thepupil

they are not legally obliged to do anything.

I like the HRG 7 3/4% of 22 @ $96, 8.6% YTM w/ duration of about 4. That being said, I keep my eyes on a very small subset of HY bonds and don't believe I have identified anything inefficient or some amazing relative value opportunity. This is probably the tightest CCC bond out there so it's not like the market doesn't realize it is safer than your typical low rated bond. Harbinger Capital is a holding company with 2 main assets: 57% stake in Spectrum Brands as well as an 80%+ stake in Fidelity & Guaranty Life It is chaired by Joe Steinberg (of Leucadia fame) and LUK is the largest shareholder. The stock has been a pretty popular value name as it trades at a discount to NAV, primarily because it used to be owned and controlled by Phil Falcone (who was barred from running a hedge fund for borrowing from his hedge fund to pay his personal tax bill and not diclosing it <---something like that, don't know the details). They've also made some poor investments in energy and credit (lost a lot of money lending to Radioshack). Assets are about $5B or so, $3.4B of that is in SPB and $1.2B is in Fidelity and Guaranty which is set to be acquired by Anbang (Chinese insurer that is often used by China bears as an example of why China is blow up prone). They have $1.8B of debt. Assuming Anbang honors its commit to buy FG&L in 2Q 2016, HRG will have virtually no net debt. I like the 7 3/4% of 2022 @ $96.0 and 8.6% YTM. These are CCC rated, holdco debt and the subordinated to subsidiary debt and HRG's senior debt , so they aren't "safe" in that regard, but I think you will agree these are nicely covered; the spectrum stake alone is worth about 2X their debt. When the FG&L buyout was announced these bonds rallied to $103, but they've since drifted down to $96. I think that once the FG&L buyout closes, the bonds will tighten, but I'm fine holding to maturity and clipping coupon if that doesn't happen. EDIT: these are like 94.5 / 96, be mindful of the bid/ask

between credit cards and venmo, I'm nearly completely cashless. My total ATM withdrawals were $200 for the year 2015.

http://lt.morningstar.com/util/GetDocument.ashx?FileId=9388 http://www.arisaig-partners.com Also check out funds managed by Arisaig.

I'd look at the holdings of the Wasatch Frontier Emerging Markets Fund to start. This is not an endorsement of that fund (it has high expenses and a terrible liquidity mismatch), but it is 48% consumer staples and features types of businesses you are looking for. Also some U.S. and European Companies are dominated by EM assets: Carlsberg comes to mind (majority Russia + Southeast Asia). There are lots of country(or region) specific subsidiaries of multi-nationals out there. For example, Coca Cola Icecek in Turkey, and Coca Cola Femsa in Mexico, the brewers have tons of subsidiaries in Africa, as do other staples companies. India is full of them: Hindustan Unilver, Nestle India, etc. Lots of snack companies throughout the world too. Many of these are not accessible to the individual investor. Good luck opening accounts in Nigeria and Pakistan to buy them ;D I would also check out the holdings of GMO Emerging Markets Domestic Opportunities Fund. This is similarly themed but more EM than Frontier. There is also a EM Domestic Demand ETF, so you can look at the holdings there http://www.emergingglobaladvisors.com/pdf/holdings/EMDD%20holdings.pdf https://secure.wasatchfunds.com/Our-Funds/Portfolio-Details.aspx?fund=WAFMX Page 55 http://hosted.rightprospectus.com/Wasatch/Fund.aspx?cu=936793819&dt=AR Brewers Carlsberg Brewery Malaysia Berhad (Malaysia) Delta Corp. Ltd. (Zimbabwe) East African Breweries Ltd. (Kenya) Florida Ice & Farm Co. S.A.*** (Costa Rica) Guinness Anchor Berhad (Malaysia) Guinness Ghana Breweries Ltd.* (Ghana) Guinness Nigeria plc (Nigeria) Lion Brewery Ceylon plc (Sri Lanka) Murree Brewery Co. Ltd. (Pakistan) Namibia Breweries Ltd. (Namibia) Nigerian Breweries plc (Nigeria) Phoenix Beverages Ltd. (Mauritius) Societe de Limonaderies et Brasseries (Ivory Coast) Societe Des Brasseries du Maroc (Morocco) Tanzania Breweries Ltd. (Tanzania, United Republic of) Union de Cervecerias Peruanas Backus y Johnston S.A.A. (Peru) Packaged Foods & Meats Agthia Group PJSC (United Arab Emirates) Cadbury Nigeria plc (Nigeria) Centrale Laitiere* (Morocco) Dairibord Holdings Ltd.* *** (Zimbabwe) Delice Holding (Tunisia) Dutch Lady Milk Industries Berhad (Malaysia) Edita Food Industries-REG S GDR* (Egypt) FAN Milk Ltd. (Ghana) Grupo Herdez S.A.B. de C.V. (Mexico) Juhayna Food Industries (Egypt) Ledo dd (Croatia) National Foods Holdings (Zimbabwe) Nestlé Lanka plc (Sri Lanka) Nestlé Malaysia Berhad (Malaysia) Nestlé Nigeria plc (Nigeria) Nestlé Pakistan Ltd. (Pakistan) Olympic Industries Ltd. (Bangladesh) PT Indofood CBP Sukses Makmur Tbk (Indonesia) Rafhan Maize Products Co. Ltd. (Pakistan) Vietnam Dairy Products JSC (Vietnam) Tobacco British American Tobacco Bangladesh Co. Ltd. (Bangladesh) British American Tobacco Kenya Ltd. (Kenya) Ceylon Tobacco Co. plc (Sri Lanka) Eastern Co. (Egypt) Pakistan Tobacco Co. Ltd. (Pakistan) Household Products Colgate Palmolive Pakistan Ltd. (Pakistan) Unilever Ghana Ltd.* (Ghana) Unilever Nigeria plc (Nigeria) Pharmaceuticals Abbott Laboratories Pakistan Ltd. (Pakistan) DHG Pharmaceutical JSC (Vietnam) Egyptian International Pharmaceutical Industrial Co. (Egypt) GlaxoSmithKline Bangladesh Ltd. (Bangladesh) GlaxoSmithKline Consumer Nigeria plc (Nigeria) GlaxoSmithKline Pakistan Ltd. (Pakistan) Hikma Pharmaceuticals plc(United Kingdom) Searle Company Ltd. (The)* (Pakistan) Square Pharmaceuticals Ltd. (Bangladesh) Traphaco JSC (Vietnam)

Just starting DD, feel free to opine Price: 60 / 62 Yield: 8.57% YTM, 7.99% CY, Treasuries + 565bps Issuance Spread: t+120 Duration: 11.5 Rating: Baa2 / BBB+ Not liquid Capital Structure $493MM commercial paper $1,500MM Revolver, fully undrawn $2000MM Senior Unsecured Bonds $500MM 5 7/8% of '19 ($101) $250MM 3.45% of '23 ($82) $500MM 5.7% of '39 ($71) $500MM 4 7/8% of '43 ($61) $2,493MM of total debt $2,603MM of Market Cap $5,000MM EV Assets: $840MM of current assets, mostly receivables (Note: 16% of which is Petrobras) $6,800MM of offshore drilling rigs Current Assets=Current liabilities, With the assumption that the receivables are adequately reserved against (maybe they aren't), you basically have $2B of long term debt here and the possibility of $1.5B of the revolver getting in front of you. Collateralizing you is a bunch of crappy old rigs for which DO is famous, as well as some brand spanking new drillships and stuff. It's not all super old, they've spent like $6B+ in the past 4 or 5 years, but my rudimentary understanding is the company owns one of the worst fleets in the industry. They have $5B+ of backlog, but who knows what that means. Loews owns 53% of the equity, worth $1.3B at current market, so they have something at stake here. My initial thoughts on these is that at $61 / $100, you are creating the rigs at an undemanding valuation and that the overcapitalized sponsor (L w/ $3B+ of net cash) who is below you in the cap structure provides a little bit of extra protection. I'm not quite sure if the L parental support is enough to get me interested though. And I probably wouldn't lend to the company at 8-9% without the L backing, so I'm hesitant to hang my hat on that. If I can get comfortable w/ the downside, I'll buy them, making 8% cash carry and 11% for every 100 bps of spread tightening when (if ever) energy improves is not a terrible return. Still not there though. On my watchlist, would appreciate anyone telling me why I'm an idiot for considering them.

My highest conviction (though certainly not highest upside) idea for 2016 is to go long the Leucadia 6 5/8% of 2043. On IB: $134K Bid @ 81.97 / $500K Offered @ $82.05 At the offer price, the bonds yield 530 over the 30 yr (8.28%) to maturity and trade well wide of Jefferies, significantly wider than other BBB- financials, and about 300 bps wider than higher rated more liquid financials like MS and GS (which I regard as just as risky). The bonds were issued at 300 over and have since widened out by 230 bps, particularly in the last few months on no apparent news other than general market/liquidity concerns and mediocre operating results from JEF/LUK. I simply don't think the mediocre earnings of Jefferies and Leucadia warrant the spread widening or make LUK a worse credit risk. Perhaps I'm the patsy at the poker table, but this is the safest bond I can find that offers an equity rate of return. Duration doesn't bother me (it's about 11). I'd welcome long rates going up, though I don't think that will happen. Ya it's boring.

Taxable +1.9%, 4.7% ann. since June 2013 Roth +12.4% 13.4% ann. since Oct 2013 IRA +27.2% 21.0% ann. since Oct 2013 Taxable has lots of shorts/options/etc. that have significantly detracted from performance. IRA's are long-only and VERY concentrated pretty much the same story as last year with different names

LaCroix is everywhere and growing nicely. http://www.bloomberg.com/news/articles/2015-08-12/how-lacroix-beat-coke-and-pepsi-in-the-sparkling-water-wars http://mobile.nytimes.com/2015/03/08/magazine/letter-of-recommendation-lacroix-sparkling-water.html?referer=&_r=0 http://nypost.com/2015/12/03/sparkling-lacroix-sales-drive-acquisition-talk/

said it much better than i could

I don't run a fund and don't short much. Rukawa just asked how making 8% a year on a short book would lead to one being a billionaire. I answered. Sorry if that was confusing.

I'd like to see that math. Making 20% a year it would take you 52 years to turn 100,000 into a billion. Making 8% a year it would take 121 year or so. Good luck! -you aren't including the returns from a long book. Very few hedge funds run with less than 100% gross (i.e. a short position does not crowd out a long position). So the rate of compounding would be much higher. build a spreadsheet. for any given time period, take the s&p, put in 100% long exposure and then add a 50% short book that makes 8% / year (you would obviously need to make it have some sort of negative correlation to the s&p to approach reality, but making 8% a year from shorting is certainly not anywhere close to recent reality so this is kind of a useless hypothetical). rebalance to 100% by 50% monthly quarterly, whatever. the compounding will be very high and it will have lower drawdowns and vol, the track record would be great. -you aren't including management fees and incentive fees, 8% / year from a decently diversified and scalable short book would make my fund incredibly attractive as a high return, high alpha strategy. If I couldn't raise money from institutions, I'd walk into Izzy Englander or Steve Cohen's office and be running a big book in no time. -your starting value is too low ;D If you can make 8% a year shorting over the next 20 years, you'll be billionaire too. But it's not happening. That's really really really really hard.

just to be clear, the book was about Allied Capital; ACAS is also a slimy DC based BDC but is still very much around.

Again, you can make that argument for Chanos, as he has made his living primarily as a short manager, but not for Einhorn. That being said, compare Chanos numbers for the last five years against the S&P 500 and you will see the stupidity in paying a hedge fund manager to protect you on the downside. Cash worked in 2007/2008 and cash would have killed Chanos over the last five years if you were worried about downside risk. Absolute returns over the long-run are all that matter if you plan on becoming wealthy! Ask Ericopoly! Cheers! Sorry, I don't understand. Are you saying Einhorn shouldn't short? He's built his spectacular track record on doing well on both sides of the book (though judging by his recent performance, short alpha has probably been close to 0 lately). I agree that absolute returns are the most important thing to creating wealth. Very good short selling increases absolute returns. Very good short selling is difficult though and most hedge funds don't add much value on the short side and have too high of fees.

Mr. Parsad has an incredibly high standard when it comes to short selling. Even if tremendous alpha AND nicely positive absolute profits are generated , he will find fault with it. If I could make 8% a year consistently from a decently diverse short portfolio, I would be a billionaire. Very few have done that, particularly in recent years (if anyone knows anyone who has, please PM me because I have some money for them to manage). JOE (pre-borrow at least) was a home run for Greenlight and has certainly done better than the rest of their or anyone else's shorts. See this thread: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/chanos-nice-interview/msg145678/#msg145678

it was a guy at Protege, not Loeb. http://time.com/money/3725955/warren-buffett-bet-hedge-funds/

here's my feeble and very rough attempt that feeds in real time stock prices and earnings estimates for the stock portfolio as well as earnings multiples for UNP (to mark BNSF) DUK (to mark BE) and S&P (to mark Manufacturing Service and PCP). In the bear case, the common stock portfolio (and BNSF and BE) are marked down an additional 30% and MS&R are de-rated by 4 multiple points and visa versa for the bull case. In the bear case, insurance is at book value. In the base case and bull case, insurance is allocated its working capital requirement of $20B cash plus all the fixed income and it is assumed those make $0 over time (this is pretty darn conservative given the track record). So if I am pretty conservative with the insurance (I'm basically saying it has $0 long term earnings power which is not the case), I get that Berkshire is trading at 85% of its "NAV" using market multiples. What if the market is wrong to the downside? Well stressing everything (the bear case) gets you to 23% downside (when the market goes down 30%). What if the market is wrong to the upside? Increasing everything by 30% gets you to 49% upside, meaning Berkshire has lower downside capture and higher upside capture than the general market (if that makes sense). Berkshire at current price = alpha to s&p over long term, in my opinion and a reasonable absolute return. It does not = a 50 cent dollar, margin of safety even if market goes down 40% and earnings go to hell you won't lose money type of thing Now all this is a bit of hocus pocus and frankly I think Berkshire is worth more than my base case. Longinvestor and rb are probably salivating to point out why I shouldn't be using an S&P multiple because of the superior growth or point out that my insurance valuation is way off or this or that, but my point is to try to come up with a quick and dirty way of monitoring Berkshire's earnings power, price to conservative NAV, upside / downside ratio etc. It is not a definitive valuation. It's rough as hell. Note how morningstar's valuation of the operating companies is much significantly higher than my base case. If you go with my base case, it's only an 85 cent dollar. You can easily get into the 70's with some more bullish assumptions about the growth at the operating companies or the franchise value of the insurance operation (the insurance is where I really need to make this better). So you can think of it as a 60-90 cent dollar (wide range of assumptions) paying you a a decent earnings yield ( even before insurance) and where the capital is being invested by the best allocator of our time. This snapshot of value does not at all capture value creation over a multi-year time frame which is obviously what's most important to investing.

I will pay more than 1.5X when the earnings power dictates that 1.5X is substantially below fair value across a range of scenarios. One could argue that time is now. I would personally be in the "not quite as big as I am now but still have a decent position" at 1.5X. Every day you hold a stock, you are buying it net of tax consequences, so given that I would still own some Berkshire if it went to 1.5X (or 1.7X), I would be a buyer at more than 1.5X. The buyback level honestly plays no real part in my decision making. I simply look at the SOTP and the earnings power like I would any other company. You can buy it at whatever. It wont change the fact that most value investors (and Buffett has made sure that Berkshire investors are long term value guys) are influenced by the share buyback price Buffett has set. I would think most value investors would value the company based on its earnings power and fundamental value. The buyback may "influence" their thoughts, but the buyback not met even existed that long and people had to value Berkshire before it existed.

I will pay more than 1.5X when the earnings power dictates that 1.5X is substantially below fair value across a range of scenarios. One could argue that time is now. I would personally be in the "not quite as big as I am now but still have a decent position" at 1.5X. Every day you hold a stock, you are buying it net of tax consequences, so given that I would still own some Berkshire if it went to 1.5X (or 1.7X), I would be a buyer at more than 1.5X. The buyback level honestly plays no real part in my decision making. I simply look at the SOTP and the earnings power like I would any other company.

Scorpion, the disconnect between theory and reality is that your theory is totally bonkers. Berkshire is far less levered than that and the vast majority of companies they own are not going to compound at close to 15% (much less the cash and fixed income which returns close to 0%). They have $80 odd billion of float and $240B of equity. If you write up BNSF and BE they have $300 or so of equity. Float is great and all but Berkshire is only like 25 or 30% levered wth it.

- in general, i also hate when people tell me why non-GAAP isn't appropriate, but with respect to the minor tax adjustments, I know you understand why it's not crazy to make those. - Berkshire's mix of businesses don't get refreshed? I think Berkshire probably has a higher turnover of company's as a % of earnings than SPY the past few years. Berkshire isn't an individual company. It's a portfolio and becomes more diversified (for better or worse) every year - I agree with your negative assessment of the S&P 500, which is another reason why i'm excited about berkshire. I think without a re-rating of book, berkshire will outperform the S&P over 3, 5, and 10 years on earnings growth alone, EVEN at a low rate of reinvestment. - i also agree with you that OCI will be lower. 1% from OCI implies about 3% capital appreciation of the stock portfolio (a reasonable long term expectation), but as you point out probably not a reasonable short term 1 - My $24B figure was pre-tax earnings spitball going forward and not an indicator of cash flow, or free cash flow or anything; it also takes into account PCP and Duracell coming on line. That being said, if $20B is the number you calculate (which is GAAP earnings last year), then Berkshire is at a 6.25% earnings yield pre-PCP capital deployment, pre dividend increases at most major holdings. A greater than S&P earnings yield, with better growth, better management, no stock option leakage, excess capital (albeit much of that was just used, but they will very soon have excess capital gain with some sad maturations of above market preferreds), etc. - I think if you used GAAP net income as the way to assess Berkshire over its recent (and certainly its ancient) history, then you'd never have bought it. - you understand this better than your original post indicated, which I had a hunch was the case

So then you must be short the S&p500 which has enjoyed an increasing ROE since the 1970s and has 2x the ROE of Berkshire? Because capitalism works. Do you know what other comprehensive income is and why Berkshire growth in book value is greater than otherwise implied by its ROE? Do you understand why ROE is not reflective of the change in value of a securities portfolio? Do you know why Berkshire pays such a low cash tax rate and why GAAP net income may not be reflective of earnings power or free cash flow? you're looking at a somewhat complex beast of a company (though more understandable if you divvy it up in 3-5 parts) and using 1 statistic (ROE) to say it isn't exciting. You need to do more work to come to that conclusion (or explain your work better) *not really fact checked but I know to be generally true. Also the s&p actually is probably earning unsustainably high margins which is one of the reasons it's roe is so high

5-8% ROE? $240B equity $19B pretax non insurance earning + $5B pretax investment income +- underwriting income/ loss = $24B assuming no underwriting profit / loss 10% pre-tax, tough to see how you get down to 5%. And that's while holding $60B of cash and $27B of fixed income. Look at the cash tax rate the past few years. THEN add another 1-2% of other comprehensive income (not included in ROE but certainly a component of total increase in value) from stock portfolio price appreciation over time. And ROE will only increase as goodwill as a percentage of businesses decreases over time. BNSF 14% of book has an 18% pretax ROE, in 10 yrs the lubricants, building supply, and industrial widgets conglomerate that is non insurance non rail non utility Berkshire will earn higher ROE as the acquisition premiums paid in the past few years become a smaller percentage of the value of companies. The s&p has an ROE of like 16%, Berkshire owns a portfolio of good U.S. Based businesses. Over time ROE of the portfolio that isn't stocks (where equity gets repriced upward for increase in earnings powe) will only increase (assuming you think coroorate earnings will grow) I agree there are cheaper stocks out there. But a Buffett managed 70 cent dollar (or Buffett successor managed) is exciting and i really don't think " 5-8% ROE" is a meaningful or accurate way to think about it given the Drag of the securities portfolio on ROE (which will only include interest and dividend income since tax affected capital appreciation falls under other comprehensive income).

Nice, so using an alternative method of saying BNSF is worth 80% of UNP (since it currently has 80% of its earnings, so not baking in any kind of better than UNP growth/margin improvement), Morningstar would be at about $80B (rather than $96). Using 80% of UNP market value, it's $60B. Either way, the 14% of Berkshire's GAAP book value represented by BNSF, is worth 1.7X book using [uNP* 0.8], 2.3X book using [Morningstar UNP PT * 0.8] and a wopping 2.8X using (Morningstar PT). With Berkshire at 1.3X book, how can you not like those numbers? Anyways, I'm getting quite repetitive....

So there are 2.464B B share equivalents which implies the following morningstar valuations Insurance $135B KHC $24B PCP $34B BNSF $96B <--this seems a little high to me, unless you think BNSF is immune to the troubles of the other railroads* BE $37B <--this seems a little low to me M,S,R $96B Finance $15B $436B , 1.8X My roughly calculated base case a few pages back was about 1.9X which I think came from me being a touch too generous on the insurance. *UNP can be bought for 76% of Morningstar's valuation of BNSF...it has earned more in each of the last 3 years...if you believe m*'s BNSF valuation, then UNP is certainly a buy. Perhaps, I'm missing something about the differences between the two... UNP pretax: $6.3B, $7.0B, $8.3B, 1H: $3.8B BNSF pretax: $5.3B, $5.9B, $6.1B, 1H: $3.2B