netnet

If you know the pharma space, keep reading. If not run for the hills. With a pipeline you basically have a series of (basically) binary events through the approval process. First question does the company have a way to get through phase 3 with cash and or a partnership? So you have to analyze the probability of success. Second what is the disease that is the target. Orphan status? Unmet need? How big is the market and what is the competitive landscape, a me too product that is incrementally better is not too attractive. Given the above, what is the burn rate versus cash on hand? Now a dilution is not the end of the world, but you have to be careful, as inelegant said, you also want a management that has done this before, so (hopefully) has an intelligent plan. How does Mr. Market look at the company? If the company is a 5x on approval but only has a 10% chance, the expected value is only .5, i.e. you still need a margin of safety, if you could call it that! You also have to think of this as very minor part of your portfolio. Lastly, do you know of any great drug company investors?

Uccmal cut right to the chase. Ask people on this board! You want autos, well there is a SME (subject matter expert) right there, an email away! Netnet

In US probably, in Europe maybe, in the rest of the world probably not (but likely you can't escape them if you want to invest there). As Buffett (and Graham too, I think) said, go for hardworking, intelligent and honest managers, because hardworking and intelligent crooks will steal you blind. Not to cast aspersions, but like some companies in the US, some of the dynastic companies companies in Taiwan, China and Thailand have treated minority shareholders like Putin treats his enemies.

Yeah, sure. Go talk to CEOs. Cause they really gonna chat with every value investor doing scuttlebutt. Good luck. It might be a great practice for someone who wants to build up confidence in cold calling and maybe build up their rolodex (haha). But I think that for a huge percentage of individual investors this is not realistic. Of course it is not realistic for a huge percentage of individual investor, but that is why people are on this forum to begin with, to separate themselves from the pack. Obviously, you are not going to get to talk to many CEO, just as obviously you are not Warren Buffett. This after all is a quote from WEB, the gist remains: talk to knowledgeable people in the industry, go down the corporate ladder and even talk to former employees. Buffett started talking to the janitor at GEICO, who led him to the future CEO. (By the way as an MBA student, I did in fact cold call CEO's of listed companies, including Intel and National Semi, and one of my friends walked up to and talked to the head of Citi and one of the bigger insurance companies. So it is doable.) And if you go to industry conferences and annual meetings, you should be able to ask a lot of questions. Here's the funny thing about calling CEO's. Everyone assumes that everyone else is calling, but my experience is that's not true. There are many of these guys sitting in an office waiting for the phone to ring. In larger companies you're going to have better luck getting questions answered by IR. But small companies will direct your call to the CFO or CEO. If you have intelligent questions, know the industry some and aren't a complete idiot you'll probably have a nice conversation. For all the introverts out there here's a tip my dad gave me regarding cold calling (he was in sales most of his career). People LOVE to talk about themselves. All you need to do is ask intelligent questions to get people talking about things they like or are passionate about. So ask things like: "can you walk me through what makes your business unique?" "Why would a potential client choose you over a competitor?" "If you could start this business from scratch what would you do differently?" "Where do you see opportunity?" Simple questions like that. Be respectful, ask great questions and get out of the way. You'll be able to learn a lot. I've learned a LOT more in conversations with others about how industries work compared to reading primers. An hour on the phone is more valuable to me than reading some giant 80 page primer that I'll forget most of. +1

Yeah, sure. Go talk to CEOs. Cause they really gonna chat with every value investor doing scuttlebutt. Good luck. It might be a great practice for someone who wants to build up confidence in cold calling and maybe build up their rolodex (haha). But I think that for a huge percentage of individual investors this is not realistic. Of course it is not realistic for a huge percentage of individual investor, but that is why people are on this forum to begin with, to separate themselves from the pack. Obviously, you are not going to get to talk to many CEO, just as obviously you are not Warren Buffett. This after all is a quote from WEB, the gist remains: talk to knowledgeable people in the industry, go down the corporate ladder and even talk to former employees. Buffett started talking to the janitor at GEICO, who led him to the future CEO. (By the way as an MBA student, I did in fact cold call CEO's of listed companies, including Intel and National Semi, and one of my friends walked up to and talked to the head of Citi and one of the bigger insurance companies. So it is doable.) And if you go to industry conferences and annual meetings, you should be able to ask a lot of questions.

As to the time frame, I left that open. I probably should not have said all, but rather a large plurality (40% to a majority) of compounders still seem to be owner operated. (But bold absolutes unsupported by facts tend to get people agitated and talking, can you say Fox News?) You do have some anomalies like Apple ('nuff said already) or Precision Cast Parts, where it really was owner operated for 36 years until 1986, then you have the next two CEO's who seem to have totally married a high integrity culture with their learned GE acquisition model. Are they owner-operated, well strictly no, but... (Who said that investing was either easy or a science?) I should also note there were some 'interesting' inclusions those lists from turar: Time Warner, wow, that is an argument for OO company, the AOL merger was one of the worst in the history of capitalism for Time Warner shareholders and one of the best for the OO AOL shareholders! Counterfactual, CountryWide, dreck! The implied argument is not that OO companies are all good by the way, that you should buy them willy-nilly, or that they do not have succession issues, but that since OO companies are incredibly over-represented among the compounders, looking for OO's is probably a reasonable strategy. (Along with finding the best companies at a fair price that are in growing markets.)

You also should do some 'primary' research. As Philip Fisher says in his investment classic Uncommon Profits ask around and find out the 'scuttlebutt'. Here Buffett, who is a 15% Fisherer, as opposed to a 85% Grahamite, says:

On cursory inspection, the tobacco companies don't look like 17 plus compounders to me. Just looking at the 10 year charts, MO and BTI look more like 7% at the most, adding back the Altria spinoffs. (But that is what is interesting. One could argue that Loews did not do that with their company, but of course you could respond that they did not have to; they already had other businesses.)

A thought occurred to me recently: that virtually all companies that compound at > 17% say are owner operated. Now of course, the sample is inherently biased due to the nature of the compounding companies, most of them start small and thus would tend to have an owner operator, yet, I can only think of two companies that were not and really the owner-operators were not long gone: Intel, after Noyce and Moore and Walmart after Sam Walton, but I would argue that these don't count: Intel, which really was owner operated given that the founders hired Grove as the 3rd employee and he had a ton of stock, and the founders were still around through 1987. Walmart, after Sam Walton. Anyway, are there any compounders that are truly not owner-operator companies?

Yeah, when the new generation (Abdul Aziz ibn Saud's grandsons) arrive, that could cause real chaos. One of the grandsons could spend 2 billion to reach the throne and then instantly have over 500 billion at his disposal. One kind of stunning factoid. The "new" ruler of Saudi Arabia is the son of a guy (ibn Saud) born in 1876; let's see, Victoria is still "Empress of India" and will be for another 25 years, the Franco-Prussian war ended 5 years earlier and the USA was 100 years old and (you Northerners help me out with some Canadian relevant history here.) Vancouver had just been colonized.

According to BBC, King Abdullah died today, quoting Saudi state tv. Not to be a ghoul here, but I wonder what is going to happen in the oil market.

Any new investment blogs that are interesting. I have enjoyed Glenn's: https://glennchan.wordpress.com/

Jeez, It's oil. There are always booms and busts. Oil will be back over 100, but don't ask me when! It might be in 5 months (doubtful) or 5 years, but it will be back. Remember though you have to think at the margin. According to the WSJ (Tuesday) US edition, the Alberta oil sand with the high initial fixed cost, are just going to keep producing, (unlike the stripper wells or even the Bakken horizontally drilled wells, with their fast decay) Plus there is debt to service on alot of operations, which can only be served by producing oil, even where the maintenance cap ex is high relative to production.

Carton boxes? Do tell. Investing or more probably he ran a box making business or bought it out of bk or something.

I agree with Merkhet, temperament is absolutely key, knowing that you have to pick a system that suits you. And remember there are no points awarded for degree of difficulty, only shoot fish in a drained barrel, (Buffett)! Now part of it is training. I have counseled others to put half their money in index funds, and monitor their emotions on down days; could they buy more or do they want to sell or SELL!. Then read everything you can and look for compounders Use Buffetts 20 punches in a lifetime model. Munger says you only need 3 or 4 excellent companies. Stay in your circle of competence Buffett is still learning, so you should get better. However, thefatbaboon could have the right model, slightly lever an index. (Note, levering can kill you, see Munger and Buffett associate Peter Guerin, who blew up, but he is now comfortably rich. Kirkpactrick, the author, did the same levered BRK, but he did not blow up.) Slightly levering a compounder, when it is cheap AND has upside momentum will make you rich over the long term, if you are young enough to surviving nasty downturn then... All of which to say is do not worry about the time it took. It takes patience! Important point, the average investor does worse than the averages as defined by the indexes, so just making the S&P is already above average. Remember all the transaction costs.

I have a small position in Fairfax--not being an insurance maven, I can only guess at what a great entry point is say, 1.2 or lower. But an investing friend said to me, "well if you don't know a great entry, how would you know a great exit, plus you are always talking about circle of competence and you are in a name in which you can not rattle of the 3 biggest threat to the business, other than lack of underwriting discipline." (not that that is a problem, though the CR has never been great) Well, I kind of mumbled about how I read all the AR's from the last 25 years and no one knew in 1965 what glory Berkshire was going to have and knowing the textile business would have steered you far from the business. And the entry in India could be really huge with a vast population and an relatively inefficient capital market. So he said, "OK it's a jockey stock, fine. You believe in the jockey who has a record, fine. There seems to be a long runway, with lots of optionality. Still what is a buy price and what is a sell price?" My response to that was with good compounders, trying to time an entry probably gets you worse results and won't matter that much over the really long term. (But, quiet now, what is a good buy price?)

I'm old school. I have been call Berkshire Hathaway BH for years. BH ain't Biglari for me! I am totally turned off from him; for me Biglari is Big Liar.

Funny that this topic came up. I was just about to post the question: Given the choice which is the best meeting to attend Fairfax or BH Berkshire Hathaway? I won't be able to do both this year. (True confessions, I have not been to either, but Wesco and Daily Journal) There is the factor of Munger and Buffett's advanced ages to weigh

This is an interesting factoid about Buffett, which a) shows the power of compounding b) shows how hard it is for us normal (non- Buffett types) to get a real sense of it This is from the Financial Post. This the most interesting fact in the article. 99% of his wealth came after 50. http://business.financialpost.com/2015/01/06/17-mind-blowing-facts-about-warren-buffett-and-his-wealth/

Excellent format. I use a similar format but I add eight more things [*]Key ratios for the industry, if I don't know what should be in the ratio, it's outside my circle of competence [*]Comparison of the ratios and the earnings to others is the industry [*]The competitive structure of the industry is in the competitive advantage section [*]Owner earnings [*]Growth Rate [*]Debt versus cash flow, generally industry specific [*]A narrative on the management [*]What my expectations are for the business and the investment Number 8 is the most useful in that, reviewing a year or two later it makes you humble.

First off the job well done: accumulating capital and marrying well. Now to the regrets. Not reading, absorbing Buffett earlier. The Intelligent Investorwas sitting in my Dad's study, with WEB's preface. Selling my Intel stock and not buying Microsoft Not fully comprehending the power law. (It is often better to be a low level employee at an Intel then, or Google ten years ago, rather than starting your own business. A clerk who never got a promotion at Intel, was laid off at Intel, yet she had two houses in Palo Alto and a Corvette.)

Another storm is on the way! By the way, I'm going to plan a mid January get together at an East Bay location. Look for details in the Events section of the website.

Matjone, did you transcribe these yourself? I went looking for my old copies to read this weekend and couldn't find my electronic copy, having ditched my hard copies and went looking on the "Corner" for the letters. My copies were copies of old copies.

Almost all of California's water systems, natural and man made need snow! (The overdrawn ground water areas excepted.)

As a general rule, the price decline in oil and commodities in general is good for all net importers/consumers [glow=red,2,300]BUT[/glow] vicious moveS in large markets often have unanticipated effects, black or grey swan if you will.