racemize

In light of Pabrai's Columbia videos, I've been thinking about absolute return targets. His minimum requirement is expectation of 2-3x in 2-3 years, or 26% per annum. Personally, I've been using 10% with a 20% margin of safety requirement (so expecting at least 12% per annum), but focusing on those ideas with the highest upside, or having a long enough record. This has resulted in me having "compounders" in one portion of the portfolio (e.g., BRK, MKL, FFH, LUK), which, if bought at the right prices should have a long term return of more than 10%, but likely less than 20%, and then a second portion having much higher upside--so far the second portion has done better, but the compounders are there for safety and reliability. I guess, said another way, I have a 12% target rather than a 26% target, but then scale up rapidly from that target. In light of Pabrai's comments, I'm considering changing the target, but that moves me out of my favorite compounders, which makes me feel a little uneasy (and slightly sad). How does everyone else think about this?

I have some of his letters, but not all of them (and apparently not this one). Does someone have a pdf of all of them? Edit: Apparently, they are all in the PDF directory? I guess all I need are the names then, but I don't have those.

any highlights on questions/answers? I'd love to hear.

I pretty much agree, although keeping some tabs on overall market valuation seems useful, even if we largely ignore it. For example, if I have a range of possible investment amounts, it might influence which direction I go in the range (which is a subjective call already), but would not affect the overall decision. I mostly posted it for the article on why the Shiller P/E for the last 10 years still applies, even though there were two recessions. I previously thought the Shiller PE probably should not apply to these 10 years, but I am reevaluating that premise.

analysis of how accurate Shiller PE has been: http://greenbackd.com/2013/04/03/how-accurate-is-the-shiller-pe-as-a-forecasting-tool/ and commentary on why the current Shiller PE is not actually skewed because of the two recessions: http://greenbackd.com/2013/04/01/aqrs-cliff-asness-on-an-old-friend-the-shiller-pe/

So I get being conservative with the 10% cash, but there's got to be a scenario where you go all in right? It seems like that 5% case (5x in two years) would be enough to start going all in, if there were lots of them around?

Perhaps, just this basic self-study is what you mean (it has the manual + the qbank)? http://www.kfeducation.com/securities/series-65

I'm looking at taking this test--pretty sure it is required for texas at this point. In any event, are you talking about the practice exam package that Kaplan offers online? I read the walker book wasn't that great, but perhaps that is wrong?

Sanjeev used to post freight cars weekly, until they looked pretty good. I don't remember where the links went to though.

following on from another thread, how about: Mr. Buffett, you have said in the past, in your letter regarding the stock market in 1999, "you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%". Corporate Profits are now greater than 10% of GDP--how should we think about this? Do you think there will be a compression in profit margins?

Here's a chart showing corporate profits as a % of GDP, following on from Gio's post (I thought it was interesting to look at): http://www.businessinsider.com/corporate-profits-just-hit-an-all-time-high-wages-just-hit-an-all-time-low-2012-6 there's a few other graphs in there too.

Update on tarp warrants, I've got most of the SEC filings found and in my spreadsheet, which is here: https://docs.google.com/spreadsheet/ccc?key=0AhTPR9eP5nWedEF1SGVLdllJTnBMSDMzM3lYZ2d0SlE&usp=sharing

Yeah, this is really driving it, plus not having to deal with hassles when you go out at night. We currently are 2.5 miles from downtown, which is just enough to be annoying (we often walk it, but it's far enough to not be too fun if it is late at night). In any event, the traffic isn't terrible, it takes ~15 minutes I guess, since we are close already. On the children front, that's also out, so no constraints on big size or school districts.

Thanks for the answers everyone--I should have clarified, I don't have any interest in being a landlord (I don't like maintaining my own house!), so that's out. However, to get some measure of value for rent, I estimate gross rent yield to be ~6%-8% (annual) of what we could sell it for. Lifestyle is the real choice here, but it is made difficult since we also like the house and will be downgrading a bit in interior quality, but gaining a lot in less measurable benefits.

reminds me of Pabrai's book.

Unfortunately, no rent protection here! I'm quite torn on the whole thing--giving up some finances for lifestyle is hard on my brain! I know I'll do this switch at some point, but I'm having trouble deciding if now is that point.

I've been thinking about this a lot, and figured getting opinions from the value board isn't a terrible idea. Here's my situation: My wife and I bought a fairly nice house in the 2009 area as there seemed to be a disconnect between medium/average priced houses (where we were) and higher priced houses (which we bought). At the time, it seemed that higher priced houses had dropped in value more than lower priced houses, so we sold our house at a slight loss, hoping that the new house would be gotten at a relatively better price. Also, we wanted a nicer house, so we didn't mind upgrading at a loss either. The new house has now appreciated a fair amount and the housing market in our area (Austin) has heated up (limited supply, 99.9% occupancy in the area, I think 150 people moving in to Austin per day, multiple offers on houses, etc.). In addition, we've decided that downsizing/simplifying would be nice and would like to move into the downtown area (we would rent, not own) for a change in lifestyle. If I've got my numbers right, I think the house has appreciated ~23% since purchase, or yielding a net return on money put in of about 50%. Here's my list of pros and cons (or rather pros and pros): PRO (keeping the house): interest rate of 3.875% over 30 years is nice and is relatively cheap monthly cost gaining equity with every month of payment the house is cheaper by about 1k a month than where we would rent (these three are all different aspects of the same point) house is a nice inflation hedge, should that become an issue nice diversification of assets/capital (otherwise would be all on my capital allocation skills in the market, and I'd suddenly have a lot more capital to deploy in the current market, which I don't feel great about) it is a nice house, with high quality fixtures and such the quality of fixtures/interior in downtown apartments is a little less nice PRO (selling the house): house maintenance sucks! droughts in central texas kill everything (grass, trees, etc.) and it appears this summer is going to be awful downtown living sounds really nice, and let's us walk everywhere (my wife works downtown) downsizing and getting rid of a bunch of stuff would be great we are planning to move away at some point, so this would let us be a little more flexible on the timing selling the house in a heated market is better than a non-heated market and we know we will do it at some point in the next few years I work from home, so I could have a nice view of downtown while I work, also nice balcony at night

Yes, this thread essentially answered my question to Buffett from the other thread. Very helpful!

Thanks Plan!

I show the current quarterly dividend as exceeding the quarterly dividend threshold for the warrants--does anyone have the updated strike and shares per warrant?

my eye! oh well, that's life I guess.

Yes, I just don't know how to search for the TARP warrant prospectus for each one (e.g., if I look up BAC, there are tons and tons of filings--how do I search just for the warrants?). I realize this is a newbie question, I just don't know how to do it. BAC link was posted earlier in this thread. Yes, I've got that one, but I'm trying to find several others I don't have the links to--I just would like the know the best way to find them using the SEC website.

Yes, I just don't know how to search for the TARP warrant prospectus for each one (e.g., if I look up BAC, there are tons and tons of filings--how do I search just for the warrants?). I realize this is a newbie question, I just don't know how to do it.

I've got a lot of div hurdles in this spreadsheet: https://docs.google.com/spreadsheet/ccc?key=0AhTPR9eP5nWedEF1SGVLdllJTnBMSDMzM3lYZ2d0SlE&usp=sharing

I actually setup a website to track warrants few years back, there might be some stuff you are looking for on it. http://warrants.valueashram.com/ Go to "screen all warrants" then select "50" from the drop down list of # of items to display (it shows 10 by default). I have not messed with it for a year or two so some of the data may be old or broken. In theory the prices should update regularly from yahoo finance. So yeah no promise the data is accurate :) If there is interest I could update it to be more useful or have more data on it. At the moment it just pulls some stuff from yahoo finance (div, book value etc..) which is not always accurate. Actually, that's exactly what I've been using--it just doesn't have the dividend adjustment threshold(that's mostly what I'm missing). Do you have those somewhere? More generally, I'm interested in knowing how to find the SEC filings for these, just to get my SEC-fu up. Edit: Also, thank you very much for that website, it helped me find several of the warrants. I think it is missing Sun trust and GM warrants, btw.