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Oppenheimer Holdings Inc. Message Board

  • superbmomentum superbmomentum May 11, 2011 6:55 PM Flag

    Perception and Reality

    Are oil prices today still driven by perception or is it reality?

    I would guess the right call now is that oil prices are driven by a more rational perception of reality!

    But is this a cigar-butt reality? Just a one-puff perception?  I believe it is a long-term story. A big ship takes time to turn, so although it might be volatile now, it will eventually find its way to fair value.  And that's the fundamental story!

    But is this fundamental story also true for the investment sector? What does reality tell us about financial companies?  And is this a rational perception towards investment advisors?

    I often hear financial companies got it all wrong in the financial crisis.  But did the alternative, the individual investor get it right?

    Take the most successful investor, Mr. Buffett, back in 2007-2008 he was quoted as saying that he doesn't believe a credit crunch will happen, and on this point, as was most of the sector, he was wrong.  But he was also wrong about Emerging markets, he missed the momentum play there, while Investment Firms were all over it!  

    The ready-to-invest money resided in Asia's reserves and the Middle East petrodollars, as evidenced by the sources of the buying in the recapitalization exercises of US banks. 

    In the wake of the US financial problems which led to downward pressure on both US equities and bonds alike, investors like Mr. Buffett were more wrong than institutional investors. 

    The general point in this is that Financials will be the destination of significant liquidity in the absence of credible substitutes....for example: way-above-market-valuation-M&A-deals will make financials, the beneficiaries....

    The healthy balance sheets must surely complete the holy triumvirate of favorable investment criteria in my eyes. The mouth-watering proposition here is that the earnings of most of these companies are no longer leverage-enhanced i.e. they are adequately funded, unlike in the past, which often jazzed up assets and profits with leverage. There is capacity for growth with such balance sheet cushion, as you obviously would understand.

    And that is my cross-industry analysis of the sentiment today and valuation picture. Which still begs the question: why this underperformance in the financial sector?  It brings to mind his previous statement: "markets are driven by perception, not reality"

    My reading on this is: Investors should focus more on logical thinking, analysis, and accuracy by choosing financials, while financials should focus on their aesthetics, innovating feeling and creativity in order to become more attractive...

    Cheers

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    • Often we look at some financial stocks and wonder why the market has not taken note of such low PEs, stable cash flow stocks and revalued them accordingly? Why do these undervalued stocks remain undervalued?  Surely they are going to move soon?

      But often they don't do so in a significant way for a long time, to the chagrin of the investor who may have taken a line of this stock. There are often reasons for this...

      Some will point to the fear of new industry regulations or fear of a collapse of the Eurozone...but not to me...

      To me, the reason of this underperformance are appearances like the one of the analyst who wants to be kept "in the loop" and go on Bloomberg, on a Friday, before the opening bell.

      The Analyst's "greater fool" behavior is evidence of the decoupling of the client and his/her investment firm!

      It never seems to amaze me just how much nonsense goes on with these analysts and their TV appearances....how with his references to the client/firm differences and overall incomparable vision of reality, proves the decoupling...

 
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