will share the benefit with their consumers. And it's also the hardest business model in the world to own, especially as a bearded value investor. And the reason is, well, the iconic example of it is, of course, Amazon. But if you look at Amazon in 2002, it just sold books. It made small losses. It was growing very fast. And if Jeff Bezos had told you where he was going, he would have sounded insane. Now, it wasn't in Jeff Bezos' interest to tell you where he was going, because if he told you he sounded insane.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“The problem with cheap stocks is cheap stocks are often problematic and you can get yourself very trapped as every bearded value investor is once discovered.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“The overvaluation this time is not as bad as that time. It's just broader, right? In that time, if you just did the naive thing and bought the 10 times earnings or nine times earnings old economy stocks, including, dare I say, Wells Fargo, you just did fabulous, right? And the most naive self-righteous value investor, the one that seems to think that any growth stock is risky but value stocks are not right. Great guns for five years. This time, I want to be a self-righteous beard and value investor. I really do. But the only things that look cheap are banks. And I've just given you my angst feeling about them. My own two banks. I also own a little slither of a company called Power Corporation of Canada. None of this I've ever disclosed before, but they look really cheap and I don't think they're problematic.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And I actually asked somebody at one stage, a sort of tech analyst why all these newspapers were valued so highly. And the answer came back looking at me weirdly as if, well, they have websites, don't they? People look at their websites.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And a lot of the things that they owned were cheap and bad. So the same people often, you know, if I take a look at longleaf, which is a fairly decent, well-known mutual fund, I don't think they have beards, but it falls into the same camp. Longleaf owned a whole lot of things that looked cheap and went to zero, right? The sort of general motor stuff. And sometimes cheap is cheap for a reason, but at that time the whole old economy was cheap. And if you just bought the old economy, you did really well. And, you know, some of the misvaluations then were crazy. You go have a look at the New York Times or any other newspaper and newspapers hit their highest valuation ever in 2000 just as their business model was about to dismantle.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“No, but that's what they are. You see them, they're just cheap. And they like to buy cheap stocks, right? And they're very obsessed by PE ratios. Several of them owned things that looked cheap like Jose Bank, right? They also wear cheap suits. They'd like to be buffered acolytes and they all meet up at the Berkshire meeting. I've been to this Berkshire meeting. Several of these people are my friends. They're almost a cliche of they start with the valuation and they buy almost any old economy stock at seven or eight times earnings. And for the next five to seven years, they just did wonderful, right? They outperformed like crazy.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Potential growth. And if you bought the stuff that was the second tier then, the wipeout was far more spectacular. That was much more overvalued than anything I'm seeing now. That said, the old economy was priced at seven or eight times earnings then. The years 2000 to say 2006 were the years in which the naive champion bearded self-righteous value investor outperformed. I know a few of these.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“The tech bubble got to the point where revenue was a bad idea. Because then you'd have a fantasier, you couldn't. What you really wanted to measure was something like eyeball”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And i2 technologies had a market cap of 220 billion, and JDS Unifase was 280 billion. Now the various parts of JDSU are still available, and if you actually add them up, there's probably 20 or 30 billion market kept there. So it's not a complete insane wipeout. I think i2 technologies were sold at the end for 700 million. If you go back to the second tier tech names, they were just insane, right? That is, if you actually had revenue like Cisco, Cisco is one of the first ones to break. And the reason it was one of the first ones to break is that it actually had revenue and it told you the world wasn't quite as good as you thought. And so the stock went down a lot, right? There was that period where profits were a bit, you know, in a really good bubble, profits are a bad idea because then you have a fantasy about it.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“No, that's just got to be wrong. Nothing is as expensive as the worst. as second tier tech stocks were during the tech bubble. If you go have a look at the biggest five or six tech names during the tech bubble and you bought them now and you held them to now you've actually made an acceptable return. If you went and looked at names 20 to 30 in March 2000. and you held them to now, the result is an unbelievable spectacular wipeout, right? There are names that were hugely important then that don't mean anything to you now, like i2 technologies. There was a period where the two hottest tech names in the world were i2 technology and JDS unifay”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“This is insane. Now, here I have visa, which is a very fat margin business. I'll admit it's a very fat margin business trading at 16 or 17 times revenue And yeah, it's got a two thirds margin. Half of Visa's revenue drops to the P&L. And all of that is spent on either dividends or buybacks. It's an incredibly cash generative machine. But it is 1.7 times the price that Scott McNelly said was insane.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, there's a famous quote from Scott McNally at the end of the, it's one of the quotes that I almost pin on my wall at the end of the Keck bubble, which said that at the height of the tech bubble, Sun was trading at 10 times revenue. And dear readers, what were you thinking at 10 times revenue in order to get a 10% return, I've got to return 100% of revenue to you in cash, which means that I don't have any staff, which is kind of hard when you're running a tech company. And I don't have any inputs, which is kind of hard when you're selling computer boxes. And I don't pay any taxes, which is kind of illegal. And that I can maintain all the revenue without any R&D expense, which seems a little improbable. What were you thinking then? 10 times revenue.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“That we have a situation where the market really does believe that low interest rates are here to stay and that economies are relatively, are going to be relatively weak. So things that have highly deterministic cash flows that you can value off the low interest rates are priced at very high levels. My favorite example of this is Visa. Visa trades that last time I looked at 17 times revenue. I think the market's down a bit this week, so it might be only 16 times revenue or 15 times revenue.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Every time I've been confident that the market is wrong, it tends to beat me in the head I think it's wrong. I rang up Shannon McGonicky after this and I tried to go through just because I wanted to work out whether any of the margin collapse and the methods of hiding it that he could see in Japan were applicable to my Irish banks. And the answer was no, but that doesn't mean that I'm not wrong. I am enough of a stock picker to know I can be wrong any day of the week. And believe me, the moment I think I'm wrong, and if any of your dear listeners will tell me why, then I'll sell these positions. I'm not allergic to them. But they are very tempting. And the reason they're very tempting is that almost everywhere you look in this world, particularly in North America, you see assets at extreme prices.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“still drowned to trading at 0.6 book. I'm trying to work out why I'm wrong. We've had a demonstration of margins collapsing even in a positive interest rate environment, and that's called English banks. And we have a demonstration of margins completely and utterly collapsing in a negative interest rate environment, and that's called Japanese regional banks. And I'm wondering whether I'm just insane or not. But that's my little frustration at the moment.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“That's what is clearly the case in Japan. and is what the market is telling you about the big megabanks in Europe The flip side is that there are banks in Europe in oligopolistic markets that have still got fairly fat margins, which have also come down. So, you know, if I'm going to beat myself up, the stock on the portfolio, the two stocks that I own that have bugged me most have been Svenska Handelsbank, which is a very well-run, highly oligopolistic Swedish bank. and allied Irish. An allied Irish is a less well-run but even more oligopolistic Irish bank. And Irish banking margins are very nice, right? They're about the same as US banking margins. They're not as rich as Australian banking margins, but they're many times a big French or a big German bank or even a big English bank. Yet that”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“That will run out and then they will make losses on extending loads. Simple view is there's no price that you can buy these at. They're 0.2 book, and that's a value trend.”
2019-08-19 · Odd Lots · John Hempton on What's Ailing Bank Stocks · IDENTIFIED FROM THE TRANSCRIPT · source