Monthly Archives: July 2014

California Water Rights

I have found a few more data points to add to my list of water rights sales in California and Arizona.

Some snippets:

1) “This year the market is unbelievable,” said Thomas Greci, the general manager of the Madera Irrigation District, which recently made nearly $7 million from selling about 3,200 acre-feet. “And this is a way to pay our bills.”

2) “Now everyone’s mad at me saying I increased the price of water. I didn’t do it, the weather did it,” said Etchechury, who manages the Buena Vista Water Storage District, which netted about $13.5 million from the auction of 12,000 acre-feet of water.

Disclosure: No position.

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Investing at Any Price

“There are no bad bonds, only bad prices.”  So says the old and odd adage that gets kicked around trading floors from time to time.

Of course, once you start there, the adage subtly twists upon itself, becoming “there are no bad assets, only bad prices.”  Or perhaps worse, “there are no bad stocks, only bad prices.”

The truth that lurks somewhere therein is uncontroversial.  For any asset worth X (i.e., its “intrinsic value”), investment returns increase as the discount from X increases.  Perhaps more interestingly, the increase is not linear.

However, our seemingly innocuous adage seems to hide the way in which it breeds and feeds confidence and security.  The inner monologue quickly follows: “as long as I buy a security at a big enough discount to X, I’ll make money.”  Subtly the mind fixates on the discount, and comfortably takes the X as a given.

Given the prevalence of the adage, and the investment justifications it seems to elide, I was ever so grateful to stumble upon Robert Vinall’s May presentation, entitled “Mistakes of Omission.” (Hat Tip to ValueInvestingWorld)

It would be hard to overstate the profound elegance of the presentation, but even the barbarian would appreciate the simplicity of slide 14.

To me, it seems to suggest that there is no price too low for some equities, and conversely, almost no price too high for others.  The crux that differentiates the two–the quality of the underlying business.

Thoughts?