RichardGibbons

I'm not valuing the equities at a premium. I'm valuing a business which is more than just assets. The fact that the business involves investing is irrelevant. I think Dhandho, just like every other business, should trade at multiple that is dependent on its discounted future free cash flows. If you think that Dhandho is going to greatly outperform the returns of the market, then you're saying is the equivalent to saying that Dhandho should trade greatly below the value of its future cash flows. And if you believe in DCF for other companies, but not for investing companies, you're saying that Dhando should be cheaper than those other companies that you do value using DCF. To me, that's a pretty bad idea. (This is the funny thing about this discussion. If you follow through your reasoning to the natural conclusions, you very quickly reach a contradiction that should indicate to you that your premise is faulty. Well, unless you want to throw out DCF entirely.) That said, if you don't agree that future cash flows are a good way to value a business, that's fine. Not everyone is a value investor. For what it's worth, the market also doesn't believe you. Closed-end funds generally don't trade at NAV. Richard

This argument that capital gains shouldn't impact valuation makes no sense. The value of a business is the discounted value of its free cash flow. Suppose you were confident that Fairfax, without insurance operations, was able to reliably compound its book value at 1000% a year through investing. Saying, "that stock is worth book value" makes no sense because its future free cash flows are worth far more than that. It's irrelevant if you choose to value other companies in the industry on a sum of parts valuation. Given a choice between buying an index mutual fund at book value, and this "compounding 1000% every year" company at 4 times book value, I would take the latter every time. Richard

OK, stahley, I understand what you mean. Thanks!

I find this statement surprising from someone who seems to believe in a higher power. Almost all such people I've ever met seem to believe that in the end, the people who act according to what the higher power wants will end up in some wonderful place, and those who don't will end up in some bad place. So, what do you mean by this? The atheists eventually convert everyone, then everyone who believed in the higher power is fine, but everyone born after that is screwed? I'm really curious how you reconcile these two beliefs....

Stahleyp, one of the problems with your "if morality doesn't come from God, then it's arbitrary and can be completely ignored" argument, is that it doesn't solve the arbitrary morality problem, since it still suffers from the "infinite pile of turtles" problem. (Why doesn't the earth fall? Because it's on the back of a turtle. But why doesn't the turtle fall then? Because it's on the back of the turtle too.) With your morality argument, you're just adding a turtle. It's arbitrary for you or it's arbitrary for the God. If it's a good idea to ignore the fact that evolutionary development results in morality giving you happiness in one case, it's equally a good idea to ignore the fact that God is giving you you happiness in the other case. Both cases are equally arbitrary.

I'm actually curious about this. So, if you exclude "sell to a greater fool" as a reason for buying, and an estimate of future cash flows as a reason for buying, what is the reason for buying Tesla? I just want to understand what you're getting at.

I found this video pretty revealing. https://www.youtube.com/watch?v=9odAuzz6kB0 It's unclear how representative it is, since it's effectively anecdotal evidence. But I believe it happened, and I believe that the people passing by in the video don't think they are judging people by their skin color. It must be tough living in a world where, because of your appearance or your background, life is skewed against you. It must be tiring and frustrating. So, I could see why a certain subset of the population would try to take advantage of the system, since the system effectively constantly screws them. It doesn't justify it, but understanding the holes in the system make it easier to patch them up. (Being a single parent would be freaking hard. If that's considered a good outcome, it shows that their options basically suck.) It reminds me of John Scalzi's analogy -- being a white male is basically like playing a video game on the easy level. It doesn't mean that there aren't difficulties and it also doesn't meant that some playing on the hard level can't win. But many things are just easier.

I think the multiverse argument is reasonable, but I don't think you need it to posit life. If the universe has been around for an infinite period of time and there's a close to infinite or infinite number of stars and planets, a one in a trillion chance is going to happen eventually. A second way of refuting your argument is to take a million numbers. Randomly select 50 of those numbers. What's the odds that those numbers came up in that particular order? Well, it's incredibly small, much smaller than your 1 in a trillion. So is that a miracle? I don't think so. The problem is that you can't argue some outcome like that after it's happened, and say, "because that outcome has a low probability, something special must have happened". Basically, outcomes are constantly happening. Each one always has an almost infinitely small chance of it happening, yet it does because some outcome has to happen.

Yeah, you're right. Sorry. That wasn't a fair way to characterize you at all. My mental model of why someone becomes right wing and why someone becomes left wing has been in flux for the past few months. As a side-effect of that, I used an incorrect heuristic. Sorry.

Ok, this argument isn't even in the realm of making sense. The form of your argument is, "to survive, you must eat. Therefore, eating anything (cyanide, stop signs, airplanes, babies) is generally a good idea". The thing that amuses me the most is that you're one of the more right-wing people on the board, but this really sounds like an argument the pigs would make in "Animal Farm". I also disagree with the premise that there's no way to get what you want without hard work. It sounds like a very bleak life. I think maybe you want very different things that me.

Yeah, I think that's a reasonable point of view, oddball. In a way, even if your life is "easy", there are stressors. Plus, you become accustomed to and bored with what you have. Frankly, I think work is much better when you're working than when you're at work but not working....

Yes, but raising kids is a lot of work. One could equally make the argument "surely helping people build their retirements comes with an ROI - the happiness of seeing your customers having a financially-secure retirement where they have the assets to realize their retirement dreams". Really, if you start looking at things from "intrinsic reward" incentives, then you've basically conceded rkbabang's argument anyway. You could say that many politicians govern well because of the intrinsic rewards of improving their country and the well-being of their fellow citizens, which I think rkbabang wouldn't agree with at all. Rkbabang, I think understand your position. Parenting is a counterexample that refutes your rule, so you'll pretend that you and your kids are one entity instead of modifying your world view. That said, I understand it. If you concede that parents can act against their own best interests on behalf of their kids, then it's possible that other people might sometimes act against their own best interests as well. (FWIW, I think you are mostly right that people usually act in their own best interests. I just recoil against black and white world views.)

Hmm, OK, here's a perverse counterexample: parenting. Raising kids take up piles of money and time, yet I think many parent/child relationships work well.

There are lots of places from which it could arise. Something like the 1% rallies could turn violent. A galvanizing case of injustice could result in violence (e.g. maybe the death of someone in police custody). Or something like the tea party could escalate violently. I see it as akin to excessive leverage in the financial system. The system become inherently unstable, jeopardizing its ability to recover from shocks. So a shock can cause disproportionately large effects. Similarly, I think the wealth inequality reduces the stability of the system. (On the other hand, things like religion, the American dream, and the propaganda TV channels would tend to increase the stability, I think. So, maybe the system is stable enough that the distribution can become quite skewed before there are problems.) Your comment also makes me wonder whether it was that easy to identify the unrest in Egypt, Syria, and Libya before it arose. I don't know enough to know if that was a long-term thing with frequent riots that we just never heard about, but I suspect it wasn't. Eventually, poor people just get sick of being screwed by the system.

Well, yeah. You are arguing for a particular system of government. Seems pretty obvious that you'd want to talk about the place where that system of government has been tried. I mean, why the heck would you want to ignore the evidence where it has been tried? That said, I take it from your response that you basically wouldn't want to live in Somalia, despite the fact that it's the best example of what you want in existence today. So, for you, this is more like a "I want to complain about the government, and saying that it's violent gives me an excuse" type of argument. Got it. I'm shocked! So to summarize your argument, "unicorns and fairies exist, but you don't want to talk about where we can find them." OK. The thing I find fascinating about this whole discussion is how quickly the whole idea breaks down the second one starts talking about specifics, yet people still believe they are making a credible argument. It's like evidence and basic reasoning are totally irrelevant. I think I read 20 years back, though I can't recall the source, that all societies have roughly the same percentage of people with extremist beliefs. In Islamic cultures, that might manifest as people interpreting the Koran in a violent way. In the USA, it might manifest as the right-wing Christian views. In Europe, it might manifest as people believe Marxism can work. I wonder if this is another example of that.

That's because they are insane. I'll plagiarize a post on Reddit a while back as the counter argument. What will happen is that I will beat you up when are walking down the street and steal all your stuff. I may kill you, or not. Let's assume that, irrationally, I don't kill you. Then you'll probably want to band together with other people to ensure I don't beat you up again. Well, then I'll probably just want to find more people and build better weapons so that I can beat you up and take your stuff once more. As I increase my power, you might want to do the same. So, we'll have these armies dedicated to keeping ourselves safe. We'll pay them with money levied on everyone who is protected by them. Pretty soon, it will become evident what the best army is, and other armies will get killed off. The people running the army will realize they can do a lot of good by, say, having a fire department or a police force stopping people within the winning group from killing each other, or courts to enforce property rights, and so will enact that. And presto, we'll have government and taxation. And then someone will stand up and say, "This government is violent. If we get rid of them, everyone will hold hands and magically never want to commit violence against each other to get ahead, and the world will be Nirvana". The other question is, why don't you emigrate to Mogadishu, where this sort of environment seems to exist, rkbabang? It seems to fit your philosophy perfectly. (This is actually a serious question. I suspect your answer is "Mogadishu isn't what I am proposing", but I'm curious why you believe it isn't. The people themselves decide issues like property rights and survival, unrestricted by the onerous constraints of a violent government.)

Nope, climatology is decided almost as well as anything in science. At this point, being a man-made climate change skeptic says more about the person than it does anything else. To me, the fact that some people still believe there's a debate is pretty good evidence of the influence of the media on the minds of even relatively smart people.

Here's my favorite example of why the Oxford comma is good. (Warning: slightly NSFW). http://imgur.com/fycHx

I think the concept generally makes sense both before and after birth. I don't think argument is metaphysical argument, but rather just trying to create a basis for deciding what's a "good structure of society" and what's a "bad structure for society". For instance, one could organize society so that I own everything, and all you suckers only get what I give you. Is that a good society? I think most people other than rkbabang would argue it isn't (though it would be important to him that nobody could take my wealth from me). But what's your criteria for saying it's bad? The answer this reasoning provides is that it's bad because the odds are very high that life would suck for you if you were someone born in that society. So, that's why the argument "what society would you be in if you were randomly born into it" is necessary. (That said, if you think the "randomly born into some baby" criterion sucks, it would be interesting knowing what criterion you think is better. That's a really interesting conversation, I think.) The other thing worth noting, while people love to believe that wealth is derived largely from people working hard and making good decisions, a huge part of it is luck, even beyond whether or not you were born a white male in the USA. Did your parents go to university? Did IBM come to you to buy an OS because DEC was too busy to talk to them? Did you happen to meet a person who ended up funding your business? Were your parents rich enough to pay for your university so that you could start a business on the side while in school instead of working? Did a celebrity happen to see your website and tweet about it? Was Oprah in a good mood when she read your book, so decided to put it in her club? Did you happen to be in the tech sector at the same time as a tech bubble formed? Do your brother get cancer exhausting your family's savings? Basically, there's huge variances in outcomes, and it's quite reasonable for society to decide to smooth out those variances. The "how would you structure society if you knew you were to be randomly born into that society" is just a way of judging whether it's worthwhile smoothing out a variance or not. I think a huge part of it comes down not to comparing levels of wealth or trying to make everyone equal, but rather economic mobility.

Wow, I've never met anyone who thought it was immoral to fight if they or their kids were being raped or tortured. Fascinating perspective, but I think you're going to have a hard time making a lot of people believe it.

It's both moral and commendable. Reducing the variance of the genetic lottery and other forms of luck is good for pretty well everyone in society, including the people who benefited from that luck. That said, I can understand why people are greedy about it. I'm pretty greedy about it myself.

It should fall by the amount the owner earnings per share missed. I don't think any such business exists, since the example you gave requires perfect knowledge of the future, which doesn't exist. I imagine the closest thing to such a business would be a casino or a lottery that has the predicted amount of gamblers, but an unusually large payout.

I think when it comes to brand, it provides a greater competitive advantage for lower cost items. I'm not going to spend even three minutes researching candy bars on the internet, but I will spend at least an hour if I'm looking for a new consumer electronics device or vehicle.

I think I'd go with the following: 1. Low cost advantage/economies of scale 2. Network effects 3. Regulatory advantage (e.g. patents) 4. High switching costs (e.g. Fiserv) 5. Intangible advantage (such as brand etc.) 6. Dominates niche market that cannot support two producers

+1 - This is totally the right way to do things.