LC

So let's realize that stress does not directly cause strengthening. Stressing a muscle creates microtears in the muscle fibers, which then regrow stronger. You're looking for companies that survive the initial stress, and transform into something which can deal with the previous stress. Everyone gets hurt in times of stress. It's the survivors that matter. And sometimes they will make less money post-stress, in absolute terms. But their business model is more resilient (albeit smaller). So the trick (I think) is to look for places of stress. And see who survived, and ask the question 'why did they survive, what did they change?' You could argue that the big banks have gotten stronger as a result of the stress in 2008/9. Almost all internal controls have improved. Or, alternatively, the Federal Reserve got stronger in terms of regulating the banks. Look at companies transitioning post-Internet shopping. Content creators are more in control of their content than ever before. TV networks can release their shows directly on their website (i.e. HBO). You can possibly argue WalMart is stronger post-Amazon, or perhaps Costco...i.e.. the brick/mortars which are still alive. They naturally lost a lot of foot-traffic due to Amazon, but have dealt with that stress and are still alive and kicking. They were forced to transform their operations to a leaner, more efficient operation.

I don't own a house.

I hope so. It's also a good case study of where government subsidies have worked to spur demand/investment, to the point where the technology is cost competitive.

Really good article, even better than his recent Dept of Energy piece. Some quotes I liked: “There’s a real idealism that you have to indulge to think that people in New Orleans were now going to pull themselves up by their bootstraps. There were no bootstraps.” "We don’t really celebrate the accomplishments of government employees. They exist in our society to take the blame. But if anyone ever paid attention they would note that Woteki’s department, among other achievements, had suppressed the potentially catastrophic 2015 outbreak of bird flu. They’d created, very quickly, a fast new test for the disease that enabled them to cull the sick chickens from the healthy ones. Because of their work the poultry industry was forced to kill only tens of millions of birds, instead of hundreds of millions. In the early 1990s, the U.S.D.A. had also dealt with the outbreak of ring-spot virus in papaya trees, when the papaya industry in Hawaii faced ruin and extinction. Inside the little box marked “Science,” the U.S.D.A. helped genetically engineer a papaya tree that was resistant to ring-spot virus." The whole section on the Rural Development division was fascinating (who knew they had a bank with $220B in assets sitting there?): “I am absolutely convinced about one thing: there are conversations going on right now in New York and Washington between people in the Trump administration and Wall Street bankers about how to get their hands on the bank portfolio. Folks in banking: I’m sure they are nice people—they just can’t help themselves.” Would love to hear the thoughts of fellow board members.

If indexing were creating a bubble, should we not see SP500 companies trading at outlandish valuations compared to non-SP500 companies? Or is the argument that indexing is in equities in general, not just the SP500? Then should we see equities trading at crazy valuations compared to other asset classes? Or is the argument that indexing is creating a bubble in all financial assets? In that case, how is indexing the culprit?

In addition, depreciation usually understates true maintenance capex costs. LC, can you please provide an example ? Like a very basic one - thanks Well, the general theory is that inflation will cause prices to go up. So when you're replacing some asset in the future, you will be paying more for it. Buffett wrote a really good article on inflation back in the 70s: http://fortune.com/2011/06/12/buffett-how-inflation-swindles-the-equity-investor-fortune-classics-1977/ For a practical example, take any company without growth capex and compare their annual depreciation vs. capex. Let me see if I can find a good example... Ok found one. I just screened for companies with 5yr sales growth under 10% (i.e. not a lot of growth) and sorted by market cap. Walmart was #5 on the list. Take a look at the CF statement: http://www.rocketfinancial.com/Financials.aspx?fID=4876&p=2&pw=160866&rID=3 Capex: -10,619.0 -11,477.0 -12,174.0 -13,115.0 -12,898.0 -13,510.0 -12,699.0 Depr.: 10,080.0 9,454.0 9,173.0 8,870.0 8,478.0 8,106.0 7,641.0 Generally capex has been higher than depreciation. Recently the gap is falling which could provide some insights (or not). I don't really follow Walmart but I don't see their business model changing drastically over the last few years, so my first guess is they are under-investing in their stores.

In addition, depreciation usually understates true maintenance capex costs.

Found an interesting article which is related to this topic: https://fivethirtyeight.com/features/science-isnt-broken/ If we’re going to rely on science as a means for reaching the truth — and it’s still the best tool we have — it’s important that we understand and respect just how difficult it is to get a rigorous result. I could pontificate about all the reasons why science is arduous, but instead I’m going to let you experience one of them for yourself. Welcome to the wild world of p-hacking. “You can do it in unconscious ways —I’ve done it in unconscious ways,” Simonsohn said. “You really believe your hypothesis and you get the data and there’s ambiguity about how to analyze it.” When the first analysis you try doesn’t spit out the result you want, you keep trying until you find one that does. Scientists who fiddle around like this — just about all of them do, Simonsohn told me — aren’t usually committing fraud, nor are they intending to. They’re just falling prey to natural human biases that lead them to tip the scales and set up studies to produce false-positive results. Nosek’s team invited researchers to take part in a crowdsourcing data analysis project. The setup was simple. Participants were all given the same data set and prompt: Do soccer referees give more red cards to dark-skinned players than light-skinned ones? They were then asked to submit their analytical approach for feedback from other teams before diving into the analysis. Despite analyzing the same data, the researchers got a variety of results. Twenty teams concluded that soccer referees gave more red cards to dark-skinned players, and nine teams found no significant relationship between skin color and red cards. My take on this: it's very hard to be a scientist in the truest sense. A real scientist has one motivation: discover the truth. But it's quite insidious how human biases creep into this. Take the example from the article about analyzing how soccer refs give red cards based on skin color. Even if you don't give a damn about soccer, about people's skin color, or anything related to the topic, maybe you just want your job to have some meaning in the grand scheme of things. So already you have a bias to create something significant where nothing of significance may exist. Researching a stock, how easy is it to begin by saying "I want to make money". Then this bias creeps into the research. You can interpret pieces of information in a way that seems more profitable. For example: "Oh well Sears just HAS to turnaround with all of that real estate - then I'll make buckets of cash!" This is a damn hard bias to overcome (and also why I think Buffett's rules #1,#2 are the types of bias you need in your head).

It is for me at least. Or I just suck at finding undervalued companies. Probably a bit of both :D

Nerd joke incoming: Heisenberg, Schroedinger and Ohm are in a car. They get pulled over. Heisenberg is driving, and the cop asks, 'Do you know how fast you were going?' 'No, but I know exactly where I am,' Heisenberg replies. The cop says, 'you were doing 55 in a 35.' Heisenberg throws up his hands and shouts, 'Great! Now, I'm lost.' The cop thinks this is suspicious and orders him to pop the trunk. He checks it out and says, 'Do you know you have a dead cat back here?' 'We do now, asshole!' Shouts Schroedinger. The cop moves to arrest them. Ohm resists.

This is going to be a bit of a ranty post! Warning ;D ROC ROIC ROE ROA yada yada yada I kind of hate them because it's all backwards looking. And it promoted false accuracy. Let's use Hayden Capital's example because its there (no hate on that dude, seems bright as hell). Delivery has better margins than sit-in restaurants? A first year business student could tell you this. Does it really matter whether the margins are 76% or 80% higher? The REAL questions are on slide 17: 1. How much can delivery grow to? 2. What are the most effective methods to promote delivery? New Customer Discounts? Advertising? 3. How can you make delivery costs cheaper? Drones & their unit economics? (ok maybe not the drone question) But that first question is the most important question and it has everything to do with the whole reliance on measuring a bunch of historical "Return on XYZ" metrics. I'll talk about Nike since I'm a shareholder. Retail sales are falling, online/direct-to-customer sales are increasing. The company is actively moving towards direct-to-customer sales. Now any freaking genius can tell you online sales will have higher returns on XYZ. Because there's no footlocker or whatever retailer taking a cut. So as an investor, I'm not taking the time to calculate ROICs of the marginal sneaker sold in each channel, because it really doesn't matter. The real question is, as traditional customers move from purchasing in-store vs. online, what are the implications for sales volume? (i.e. question 1) from hayden capital's deck) Online, customers will see many many many more brands/varieties. You go into footlocker, there are 5 brands and Nike owns the prime viewing location. But when you go online and sit down and look at running sneakers, you have so many more options. How will that dynamic affect Nike brand value and sales volume? That is the question. Is it going to be a simple replacement? 100% of customers going from Footlocker will go to Nike.com? 75%? 50%? Will shifting attention online actually improve sales? Communication, information travels much more quickly online. Essentially, cool sh1t goes "viral" fast. And its also forgotten fast. And brands can communicate more directly with customers. Will kids in Tokyo see meme's of kids in New York running around in a pair of Nike's and want them? Or will it be some Adidas, or J.Crew, or whatever? So I hate using ROIC and ROC because they don't even come close to answering those questions. They are more useful when the business environment is not changing. Great for monopoly-esque situations.

Philosophy IMHO. How else can you tell if you are skilled or if you suck? Otherwise my benchmark would be the 30 day treasury.

Thanks for sharing all your work! I was looking forward to this after you were asking for all these guys' records.

Fixed that.

Perhaps include a tag to note whether an article is behind a paywall or not

Bought my first stock (JPM) at 13 because of a school project. Although it was in my father's account so he is the one reaping the benefits now... I started investing for myself in 2010...also have always been a value investor, although I perform some mental gymnastics and tend towards the GARPy side of things.

so an economic or market slowdown happens. ETF holders sell their ETFs (lets assume a SP500 ETF). the price of the ETF goes down and this pushes market prices down further. which in turn forces more ETF holders to sell. This is the general logic underlying the argument against ETF, right? My question is...what are the flaws in this logic? For example, Okay so ETF holders sell...now they have some capital sitting around. What do they do with it? My other question...imagine there are no ETFs and everyone just owns those shares. Would this change anything?

Jurgis did you rattle that off the top of your head? Impressive! Do you have any good links for Clayton Homes - was discussed in the past. Support of huge payouts (salaries/bonuses) to CEOs while calling it a problem. I remember hearing some stuff re: Clayton but I never dove into it. ____ Ultimately though one can accuse any (successful) company of evil deeds. If you invest, you have to accept that as a reality and just live with it. Berkshire is still better in social/environmental/financial aspects than a lot of other companies. So. Yeah so, this is part of what I am interested in talking about. I mean, where is the line? And at what point does it become too much? I get that everyone will have their own personal line to draw, but there's got to be some weighing factor, no? Like, "well ok, NV Energy screwed 17K people in Nevada, but XYZ corp. is helping 34k people over in this state, so on the balance...". You mention Berkshire is better socially/environmentally/etc...how do you that calculation. The problem I have is the whole "bury my head in the sand and just collect my paycheck" aspect. At some point that becomes unhealthy IMHO. Take a cigarette company (nowadays). I'm comfortable investing in Altria for example because people know cigarettes can kill you. Hell, I occasionally smoke myself. So there's a level of personal responsibility. So you can't really blame the company for people's individual choices, when those people were fully aware of the consequences. With the NV Energy issue, that doesn't quite seem to be the case. I also think this is part of the reason Buffett likes his "de-centralized" organization. It also de-centralizes him from any responsibility. He can always claim some level of plausible deniability. We are all shades of grey but some are certainly a little darker grey than others.

I was hoping to start a thread listing the business practices that Berkshire and its subsidiaries engage in which you may not agree with. I realize in a forum filled with Berkshire fans and shareholders, maybe it will be a bit controversial (or maybe not). But with all the good business results we hear about from Berkshire, perhaps that is all the more reason to have the discussion and try and counterbalance the echo chamber. I should also say BRK has been at least a 10% position for me since I began investing (~8 years). So there is definitely some cognitive dissonance here on my part, which I think is worth exploring. The question is, what does Berkshire do that you personally would not? The idea for this thread was inspired by a post Cardboard made: On this issue, here is a good critique: https://www.theguardian.com/environment/2016/jan/13/solar-panel-energy-power-company-nevada Essentially the state government encouraged citizens to invest in solar panels. At the time, it made a lot of sense due to the pricing and savings these customers would receive by (1) generating their own energy, and (2) selling surplus energy back to the state regulated utility (Buffett's NV Energy). So people took out loans or paid outright to set up a residential solar system. Some time later, the state changed these regulations. NV Energy can impose a much higher fixed-fee on customers using residential solar, and NV Energy can purchase the surplus energy back from these customers at ~25-30% of market price. All the residential solar companies (solarcity etc.) have since pulled out of the state. This is essentially the outcome of the whole situation: “If they start giving us only 2.8 cents a kilowatt versus the 13 cents they charge us, I will never break even on my investment,” Matz said. “Not only that, if they are going to give us 2.8 cents a kilowatt and then sell it for 13 cents, basically 17,000 Nevada homeowners built a solar farm for Nevada power. I don’t think that can be right.” So I don't know what inspired the Nevada public utility commission (PUC) to change their regulations.. And I think the majority of the blame (if one were to assign blame) would fall on the PUC. But let's be honest here: NV Energy certainly is not feeling the pain which their customers are. And there are accusations of lobbying/corruption, but these things are hard to prove even if they are true Solar advocates have also accused the energy commission of coordinating with utility company lobbyists. Checks and Balances Project, a nonprofit group that investigates corporate influence on clean energy policy, filed a public records request for correspondences between the PUC commissioner, NV Energy and industry trade group Edison Electric Institute. PUC, too, has denied access to messages made on personal devices and accounts. “The story here is one of political corruption,” Miller said. “Brian Sandoval pulled a bait-and-switch on consumers to protect NV Energy’s monopoly profits.” The reality is at the end of the day it seems like a bait-and-switch, and to say NV Energy was just some independent party in the entire affair seems naive. I know I would not like to be treated this way as a customer. ___ So I am hoping this thread provides a discussion on specific issues such as the one above, or the broader topic of, "should shareholder agree with the business practices of their investments", or where that line/balance is.

outstanding investors digest

yes bizbuysell and other business brokers are available, but most businesses being sold are being sold for a reason. so just think about that. at that age, if they just want to keep busy, there are hobby-ish businesses that don't really make a great profit but are essentially jobs...things like a flower shop/nursery garden, neighborhood cafe, these types of community job things.

20x future earnings (which may or a not materialize) for a single fast food location? Way too rich.

It's like you summed up every interaction I've had with people asking for investing advice....

No problemo. enjoy! :D

Here's ROE http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/roe.html Here's net margins http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html EBIT/EBITDA Multiples http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/vebitda.html I mean u can just go here: http://people.stern.nyu.edu/adamodar/New_Home_Page/datacurrent.html#multiples And click the ones "by Industry"