Chicken

No thanks. I had a sandwich and bought a house in Detroit with the change.

I don't know about the US but a 750 basis point cut would make me a lot less depressed!

You see mum. Sometimes other people do think like me.

Didn't Jeremy Irons steal it all about 12 years ago?

Sorry, one shouldn't lead to the other - there have been loads of companies that I wanted to short in the last six months that we have had difficulty borrowing the stock (and in some markets it is illegal). You also have the problem of increased volatility when shorts get "crowded" (lots of people have the same idea). When this happens, relatively small news (eg good numbers) or rumours (eg a takeover bid) can spook the shares and squeeze them up as the shorts all try to get out at once.

There's a lot to commend about the turtle style but the one thing I disagree with is the "statistical edge consistent outperformance" as it is self-defeating. Over the longer term, its success will spawn imitators that will adopt very similar strategies, thereby eroding the edge. Warren Buffett is one of the best investors the world has ever seen and he has maintained pretty much the same style all the way through. Yes, he has massively outperformed over an extended period but he had a bumpy start early on and was only able to ride it out because he had captive capital. I rate George Soros higher than Buffett as an investor. His returns have not been as spectacular (although still nothing to sneeze at!) but he has switched styles when it counted. This story may be apocryphal but I heard that during the credit crunch, when the quants were bleeding losses, SAC (a large hedge fund) went complete contrary to their computers (ie sold when their computers told them to buy and vice-versa). Remember Rocky's fight against Apollo Creed where he switches stance to throw him off? Good movie that one.

Sorry md, should have clarified - I work for a hedge fund so we do it directly through market makers. I don't PA trade so I can't recommend anybody from my personal experience. Yours are all good points, especially the advice that short-selling is not for the faint-hearted individual. I don't disagree with you on the prospective timing of widespread buying opportunities - it's just that my firm is looking to profit in the intervening period and that means shorting a lot of stocks.

none taken There does seem to be a general assumption that accountants are fully versed in valuation but the topic was only lightly skimmed over when I did my training (or maybe I was too busy staring at the lecturer's boobies) and doesn't seem to appear in the syllabus nowadays. My current job means I spend most of my day "valuing" companies. Numbers are calculated for what they might be worth on paper but all that is really justification for the most important conclusions which are whether they are going to be worth more or less in the future. At the end of the day, any asset is only worth what somebody else is willing to pay for it - the backup calculation is only there to be more reassuring than "I feel it in my bones".

who? me?

Bingo. I don't have first hand experience of any - I am allowed to trade on my own account but there's a lot of restrictions and it's better for me not to so there's no conflict of interest. I do see City Index advertising on Bloomberg TV all the time if you're stuck for names.

fully agree with the previous two comments. Also worth adding that the multiples are only a starting point. I'd much rather own a company on 20x P/E (or equivalent multiple) than another one on 10x if my knowledge of them led me to believe the former was going to grow much faster than the latter.

Just wondering what made you include "trainee" in your sentence, or "chartered accountant" for that matter. Is it that obvious?

As huw mentioned, there's no need for houses to cost that much to build and there's no need for the average house to be 1,500 sq feet either. Labour is a big chunk of the cost - as demand for builders goes down, the market price for their labour will go down as well (to a point. see the other thread on wages). Same goes for materials. On top of this, replacement cost is only one way in which houses might be valued. I can see three other distinct methodologies; 1) Economic value. What net rental income can you get from the property? This needs to be set against i) a risk-free rate (to establish the premium you are getting for the additional risk) and ii) a long-term view of rents. 2) Scrap value. This would be the net proceeds after the cost of getting the bits out. This will yield the lowest valuation and is subject to fluctuations in the market price of scrap materials. This may sound extreme but there are lots of reasonable-sized houses in Detroit in decent condition that are selling for $10,000 or less. 3) Strategic value. If the house is in the middle of somebody else's larger scale project. The value to them is higher than it would be to another buyer. This is obviously case specific and cannot be applied to the overall housing market. 4) Some combination of the previous four. Replacement cost and Economic value would be most appropriate for the overall market. I can easily see a 50% overall correction, with 90% in extreme cases.

Because Yahoo! is trying to apply the standard calculation of an industrial company’s EV to a bank – it just doesn’t work. Banks can’t have negative EV (see below for why). A bank’s EV is effectively it’s market cap. Since a share price can’t go below zero, a bank’s EV can’t go below zero. As for why some are showing positive and other negative, without knowing exactly where Yahoo! sources its data from and how detailed the breakdown is, I am only speculating. However, I suspect it is because they are oversimplifying the categories. EV’s are really only used for valuation multiples comparisons (just like you might calculate a P/E ratio) and they have much more value to you if you calculate them yourself because you can play around with the inputs. If you have an interest in this area, I would recommend Aswath Damodaran’s website – it even has one of his best books online. http://pages.stern.nyu.edu/~adamodar/

sorry - I'll simplify. If you buy a company, you are buying the shares (equity) which gives you control. Let's say I buy 100% of the shares for £10m. If that company has £1m of net debt (say it has a bank loan of £2m and cash on the balance sheet of £1m) then the enterprise value is £11m (£10m equity plus £1m of net debt). If that company has £2m of net cash (say it has a bank loan of £1m and cash on the balance sheet of £3m) then the enterprise value is £8m (£10m equity less £2m of net cash). Now, say that you buy a company for £10m and it has net cash of £20m then it has an enterprise value of negative £10m. For obvious reasons, this situation doesn't come up very often and the shares will very quickly double to eliminate the arbitrage. Banks don't have "net debt" the way that regular companies do so their EV calculation is different but the Yahoo! software does not distinguish this. It is impossible for a bank to have a negative EV because share prices cannot go below zero. Is that any better?

Enterprise value is the value of the company in entirety. It's calculated by adding the market value of the equity and the market value of the net debt (the gross debt less any cash and easily liquidatable assets). Since the equity can never be equal to zero, if a company with any net debt cannot have a negative enterprise value - only one that has net cash. ie the net cash is higher than the market cap of the company. In practice, this situation is very unlikely to arise and I have only seen it myself a couple of times (at least in time to capitalise on it). Banks are unusual in that they don't have "net debt" as the product they are "selling" is cash/debt. ie What they are owed should be higher than what they owe - and this is the book value of the equity, which is a bank's "EV". It is mathematically impossible for a bank to have a negative EV but sites like Yahoo! don't differentiate between different industries in their calculation which is why it can come out with negative numbers for banks.

When will you learn that people in the City do pay tax?

There you go again trying to put words in my mouth. I (and no-one else as far as I can see) have never suggested that a company's profitability increase ad-infinitum. If that were the case, the company would eventually become the economy. This is, as you say, laughable. You can see this, I can see this, anyone with a brain can see it. You hold City workers in such low regard that you think that they can't see it and have assumed that this is the way that they view businesses. Competition ensures that companies earning significantly in excess of their cost of capital will see those returns reduce over time. If the return is below the cost of capital for a period beyond the investor's patience then they will redeploy that capital elsewhere. The drive for higher profitability is natural - a company does not say "right, we've made enough profit for the year in the first nine months so let's take the next three months off". You are going to be developing new materials that your employer hopes will extend the sustainability of its competitive advantage (and, therefore, higher returns). Another company may prefer to cut costs to boost its profitability at the expense of the longevity of its returns. Would you prefer to own a company that will make £100m profit pa for the next 10 years and then close it down or would you rather own another company that will make £20m profit in the first year that you hope can grow this to £60m over the next 10 years with lower probability and uncertainty over how long the profit can be sustained after that? You may say that the first company is too short-sighted but unless it is your money that is being committed it's not your decision where the money goes. This is the point of my comment ("So you have declared yourself the sole arbiter of what is a realistic return for an investment?") The banter is fun but, let's face it, you are a 22-24 year old Masters graduate who is about to start his first real job (I've assumed you are male, apologies if not). One that considers a large group of workers to be both worthless and beneath him, and is happy to see them all die in unfortunate and tragic circumstances. Yet at the same time has been happy to procure their services to finance his degree (unless the loan was from mummsy and papa) and is going to work for a company that uses their services (please don't tell me that they don't have bank accounts, solicit legal advice, or get their accounts audited). This does not automatically render your views invalid but until you can show that you've considered the perspective of the opposing side you're just ranting. Give it a rest.

If the staff were truly liabilities then they should be fired. The staff that are not are considered assets - otherwise why continue paying them? So you have declared yourself the sole arbiter of what is a realistic return for an investment? The market can decide that for itself. If the return is inadequate then the capital will be deployed elsewhere. You appear to change your "enemy" by the post. Is it the hordes of Poles stealing your rightful job? Or the layabout City folk that get overpaid for doing nothing? Or the government for letting the situation get to where it is? Or the companies (including the one you will be working for) that want to make a profit? Or the owners of those companies? Maybe it is all of them - in which case you should retire to the wilderness and forage for berries because nothing will make you happy.

I get what you are saying Injin and I am in agreement with you on the jobs needing degrees. The degree provides some evidence that you have attained certain skills in that field but if you can demonstrate those skills to a prospective employer directly then the piece of paper is redundant. Saying that degrees enforce closed shops though is spurious in my opinion. The employer is providing the job and they can choose to discriminate if they want - this may be a requirement to have a piece of paper, or it could be down to your hairstyle or your accent. There are a couple of categories that the government have deemed employers not to be able to discriminate on but there are so many other areas the employer can choose that they may as well not be listed. The question is if you are the employer, and it is your job to give, why can't you choose what the minimum requirements are?

Management does not award it's own pay - they are still employees. The pay for all employees is determined by the levels above them. At the very top, it is determined by the remuneration committee, acting on behalf of the owners. The very definition of nepotism is favouritism shown towards a relative - it is the exception that is demonstrating the rule. This is further emphasized by the overall negative view that people have of it. Unless you can show that the majority of jobs are filled this way then you are providing more evidence for my view.

A short diversion off topic... The two are not contradictory. A share price does, in my opinion, reflect information that the market already knows combined with the market expectation of future events. For me, the key to outperformance lies in identifying differing expectations from the market of future events and the potential impact on the share price that will result if your prediction comes true.

Big chunks of this thread have been to do with you complaining that you and your education/qualifications/skills would be underpaid in this country. I have argued that the market dicates the value of your work. Unless you have changed your position? Other big chunks of this thread have been to do with you suggesting that all employees are underpaid via your own tortured logic that you have yet to explain. Super Ted and I have made arguments along the same lines against this. So, in summary I am saying; 1) that all employees are paid the right price for the work that they do. 2) that profit belongs to the employer and wages belong to the employee. If the employee wants to make more money, they can ask for it. If they don't get it, they can become an owner-operator and receive both the wages and the profit. Do you disagree with these two statements?

it's all to do with the Bellway results. The results were not very good but not as bad as the market had feared. Share prices move with expectations.

If that is the case then I apologise. Which part of what I have written eludes you and I will try to clarify. I've made my point twice now and you keep coming back with the same line. Lets say there is a market for product X that sells for £10 say (determined by demand and supply). A company is thinking of making and selling X but they will only do it if they think they can make £2 of profit on it. If the raw materials required cost £5 then the company will be willing to pay up to £3 for someone to put it together. So the market value of putting X together is £5 - the £10 selling price less the £5 cost of materials. £2 goes to the owners of the company for being willing to make the investment, £3 goes to the employee for putting X together. You are arguing that the employee deserves £5 because that is the market value of putting X together. I am arguing that he does not deserve the extra £2 unless he becomes the owner as well and puts in the investment. A mathematician should be able to get their head around that - or are you just arguing for the sake of it? Please, can anyone else reading this tell me if what I have written is not clear? I thought you did - because they are willing to work in this country for less than you are? This is the first mention of the government that you have made in this thread I think. Please correct me if I am wrong. Your higher education level may make you think yours is a special case but I don't think it is. There is a market price for each work function. Just because you sit further up the skills/reward line does not mean it does not apply to you. Either the German universities are not producing graduates of an equivalent level to you, or those graduates are unwilling to work for the money that you have accepted - an identical situation to the one you bemoaned in post #2. If it is the former and you have genuinely differentiated skills (and I have no reason to doubt this even though you feel the opposite about me), then the UK market does not place a premium value on those skills or does not feel that it can profit from them. The German market does.