racemize

Gio, Got it. Your model is probably a lot closer to how FFH generates value. It makes sense. It all goes back to time frames. You are looking at really long term (16 years out), while I am focused on the next few years. Especially since, near zero growth in book value is is baked into the cake for the next few years and the lumpy growth that is expected several years out is less certain. Vinod I understand this point of view, but at the same time, I wonder--when it becomes clear that the growth is ready to turn back on (e.g., when the hedges come off), will FFH trade at a cheap P/B level? Perhaps it will since that is likely during a market downturn. On the other hand, perhaps it won't because people will know it will grow quickly then, and the price will reflect the expectation. I am very curious what it will feel like to look back at this 10 or 20 years from now. Will it be like looking back 10 or 20 years at BRK, knowing we could have bought it near book value? Or will the model collapse, and the record from the initial 25 years couldn't be sustained, even at the 15% level.

Joel, is it an idea of yours, or is it Kraven's?! ;D Gio I thought I'd cram as many bad things into one sentence as I could. Call it a concise Kraven attempt.

Be sure to tell her that you are taking the pictures so that an online forum of value investors can give you opinions about her.

Hi all, I've been semi-obsessed with indexation and the float adjustment that was introduced in 2005 since reading a lot of Murray Stahl's commentary (I think he is more obsessed). In particular, I've been discussing this change with an indexer friend of mine, as it concerns me for future returns of indexes. However, it has not been easy to reproduce the data in Stahl's claim (see below). I was curious if anyone on the board has looked into this or if they have access to the data, in which case I would like to perform the calculation. In any event, this is an email I sent to Stahl that I'm interested in answering: If anyone else is interested in this question or has already answered any of the above, I would love to hear it.

Looks like that house was just built or something strange is going on; here's the line about property taxes from the same page: 2012 $2,616 $126,150 + $3,658 = $129,808 <---- assessed value In any event, we don't have income taxes, which is why property taxes are so high. Seems like quite a bad deal for retirees though. I'll probably move somewhere with income taxes for retirement.

Sickeningly true. It seems to compound capital, you need to do your best to avoid purchasing real estate. I live in Texas, in an area with crazy demand for housing at the moment (Austin). I calculated all in costs for the house we have a mortgage on versus renting and then investing the principal amount. I realized that the low interest rates + leverage from the mortgage was hard to beat from an investment standpoint, especially when taking into account the cost to rent. Here is what I calculated: cost to own = interest portion of mortgage + insurance + taxes + other costs versus cost to rent = monthly payments For a comparable place, we would be paying much more in rent, so we would not get the increase in equity every month (excluded from the cost to own above). then comparing possible appreciation of the home leveraged 4:1 (I own 25%) versus my own investment returns using the 25$ of the house, which are unlevered, I was concerned that I couldn't match the levered returns. Additionally, the house diversifies the investments and the low interest rate is somewhat a hedge against inflation. Prices are currently very high in Austin for real estate (and rent), so if someone has a better way to think about the above, I'd be glad to hear it; I kind of wanted to sell the house this summer and move downtown. I think it is just too cheap to live in my house right now, versus renting.

I find FRMO very interesting, though they are quite different than Buffett.

My personal view was this, at the time of purchase (I hold quite a few FFH shares for the last few years): 1) I like to buy these companies at book value or less--if it is clear that it will grow quickly in the near future, it probably won't sell for book value; (thus, I bought it then) 2) I don't know whether we are going to deflate or inflate, if they are wrong, it won't grow that fast, but perhaps we will still get the dividend+alpha, as it were; if they are right, then it is decent insurance for me (even if the stock goes down with the rest of the market, I'll be holding a company who's intrinsic value went up)--none of the rest of my investments were based on this theory of the future 3) Over the long term, hoping for 15%. I'm worried that was too much now, but they have the capacity for lots of leverage.

http://www.bloomberg.com/news/2013-11-04/oaktree-s-marks-buys-cheap-chinese-stocks-as-u-s-fairly-valued.html

Apparently calling declines isn't allowed (I guess on average?).

mostly fun just for the first graph he shows: http://video.ft.com/2789599354001/How-to-forecast-the-S-P-500/editorschoice

For the record, if I had a baby I wouldn't sell him/her for any price....However, I own a small business and would gladly accept an extremely inflated offer despite my bullish outlook! I am just playing devil's advocate here: Could you imagine any other CEO in your portfolio saying they wouldn't sell the company at 2x the current value ( assuming today's value is not ridiculously undervalued). So there is no number that Fairfax would entertain? 4 x book value? Oh very easily! I also own berkshire (I bet you saw that coming). I'm also sure MKL wouldn't do it (they've sold at over 2x the current book multiple in the past). I think the offer would have to be so obscene that it just couldn't happen. Even so, if you are working on your life's work and your goal is to see it build over time, then selling just doesn't line up. Were I in that situation, I probably wouldn't sell either--I'd already be rich, so I'm doing this for my own pleasure, not money. As long as shareholders understand this, it seems fair to me.

For a good bit I was thinking you were referring to the company, and I was mightily confused. All better now!

This company is his baby--he'd never sell it! That's like asking Buffett to sell Berkshire, simply a no-go from the start.

At this point, it has to show some decent ROE and earnings--the market is pricing based on earnings power and not multiple of book, which basically means that CR needs to get down to 95% or below to get a premium to book (at least in my opinion). I still see upside here, but it is no longer the deal that it was--before (similar to BAC) the bet was that they could go from a underperforming/restructuring company to a mediocre company. We are getting closer to mediocre--now we have to start betting that they can be better than mediocre to have a lot of upside. That is certainly possible, but it will be difficult for them to have outstanding CRs given their size (perhaps I am wrong here, as I'm not an insurance expert, but it seems reasonable). The bonus here (and this is true for BAC and LUK) is that they won't be paying much taxes, so earnings flow to book value at near pre-tax rates, although this is offset by the fact that the book value already includes DTAs, so one disappears while the other accrues. In that respect, it is both a headwind and a tailwind! All that said, I'd hope for book value to increase 6-8% a year and that we eventually get to book in a few years. By 2018 that would be a book value around ~90, from current price of $48, which is ~13% per year. Unless your assumptions are 1) better or 2) sooner, the expected returns are getting lower than they used to be. The large margin of safety is starting to deteriorate.

honestly, it isn't much of a riddle, you just have to do eliminations. I like these types of riddles better: http://en.wikipedia.org/wiki/Prisoners_and_hats_puzzle

Pretty interesting. I was actually more impressed with the 1999 hack (via telephone methods) than the modern day equivalent, which seems to have almost failed. http://pandodaily.com/2013/10/26/i-challenged-hackers-to-investigate-me-and-what-they-found-out-is-chilling/

Found this today after going back to find articles from Buffett (while reading "Tad Dancing..."). http://warrenbuffettresource.wordpress.com/articles/articles-by-warren-buffett/ I added all of these to my Buffett compilation.

I was reading Plan's blog on banks, and noticed that he posted this video. Very nice to watch:

Well, I don't think we know!

Thanks for the summary JBird!

any other interesting bits? I didn't get to watch it.

I'm not sure I can talk about it publicly, but perhaps a PM? Not surprisingly, it is a value fund ;).

of course, now that is has been done, I don't know if it will work again!

I have a copy of it, actually. I don't think she would mind me posting: Dear Mr. Buffett, Enclosed with this letter, please find a copy of the 6th edition of Graham and Dodd's Security Analysis which features your forward. Rest assured, this book is not for you! I know that you already have two beloved copies of this book, and since I don’t have an original copy with Graham’s notes inside, there is little that I can do to add to your library. Rather, it is my hope that you will find the time to sign this book and have someone return it using the return label provided. In January, my husband is opening his first investment fund, based on the principles of Graham, Marks, and of course, you. Over the last few years, he has devoured any information on value investing and analysis with a passion! I would love to present him with this book, which already means so much to him, made even more special with an inscription from his personal hero. He would be overjoyed, and I will have won the "greatest gift game" for at least the next decade. We both admire and respect you and your career, and I hope that this letter finds you well. Thank you for being an inspiration to so many, especially my husband who has never been happier since finding his own passion for value investing. With great respect and thanks,