LC

I usually don't like reproduction value. Like let's say a business makes wallpaper (stealing the example above). Maybe they have 5 factories and ship out from there. So are they worth five factories? Well maybe if you're an entrepreneur and ur going into the wallpaper business maybe you only need 2 factories. What i do like is "put-out-of-business" value. What would it cost for a competitor to put you out of business. I think that's a pretty good idea to have as you triangulate value. It kind of defines the width of the "moat". Oh and maybe that cost isn't to build a competing similar product, maybe it is the cost to develop a new product which makes yours obsolete.

Are you referring to level 2 cash on the balance sheet? If so this might help http://shareholdersunite.com/mybb/showthread.php?tid=4969

Concentrate in compounders Diversify in the dump ;D

Ten years though? Imagine a surgeon with ten years of malpractice claims, a cashier with ten years of stealing from the till, a lawyer with ten years of lost case after lost case. Hell, the lawyer example may even be spot on: Imagine those ambulance chasing/daytime TV commercial lawyers who don't charge unless YOU GET PAID! Even if they settle for far less than your claim is worth, they still get paid, exactly like an underperforming fund manager!

Also insurers have inflation on their side. New business is coming in at higher prices than old policies (and claim against) were written.

Agreed. The worst part is, if you're a fund manager, and you underperform for 10 years, how do you sleep at night collecting fees? Now I know this isn't all managers (the reasonable ones have high water marks etc to prevent this kind of thing), but for the ones that sit back and just rake in fees for the service of losing their clients money, that person I particularly despise.

Honestly, this is crazy to me. TEN YEARS???? That's a long time to lose money. Imagine if Buffett underperformed for ten years. No offense to Mr. Chou, whom I've never met but apparently is a great human being, but that is simply too long to keep me as a client. If I invested my money in others, I would give them: -3 years if they are new -5 years if they have a "rock solid" history Otherwise I am out. You're essentially telling me that in 5+ years this person was not able to find a means to make money. I am perfectly capable of under-performing all by myself, thank you very much! :D Frankly, if I were managing other people's money, and I couldn't outperform over a 5 year period, I would consider it theft to keep their money under management.

Perhaps when "madness of the crowd" goes right?

Hahaha ;D

Interesting thing we found was that this is very cultural; folks from the former 'east block' and the various 'asia's' all play the game very differently. The hardest part was always trying to find someone who played the same way you do - but better than you. There's never a Gretzky around when you want one! SD Once I started kicking my old man's butt I would play with a buddy from school - Chinese kid (I'm Italian) - we played completely differently. Went about 50/50 because for the few months that we occasionally played, we couldn't figure out what the hell the other guy was doing. 15 years later we do essentially the same thing for a living. Life is weird but chess may be weirder. ;D

If these are all of Buffett's partnership letters, then I have. IMO it was probably the best financial reading I've ever done. Did it on the subway going to/from work, about 30 min each way, took me maybe a month? Second is perhaps Klarman's book. Also I would note that Buffett's letters were one of the last things I've read from the "value canon". I think that was beneficial - I had a financial education, I had some years of investing experience, I had seen how a "value" philosophy plays out over a cycle. In other words, I was in a place where I understood the reasoning behind Buffett's words. It was actually one of the best play-by-play renditions of 10 or so years of value investing. Highly highly highly recommended.

Hey ditto on chess. First things I learned to play with the old man were chess and stratego. Great way to teach critical thinking, anticipation, etc

learning more programming code (C ) than i would ever wish on my worst enemy :D

I'm not sure about psychopaths, maybe John can chime in with his experience. I suppose it takes a certain type to deceive so many people for so long. You would have to be very smart, very motivated, and amoral. We had a case (and i'm being purposely vague here to avoid any confidentiality issues), where one aspect of a long, regulated process was anonymously reported to be fraudulent. After a pretty lengthy investigation the conclusion was essentially the following: either (1) nothing is wrong, or (2) the person/people engaging in this fraud are extremely intelligent to successfully cover their tracks on a daily basis over at least 2 years, despite it providing no gain to themselves (in fact any cover-up would probably cause more work), and with the potential to be discovered by other processes down the road and ruin their careers. This is usually how these cases end.

Roles and responsibilities % of NW invested as racemize mentioned Decision making process I'd ask for records of the last 5 years to see each position and how profitable it was Also I'd ask yourself what you are looking to gain from this? What do you get out of it?

Thank you!

One thing to note is fraud is VERY difficult to uncover (and even more difficult to prove) without a tip-off or help from inside the organization. Your odds increase over long periods of time (i.e. will the cash flows emerge or were they illusory?) but even this is not a given. My experience has put most fraudulent activities in one of two camps: -Institutional: This is a combination of wrong incentives, lax regulation, and multiple layers of disassociated responsibility. Easier to spot because nobody is really trying to "hide it", they are just at a mature point of pushing the envelope (i.e. finally crossing the line). When I do forensic work, it is mostly in this this area. And it is better work: Nobody is actively hiding anything, you have institutional support, and at the end of the day you are improving whatever area you are looking into. -Individual: More of a true "fraud", this is the SAC Capital, interest rate collusion, Bernie Madoff, etc. of the world. Very difficult to spot but easier to get a gut feeling. Most people are good at sensing if something is too good to be true or if someone rubs you the wrong way. But much more difficult to prove because these guys are actively hiding something, AND they are experts in the field (probably moreso then you) AND have insulated themselves as much as possible from any hard evidence if they are smart (which they usually are). You will be stifled at every turn, they will play dirty, etc. Most of my work has been on the first case. Very rarely does the second come up and I do not really like working on those cases. In the public markets? Forget trying to find fraud unless you are a big investor and can get real information. Otherwise, only the big televised cases will be available (the Enrons, Valeants, Ocwens, etc.) and you're still making an educated guess. Most fraud in public markets comes from one division of a huge company which outside minority investors have little or zero visibility into. The only way (again in my experience) to find this out is to become a customer or become a supplier (or both) and try to figure out what goes into the sausage factory vs. what comes out. IMHO your time is better spent looking for good businesses and avoiding the ones which appear too good to be true.

I would take a look at the asset lifecycle specifically any modifications if u can find the info. Lend car-->buyer goes into default-->repo car-->loan terms modified (outstanding balance is added to loan amount)-->buyer gets car back-->modified terms can't even then cover interest. My guess is the above flow is how many of these loans will evolve. Regulators should be providing guidance or enforcing limits to this behavior.

For myself it is related to financial model development/validation/implementation/ongoing usage. Happy to answer any q's you may have.

Yes it is a sizeable part of my job, but I would say it is not as psychological as it seems. Evidence must lead the way, but understanding the emotions/psychology of the people involved can help direct you where to look. Definitely an interesting activity!

I disagree. Plenty of sociopaths have created immense value without breaking laws. Plenty of non-sociopaths have created immense value, also without breaking laws.

But he was totally free to raise the price of Daraprim without committing securities fraud. I agree with you that laws are sometimes selectively enforced. But that's not a good excuse for breaking them.

I never liked this part of the quote. Can't we both be right? Maybe you sell your BRK to buy BAM and I buy your BRK and we both make great returns. The whole zero-sum thing bothers me because I think of investing as a value-adding activity which grows the pie over time

This brings up a question. Does narrative matter more in highly technical startups in terms of attracting funding. What percent of investors are capable of doing the DD necessary to determine if what the narrative claims is the goal is actually possible Great point. If you can't form an informed opinion, then move on. The only people who should have thought about investing are those with the resources to perform the scientific analysis necessary to come to such an opinion.

Still working for me (US)