LC

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"

I agree with this, but with a caveat: In my experience, transparency works best when it's actually transparent in all factors, not just work. Let's say your coworker is missing some deadlines, you notice it for a bit and in the spirit of transparency, you mention it. In the same spirit, he says that he's going thru a breakup, has a new baby, or what have you, and therefore his mind has been elsewhere. A fully transparent relationship is when you already know your coworker is on the rocks with his girlfriend, or his wife is expecting, or whatnot, because you share these things. And so you may preemptively re-allocate resources to avoid the situation entirely.

Yea I agree cubfan. Either (1) he's lying which is what i suspect, or (2) he allowed processes in place to allow one person to allow such a huge breach

@BG2008 - Thanks for replying. I was looking for a little confirmation because the principle makes a lot of sense yet nobody mentions it. Everyone just takes 6% because that's what Buffett used 50 years ago. As you mention, 6% was the average risk free rate back when Buffett was setting up his partnerships. @Rod - I'm not sure I agree with that idea. I don't think economically it makes sense. It assumes that the client would be earning the index rate of return without the fund manager. Empirically that assumption has been shown to be false. Individual investors are pretty good at buying/selling the index at the wrong times.

Ok but, why 6%? Why not 5% or 7%? In Buffett's time, 6% was the 30 year coupon.The idea (as I understood it) was that managers are paid in excess of the risk-free rate. Clients moving outside of t-bills are assuming risk. They can either pay themselves for that risk, or pay someone else, presumably a professional. The real question is, why are value fund managers stuck on 6%, versus payment for the intelligent assumption of risk above the risk-free rate? Note: I think his actual fee structure for the multiple partnerships varied: 33% above 6% 25% above 4% 16.6% above 3% But (1) he provided liquidity back to his clients from the fund at 6% (again, the risk-free rate), and (2) I think when he combined all the various partnerships, he adopted 6% as the rate.

Buffett was writing back in the 60s that the money managers job was to beat the index. The concept of risk adjusted return is imho used too much as a method to rationalize underperformance.

I completely agree. And you know, IIRC the reason Buffett chose a 6% hurdle was because that was the average 30? year treasury rate at the time. What are your thoughts on that? Or even a floating annual hurdle rate that mimics the 30 year?

The answer to that is totally dependent on who is asking the question :)

I don't follow them closely but if we assume there is no fraud, then to get from the 13F analysis (which shows much more modest performance) to their claimed performance, they would have to be using leverage or derivative strategies like you mention. Not that there's anything wrong with that, I sell puts to initiate or add to positions and sometimes sell covered calls. But a good general question: what isn't required to be reported on 13Fs. Edit: 13F list here: https://www.sec.gov/divisions/investment/13flists.htm