netnet

That's a great idea--reading the letters and Snowball together!

There are control issues and you are skating close to the line, but you can invest in an entity via an IRA. You need to find a third party trustee, like Pensco in San Francisco. The rules are a bit murky. Basically, though you can not be (should not anyway) have control, if you have less than 50% and the other partners are not spouse, father, mother, or siblings, you can do it. You can put the IRA funds in the limited partner, that way you avoid the "unrelated business income" tax issue. (now comes the customary, this is not advice to buy or sell, please consult your own tax advisor, blah, blah, blah.)

Wonderful story!

Gladwell's article in the New Yorker touches on this. "How David beats Goliath" The strategies people do and do not use. That's where I thought your story was going. http://www.newyorker.com/reporting/2009/05/11/090511fa_fact_gladwell Go long with Fairfax!

Mpauls, the specific reference is to Greenblatt's ranking methodology, see his bookThe Little Book that Beats the Market, unless you mean that you can not use any quantitative screen, which would be a pretty bold statement, given the evidence, see for example the Tweedy, Browne articles on stockmarket performance versus value ranking! If you can't use quantitative ranking methods, then how do you compare companies?

Has anyone run across or done a comparison of any of the mechanistic, quantitative value strategies during the last 18 months or so? I was wondering how say the Magic Formula approach has performed over this cycle. (I would do it myself, but the Magic website does not give let you evaluate choices from a year ago.) When I was evaluating it, I added some criteria which increase returns, but frankly it was too mechanical for my tastes(which is part of the reason why it works!) Netnet--that's the name not the strategy!

Thanks for posting about Maida. I for one had never heard of him. He really hit the cover off the ball! From his newsletter: March 31, 2000 to April 30, 2009 % of Securities Outperforming Benchmark 80.00% Average Outperformance Relative to Benchmark 83.62% Mean Outperformance Relative to Benchmark 30.01% (this is before fees and I'm not sure whether the benchmark is S&P or the TSX)

Interesting comments. Buffett said that the housing market was "stabilizing". From Reuters: "Assuming the economy does not worsen, he [sokol] said: 'It will be be mid-2011 before we see a balancing of the existing home sales market.' He defined 'balanced' as a six-month backlog." Now assuming that the two, Buffett and Sokol agree, given that they are presumably looking at the same data-- from the realty companies Mid-America owns-- I would have to conclude that Buffett's "stabilizing" means that the rate of decline is decreasing, (i.e. for those mathematically inclined, the second derivative of the curve of housing prices is decreasing). This is probably what he meant and it seems to be generally true. So stabilizing does not mean that either the property market is turning up or that it has even has bottomed out!

Thanks for the notes. Nathan did you go to the Wesco meeting this year again? I'll drop you line on your email, assuming it's the same as last year. Best, netnet (Nick)

You can say it that, but it is not as if a majority of the representatives did not vote to raise taxes; they did, but a simple majority is not sufficient on taxes. (Now as a general rule voters will not vote to tax themselves, but the representatives have to stand up and tell the voters.) The Dems have voted for tax increases but the 2/3 vote is impossible without the other side; and you can not bring the Repubs along. Whenever one gets peeled off and votes to balance the budget, the blogosphere and the right wing talk shows villify them and the lose whatever power they had and are threatened with recalls. (I'm not making this up; although I wish I were.) Arnold was elected on repealing the auto tax. Okay, everybody in Sacramento caved, but he did not propose a way to make up for the lost revenue, nor did the Republicans in the Legislature. Look if a simple majority is sufficient to pass a constitutional amendment in California and it's enough to deny a minority the right to marry, then it should be enough to pass a tax. Other than the political impossibility of raising taxes, and revising the property tax roles, California also has highly unstable revenue sources. The tax revenues fluctuate like tides in the bay of Fundy. It really is a boom bust cycle and again a principal reason for this dependence on fluctuating revenues is that Prop 13 has boxed out property taxes, which tend to be way more stable. (By the way, oldye re: union protection of child molesters, really that is the stuff of right wing kook radio. A wild charge like that needs some corroboration. You send the link, from a credible source, I'll believe it. It sure sounds way off the wall, way too off the wall to believe at face value.)

California does not even spend one quarter of that per child.(try $7,500) They spend more in Mississippi on education than we do in California. I am on the board of a charter school. The reality is that our teachers are under-paid. (Traditionally "women" work, i.e. lower pay.) California, not a cheap place to live, is 47th in the nation in per pupil spending. It is a pitiful pittance. Plus there are the mandates for special education, (don't misinterpret I used to run a Little League program for special needs kids,) but the mandates for special education are unfunded. Society should fund an aide following around a developmentally delayed kid on a respirator. Should that child be in a regular school? Probably so, but society needs to pay for that aide as well as pay for, i.e. fully fund education for all of the kids in the classroom! Don't kid yourself. You can not get quality education if you are unwilling to pay for it.

Sanjeev you were right on the gist and the grammar. The author is in dire need of good editor.

First all states can not declare bankruptcy. They may default on their debts (Great Depression) but bankruptcy is not an option. California has a particular political problem and revenue problem that has lead it to this impasse: 1) by law (proposition) the legislature has to pass a budget with 2/3 vote. Neither party can muster that vote alone, currently the Repubs are about 1/3 plus of the legislature. Demos have voted for tax increases but did not have 2/3 necessary. The Repub, mostly rural or suburban districts, complain about state government nevertheless scream about reductions in education budget and oust legislators who want to compromise and raise taxes and cut the budget. The suburban districts still find ways to finagle more money for schools. (Interesting factoid, the tax that led to the ouster of our previous governor and the election of the Terminator (Arnold) would have substantially reduced the current deficient. One is reminded of Sen Dirkson who said, "Don't tax you, don't tax me, tax that fellow behind the tree.") 2) Prop 13 resulted in highly skewed property tax. Basically you are taxed at the value at which you bought your property. Politically brilliant, but hideously inequitable. Furthermore, the state treats commercial property the same as residential. A company's property is not revalued annually, so one local auto dealer literally pays less property taxes than I do on my (modest) house, because they bought the property decades ago. But the proposition that established this is virtually untouchable politically.

Were the insiders buying the common or the preferred's? The Hilltop can redeem or not at their own choice.

Sanjeev, remind me never to work for you!

And he puts more knowledge into a single sentence than so do in a lifetime! Netnet

I looked at them a number of years ago. For some reason I could not get totally comfortable; I think it was that I could not intelligently say that I thought they could continue to execute in all types of environments, particularly as they got bigger. Looking at the charts, I don't see that they have been compounding at 30% per year, unless they had some nice dividends over the years (essentially, they are flat for the last 5 and up 7X over the last 15 years.) If they are liquid, have access to more capital, and didn't over pay during the bubble times, then they could be a nice addition to your portfolio. After you dig through and finish your research, I would be interested in what you think.

For those you like me, one of the "cultists" as Munger calls us, here is a question-- How do you rate the following Buffett/Munger books, (ones I have not read), some of which may only be using his name to sell books. Life Lessons in Business, by Davidson Larson First a Dream, by Clayton Dear Mr. Buffett, by Tavakoli The Real Warren Buffett The New Buffetology, Mary Buffett By the way, my favorites are in no particular order: Poor Charlie's Almanack, Snowball, Damn Right, The Essays of ... Best, Netnet

Have you found what he has actually bought?

Leaving the tax issue aside, your past decisions should not influence your present decisions. Look at what your opportunity cost are today. If you would buy that 7% security today then don't sell; if there is something better to buy don't hesitate, liquidate and move on. Sunk costs are (or should be) totally irrelevant to your decision making. Suppose for the sake of argument you had bought the pfd's at 3% rate and now they are yielding 7%. Again it is irrelevant. If there are better thing to buy, then you should buy them. If there are not then keep them. (The only caveat is a portfolio management question of over exposure, i.e. the price move has concentrated your portfolio more than you wanted it to be, but that was not your question.) Part of your question "anticipating 10-12% future returns" is troubling. Sounds like you are waving the wand of wishful thinking. Are you saying that historically the returns on the market have been that or that you have generally beaten the market by that or is the before tax return...exactly what do you mean by this?

What are the methods that are useful for increasing one's circle of competence? I have come across the following: 1) Reading the trade mags of the industry 2) Sitting down and talking to intelligent participants in the industry (my favorite questions: what are the key success factors of industry leaders? What are the key financial ratios in the industry? Who has the biggest moat and why? Is the moat growing or shrinking over time?) 3) Getting a job in the industry (obviously impractical most of the time!) 4) Read the 10K's of competitors and suppliers and customers 5) Use a Michael Porter style analysis of the the industry 6) Read the bankruptcy filings of failures in the industry--this is a new one to me. I just heard about this one. I have not done this myself. Any others? (Of course you have to keep building a Mungeresque Latticework of Mental Models upon which to lay this information.)

All you have to do is register to get access. Interesting macro view, as always.

Right you are. I'm having my own brain freeze here! Although if memory serves, I think he also had mentioned The Great Crash previously.

Here are some good notes on the annual meeting. http://inoculatedinvestor.blogspot.com/ (Grenville and Basl1 also have good notes on the Live Blog thread here at the Corner.) Funny this year there was no mention of book recommendations.

I won't be able to get there this year :'( It's a pretty big hall. Last year everybody got in. I don't think they have provisions for over flow. I got there about 45 minutes early last year and the seats were fine, but it does get more and more crowded every year. No credentials were required. Small favor, let me know if he mentions the book, Size Matters I sent a copy to him last year. Enjoy, Nick