petec

I would have to disagree with that, I can't think of a single anti trust case that I thought was justified. I can think of some really stupid ones off the top of my head... Microsoft for giving away a browser, IBM for dominating mainframes, Alcoa for literally being too efficient, Staples-Office depot was totally insane, the list goes on and on. It seems like more of a way for competitors to coerce each other because they can't compete in a voluntary market. Like Benioff at Salesforce trying to get his cronies in Europe to block Microsoft's bid for LinkedIn. Standard oil? Bell System? Quite. There is some evidence that the Standard was losing its monopoly due to free market competition anyway. But, some markets do tend toward abuse of monopoly positions which isn't good.

Speaking as an (economically) very right wing European: some ideas of the left are very useful. For example, antitrust is a fairly left wing idea but it brings out the best of capitalism imho. And heresy of all heresies: I think socialised medicine might be better than the current US system because it is apparently more efficient (cost/outcome). Capitalism only improves lives to the extent that it is inventive and competitive and efficient, and you do need some regulation to ensure that it is. That said, I agree with the thrust of your point. Whether any party in the US now genuinely stands for free markets, I am not so sure.

Just shows how little you know about China. Why do people who know nothing insist on showing off their ignorance on the internet? I could equally say, "why do people make sweeping statements without any supporting evidence on the internet?" If you have a different view on China would you mind fleshing it out, maybe in a new thread? I'd be interested.

Amusing to see our macro threads have gone dead. Must mean the crash is finally coming ;)

Joel I completely agree with your thinking here and especially your point about mental resolve - it is one of the few stocks that I don't have an itch to sell given my macro concerns. This (macro stress) may be my weakness as an investor but you have to work with what you've got and who you are! FFH allows me to stay much closer to fully invested and still sleep. FYI other companies that will preserve capital and have a strong value bent for investing at the bottom are Personal Assets Trust and Capital Gearing Trust in the UK. The advantage these companies have over FFH is that they are better protected against an inflationary bust as opposed to a deflationary one. I do also agree with SD on the valuation, which is why I started this thread - although the stock has kindly come in a bit since so I don't need to worry as much ;)

I agree. However, given the context, I'd point out that turds don't trade at >1x book for long. This has done so for most of its life.

Is there any evidence that he has that much humility?

This is superb. How can Trump be running for President when there are people like this around?

I think this is irresponsible claim. As we can see from polls I ran on CoBF, even picking from best of the best (which we probably agree are on this board :) ) even after survivorship and self-selection bias less than half outperform an index. Let's present these odds rather than saying that anyone who puts in time and thought will outperform. I said they can outperform, not they will, although I can see it was unclear! To be honest though, I think what's more interesting is that investors in outperforming active funds still underperform, because they buy high and sell low. That's the key problem, and it is far more costly than the average underperformance of an active fund. Indexing doesn't fix that problem. I don't think it is a coincidence that most people's best savings product will probably be the one they are contractually obliged to pay into: their house (via mortgage repayments).

Actually what he mentioned was "issuing shares to keep the turd afloat" which, to the best of my knowledge, only happened once (in the mid-2000's with the private issuance to Markel and others). Aside from that there has been huge share issuance mainly to fund acquisitions but the bvps history shows very clearly that shareholders have not had their value diluted even if their stake has been.

Superb post. I also think long term indexing is probably right for most people, but each and every one of these points is relevant and means that those who choose to invest a lot of time in it can do better than indexing.

Care to share your thesis on sbux? (Sorry if there is a thread you are active on - I haven't checked.)

Totally concur on the complexity of the issue. But curious why you suggest it's linked to the current monetary policy of the world? I cannot think of any topic that's harder than China. I have heard no China expert who can make sense of it - neither the bulls nor the bears. I don't think Chinese themselves know where it's headed. I have to assume the Chinese leaders think they can exercise a fair amount of control in the near- or perhaps medium-term but the long-term is anybody's guess. But there are people who have made a lot of money in China. They must be good. Or just buy property. Plenty of cities are up 40-50% in the past year. If you choose to look at the details it's complex. But at the headline level it's fairly simple. Debt can't grow faster than GDP forever and it is growing so much faster than GDP that we will reach the point where it can't carry on fairly soon (single digit years). Usually, that kind of event is unpleasant, and China is big enough for it to be unpleasant globally not just locally. It is linked to the current monetary policy of the world because it is very hard to build up this sort of debt level (globally, not just China) when interest rates are higher and there is less money. If low rates didn't spur debt creation there would be no point lowering rates. That's basically the whole point.

+1 Nastiest situation is if your assets are linked to inflation and you actually get it, given that your liabilities will be marked down - do doubt then the regulators will force return assumptions down despite the fact that future returns will in fact have gone up. I think, mentally, investors should add both the asset and the liability to the balance sheet rather than the net amount. Gives you a clearer idea of what you own.

Don't worry about me - one sentence was all I needed. I'm a big fan of constructive, fact-based criticism of my positions. That comment was neither.

Neither are directly focussed on housing but Michael Pettis' Avoiding the Fall is good as is Inside China's Shadow Banking by Joe Zhang.

Couldn't agree more. Consider me a very happy investor in turds. All I am currently considering is resizing my position because it's significant. "Different for everybody" is the answer, but my position is >30%.

TCC: thanks for yours. I very largely agree. Re: doubling down, that was careless phrasing and overstates how active they have been but a) I believe they have sold some of their muni portfolio and reinvested in long treasuries and b) regardless of the reason, the interest rate sensitivity is higher. This is significant to me because instead of getting deflation upside without much inflation downside, my risks are now more balanced. Re: valuation, I guess the question posed in my edit is, do you value goodwill at >1x, and if so, why? Otherwise I am very much on the same page and as I've said earlier, this debate (for me) is about whether I have a huge position or a big one.

Couldn't agree more. Consider me a very happy investor in turds. All I am currently considering is resizing my position because it's significant.

Yes, I saw your post - I will watch out for that!

Helpful, thanks.

Just wondering how people think about the valuation today. P/TBV (unadjusted for unbooked gains) has gone from a recent low of 1.4x to 2.2x. P/BV (also unadjusted) has gone from a recent low of 1.1x to 1.4x. Book value sensitivity to a 100bps rise in rates has gone from 8% to 14% as they have doubled down on their long treasuries bet. I've long had a monster position because I have seen it as an excellent underwriter/investor led by people I trust, with macro downside optionality, at a reasonable price. At this price and with the increased sensitivity I am leaning towards "they'd better be right". Any thoughts? And does anyone have a reason for the recent price run? EDIT: the valuations above are straight off Bloomberg. Doing it myself it's on 1.5x. If you assume all the intangibles are owned by controlling shareholders, then the stock is on 2.3x tangible book. The other way to do this would be to value intangibles at 1x, so that gets you $3.3bn of the $14.3bn market cap, leaving $11bn. The remainder of book value is $9.4-3.3=6.1bn, giving a p/bv of 11/6.1 = 1.8x. Interested to know how other people think about this, or whether you prefer other metrics?

Agree with TCC.

Thanks for the considered reply. For what it's worth: - totally agree borrowing to eat would be productive but a) it's still borrowing from the future because you *do* have to repay with future earnings and b) it is not what is happening today, when people are buying TVs and cars etc. - saving=investment by definition in the national accounting equations as I understand it. Less technically, yes I would absolutely consider investing in businesses to be saving. What I am getting at when I talk about saving is laying out money now in order to have more later, and under a hard currency that can only be done by investing in productive capacity, which has the side effect of growing the economy. - I totally agree that building a single lane highway between the two villages would be productive. But your distinction between wasteful and unproductive is, I think, false. Waste is by definition unproductive. - It is impossible in a free market for a country to have lots of productive projects but little money for two key reasons. One, money is attracted to its highest and best use. And second, if there is little money you will get deflation until the money you do have is worth a huge amount. Money is merely a tool of measurement. - You're right that we agree that borrowing for productive uses (by my definition) is fine. And I have no issue with debt continuing to grow in absolute terms. I *do* have an issue with debt continuing to grow as a percentage of gdp. This cannot continue forever without a collapse in confidence in the currency. It also means, by definition, that the debt has not been put to productive use, because by definition productive investment will generate enough additional GDP to repay the debt. A continually rising debt:GDP ratio is absolute proof of unproductive debt. - I agree with you that *from this starting point* money printing is probably the best way forward. I just don't think we would ever have got to this point if we had had better monetary policy. Don't get me started on what inflation targeting has done to boost a credit bubble in an age when prices should have been deflating due to globalised labour and incredible technological advance. I hope you don't mind my replying in detail - I find these debates very useful for learning and for clarifying my understanding of my own position - so, thanks! P

Jurgis, I never understand people who don't like austerity. Austerity means saving. Saving means investment. Investment means more productive activity later on. I am referring here to austerity in the gold standard sense (i.e., don't borrow much, live within your means, and save) not the current political sense which is related but different. Waste does not entirely disappear under the gold standard. No system is perfect because the humans running it are perfect. But the gold standard does significantly reduce waste, because it significantly reduces the extent to which politician can spend without taxing. That means they have to think much harder about what they spend, and spend less overall. Less waste. Could you please elaborate on why you don't like the "borrowing from the future" model? It seems to me there are two types of borrowing, consumer and investment. As a consumer, if you borrow to buy a TV, you can either pay it back later or default. One is clearly borrowing from the future. One destroys another man's asset in the future. If each consumer is borrowing from the future, then clearly in aggregate they are doing so. The same goes for government spending on consumption of all kinds. Borrowing to invest can be productive (cash flows from the investment, whether produced directly in the form of profit to the owner, or indirectly in the form of higher GDP, will cover the debt repayment) or unproductive (cash flows won't). Borrowing to invest in a productive asset is definitely not borrowing from the future. I agree 100% there. But if the investment is unproductive then either another source of cash has to be found in the future or the borrower defaults, and in both cases that is borrowing from the future. NB timing has a huge impact on whether investing is productive: building a five lane highway between two villages in rural China is unproductive, even if those villages grow to be big cities in 100 years. Today, the villages need a single lane connection, and you can add lanes as and when you need them. That maximises the return on investment and the likelihood that the investment can repay its debt. It is therefore not accurate to say that overbuilding assets that will be productive in the future is necessarily productive investment now. As I said, I think the acid test is the debt:gdp ratio over a long time span. Thanks for the debate! Pete