73 Reds

I think we need to distinguish between an outlier insurable event and a catastroophic event outside of insurance that affects the value of the company as a whole. Certainly nuclear war will affect the values of everything and your investment portfolio might be the least of your concerns. I have to assume that insurance contracts today specifically define "insurable event" and also define "exclusions" so as to eliminate liability to insure any outlier event that is not foreseeable.

Can you think of an example of an outlier event that Buffett or Watsa would not have thought of? If the outlier event is truly "outlier" does it fall within the definition of "insurable"? Before an insurance company writes an insurance contract, any outlier event, no matter how remote, should be a part of the equation.

Sanjeev, largely agree but does your "do not fall in love with a stock" philosophy have anything to do with tax deferral on cap. gains? Personally, 99% + % of stocks are held in taxable accounts. For folks like me with no interest in investing one could do far worse than simply DCA'ing into an S&P 500 index fund or equivalent and going on with life. For those of us with an interest, buying great stocks at sensible prices and not selling unless money is needed or unless the investment thesis changes also generates desirable results. What is a great stock? IMO, one that sells essential products/services, possesses near monopolistic qualities, superior management and capital allocation, enviable balance sheet, and remains profitable in just about any economic cycle. There aren't too many such companies which makes investing a lot less time consuming. Buy them when they are cheap in relation to their own historical valuation ranges. No need to fall in love with any stocks but if they aren't broken, why fix them?

Yep! Imagine if BRK had repurchased shares throughout its history and employed a TRS. One main difference seems to be that Buffett was very focused on empire-building (in a good way) even while shunning traditional means of increasing shareholder value. Of course history proves that he didn't need to do otherwise. If Prem and Co. learned their lessons from the 2010s, the sky truly is the limit. Proper underwriting gives an insurance company like Fairfax such a wide advantage over other asset management companies.

@Viking such a poignant post. You're right, so few companies are great allocators of capital and even fewer know when to repurchase their own stock in a material way. I mean how many companies announce stock buybacks only to repurchase shares at inopportune times and then later you come to find out that executive compensation packages and stock options only raised the number of shares outstanding? IMO, there is no reason to own stock in any public company that fails this test.

Thanks for the nice explanation, Viking. Perhaps someone will convince Warren or future management to do the same for BRK.

Gold can be lost or stolen. You pay to store it and it has little to no utility. Not my idea of a store of value. In the U.S. I absolutely own RE. There is a legal process for government takings in the US and owners are compensated. Elsewhere gold can be confiscated and its portability therefore works against it to your very point. Never heard of equities being seized or stolen - you'll have to explain that one and why it wouldn't be just as easy to seize or steal gold, if not easier.

Well, in that sense I'm not sure what you mean by "store of value". I'd argue real estate trumps (sorry) gold by miles. Equities, for as long as they've been in existence. Just about anything that generates a return. If you've owned gold for (pick a time period) what do you have to show for it? And I own gold [coins] but for reasons entirely unrelated to a store of value.

How will cash flow ever exist for BTC? Its not that DCF is the only way to measure value. In fact, how many folks can accurately value anything using DCF? For stocks like Berkshire or AAPL, future cash flows are highly unknowable because much of the future business activity of these companies is yet unknown. Seems as if these stocks are bought not for the present but for what incredible brainpower can generate in the future. Yet unlike BTC, that only requires a leap of faith on an already known success story. Likewise, there are plenty of assets that can be valued by means other than DCF. Take collectibles as one example. Scarcity, uniqueness, historical perspective, beauty, appeal of the creator, appeal of the subject, to name a few. Not sure how BTC possesses any of those qualities but the topic is now of interest to me and this forum has provided lots of material for future reading.

Figuring out the value of the whole network, leaving subjectivity aside is indeed the tough part. The problem (for me at least) is subjectivity has generally been effective.

TY @rkbabang

Not here questioning your winnings! But Wall Street and the financial industry has never shied away from promoting anything that will put money in their pockets.

Re. Metcalf's Law I am left with some initial questions: The article starts out by comparing BTC to an Italian network of telephone tokens. This seems much like today's forever stamps where people hoard them on the basis of anticipated price increases. Yet the phone tokens and stamp prices rise gradually, in contrast to the price of BTC. How can this be reconciled in terms of coming up with a fair price? The article uses Facebook as a further analogy. Facebook, as an entity clearly has value that can be measured in any number of traditional ways. I can [almost] see where BTC as a network can also be valued based on the cumulative value to users of its convenience, etc... But what I can't decipher is how each wallet or coin can be valued, at least in a monetization sense, other than via bid/ask based on ??? Logically the value is not simply a proportional value of the network as a whole because the network is not a static, cost free endeavor. The article asks (rhetorically) where value is created for traditional currencies. What I think it neglects to acknowledge is that the US dollar is effectively a legal contract between the US government and the holder of the note for the nominal value of the currency. The article goes on to say that the model is based solely on supply and demand. The author seems to take a leap of faith by stating "we expect deviations to occur but significant deviations should be subject to scrutiny". Why? The author does acknowledge that the price has been, and can be manipulated. Doesn't this defeat one of the main purposes/advantages of BTC? I'm sure when I re-read the article more questions will surface. The article is fascinating and leaves me with more questions than before (that's a good thing!). I intend to read the other authorities you and others have provided. Thanks again.

Since BTC can be "lost" how can we know for sure that the supply will always be limited?

Curious that the opening paragraph in Peterson's "Metcalf's Law for Bitcoin" states that Bitcoin has no intrinsic value. On the other thread proponents lambasted BTC skeptics for making the same suggestion.

@Jfan much appreciated. Lots of reading ahead.

Thank you @TwoCitiesCapital. Look forward to learning more.

Who suggested that valuation need be in the form of DCF? Your answer if I recall correctly was a comparison to gold. Gold has been a TERRIBLE (emphasis added) investment over time.

Do you have links to these theories? I would be interested in reading them (though am always skeptical of what Dr. Google brings up). Thanks.

@ShaperDingaan I asked a straight forward question of proponents on another thread (Trump Trades): How do you value BTC? In other words, how do you know the price you are paying is sensible? No one could provide a cohesive answer. They all tried hard to justify the future of BTC but responses ranged from "trust", "belief", comparisons to gold, and the efficient market theory (supply and demand). Personally, I'm neither for or against BTC, though I have trouble ascertaining how or why I would ever need it, and even so how any value - other than relative to other currencies can be derived. What say you?

I think folks read way more into Berkshire's cash holdings than necessary. If/when Buffett has something better to invest in, does anyone doubt that he will? Otherwise, it is pretty clear that all potential acquisitions are currently priced too high.

CNBC is the financial equivalent of The Hallmark Channel. Every episode is highly predictable no matter what the circumstances with the same story lines told by the same mouthpieces. Interviews with Buffett and formerly with Charlie Munger - the best reasons to tune in - even got stale in recent years. They had one really good on-air talent - I believe his name was Mark Haines, but he died many years ago.

I put pools and boats in the same category - nice to have friends with both but would no longer want to own either one.

There is no moral equivalency between sponsored terrorist organizations and our Middle Eastern ally. Fortunately the majority sees it that way.

Not to get off topic but I never understood the gold standard. Why not a more useful commodity, like oil or steel?