Graham and Dodd advocated that investors invest in securities that have a robust discount to what they are actually worth….a margin of safety. Value investors each have their own preference as to how to define that intrinsic value to determine that margin of safety they are secure with. They (Graham & Dodd) further emphasized the importance of differentiating between an investment and speculation, even though they conceded that it was a challenging proposition at times to make that distinction. In Security Analysis, they wrote:
“The difference between investment and speculation…is understood in a general way by nearly everyone; but when we try to formulate it precisely, we run into perplexing difficulties. In fact something can be said for the cynic’s definition that an investment is a successful speculation and a speculation is an unsuccessful investment”.
Assume that you placed several investors in a room and asked them to choose from the list below which of these is the best stock or stock of their choice? They were shown:
Citigroup (C, Financial)
Wells Fargo (WFC, Financial)
Bank of America (BAC, Financial)
JPMorgan Chase (JPM, Financial)
American Express (AXP, Financial)
The number of guru (buys to sells) currently indicate that more gurus are interested in Citigroup (C) than the other securities or at least are buying that equity at a higher ratio than the others. Is it a better value? Is it a better stock?
Most people do not like to be reminded of their mistakes. In 2002, the Chicago Tribune wrote an article talking about Guru Bill Nygren (sorry Bill), who had both owned and recommended Washington Mutual. In fact, according to the article, it was his largest holding. I owned a little of Washington Mutual myself (not because of his recommendation) and was fortunate to get out without losing much. I knew better and bought it anyway. For whatever reason, when I sold, I did not enter the correct number of shares to sell (Shrek fingers). So today, I am still proud owner of 5 shares of WAMUQ at a current price of 0.0585 per share for a total market value of 0.2925. When I looked this morning, it showed a YTD return of 3.4%, besting both JPM and WFC and just behind C. I refuse to sell it and keep it as a reminder that shows up at each trade I make. I suppose when I’m done with this article, I should add it to my portfolio at GuruFocus. It does force you to step back and reevaluate any new decisions. In fact, I might even suggest it as a strategy. As a side note, I found it interesting that Bill does not appear to be one of the Gurus’s to own Citigroup (C) currently. Perhaps he learned better than I did, because I am currently long on the stock.
While not all Gurus’ indicate their reasoning for choosing a particular security, why is C being acquired by these Gurus’s? If you look at the balance sheets, income statements, etc., your eyes began to bother you because of all the figures that are in “red”. What is so attractive about this stock? Like most simple investors, I try to emulate the Guru’s I admire in an effort to replicate their results, though as shown, Guru’s can make mistakes also. So are they speculating? Is C really worth it? Is it a good investment?
Currently selling at $4.86, the DCF calculator indicates that the fair value is $4.01 with a margin of safety of -22%. S & P indicates a fair value of $5.60. The fair value vote at GuruFocus is indicating a value of $9.00, a much better number if you happen to be long on the stock, but, as Graham admonished, you should also look for reasons that you are wrong in your selections and in your judgments. What is making all these people buy? How did they get to the $9.00?
If the stock was selling at a discount to the tangible book value, you might conclude that the stock is selling below the liquidation value and consider it a bargain. That stated, the stock is currently selling above the tangible book value of $4.31. So no sell for me.
Guruek published an article on GuruFous (10/19/2010) quoting Richard Bove, an analyst at Rochdale Securities, who explained that one of his considerations that Citigroup (C) was cheap, was by the comparison of the market cap to the cash as shown on its balance sheet.
We are getting into personal opinions here, but I don’t like the logic. While it’s true that if you compare the cash to the market cap and then compare to other financial institutions, you might reach the same conclusion that C is cheap. The problem is that while lending institutions are already worried about any new legislation that may require additional liquidity, banks are not going to make a lot of money unless they are lending the money they have. Bove, in a separate article, had also concluded that Citigroup’s primary goal was to re-build its balance sheet and that everything else was secondary to that. It’s difficult, at best, to rebuild when you aren’t lending as you were or you are sitting on the money. Does the balance sheet look better? For the last three quarters. Is that enough?
There are other issues. Twelve of the European managing directors are leaving or have left the company. They will, no doubt, take some of the business with them. Europe looks somewhat dismal. American Banking and Market News reported:
Citigroup, Inc (NYSE: C) has not led a single IPO in Europe, the Middle East or Africa in 2010 after underwriting only one in 2010. Between 2006 and 2008, Citigroup had arranged 43 IPOs between 2006 and 2008, but Citigroup didn’t lead a single one of the 85 IPOs in the region which was launched this year. Citigroup, Inc (NYSE: C) received a 9th place ranking on M&A advice this year, down from fifth place last year. In Asia, Citigroup dropped from 4th place to 17th.
The issues for Citigroup are immense. India has just opened up a criminal case involving several Citigroup executives, including Chief Executive Vikram Pandit, for investment fraud. Then, American Banking and Market News contain a headline about Citi Chairman Richard Parsons, “Still Too Big to Fail, Chairman Says”.
Are they? Well…..so was Washington Mutual. That’s why I keep those shares. I guess we will see how this plays out. There are a lot of people, including the Guru’s that are either investing or speculating that Citigroup will rise. As for me, every investor likes to have a little money on a stock that they can speculate on. Graham even talked about investing in more speculative stocks. You really need to know if you are long on the stock, whether it is an investment or speculation for you. It may make a difference when it comes time to sell. When you see these Gurus’s buying C, it is hard not to copy them, with the hope that they know something you don’t. I’m going to be honest….for me, it is merely a speculation.
Disclosure: Long on Citigroup (C)
Eyes wide open
“The difference between investment and speculation…is understood in a general way by nearly everyone; but when we try to formulate it precisely, we run into perplexing difficulties. In fact something can be said for the cynic’s definition that an investment is a successful speculation and a speculation is an unsuccessful investment”.
Assume that you placed several investors in a room and asked them to choose from the list below which of these is the best stock or stock of their choice? They were shown:
Citigroup (C, Financial)
Wells Fargo (WFC, Financial)
Bank of America (BAC, Financial)
JPMorgan Chase (JPM, Financial)
American Express (AXP, Financial)
The number of guru (buys to sells) currently indicate that more gurus are interested in Citigroup (C) than the other securities or at least are buying that equity at a higher ratio than the others. Is it a better value? Is it a better stock?
Most people do not like to be reminded of their mistakes. In 2002, the Chicago Tribune wrote an article talking about Guru Bill Nygren (sorry Bill), who had both owned and recommended Washington Mutual. In fact, according to the article, it was his largest holding. I owned a little of Washington Mutual myself (not because of his recommendation) and was fortunate to get out without losing much. I knew better and bought it anyway. For whatever reason, when I sold, I did not enter the correct number of shares to sell (Shrek fingers). So today, I am still proud owner of 5 shares of WAMUQ at a current price of 0.0585 per share for a total market value of 0.2925. When I looked this morning, it showed a YTD return of 3.4%, besting both JPM and WFC and just behind C. I refuse to sell it and keep it as a reminder that shows up at each trade I make. I suppose when I’m done with this article, I should add it to my portfolio at GuruFocus. It does force you to step back and reevaluate any new decisions. In fact, I might even suggest it as a strategy. As a side note, I found it interesting that Bill does not appear to be one of the Gurus’s to own Citigroup (C) currently. Perhaps he learned better than I did, because I am currently long on the stock.
While not all Gurus’ indicate their reasoning for choosing a particular security, why is C being acquired by these Gurus’s? If you look at the balance sheets, income statements, etc., your eyes began to bother you because of all the figures that are in “red”. What is so attractive about this stock? Like most simple investors, I try to emulate the Guru’s I admire in an effort to replicate their results, though as shown, Guru’s can make mistakes also. So are they speculating? Is C really worth it? Is it a good investment?
Currently selling at $4.86, the DCF calculator indicates that the fair value is $4.01 with a margin of safety of -22%. S & P indicates a fair value of $5.60. The fair value vote at GuruFocus is indicating a value of $9.00, a much better number if you happen to be long on the stock, but, as Graham admonished, you should also look for reasons that you are wrong in your selections and in your judgments. What is making all these people buy? How did they get to the $9.00?
If the stock was selling at a discount to the tangible book value, you might conclude that the stock is selling below the liquidation value and consider it a bargain. That stated, the stock is currently selling above the tangible book value of $4.31. So no sell for me.
Guruek published an article on GuruFous (10/19/2010) quoting Richard Bove, an analyst at Rochdale Securities, who explained that one of his considerations that Citigroup (C) was cheap, was by the comparison of the market cap to the cash as shown on its balance sheet.
We are getting into personal opinions here, but I don’t like the logic. While it’s true that if you compare the cash to the market cap and then compare to other financial institutions, you might reach the same conclusion that C is cheap. The problem is that while lending institutions are already worried about any new legislation that may require additional liquidity, banks are not going to make a lot of money unless they are lending the money they have. Bove, in a separate article, had also concluded that Citigroup’s primary goal was to re-build its balance sheet and that everything else was secondary to that. It’s difficult, at best, to rebuild when you aren’t lending as you were or you are sitting on the money. Does the balance sheet look better? For the last three quarters. Is that enough?
There are other issues. Twelve of the European managing directors are leaving or have left the company. They will, no doubt, take some of the business with them. Europe looks somewhat dismal. American Banking and Market News reported:
Citigroup, Inc (NYSE: C) has not led a single IPO in Europe, the Middle East or Africa in 2010 after underwriting only one in 2010. Between 2006 and 2008, Citigroup had arranged 43 IPOs between 2006 and 2008, but Citigroup didn’t lead a single one of the 85 IPOs in the region which was launched this year. Citigroup, Inc (NYSE: C) received a 9th place ranking on M&A advice this year, down from fifth place last year. In Asia, Citigroup dropped from 4th place to 17th.
The issues for Citigroup are immense. India has just opened up a criminal case involving several Citigroup executives, including Chief Executive Vikram Pandit, for investment fraud. Then, American Banking and Market News contain a headline about Citi Chairman Richard Parsons, “Still Too Big to Fail, Chairman Says”.
Are they? Well…..so was Washington Mutual. That’s why I keep those shares. I guess we will see how this plays out. There are a lot of people, including the Guru’s that are either investing or speculating that Citigroup will rise. As for me, every investor likes to have a little money on a stock that they can speculate on. Graham even talked about investing in more speculative stocks. You really need to know if you are long on the stock, whether it is an investment or speculation for you. It may make a difference when it comes time to sell. When you see these Gurus’s buying C, it is hard not to copy them, with the hope that they know something you don’t. I’m going to be honest….for me, it is merely a speculation.
Disclosure: Long on Citigroup (C)
Eyes wide open
