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Perma...Frog (?)

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24

August 25, 2010 – Comments (16) | RELATED TICKERS: FRO , G

Okay, here is my new defition:

Permafrog: One who invests on a premise (macro, micro, sector, company, currency, etc.) for specific timeframe or until the conclusion of specific events. When those conditions are met, they will 'leap' to the next most compelling premise.

For example: I am a permafrog on gold. I have stated this many times, that I will not hold gold forever. There are also specific criteria that I will be looking for when gold has served as the protection / insurance I was looking for and other assets become more attractive.  I have outlined my thoughts on gold here: binve's Gold Foil Hat Zone: More Thoughts on Gold's Massive Bull Market - http://caps.fool.com/Blogs/binves-gold-foil-hat-zone/403421 and here: Why I hold Gold: Why I am a Long Term Optimist and consider holding gold and Optimistic Endeavor, and Why I think the Stagflationary Scenario is more likely Macroeconomically in the Intermediate term (next several years) - http://caps.fool.com/Blogs/why-i-hold-gold-why-i-am-a/402614.

I am also a permafrog on equities as a general asset class. While I am bearish (and short) now, I will not be so forever. I do not think the stock market goes to 'zero'. I am also not a uber-bear who thinks a triple digit Dow is believeable. Yet, I believe we have not completed this debt deleveraging cycle and I believe we are still in a balance sheet recession. This is not a permanent state. So there are signs that I am looking for that will change my premise regarding the value of equities.  For example, when I see the dividend yield of the S&P 500 approach TTM P/E, I know we are close enough to a bottom that I will 'hop' to the long side.

This is also true of investors of individual companies. Do you hold a company that does from a P/E of 10 and a Debt/Equity of 0.1 to a P/E of 1000 and a Debt/Equity of 10, and not seriously question why you are holding the company? Does anybody ever truly 'buy something and forget it' ?

That was outoffocus's point: Lazy Investing is dead, Permabears and Permabulls on life support. There is no investment in the world that will give you guaranteed gains forever, where you never have to check on the fundamentals and status of the investment.

As such, we are all permafrogs. The only question is how much time elapses between hops.

16 Comments – Post Your Own

#1) On August 25, 2010 at 3:34 PM, outoffocus (22.35) wrote:

Ribbit Ribbit

Thats permafrog for good post =)

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#2) On August 25, 2010 at 3:35 PM, outoffocus (22.35) wrote:

In other news, gold is back over $1240. *pops champagne*

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#3) On August 25, 2010 at 3:40 PM, binve (< 20) wrote:

outoffocus,

Ribbit Ribbit Ribbit (that means thanks :) )

>>In other news, gold is back over $1240. *pops champagne*

Yes, that is quite nice :)..

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#4) On August 25, 2010 at 3:49 PM, PDTBiotech (88.80) wrote:

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#5) On August 25, 2010 at 3:52 PM, binve (< 20) wrote:

PDTBiotech ,

Yes! The Hypnotoad has turned us all into permafrogs!..

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#6) On August 25, 2010 at 3:57 PM, Griffin416 (99.98) wrote:

Good thought and totally respect you for understanding that at some point you will need to switch stances. I enjoy a bit more diversification in my stances, 20% gold, 35% moving bonds and the rest is cash and long/ short equities. I am close to hopping off of the bonds...selling slowly.

I know you are bearish on equities, but "the dividend yield of the S&P 500 approach TTM P/E"...wow, that seems quite low to me. About 50% lower than now is my best quick guess. Please remember to add the buyback nonsense into your dividend yield thesis. Currently the S&P yield is around 5.5% depending on how you look at it. And Trailing earnings are about 15 p/e now.

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#7) On August 25, 2010 at 4:02 PM, portefeuille (99.66) wrote:

when I see the dividend yield of the S&P 500 approach TTM P/E

E/P is the "earnings yield". I don't think dividend yield approaching price/earnings ratio has any significance (see comments #23,24,26-29 here).

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#8) On August 25, 2010 at 4:05 PM, binve (< 20) wrote:

Griffin416 ,

Thanks man!

>>. I enjoy a bit more diversification in my stances, 20% gold, 35% moving bonds and the rest is cash and long/ short equities. I am close to hopping off of the bonds...selling slowly.

Very fair

>>I know you are bearish on equities, but "the dividend yield of the S&P 500 approach TTM P/E"...wow, that seems quite low to me. About 50% lower than now is my best quick guess. Please remember to add the buyback nonsense into your dividend yield thesis. Currently the S&P yield is around 5.5% depending on how you look at it. And Trailing earnings are about 15 p/e now.

The question is, will they meet as in all previous bear market bottoms over the last 100 years? I don't know. But like I said above, I do think they will approach one another (they didn't come close in 2009) more than they did.

But I would like to address this specifically:

Please remember to add the buyback nonsense into your dividend yield thesis.

This is where I disagree.

That has been the prevailling trend (last few decades) because we were in a growth trend. Now we are in a contraction phase. I think we are in a balance sheet recession. And I think that despite the record cash level on corporate balance sheets, corporations are scared. I think that is why they are hoarding cash.

I further think that the next few years will be focused much more on income and much less on growth. I think companies that generate FCF will be valued more highly than companies that generate "earnings" (especially through cost-cutting). In this respect, I think smart companies will be giving this Cash Flow back to investor not through stock buyback, but through dividends.

In short, I expect premium to be place on Cash flow, I expect dividends to increase, I expect payout ratios to increase, and I expect the dividend yield of the market to increase (not simply because prices will drop, which will help).

2009 was not the value investing buy of the century. I think 2012-2014 will be.

My $0.02. Thanks!..

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#9) On August 25, 2010 at 4:36 PM, outoffocus (22.35) wrote:

This article should raise an eyebrow:

5 Investing Bubbles

Seems to me like they have the whole thing backwards.  But time will tell who's right.

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#10) On August 25, 2010 at 5:30 PM, allstarvulture (< 20) wrote:

I like the concept!

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#11) On August 25, 2010 at 7:28 PM, Griffin416 (99.98) wrote:

If I wrote on DragonLZ's page, we probably would just be repeating the same thing, which I why I like thinking with others with a very different POV, so I can learn something and not have my view clouded by me being right, hehe.

 Well, our dividend disagreement will only be answered in a very long time (3-5 years), but I have my viewpoint for 2 reasons. Your reason is certainly interesting too.

1) wall street trends to last much longer than anyone can anticipate, 10-15 years, hey, why not 25-30?

2) more importantly, I believe taxes are going to be going up for the next 15 years (part of my cycle analysis) buybacks are tax free, so in a weird way the companies are getting more for their money...p.s. I hate buyback.

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#12) On August 25, 2010 at 7:37 PM, binve (< 20) wrote:

outoffocus,

Interesting article. The Pragmatic Capitalist has a very similar stance.

allstarvulture ,

Thanks!

Griffin416 ,

>>which I why I like thinking with others with a very different POV, so I can learn something and not have my view clouded by me being right, hehe.

Nice :) I agree, I like to have nice and civil discussions with people I disagree with. checklist and I have had (a few bad) but mostly very good discussions. I definitely appreciate his long term bullish view. And in fact I share it. We just differ on the next 5 or so years.

And I like your 2 points regarding dividends. I think they are very reasonable stances. It will be very interesting how this all shakes out :)

I hate buybacks too..

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#13) On August 25, 2010 at 11:57 PM, Tastylunch (29.40) wrote:

oh man . This was funny Binve but I gotta take issue with this whole "permafrog" thing.

The whole "Perma" prefix thing is so horribly flawed in relation to investing I don't think anyone other than the ignorant should use it in refernce to themselves. "Perma- " to me implies the exact opposite of what you are preaching here. To me when someone says perma-whatever it means that person ignores any conditional information and will just go with their default bias.

The stereotypically derided "Goldbug" is often classic example of this. (a label we know unfairly tars legitimate gold invetsors and tarders to this day)

Now if you said you were neither a bull nor bear but just a Frog who opportunistically leaps from opportunity to opportunity as they reach perceived fair value, then I could really get down to that. :)

i said a hip hop the hippie the hippie
to the hip hip hop, a you dont stop...

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#14) On August 26, 2010 at 2:34 AM, DarthMaul09 (29.78) wrote:

Permafrog in a Wolf market.

WSJ MARKETS
AUGUST 23, 2010
Not Bull, Not Bear: Meet the Wolf Market

 

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#15) On August 26, 2010 at 7:55 AM, lemoneater (71.78) wrote:

Do frogs eat lemons? :)

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#16) On August 26, 2010 at 9:27 AM, binve (< 20) wrote:

Tastylunch ,

Hey Tasty!

>>The whole "Perma" prefix thing is so horribly flawed in relation to investing I don't think anyone other than the ignorant should use it in refernce to themselves. "Perma- " to me implies the exact opposite of what you are preaching here.

I was using it as a cliche, to tie into the permabull and permabear labelling debate. I could just title the post "Frogs" and nobody would get it. So I agree with what you are saying. I was being tongue and check with the label, but the definition is what I was going after.

>>Now if you said you were neither a bull nor bear but just a Frog who opportunistically leaps from opportunity to opportunity as they reach perceived fair value, then I could really get down to that. :)

That is *exactly* what I am saying. So ignore 'perma', this was just done to tie into the labeling / namecalling debate. You are either a bull, bear, or a frog :)

>>i said a hip hop the hippie the hippie
to the hip hip hop, a you dont stop...

LOL! My frog instincts are really down with the Sugar Hill Gang :) Thanks man!

DarthMaul09,

LOL! Nice find!

lemoneater ,

:).

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