Purchases of Bargain Issues

A bargain issue is defined as one which, on the basis of facts established by careful analysis, appears to be worth considerably more than it is selling for.

This includes:

• bonds and preferred stocks selling well under par, as well as
• bargain common stocks.

To be as concrete as possible, a suggested guide is an issue is not a true "bargain" unless the indicated value is at least 50% more than the price.

How to detect a bargain common stocks?  What kind of facts would warrant the conclusion that so great a discrepancy or bargain exists?

There are two tests by which a bargain common stock is detected.

1.   By method of appraisal.  

• This relies largely on estimating future earnings and then multiplying these by a factor appropriate tot he particular issue.
• If the resultant value is sufficiently above the market price - and if the investor has confidence in the technique employed - he can label the stock as a bargain.

2.  By the value of the business to a private owner.

• This value also is often determined chiefly by expected future earnings - in which case the result may be identical with the first method (the method of appraisal).
• In the second test more attention is likely to be paid to the realizable value of the assets with particular emphasis on the net current assets or working capital (current asset - current liabilities).

How do these bargains come into existence?  How does the investor profit from them?

1.  LOW POINTS IN THE GENERAL MARKET

At low points in the GENERAL MARKET, a large proportion of common stocks are bargain issues, as measured by the above standards.

[A typical example would be General Motors when it sold at less than 30 in 1941.  It had been earning in excess of $4 and paying $3.50, or more, in dividends.]

It is true that current earnings and the immediate prospects may both be poor, but a level-headed appraisal of average future conditions would indicate values far above ruling prices.

The wisdom of having courage in depressed markets is vindicated not only by the voice of experience but also by application of plausible techniques of value analysis.

2.  EXISTENCE OF MANY INDIVIDUAL COMMON STOCK BARGAINS AT ALMOST ALL MARKET LEVELS

The same vagaries of the marketplace which recurrently establish a bargain condition in the general market list account for the existence of many INDIVIDUAL BARGAINS at ALMOST ALL market levels.

The market is always making mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks.  

A mere lack of interest or enthusiasm may impel a price decline to absurdly low levels.

There are two major sources of undervaluation:

(a) currently disappointing results and

(b) protracted neglect or unpopularity.

[Example of the first type (a):  In 1946, Lee Rubber & Tire Company, aided by the bull market and by steadily rising earnings, the stock sold at 72.   In the second half of 1947 the reported profits fell off moderately from the previous year's figures.  This minor development apparently generated enough pessimism to drive the shares down to 35 in early 1948.  That price was much less than the working capital alone (about $50 per share) and no greater than the amount actually earned in the previous five years.]

[Example of the second type (b):  During the 1946-47 period the price of Northern Pacific Railway declined from 36 to 13.5.   The true earnings of Northern Pacific in 1947 were close to $10 per share.  The price of the stock was held down, in great part, by its $1 dividend.  It was neglected, also, because much of its earning power was concealed by conventional accounting methods.]

The Intelligent Investor
Benjamin Graham

Beware that the worse a company performs, the better value its stock will appear to be.

The worse a company performs, the better value its stock will appear to be.

Because declining fundamentals will prompt a company's shareholders to sell, the price will decline.  This will cause all the value indicators to show that the price has become a bargain.  It's not.

Warren Buffett: "Avoid these bargains."

Bargain Price

In the final chapter of The Intelligent Investor, Ben Graham wrote:  "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety." Many years after reading that, I still think those are the right three words. The failure of investors to heed this simple message caused them staggering losses.

    

In the summer of 1979, when equities looked cheap to me, I wrote a Forbes article entitled "You pay a very high price in the stock market for a cheery consensus." At that time skepticism and disappointment prevailed, and my point was that investors should be glad of the fact, since pessimism drives down prices to truly attractive levels. Now, however, we have a very cheery consensus. That does not necessarily mean this is the wrong time to buy stocks: Corporate America is now earning far more money than it was just a few years ago, and in the presence of lower interest rates, every dollar of earnings becomes more valuable. Today's price levels, though, have materially eroded the "margin of safety" that Ben Graham identified as the cornerstone of intelligent investing.

     My first mistake was in buying control of Berkshire. Though I knew its business - textile manufacturing - to be unpromising, I was enticed to buy because the price looked cheap. Stock purchases of that kind had proved reasonably rewarding in my early years, though by the time Berkshire came along in 1965, I was becoming aware that the strategy was not ideal.

     If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the "cigar butt" approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the "bargain purchase" will make that puff all profit.  Unless you are a liquidator, that kind of approach to buying businesses is foolish. First, the original "bargain" price probably will not turn out to be such a steal after all.

     I could give you other personal examples of "bargain-purchase" folly but I'm sure you get the picture:  It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner. Now, when buying companies or common stocks, we look for first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

     In a difficult business, no sooner is one problem solved than another surfaces - never is there just one cockroach in the kitchen.  Second, any initial advantage you secure will be quickly eroded by the low return that the business earns. For example, if you buy a business for $8 million that can be sold or liquidated for $10 million and promptly take either course, you can realize a high return.

The investment will disappoint if the business is sold for $10 million in ten years and in the interim has annually earned and distributed only a few percent on cost.  Therefore, remember that time is the friend of the wonderful business, and the enemy of the mediocre.

How exactly do we know the value of the asset? Trust Your Instincts (Common Sense).

"Price is what you pay. Value is what you get."

Leave it to Warren Buffett to sum up the dilemma in a single pithy dichotomy. 


The world's greatest investor reminds us that the value of an asset -- whether a car, a house, or a stock -- does not necessarily have any relation to the price we pay to own it.   


Buffett's observation still leaves us with one crucial question: How exactly do we know the value of the asset?

• Benjamin Graham's classic non-answer stated that an asset is worth at least its book value, so you're safe if you pay less than that. 
• There's also a logically impeccable but not very helpful adage that "an asset is worth whatever someone will pay for it." 
• And Professor Aswath Damodaran offers this math-intensive solution: "The value of equity is obtained by discounting expected [residual] cash flows."

A more honest answer, though, is that we simply never know how much anything is worth. Not exactly, at least.



Yet in real life, we don't allow the lack of an exact answer to stop us from buying. 

• Humans need shelter, so we buy a house when the price seems fair. 
• We need cars, so we work from sticker prices and the Kelly Blue Book to pick an acceptable price for those, too.

The same goes for stocks. We shouldn't "measure with a micrometer, mark it off with chalk, then cut it with an axe." 

• We make our best guess at a fair price (intrinsic value). 
• We try to buy for significantly less (margin of safety) than our estimation. 

If we guess right more often than wrong, we make money. But where do we start?








Start with common sense

Look in places where you're more likely than not to find bargains:

Low prices: Stocks hitting the new 52-week-lows list may be "down for a reason." Still, a stock selling cheaper today than it's sold any time for the past year is more likely a good bargain than a stock selling for more than it's ever fetched before. 

Read the paper: Newspaper headlines offer another superb place to seek bargains. Remember how oil was selling for $150 a barrel last July? Remember how a few months later, it sold for less than $40? How much do you want to bet that the intrinsic values of oil majors such as ExxonMobil (NYSE: XOM) or Chevron (NYSE: CVX) tracked those movements exactly? (Hint: They didn't.) Somewhere between $40 and $150, there was value to be had in the oil majors.

Cheap valuations: Another great way to scan for bargains is to run a stock screener every once in a while. I like to look for stocks that trade for low price-to-free cash flow multiples, exhibit strong growth, and have low debt. 


The key point I want you to take away from all this is simple: Trust your instincts.

• When Zillow tells you your house has doubled in value, treat that "Zestimate" with some skepticism. 
• When Suntech Power (NYSE: STP) doubles in price on announcements of industry subsidies from China, be wary. 
• On the other hand, when stocks that have little to do with the financial crisis drop 50% in the space of a year, when stock prices don't match the news they're supposed to reflect, or when you stumble across a stock with a price that looks cheap, you might just have found a bargain.

http://www.fool.com/investing/value/2009/04/25/how-i-lost-100000-without-even-trying.aspx

There is no price low enough to make a poor quality company a good investment.

If you're in doubt about the quality of a company as an investment, abandon the study and look for another candidate.

When in doubt, throw it out.

Abandon your study and go on to another.  There is no price low enough to make a poor quality company a good investment.


The worse a company performs, the better value its stock will appear to be.

Because declining fundamentals will prompt a company's shareholders to sell, the price will decline.  This will cause all the value indicators to show that the price has become a bargain.  It's not!

When the stock is selling at a price below that for which it has customarily sold, you will want to check to see why - what current investors know that you don't.

Value Investment Philosophy

Value investing is the discipline of buying securities at a significant discount from their current underlying values and holding them until more of their value is realized. The element of a bargain is the key to the process. In the language of value investors, this is referred to as buying a dollar for fifty cents. Value investing combines the conservative analysis of underlying value with the requisite discipline and patience to buy only when a sufficient discount from that value is available. The number of available bargains varies, and the gap between the price and value of any given security can be very narrow or extremely wide. Sometimes a value investor will review in depth a great many potential investments without finding a single one that is sufficiently attractive. Such persistence is necessary, however, since value is often well hidden.


The disciplined pursuit of bargains makes value investing very much a risk-averse approach. The greatest challenge for value investors is maintaining the required discipline. Being a value investor usually means standing apart from the crowd, challenging conventional wisdom, and opposing the prevailing investment winds . It can be a very lonely undertaking. A value investor may experience poor, even horrendous , performance compared with that of other investors or the market as a whole during prolonged periods of market overvaluation. Yet over the long run the value approach works so successfully that few, if any, advocates of the philosophy ever abandon it.

Margin of Safety Concept in Undervalued or Bargain Securities

The margin-of-safety idea becomes much more evident when we apply it to the field of undervalued or bargain securities. 

• We have here, by definition, a favorable difference between price on the one hand and indicated or appraised value on the other. 
• That difference is the safety margin. It is available for absorbing the effect of miscalculations or worse than average luck. 
• The buyer of bargain issues places particular emphasis on the ability of the investment to withstand adverse developments. 
• For in most such cases he has no real enthusiasm about the company’s prospects.

True, if the prospects are definitely bad the investor will prefer to avoid the security no matter how low the price. 

But the field of undervalued issues is drawn from the many concerns—perhaps a majority of the total—for which the future appears neither distinctly promising nor distinctly unpromising. 

• If these are bought on a bargain basis, even a moderate decline in the earning power need not prevent the investment from showing satisfactory results. 
• The margin of safety will then have served its proper purpose.

Ref:  The Intelligent Investors by Benjamin Graham

CHAPTER 20  “Margin of Safety” as the Central Concept of Investment





Also read:

• Margin of Safety Concept in The Business Venture of Buying and Selling Stocks
• Margin of Safety Concept in Conventional and Unconventional Investments
• Margin of Safety Concept in Speculation and Investment
• Margin of Safety Concept in Diversification
• Margin of Safety Concept in Undervalued or Bargain Stocks
• Margin of Safety Concept in Growth Stocks
• Margin of Safety in Good-Quality and Low-Quality Stocks.
• Margin of Safety Concept in Common Stocks
• Margin of Safety Concept in Bonds and Preferred Stocks

Luck versus Investing. Luck plays a part in every investor's life.

Value investing certainly requires a bit of luck, but it is mostly based on perseverance and discipline.  Since you will be taking some risk as you pick beaten-down companies, you do need the luck that most of these risks will pay off.  You also need the discipline to stick with your choice, knowing it will eventually pay off even if things don't look good immediately.  And, yes, some of those risks won't pay off.

Luck plays a part in every investor's life, but few credit their success to being lucky.  So don't count on luck to get you where you want to go.

Discipline is the key to the door of success for value investors.  You have to know how to set your investing goals and stick to them.  You must have the ability to develop your own road map to success without having to worry about taking directions from others.   You also need to become an accumulator of wealth and have the discipline to not spend as much as you make, so you have money to invest when you find a good bargain.




Remember, disciplined people are not easily side-tracked.  They:

• set their sights on a series of lofty goals,
• figure out strategies for meeting those goals, and 
• have the discipline to not lose sight of those goals, even if they stumble and fall along the way.  

They get up, fix the problems, and continue to stay focused on their ultimate goals.

Market Behaviour: Unjustifiable Pessimism - Time to Find Your Best Opportunities (Gems in the Rough)

You will find your best buys when the market is unjustifiably pessimistic about a sector.

It is in such situations that one can find incredible buys among the beaten-down stocks in the sector. You do have to be patient and hold on to the stocks for a while until the crowd realized its mistakes.

If you believe the market has beaten down this sector UNJUSTIFIABLY, start looking for good buys in this sector.

Do not look for the cheapest stock; instead find the stock of a company with financial results that meet your criteria and a solid management team (QVM).

Look at the new daily lows in the financial press. Find a stock that has been beaten down for two or three years and has already taken its big fall.

Research the candidates you've found. You'll find a lot of stocks that have been beaten down JUSTIFIABLY - just move on.

But start watching those gems in the rough as you research them further to determine whether they are a good buy for you.

Related topics:

Market Behaviour: The Least You Need to Know
Market Behaviour: Crowd Impacts on Stock Prices

Market Behaviour: Can You Beat the Market?
Market Behaviour: Bull Runs
Market Behaviour: Bear Stalls
Market Behaviour: Pendulum Swings (Volatility)
Market Behaviour: Irrational Exuberance
Market Behaviour: Unjustifiable Pessimism
Market Behaviour: Control Yourself (Patience)

Why bargains occur

 "The market is fond of making mountains of molehills and exaggerating ordinary vicissitudes into major setbacks. Even a mere lack of interest or enthusiasm may impel a price decline to absurdly low levels." 

Buffett (1997): Would much prefer an environment of lower prices of equities than a higher one.

"Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."




Warren Buffett talked about the discipline in investing by using a baseball analogy in his 1997 letter to shareholders. Let us go further down the same letter to see what other investment wisdom he has to offer.

Have you ever wondered, "Why is it that whenever departmental or garment stores announce their yearly sales, people flock to these places and purchase goods by the truckloads but the very same people will not put a dime when similar situation plays itself out in the stock market." Indeed, whenever one is confident of the future direction of the economy, like we currently are of India, corrections of big magnitudes in the stock market can be viewed as an excellent buying opportunity. This is because just as in the case of departmental or grocery stores, a large number of stocks are available at 'sale' during these corrections and hence, one should not let go of such opportunities without making huge purchases. This is exactly what the master has to say through some of the comments in his 1997 letter to shareholders that we have reproduced below.

"A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves."

"But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

Simple isn't it! If someone is expected to be a buyer of certain goods over the course of the next few years, he or she will definitely be elated if prices of the goods fall. So why have a different attitude while making stock purchases. Having such frames of reference in mind helps one avoid the herd mentality and make rational decisions. Hence, the next time the stock market undergoes a big correction; think of it as one of those sales where good quality stocks are available at attractive prices and then it will certainly be difficult for you to not to make an investment decision.

How I Lost $100,000 (Without Even Trying!)

How I Lost $100,000 (Without Even Trying!)
By Rich Smith April 25, 2009 Comments (4)

Once upon a time, I bought a house.

At the time, I thought I had overpaid ... but "the time" was 2001 -- much nearer the start of the housing boom (that's recently turned bust) than its end. Fast forward a few years, and I sat down to my trusty computer, pulled up Zillow.com for a "Zestimate," and was informed that my little brick box was worth more than $500,000. Amazing news? Sure. Gratifying? You bet. Zillow was telling me that my house had more than doubled in value in just five short years.
Sadly, Zillow was on crack.

Welcome to the other side of the looking glass

About a year after receiving the good news from Zillow, I sold the house for far less than the site had told me it was worth. A 25% drop -- $100,000 -- from the top, in fact. Or, if you're a glass-half-full kind of a Fool, a 60% profit beyond what I paid for it.

The real truth, though, is that the house was worth neither what I paid for it, nor what I could have sold it for in 2006 -- nor even what I ultimately pocketed from the whole transaction. The real worth of the house was something unknowable, something that could only be guessed at: its intrinsic value.

"Price is what you pay. Value is what you get."

Leave it to Warren Buffett to sum up the dilemma in a single pithy dichotomy. The world's greatest investor reminds us that the value of an asset -- whether a car, a house, or a stock -- does not necessarily have any relation to the price we pay to own it. Far be it from me to criticize the Oracle's wisdom, but Buffett's observation still leaves us with one crucial question: How exactly do we know the value of the asset?

Benjamin Graham's classic non-answer stated that an asset is worth at least its book value, so you're safe if you pay less than that. There's also a logically impeccable but not very helpful adage that "an asset is worth whatever someone will pay for it." And Professor Aswath Damodaran offers this math-intensive solution: "The value of equity is obtained by discounting expected [residual] cash flows."

A more honest answer, though, is that we simply never know how much anything is worth. Not exactly, at least.

Hunting stocks with an axe

Yet in real life, we don't allow the lack of an exact answer to stop us from buying. Humans need shelter, so we buy a house when the price seems fair. We need cars, so we work from sticker prices and the Kelly Blue Book to pick an acceptable price for those, too.

The same goes for stocks. We shouldn't "measure with a micrometer, mark it off with chalk, then cut it with an axe." We make our best guess at a fair price. We try to buy for significantly less than our estimation. If we guess right more often than wrong, we make money. But where do we start?

Start with common sense

Look in places where you're more likely than not to find bargains:

Low prices: Stocks hitting the new 52-week-lows list may be "down for a reason." Still, a stock selling cheaper today than it's sold any time for the past year is more likely a good bargain than a stock selling for more than it's ever fetched before. Last month, I noted five stocks that had fallen to their 52-week lows. While the S&P trades 12% higher today, all five of those stocks have risen anywhere from 22% (Marvel Entertainment (NYSE: MVL)) to 184% (Republic Airways).

Read the paper: Newspaper headlines offer another superb place to seek bargains. Remember how oil was selling for $150 a barrel last July? Remember how a few months later, it sold for less than $40? How much do you want to bet that the intrinsic values of oil majors such as ExxonMobil (NYSE: XOM) or Chevron (NYSE: CVX) tracked those movements exactly? (Hint: They didn't.) Somewhere between $40 and $150, there was value to be had in the oil majors.

Cheap valuations: Another great way to scan for bargains is to run a stock screener every once in a while. I like to look for stocks that trade for low price-to-free cash flow multiples, exhibit strong growth, and have low debt. In recent weeks, this method has yielded me such unexpected bargains as NetEase.com (Nasdaq: NTES), priceline.com (Nasdaq: PCLN), and eBay (Nasdaq: EBAY).

Foolish takeaway

The key point I want you to take away from all this is simple: Trust your instincts.

When Zillow tells you your house has doubled in value, treat that "Zestimate" with some skepticism. When Suntech Power (NYSE: STP) doubles in price on announcements of industry subsidies from China, be wary. On the other hand, when stocks that have little to do with the financial crisis drop 50% in the space of a year, when stock prices don't match the news they're supposed to reflect, or when you stumble across a stock with a price that looks cheap, you might just have found a bargain.


Fool contributor Rich Smith owns shares of Marvel Entertainment and priceline.com. eBay, Marvel, and priceline.com are Stock Advisor recommendations. eBay is also an Inside Value pick. Netease.com and Suntech Power are Rule Breakers selections. The Motley Fool has a disclosure policy.

http://www.fool.com/investing/value/2009/04/25/how-i-lost-100000-without-even-trying.aspx

World economy 'close to the bottom' of liquidity cycle

World economy 'close to the bottom' of liquidity cycle
Morgan Stanley has begun to detect early signs that the global economy may be nearing the bottom of the cycle.

By Ambrose Evans-PritchardLast Updated: 9:27PM GMT 18 Jan 2009
It is advising clients to ignore the deep gloom in the markets and focus on deeper fundamental forces as a fresh phase of liquidity gathers strength. However, it is still too early to buy stocks.
"Excess liquidity has started to rise again in the G5 (US, Japan, Germany, Britain and France) for the first time inalmost three years," said Joachim Fels, the US bank's research chief.
"In our view, this marks the beginning of a new global liquidity cycle in 2009. It is driven by unprecedented easing of monetary policy as well as the gradual healing of impaired financial systems."
Dr Fels uses a complex recipe to measure the excess money sloshing through the world's financial system. This is how each long cycle of rising asset prices first builds a foundation.
"As in past episodes, excess liquidity will find its way into asset markets. To some extent, this has already started to happen, with government bond yields having been pushed to new lows, credit spreads coming in and equities having bounced off their lows from last Autumn."
The bank favours corporate credit at this stage rather than government bonds. It likes emerging markets such as the BRICS – Brazil, Russia, India and China – rather than equities in the old world.
Dr Fels says liquidity is the key driver of asset booms and busts. It drove the bond rally in the early 1990s and the dotcom bubble in the late-1990s.
Morgan Stanley said investors must monitor the entire global liquidity picture to understand what is going on in today's cross-border markets.
Teun Draaisma, the bank's European investment guru, said stocks tend to rally roughly six months before the US property market touches bottom in each cycle – although that is not what occurred in the relatively modest housing slide in the early-1930s.
By this measure, it is still too early to take the plunge in the stock markets. His team expects US house prices to keep falling until the middle of 2010, dropping a total of 46pc from peak to trough. They are down 24pc so far.
"Patience is the golden rule in bear markets, and the bigger the crisis, the more patience is required," he said.

http://www.telegraph.co.uk/finance/globalbusiness/4284602/World-economy-close-to-the-bottom-of-liquidity-cycle.html

BARGAINS AT THE BOTTOM

BARGAINS AT THE BOTTOM

In 1932 Graham was 38 years old and had already made and lost millions of dollars. To survive the Great Depression he taught at several universities, testified as an expert witness in securities cases, wrote freelance pieces for the financial press, and with his partner, Jerome Newman, bought and liquidated defunct companies.

In June 1942, Forbes published the first in a series of articles written by Graham alerting investors that the shares of many companies were selling at prices below the value of the actual cash held in the company vaults. The series was called “Is American Business Worth More Dead Than Alive?”

Graham pointed out that 30 percent of the companies listed on the NYSE were selling at less than their net working capital, with some going for less than their cash assets. In other words, if an investor bought all the shares of a company, then sold off its assets, he would reap considerable profits. That series of articles was widely read. It gave dispirited investors the courage to return to the stock market and spurred a long, sustained recovery.

Graham’s wisdom inspired investors again in 1974, when the stock market was in a deep depression. He addressed the annual meeting of the Institute of Chartered Financial Analysts (which he helped found), the predecessor to the Association for Investment Management and Research (AIMR). In a speech entitled “A Renaissance of Value,” Graham pointed out that once more, stocks were selling at deep discounts to their intrinsic value. “How long will such “fire-sale stocks” continue to be given away?” he asked. Graham encouraged the investment managers to buy as many bargain issues as possible while prices were low. The Dow, at the time, had receded to 600.

Again, Graham sounded the wake-up call that led to a market revival. By 1976 the DJIA topped 900.



THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):

1. THRIVING IN EVERY MARKET
2. MR. MARKET
3. SUITABLE SECURITIES AT SUITABLE PRICES
4. PAYING RESPECT TO THE MARKET
5. TIMING VERSUS PRICING
6. BELIEVING A BULL MARKET
7. THE PAUSE AT THE TOP OF THE ROLLER COASTER
8. MAKING FRIENDS WITH A BEAR
9. BARGAINS AT THE BOTTOM
10. SIGNS AT THE BOTTOM
11. BUYING TIME
12. IF YOU ABSOLUTELY MUST PLAY THE HORSES