Rainforesthiker

There is nothing about personal liberty that is bullshit. The standard of living we enjoy is due to liberty, free markets, and capital accumulation, not the State. The growth of the State detracts from our standard of living. Governments don't create any wealth, they can only redistribute it, and they waste half or more of it in the process. And by the way, medical licensing requirements, while in small part well intentioned, are just a way of limiting supply of medical services and hence raising prices. If I want to go see a non-registered practitioner to have a small skin cancer removed for $50, instead of paying an MD $300 for the same service, why can't I make that choice? I'm 100% with DonFanucci. Btw, where is this mythical place with no business regulations and no taxes, but with the rule of law and strong private property rights?

If you buy fire insurance and then at the end of the year, it turns out that your house did not burn down, that doesn't mean it was a mistake to buy fire insurance. Strange reasoning, but anyway: the day I lose 40% or more of the value of my house on insurance in 5-6 years time, I will admit that I made a big mistake. My wife will let me know. :) Agreed; this was not insurance; this was a macro bet that went awry.

Look at EZCorp the past 5 years or so before new management came in . . .

No hope needed; the US has been run by idiots for decades.

I think the reality is that they realized quite a while ago that their equity hedges were a bad decision. They just needed some event so that they could “save face”. Trump was simply a convenient excuse to reverse a decision and say “Yeah, we are removing the hedges because of Trump” instead of “Yeah, we are removing the hedges because we were wrong.” Do you have any evidence for this? I'm not disputing it, but your view (that they care about saving face) is quite important and carries much more weight if you have a reason for it than if you're sitting at home guessing (like I am). I don't have any hard evidence of this. My (Watergate-style) attempts to bug Prem's office have so far been unsuccessful. I am relying on soft evidence, such as: 1) The length of time (many years) these hedges have been turned on; they can't stay on forever; why now really? 2) The virtually indisputable reality that these hedges were a bad idea, and destroyed what could have been otherwise good results. 3) My knowledge and experience with the consistency principle; part of my job is to negotiate successful results for my clients on an almost daily basis, and I never cease to be amazed at how difficult it is for people to change their mind without some way to save face. I have developed an entire negotiation strategy centered on providing my counterpart a clear way to save face, thus easing his/her ability to change their mind to my client's benefit; it works wonders. 4) The very odd timing of this reversal, after the markets have gone UP a substantial amount. 5) The suddenness of the decision; no one really expected a Trump win, so they made this decision in a matter of a few days. Is that really a long enough time to fully evaluate the new reality; perhaps. But the suddenness seemed odd - like they were seizing the moment during all of the hysteria - knowing that the newsworthiness of removal of the hedges would get lost in a sea of post Trump election hysteria. I guess it just strike me that there was sentiment to remove these for some time; but doing so is a clear admission that they screwed up. In reality, there is probably a bit of truth to both narratives. The probably DID view the world as having changed, but I think in larger part also viewed it as a convenient way to save face. So, yeah, I am sitting at home guessing just like you.

I think the reality is that they realized quite a while ago that their equity hedges were a bad decision. They just needed some event so that they could “save face”. Trump was simply a convenient excuse to reverse a decision and say “Yeah, we are removing the hedges because of Trump” instead of “Yeah, we are removing the hedges because we were wrong.”

QFT. 8) Children are the greatest treasure by far . . .

In my main account from largest to smallest EZPW (got large due to the large price run-up; need to trim) BRK.A AIG BAC GM+B LUK MKL CBI AIG+ JPM+ C BAC+A BAM FCAU BBU

Why is deflation in the situation you describe a problem? This is the situation that ruled in the US from 1776 to 1913 (and arguably 1936 or even 1971). Those were, overall, pretty good years. There is absolutely nothing wrong with structural deflation of the type you describe. What *is* a problem is financial inflation (credit boom) followed by financial deflation (credit bust) when prices are not allowed to fall. If you allow money to be destroyed through deleveraging, you must allow prices to fall. Eventually they will stop falling because the process of deleveraging and destroying money will slow. Preventing prices from falling during a rapid deleveraging (as Hoover did in 1930-32) is disastrous. I found reading Jim Grant's book on the 1921 depression and Murray Rothbard on the great depression, one after the other, very instructive on this topic. There is a solid case to be made that if Calvin Coolidge has been President in 1930, the great depression would have lasted a couple of years only. (There's also a solid case to be made that if the Fed hadn't existed, the credit boom that preceded it would never have happened either.) Bottom line for me is that you either need to allow occasional rapid painful recessions under a gold standard, complete with deflation including wage deflation, or you need to go for a fiat currency on the understanding that you can probably prevent wage deflation and the really painful parts of the cycle but you'll destroy the value of the currency over time and you'll probably dull the wealth creation process a bit through capital misallocation. Both work. The former is more attractive to hardline market theorists, but the latter is easier politically, so it is where most societies end up over time and it is where we are now. I'm not arguing for one or the other, but it's crucial to understand what system prevails and it's clear which one does! +1

This is supposed to be a value investing board, so it seems the study of history would be important to most members here. To those of you who think that guns (e.g., semiautomatic rifles (ARs)) should be taken out of private hands, history is pretty clear on the inevitable consequences of this action. Does anyone know how many people were murdered by governments in the 20th century (not including armed combatants)? The answer is well in excess of 100 million, likely more than 150 million. And the story is mostly the same: 1) Government disarms population; 2) Government commits genocide against either: a) an unfavored minority; or 2) the whole population. Consider Stalin's purges, the forced starvation in the Ukraine, Hitler's genocide, the Khmer Rouge, the Armenian genocide in Turkey, the Rwandan genocide, Mao's purges, and on and on. Would you really feel safer knowing that only officers of the state owned weapons? The best deterrent and defense against state tyranny, oppression and genocide is an armed population - a population sufficiently armed (with ARs) to fight back. If you are not concerned about the steady increase in government power over the last 75 years, then you aren't paying attention. If you look at the past 100 years or so, there have been FAR fewer gun deaths in the US than most other countries. Of course, if you conveniently leave out the genocides in Europe, Asia, Africa, etc., then the numbers look different. I think the crazy thing is that populations in Europe and Australia are voluntarily disarming themselves for perceived safety. This did not end well for them in the 20th century, and will not end well for them this time either. And I am sure many of you would say "it couldn't happen here". I am sure that's what the German people thought in the 1930s; or most of the populations affected thought. With the development of video cameras on phones, we are starting to see a sliver of what officers of the state (police) do with their weapons against unarmed citizens. It is also important to know the history of gun control in this country. Gun control was instituted after the Civil War to disarm recently freed black slaves so that the Klan (mostly southern white sheriffs and police - yes officers of the state) could commit lynchings and other crimes. Given history, why would anybody trust the state to be the only one with weapons? To those who think the civilian population should be disarmed, I know your intentions are good, but the unintended consequences of what you are asking for are horrendous.

My JMT hike permit for $20 or so.

Great job as always Race!

Well, you could say . . . The thing about Buffett is that no one would have ever heard of him had he not had the lucky break to get turned down by Harvard and wind up going to Columbia to study under Ben Graham. Remember, before Buffett was exposed to value investing he was trying all sorts of harebrained investing schemes, such as charting and technical analysis and so forth. Now Buffett would have probably figured out value investing eventually on his own, but his story would have been quite a bit different, and his years of great compounding would likely have been delayed by at least a good number of years.

what does "FP" stand for?

Do you think Fairfax is a good buy at current prices?

I have thought about this quite a bit, and I really tend to think that sometimes great investors get bored with hitting singles, so instead they start swinging for doubles, triples and home runs. Buffett has commented something to the effect that people have a perverse nature to want to make things harder than they need to be. It is almost as if Watsa & Co. have gotten tired of or bored with stepping over one foot hurdles, and through some combination of overconfidence in their abilities, hubris and need for a challenge and intellectual stimulation they started trying to jump over 4 foot hurdles, perhaps without even realizing it, and with some disastrous results (e.g., SD). In American college football your win-loss record is hugely important, but you also understandably get credit for "strength of schedule"; but there is no such equivalent in investing. A money manager can't really tell his investors / shareholders that "Yeah I had a lousy record, but hey I tackled some tough investments." One thing that I have learned the past few years is what Munger has said: Just try hard to not be stupid. Hopefully Fairfax will turn things around.

I think one of the worst things that can happen to an investor is to make one or two large macro bets and win, because then you think you can do it repeatedly. I think calling what Fairfax has done the last 5 years or so as "hedging" is somewhat of a mischaracterization. It seems they could have actually hedged with much less in the way of short bets. What Fairfax has done is a combination of hedging and a large macro bet on a stock market crash. As far as still arguing that they were early, perhaps that argument could have been made 2 years ago, but when do you admit that they were not early, but just plain wrong? Aren't we going on about 5 years since they started hedging? Even if the stock market crashed tomorrow, I would still say they were wrong. Also, in 2011 Berkshire Hathaway was trading at below book value. Presumably BRK was on Fairfax's radar screen. They should have backed up the truck. But instead they instituted full equity hedges. As a value investor who has made a career out of copying Buffett, how could you miss BRK selling below book value? I have only been following Fairfax since about 2010, so admittedly I have missed some of their macro investing wizardry of the past, but based on what I have seen they are very subpar equity investors (to the point of being lousy). And unfortunately it seems that consistency bias and hubris are preventing them from changing their minds and instituting a more rational equity investment policy. Having said all of the above, I would consider initiating a position in FFH in the near future, as I think they are running a great insurance operation, and that they likely will improve their investment operation going forward. I think losing a big macro bet like this is good for them in the long term. I also think their losses in Resolute, SD, Blackberry, etc. are good for them in the long term. I tend to think their entire risk profile has been screwed up - they buy stocks like the above which have significant downside risk and then put on full equity hedges, where if they had made less symmetric stock market investments. buying things with much less downside exposure (like buying BRK or solid businesses selling below tangible book in 2011) they would have not needed to hedge at all and would be doing much better.

I respectfully disagree. First of all, about the only thing that you disagree with the market is about the valuation. You think it's worth X, it thinks it's worth Y. Right there we obviously disagree. If you think everybody in the market makes decisions solely based on valuation then I think you really don't understand human behavior. People are not the rational actors you are taught in business school. Many times the crowd will sell because there is a large amount of uncertainty or pessimism (think GM recalls, 2011 Greece issues with American banks, EZPW accounting issues, etc.). People are emotional creatures, and very often they will sell without regard to valuation, and likewise very often, due to the human desire to get rich quick, they will buy things that are wildly overpriced (e.g., tech bubble). But I know what you mean. So let me give you an example about pure valuation. Back in 2012 BRK was trading at around 1.15 P/B. I thought the value was about 50% above that. This is a big company not some obscure venture. There was no market chatter about it. No worries that the insurance companies cocked up, really no opinions on anything and everything was running smoothly. So that was purely a difference of opinion about valuation between me and the market. I bought a ton of BRK and made about 100% return on in. According to you since there were no other points of contention I should have just said that the market is probably right and I'm probably wrong and move along. If I did that I'd have less money today. Berrkshire circa 2012 is an excellent example for my style of investing. Do you know WHY BRK was (at least in part) trading so low in 2012? A large part of the reason was that BRK was the largest component of a very prominent financial index that was being heavily shorted at the time. The reason people were shorting this index was because the index also contained the American banks they really wanted to short, such as JPM, BofA, Citi, WFM, etc. BRK was really nothing like these banks, but BRK was lumped in the index with them, and was its largest member. This was plainly irrational. I call this a "systemic constraint", much like where large mutual funds are constrained to purchase only certain large cap stocks. People at the time also mistakenly lumped Berkshire in with other financial institutions. If you recall there was an extreme amount of uncertainty at the time over ANY company that could be characterized as "financial", coupled with mass over-selling. So you see, if you dig a little deeper you can identify market irrationalities (in this case systemic constraints coupled with uncertainty and fear of anything financial) that explain the mispricing. This most certainly WAS NOT merely "a difference of opinion about valuation between me and the market". I observed this in 2011 and 2012 and heavily invested in Berkshire stock as well, going on margin to do so. I too bought a lot of it, a good bit with margin, and am up about 106% on it right now. My "inefficient rationale" served me well exactly in the situation that you mistakenly thought it did not apply. I would never have gone on margin had I not known exactly WHY the market was mispricing Berkshire. Also how do you even know what the market's opinion is? The market is the collective presence of all participants and as another poster said we don't have the ability to read minds. So how do you find out what the market thinks? From the newspapers? Talking heads on CNBC? Analysts? In reality when you hear anything about what the market thinks, it's not the market that thinks it, but some rather small (compared to the whole) but really loud participants in the market. IMO it is fairly easy to observe large scale irrationality going on, such as problems with uncertainty, fear, pessimism, get rich quick syndrome, etc. These things affect human behaviour, and affect the prices set by the market. Let me use another example. The short attack on Fairfax. In the middle of that storm what you would deduce is that the market thinks that Fairfax is a fraud. But Kynikos, SAC, et all were only a small part of the market for Fairfax, the much larger part of the market was Watsa family, Southeastern, Cundill, and a lot of ppl on this board. So really the market believed that FFH was a nicely run and undervalued company, but you sure didn't hear any of that about FFH back then. I am not that familiar with the Fairfax short attack, but I can presume this caused a large amount of uncertainty and fear, driving the price down. Had I been aware of the situation, and if I could have convinced myself that FFH was going to survive, I would have loaded up. The fear and uncertainty would have virtually guaranteed a mispricing - as I presume it actually did. So yea, I think it's best for one to just do their own homework, come up with a valuation, act on that, and not worry too much about the market. Personally, I prefer the situations when the only point of contention between me and the market is just the valuation and no other pending items. Sometimes stuff is just on sale. But life is messy and I don't think that I (or for that matter most people) have a very good ability to handicap the outcome of major events. It's much easier to just wait for the sale and buy squared away companies.

I completely agree, the whole concept is meaningless. As an investor you analyze the company and come up with an estimate. At the end of the day why should one care if the market disagrees with him. Also if one is good at what he does it's better if the market disagrees with him often. That means opportunities. IMO you should care about exactly WHY the market is disagreeing with you. When you make a stock purchase (which probably should be done only a few times a year) you should have an understanding as to why you think the market is getting the price wrong. Is it simply because your valuation is different than the market's valuation? In this case, the investor should tread carefully and reconsider - it is difficult to successfully go against the wisdom of the crowd on a regular basis. But if you think the market is getting the price wrong due to some clear irrationality (biases, problems with uncertainty, etc.), you can be more comfortable making your investment, knowing that you are not going against the wisdom of the crowd, but rather against some identifiable foolishness of the crowd. Note I make a distinction between: variant perception: your appraisal of the company is different than the market's; perhaps you think a company's future growth is greater than what the market thinks it will be inefficient rationale: WHY is the market getting it wrong; what irrationality, systemic constraint, short-term thinking, etc. lies behind the market placing an incorrect price on this stock.

Yep.

That's fine. I guess there's no problem with this approach if you can read minds. No need to read minds. You just need to understand human behavior - how people think and behave, and their various cognitive and behavioral flaws and biases, esp. how they behave in crowds. This should be part of every serious value investor's toolkit. Without it, you are the proverbial one legged man . . . http://www.amazon.com/Inefficient-Market-Theory-Investment-Foolishness-ebook/dp/B00MMV5V3Q

"And, just a pet peeve of mine, I hate the concept of having a "differentiated" thesis, variant view or whatever you want to call it. Why? Because it's marketing bullshit that suits use to come across as more insightful than they are. "The market thinks this, but I think that opinion is wrong," conjuring straw men to tear down to make the thesis sound better. When really, you have no clue what every other market participant thinks or if your perspective is truly unique. " I could not disagree with you more. IMO, understanding WHY the market is getting it wrong - why the wisdom of the crowd is not manifesting in the stock price - is hugely important. The vast majority of times the reason the market is getting it wrong is due to some combination of behavioral biases (such as problems with uncertainty) combined with herd mentality. I believe it is quite helpful to understand what uncertainty / pessimism is affecting the market on a particular stock. This will: 1) help you identify good investments; and 2) give you more confidence in going against the crowd.

True. And you need not look any farther than the new economic policies in the last 25 years that lifted tens of millions of people out of poverty in India. Or when similar wealth generating policies were put in place in China, a million people a month have risen out of poverty. One might think that would be enough to arouse the curiosity of those who claim to be on the side of the poor. The reality is that social crusaders have little interest in anything that doesn't put them on a moral high ground against the forces of "evil" (as defined by themselves of course). So instead of considering policies that have actually worked to relieve poverty, they create and then rail against a boogie man like the 1%, evil corporations, or low minimum wages. This way elites can look upon themselves as a defender of the downtrodden and get the special status they believe they deserve. +1

Yeah, sure. Tell this to all the people who died in the capitalist mines, factories and farmfields. Capitalism is certainly not perfect. No human system is or can be. But it is the best system in terms of efficiency and producing the greatest amount of wealth and opportunity overall for the greatest amount of people. Just look around. If you somehow disagree with that, then observe how people vote with their feet. People risk their lives trying to get to capitalist societies, whether that is the US or Western Europe. Those people struggling to get here don't see much traffic going the other way . . .

My wife's parents have a family farm west of Houston where they have traditionally grown rice, sorghum, raised cattle, etc. As Houston has grown westward the land has appreciated in value quite a bit. But like most family farmers they are land rich but cash poor, and struggle a bit to make ends meet as farmers. When the time comes for a generational transfer, a decent bit of the land will need to be sold to pay estate taxes. Those likely willing to pay the most for this land will be developers, not farmers. I agree with Ericopoly that most of the articles about the estate tax focus on the outliers, the .001% scenario of the very rich (or very productive) and the supposed need to prevent "dynastic wealth." But these articles ignore the true reality, which is that the main affect of a low estate tax threshold is to kill family farms and family businesses. At least the estate tax threshold is much higher now than it used to be. In 2001 the threshold was $675k which was a real killer of family farms and businesses. The $5 million it is now is better, but IMO should be higher still. $5 million ain't what is used to be.