intothebreach

One thing to keep in mind is that it's extremely difficult to get an information edge; by the time something is in a widely circulating magazine or newspaper, it's probably time to bail out than to jump on it, unless for some reason you can find a valid reason to go against the flow. Pick your spots, getting to know something really well is a lot more useful than having shallow information on tons of stuff, plus you can always expand later on. Starting with a subject you're interested in will make it that much easier. If you want a more precise recommandation, I would start by reading up what Buffett wrote: his owner's manual (for BRK stockholders) and annual letters are all freely available on Berkshire's website. And if you dig around on the net, you can even find his old partnership letters (probably even referenced somewhere in this forum). I posted what follows in another thread not too long ago, but I think it may be useful for you since you mentioned you are fairly new to investing, here's what I consider to be the 3 key learnings of value investing: 1) understand your circle of competency and take it into account when evaluating an opportunity (i.e. the more you stray from it, the more careful you have to be, and the biggest margin of safety you should require); 2) look to the downside first (i.e. Buffett's Rule #1 and #2, and his no called strike, meaning that you don't have to swing at everything, rather wait for the really good ones), otherwise we often end up fooling ourself; and 3) if you are not able to determine how much a business is truly worth based on something else than its capitalization and stock price, you do not know your margin of safety and, thus, are speculating rather than investing. Many happy returns!

SAVE - Spirit Airlines

I think Hagstrom has a workbook to go along his "Warren Buffett Way" book, but I have not used it myself. The book itself is not a bad place to start, but sooner or later you'll probably want to hear it from the horse's mouth and go straight to Berkshire's website and read Buffett annual letters, or Cunningham's published version of them. You can probably still find Buffett's earlier letters to his pre-Berkshire investors online. Onward and forward!

CRHawk, For more information on the subject, you may want to search on the topics of Owner Earnings, as defined by Buffett. Since you also mentioned you are fairly new to value investing, here's what I consider to be the 3 key learnings: 1) understand your circle of competency and take it into account when evaluating an opportunity (i.e. the more you stray from it, the more careful you have to be, and the biggest margin of safety you should require); 2) look to the downside first (i.e. Buffett's no called strike), otherwise we often end up fooling ourself; and 3) if you are not able to determine how much a business is truly worth based on something else than its capitalization, you do not know your margin of safety and, thus, are speculating rather than investing. Many happy returns!

Thanks guys! KMI was not on my radar as I had not looked at the pipeline operators in a long while. Nice to see Capital Group companies as fellow owners too (at least back in June quarter).

If you're open to considering paid alternatives: - YCharts is hard to beat and their fundamental charts are the best I've seen. Their monthly plans start at $40. - The paid version of Morningstar is also interesting because you can customize up to 30 data points for watch lists or portfolios.

For what it's worth, I think the most costly mistakes in investing is actually not learning from past mistakes, and thus repeating them. I know I made plenty and will make some more, but I try to pick something up each time.

Bought into FFH, seemed a good time to start after following for a while.

No additional information, but I suspect the New York Times involvement has ratcheted this up a few notches at the White House due to the PR risk.

Just bought a large Coke at MCD for $1.15, tax included. And also starting to increase AAPL (while sitting in aforementioned MCD)

To Oddball: Essentially yes, although the potential payoff for the preferred may be even higher with dividend payments if the contracts are ultimately upheld. The way I view the whole thing is as an asymmetrical bet. While there is a possibility that the whole thing fails completely (will be decided by judges, with huge lobbying on both sides, and always the possibility of a less than perfect settlement), my personal view at this point is that the odds are at least slightly favorables, and the potential payoff is clearly multiple of the potential loss. So I'm sizing up accordingly, meaning I can live with the loss if it comes to that, but it will be worthwhile if this ship does come in. And as you mentioned, this may still take a long while if they decide to pursue all possible appeals in case of a favorable decision. If you want to rapidly get up to speed, just going through merkhet's posts should do it.

NY Times Op-Ed by Bethany McLean, author of "The Smartest Guys in the Room", who is now apparently writing a book on Fannie and Freddie titled “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants.” http://www.nytimes.com/2015/07/20/opinion/fannie-and-freddie-are-back-bigger-and-badder-than-ever.html?action=click&pgtype=Homepage&version=Moth-Visible&module=inside-nyt-region&region=inside-nyt-region&WT.nav=inside-nyt-region

None whatsoever for my part. Probably made easier due to the fact that I don't have an easy access to most of them.

For that to happen, the large widely-owned businesses almost have to come knocking on Berkshire's door. I just don't see IBM getting there. USG on the other hand seems like a good candidate at some point down the road (I've owned it for years, although not specifically for that reason).

Love: Dropbox, Apple, Porter Airlines, Arcteryx (less so now, as quality seems to go down lately) Hate: Bell, will never be their customer again, no matter what the offer may be. Air Canada, will actively try to avoid if I can. Should be interesting to follow this thread. I have the feeling this is not the last telco to show up here...

Sold out of WFC. Followed Chou into Dundee Corp (DC.A).

Merkhet: shame on you for not telling us about your new fax machine! A tad more seriously : ) thanks for taking the time and for the update.

Thanks for sharing the story, it is an interesting read that however has nothing to do with value investing other than a passing mention of Graham's book. How is what he's doing anything other than usurious lending? This guy is not an investor, even less so a value investor. Shady financier or lender of extremely last resort seem more apt descriptions. I think rpadebet got it right for what's in store for him...

merkhet, I know you mentioned your disclaimer a few times earlier in the thread not to rely too much on you and that you had so far been wrong on this (paraphrasing here, not exact quote), but I wanted to thank you for repeatedly providing your thoughts on this whole thread. I'm convinced many followers here find it makes it easier to follow and more enjoyable (and rest assured, no expectation of success created : )

As always, I find discussion related to temperament and process to be very enlightening. This one prompted me to look in the rearview mirror, and even after doing so, I'm not sure what my answer really is. I started dabbling in stocks when my revenue first exceeded my living expenses, right after doing my MBA in 1999. Process was inexistant, temperament was a blind spot, so that naturally lead to net negative returns despite a few lucky picks. Buying real estate for my living needs (rather than as an investment) was the only thing that prevented my from popping with the bubble (although damages would have been limited as I did not have much to invest in the first place.) After many very good years operating a consulting business, I moved what still is for me a sizeable amount to the stock market between July and November 2007. Perfect timing to say the least. In retrospect, regardless of the market level, it would have been advisable to average in gradually over time (duh!). However what was different this time around, is that I was determined to operate in a disciplined and process-based fashion, and to learn from my mistakes. So right off the bat I started tracking all my transactions and also benchmarks to keep me honest and trying to understand what caused by mistakes (other than me. And I do not limit mistakes to losses, but also positions where I eventually get less comfortable with.) During that time, I also learned that sizeable losses (was down between 40% and 50% during the worst of it) did not cause me to lose sleep, probably because I understood that either these losses were the result of unforced errors that I most likely could learn to avoid, or in many cases were temporary in nature. I made some of my very best moves to this day selling cheap to buy cheaper in the thick of the market debacle. In many cases, I clearly got lucky but I was starting to understand what quality means for businesses. During this period I read pretty much everything I could find on value investing (that's also how I initially stumbled on CoBF.) That's also the first few times that I really encountered my first identifiable proverbial "fat pitches" (although I was not comfortable "backing up the truck" and underinvested, other unforced errors : ) Experience is what you acquire just after really needing it, right? While I'm sure that I have not yet "arrived" (if such as thing is even possible) and that I still have tons to learn, I would say that it took me between 4-5 years to get to a point where I feel comfortable with the overall process of investing in the stock market. During that time, I also built an ETF-based passive portfolio for my girlfriend who has not the least bit of interest for investing (I found extremely good references at canadiancouchpotato.com, which would need to be adjusted for US-based investors). So this presented an alternative I could be using if I did not want to spend the time and effort researching companies and managing my investments and another relevant benchmark. This 4-5 years would be from the point I decided to get serious, add another 5 years from the point I started dabbling. One thing I clearly had no idea is how beneficial this would be to my consulting business. As a former big firm consultant and plant manager, I knew a lot about business planning and managing operations and people, but I never suspected that capital allocation could play such a prominent role in successful businesses (it really was not the case with most of my very large international clients.) Another thing I grew to appreciated is how the masters of the craft have really laid out pretty much everything that is needed to do it properly. However, I believe it takes hands-on experience and time to really understand what seems very straightforward (and even simplistic) at first glance. My biggest lessons learned are: 1) start with "no/I'll pass/too hard" by default; I no longer feel I need to understand/follow everything. Pretty much everything stops here. However, understanding is required before investing in something; 2) to always look to the downside before the potential (unforced errors cost dearly, and only a very few ideas per year are needed to make a sizeable difference); 3) quality drives everything: both the type of investment (trade/investment), and the margin of safety required to feel comfortable; 4) concentrate on fewer, better things, in terms of business quality not potential returns (it moves my threshold higher, diminishes overall activity and forces me to do better homework beforehand, and it also diminishes my end of year accounting). This magnifies returns, good or bad. So coupled with a weaker process such as what I had earlier, it would have been damaging and would actually be best not to concentrate. Much respect to posters here who run very large portfolios of smaller positions; I just find it too hard to do it properly. Having said this, I'm pretty sure I would have read this list in 2007 and taken for granted that I understood what it meant without it being the case. So I'm really curious to see how I'll look at it in 1, 5 and 10 years. Best returns to all, in investing and in life! EDIT (1/15): corrected the web site mentioned (.com instead of .ca)

Thanks for starting this. I have a few: 1. An untimely exit out of a 5-year SHLD position that would have been a lot less painful if I had taken the time to do a proper analysis of why I held the stock and recognized earlier that I simply could not assess its value (at least I couldn't). 2. Not being patient enough and moving out of a working STRA position to raise cash without really having to (definition of an easily avoidable unforced error). 3. After studying CKI and concluding that other posters had it right and that it was a buy, procrastinating and not making the transaction. 4. Still being unsure what to do with a few legacy resource positions has to belong in this list : )

Fair point. Being one of those posters, this may very well be the case. However, a side effect of increasing concentration, at least for me, has been to move away from standard position sizing (ie. a constant % of the portfolio) and to start sizing positions according to my degree of conviction AND understanding of a given situation (granted, perceived understanding). In the same way that strategy is also about choosing what not to do, I think concentration is not only about increasing the size of the bets, but also about choosing what not to invest in versus what one would do with an otherwise similar but less concentrated approach. If I was investing the same way I was in 2007 in a more concentrated fashion, I'd be blowing up big time. But coupled with a much higher respect for the risk of permanent loss—resulting in a higher threshold to make a buy decision—I personally feel this approach to be more comfortable as well as less risky for me than what I was doing previously. So far, for me concentration has been beneficial mostly because of what it forces me to do to get to the point I'm comfortable enough to commit a bigger chunk of capital than I would otherwise. I'm pretty sure the same results could be achieved with a less concentrated portfolio, but I personally would find it more difficult to do so. I'm also convinced that in any given year, this approach may cause me to lag my benchmark significantly, but I'm OK with that.

I realize the above quote may have been in jest. But if it may help anyone regarding the concentration discussion, here's how I personally came to gravitate toward increased concentration (I can be anywhere between 5 and 15 stocks, so not extreme by any measure). After under-performing my benchmark for a few years (S&P500), I did a fairly thorough analysis of what had worked well for me and what had really not. I came away with 3 conclusions: 1. my option plays were lousy because I was aiming for the fences (in most cases the common would have done much, much better); 2. I was losing money on what I'll call marginal positions (as in bordering, not leverage) because I did not research them well enough (both to justify the initial buy, but also to have enough conviction to stay the course when they ran against me); and 3. I was underinvesting in my best ideas, those I understood really well but failed to commit sufficient capital to really offset the first 2 categories. Simply put, I was trading too much instead of investing (but I sure learned a lot as this was in 2007-2008). So, at least for me, I believe that concentration actually decreases my overall risk as I need to feel a very good understanding of a situation, as well as an explanation for the dislocation between the price and value to invest a sizeable portion. I've also grown comfortable with low activity in my portfolios (which suits me better as my schedule itself tends to be very lumpy). A few examples come to mind: BRK in late 2008 when the notion that Buffett had invested in derivatives created a panic, JEF after the MF Global disaster and Egan-Jones botched analysis, AAPL in late 2008 and again in late 2012/early 2013. I quoted the above to add that in my case, concentration is more about discipline than guts, especially the discipline to do nothing if my criteria are not met. In this I (now) fully subscribe to Buffett's admonition to look at the downside first. I agree with Oddballstocks that it is more correlation than causality: at the end it comes from stock selection, concentration just magnifies the returns, good or bad. Your mileage may certainly vary, but I hope this may prove useful to some.

This is a very enjoyable thread and for me has also been useful as I've picked up a few things along the way (it also has none of the back and forth we see on some threads with 100+ pages). I personally have gravitated to be increasingly concentrated but I think we can all agree that different approaches can work provided that the underlying process is sound. With that spirit I'd like to suggest that since measuring returns, while the definitive metric, is by definition a lagging measurement that may or may not adequately capture the process side of the equation that it needs to be complemented by other metrics to provide a fuller picture. One thing I've started doing is measuring my "batting average" in terms of the proportion of buy decisions I've made in a year that closed with positive return, and also my average positive and negative returns. This is far from perfect as in some cases it is even more lagging, but I find it helps me question my process. There might be other useful measures, but so far they elude me... Happy Holidays to all, and many happy returns, in investing and in life!

It's been a good but unspectacular year, up 28% (31% for the corporate portfolio and 23% for smaller RSP/retirement account portfolio). What contributed positively: 1) BRK's huge year 2) Apple's run in 2014. I kept buying as it fell down from its 2012 high all the way to its April 2013 low, at which point I bought LEAPS (it appeared cheap to me, but I just got very lucky to be buying the options the day before it hit its lowest point). This was the only time I used leverage in the year (I only use options for these kind of situations, simply because I'm still shy from getting burned a few times before where I happened to be right on the stock, but lost money due to poorly conceived option plays... ) EDIT: 3) Forgot to mention the improvement in the exchange rate. The portfolios are all in USD but the returns get converted into CAD on the broken report that I'm quoting above. What contributed negatively: 1) Extremely poor timing finally moving out of my 5-yr SHLD position, just before it bounced back in a huge fashion 2) Selling out of STRA too quickly to raise cash 3) Small positions in resources such as BTU, RIG and TX (should have sold some even if multiples appeared cheap, not the first time and I suspect not the last I get caught in an economic cycle...) and WTW Fun fact: I decided in late 2012 to do a little experiment with a tiny portfolio (a pension plan from an earlier job that I'm unable to transfer into the others) and to either leave it in cash or invest it in an extremely concentrated fashion in my very best 1 or 2 ideas. This is up 81% this year due to the same factor as described above, still tiny only somewhat less so. I left this out of the above YTD returns (not that it would have made a big difference). By the way, I would like to thank those who take the time to post results despite having a negative year. It is much appreciated and very useful (and also congratulate them on having the ability to be honest with oneself). I'll do my best to follow the example next time it's my turn (I started investing in the fall of 2007, so I've definitely been there before; who said that experience is what you acquire just after needing it?).