blainehodder

Any idea on the average claimed returns of boardmembers? Has anyone's internet "returns" underperformed in the history of the board?

Flip the magic formula. The resulting stocks will underperform over the long term. Obviously some years it will haphazardly outperform... But over time you should have a brutal group of stocks which underperform.

I have one... What is a 75B cost free float in perpetuity worth assuming a risk free rate of 3-6%? Should this be deducted from the book value as a liability as if it was due to be paid back?

I don't know if you are right or wrong about this statement. But is there evidence to back this up? Quotes? I don't think Buffett would do anything more complicated, like using a spreadsheet, to estimate intrinsic value. He probably takes owners earnings (normalized) and uses a multiple that he finds appropriate. He might compare a business to a 10-year treasury and work from there. Businesses he invests in usually have durable economic advantages and steady cash flow generation, which makes intrinsic value estimation a bit easier. I also read something about a 15% hurdle rate. He might be looking at owners earnings [normalized]/EV. Maybe I’m crazy, or maybe this should be taught in MBA programs… I’m not really sure... but this is how I think about owner earnings: Owner Earnings is an equity number as opposed to an enterprise number. Owner earnings is bascially normalized operating cash flow less maintenance capex right? It basically answers the question, "What could I pull out of the company and stuff in my jeans if I were a private owner?" If you are looking at an owner earnings yield you should compare it apples to apples with the market cap. This can be very useful for napkin math. Using rough numbers here, say "Company A" has a relatively normalized Cash flow from ops of 10M, with maintenance capex of 4M and a market cap of 50M. Ower Earnings are going to be roughly 6M in this scenario. Theoretically,the owner earnings yield would equal your dividend yield if "Company A" chose to pay out the whole sum of owner earnings as dividends (which is net of enough capex to maintain the business at roughly the rate of inflation). In this scenario it would be 6/50 = 12%. If your assumptions are correct the company could theoretically isssue dividends at 12% of your purchase price, scaled to inflation forever, assuming the company has at least inflation protective pricing power (like See's or Coke). That would be nice. Where this analysis becomes complicated is when the company chooses not to just pay it all out. Maybe the company chooses to do other things with the owner earnings. Maybe it reinvests in the business to grow faster than simple maintenance, or it could pay down debt, or buyback stock etc... This is where analysis of capital allocation comes into play. Lets say the company dividends out half of your owner earnings, and reinvests half of your owner earnings at precisely a 20% return.... now you are going to do better than the simple "payout everything" baseline of 12% right? You are now going to make more like 13%+ because of the (3M dividends + 3M*1.2 internal reivestment) / vs market cap) , ignoring tax implications. Now, if you dont make at least your "owner earnings yield", it basically means management is destroying value... and it typically happens when companies take owner earnings and pursue low return projects instead of paying out the cash. That is basically how I use owner earnings. I use it as a baseline, to answer the question, "How much would I earn here if the company paid out everything it could to simply maintain unit volume and grow at the rate of inflation." Then I ask if management will do better or worse than this baseline "pay it all" model. Will they invest in low return projects which would make me do worse, or will they reinvest in high return projects (because it is a good business) and that will boost my baseline return? Will they buyback stock if the net of those assumptions increases my owner earnings yield...etc. The most important question then becomes, do I trust management to allocate the owner earnings well. If the purchase price is cheap but the business is terrible but stable, you will do well if you pull the cash out (Like the old mills at BRK). If the the business is great, you want to reinvest as much as possible before the returns dwindle, at which point you want to start pulling the cash and finding higher return investments (like See's - great returns but limited scale). If you start to find many companies with a theoretical owner earnings "pay it all" yield greater than 15%, and they can allocate capital internally at even higher rates, you will do very well over the long term if your owner earnings estimates are correct. At least that is my assimption. I think Buffett uses owner earnings for this sort of napkin math. Of course if you flip the yield you get a multiple. I find that less intuitive personally. Maybe this simple model is garbage and way off the mark to Buffett's actual thinking...but I find it pretty useful.

I was loaded up on COCO and it proceeded to rally about 50% quickly earlier in the year, and then came back down recently. I dumped some of it at a modest gain recently since Leon Panetta joined the board, then resigned about a month later. I'm not sure if it means anything but it could. I still hold a bit as it is so cheap. I'm thinking about adding some other names and diversifying across a few holdings in the sector now.

Huy Fong Foods. Sriracha! They can probably grow the company for decades and earn outragous returns on capital as they do it. What could be better?

http://www.sec.gov/Archives/edgar/data/1385544/000154692713000112/0001546927-13-000112-index.htm http://www.sec.gov/cgi-bin/browse-edgar?CIK=0001549575&action=getcompany

Relevant link: http://turnkeyanalyst.com/2013/06/picking-managers-based-on-the-facts/ I just can't see myself paying fees to investment managers when companies with solid allocators will work on behalf of shareholders for next to nothing at BRK and FFH. Heck you can have Munger picking winners for you by just buying DJCO.

Any up to date poker books you recommend Alwaysinvert?

if you are going to be investing in net-nets on a mechanical basis, DO NOT SELL AT NCAV. Obviously using your judgement would be best, but the 2-3 year shuffling seems appropriate, with an annual double check on the numbers. The thing with net-net investing is that the winners really rip upward offsetting all the ones that sit there flat or decay for long periods of time. Very often when a net-net finally starts to get juiced they go way past NCAV, which in turn leads to much of the outperformance. By selling all of your winners at NCAV you will almost surely hurt your returns. I searched for a post where Geoff mentioned this, but I couldn't find it. Anyhow, a stock at NCAV is obviously still cheap, so if good things are happening, why pull the plug so early? I have a bunch of pdfs from various sources I'll dig through to see if I can find you a source.

Technology... the destroyer of wealth. Oh wait. http://visualeconsite.s3.amazonaws.com/wp-content/uploads/2011/03/RealGDPperCapita.png

Great Greenblatt link. Thanks!

Awesome. Been thinking the same for years. I literally have the t-shirt :)

Start with the spelling :) jk. Really the posters above seemed to have nailed it.

Ah yes! I forgot we were talking about very short duration options. Great explanation twacowfca. I stand corrected. Thanks!

Statistically, you played it right. Run ups in price after favorable earnings reports tend to peter out quickly. :) This seems to conflict with the numerous studies on Post Earnings Announcement Drift. I would argue that prices tend to drift in the direction of beat or miss for some time (weeks to months) after earnings. Am I mistaken? Perhaps the play on these options is to have an actual (or mental) rolling stop in place to participate in the drift? Just a thought.

For sure! I am super comfortable with getting news from the web. Sports is the big problem. I can easily see Apple doing a deal for game by game PPV though. Perhaps the leagues, NFLX or a startup will solve it. I'm convinced someone will solve it given my willingness to pay for an all you can eat or PPV sports model (assuming a reasonable price). I can afford the cable TV, but I realized I wasn't really watching it this year at all given the other solutions, so I cancelled (Shaw in Canada). Small data point, but I wasn't the only one in the store cancelling when I was returning the cable box, and the customer service rep expressed, "oh, another cancel". Anyhow, as a value investor, it is an interesting thing to follow... That's why I posted the thread on here! Also an important thing to note is that dying industries can still be great investments assuming distributive dividends, and smart capital allocation!

Parsad, most of these shows are available online on the network websites. Simple S-video cable solution along with a laptop. New TV's can even do this on wireless or through the built in browser. EDIT: Also, you can get American NFLX (bigger selection) by using a VPN, which are only about 5 bucks a month. I imagine the VPN/Hulu solution is doable as well. Live content like sports is what's missing. That is the final puzzle piece... but I am confident this will work itself out eventually.

I pulled the plug a few months ago. Using Apple TV or boxee box and NFLX I save a pile of money a month, and the experience is FAR better in my opinion. The only thing missing is sports. Most friends/family are considering pulling the plug. What about you?

This is a morbid post, but I believe it will play out eventually. I think one of Buffett's greatest skills is selecting people. Also, the Berkshire portfolio is obviously rock solid. Therefore, I think Berkshire has a great future even when Buffett is no longer at the helm. BUT...when he dies, I am sure the stock will tank. Will Buffett's eventual death generate a massive opportunity to deploy into Berkshire? Do you think Buffett has instructed Ted and Todd to take advantage of "death arb" price drop? Will you be a big buyer after Buffett is gone (which is hopefully a long way off)? How big of an impact on the stock do you think it will have? Obviously a drop from 1.8 times book to 1.5 times book isn't the same as 1.2 dropping to 1 or something crazy, but I think an opportunity will arise. I'm sure Buffett would have a good laugh at this post. This would be a good topic/question for the shareholder meeting.

Parsad, I hope this isn't violating any of the site rules. I was running some stingy stock research today and I ran into a pretty cool little screener which does some nice scraping for prelim research. Im not sure who runs the site, but it is worth checking it out for you Grahamites out there. http://extremevaluestocks.com/stocks.php Then when you enter individual securities tickers it scrapes insider data, and all sorts of useful info. http://www.extremevaluestocks.com/evs_research/stock.php?symbol=coco With that in mind, what other sites are you using to speed up your preliminary research? -Grahaminvestor is great for US netnets. -Gurufocus is solid for 10 yr financials. -Magicformula is a pretty awesome starting place, but you dont get to see the underlying EV/EBIT etc info. which is a pain. http://www.magicdiligence.com/mfiscreens.php is solid turnkeyanalyst Obviously all the blogs are great. Walkers manual What do you use before hitting the actual 10K/Qs (other than on here of course)?

Interesting proposals Olmsted. I'd like to add that mandating prescriptions for basic drugs is outrageous as well. No need to see a doctor if you know you need penicillan. A few questions: How would such a system deal with chronic (non cat) illnesses? What happens if the HSAs won't cover the cost? Single payer in other nations seems to be working better than the current US offering, but I'm not saying that is ideal. I quite like your proposal. Are there any countries which follow a similar proposal? If so, how are the stats?

Yes , I was saying valid point. As in, the US is not a private system. It is clear the US system is a failure. Maybe a "real" private system would work. It seems the US is in some pergatory of getting all the bureaucracy of large government without the results that come from single payer. What would a private system look like? Is there a success story country out there? I would regard many single payer systems as successes (measured against the current US system). I'm not arguing "a true private system" doesn't work. I'm just not familiar with the examples.

Private system? Please tell me about this unregulated private system? I've lived in the US my entire life and didn't know it existed. All this time I've been using the inefficient highly regulated system which gets worse and worse every year. I'd love to know where this private system of which you speak is and how I gain access to it? Valid point. I meant the US system.

Before I start, I'd like to request that everyone keep emotional responses under control in this thread. I'd like to start a rational discussion about health care costs and results in the US vs other countries. Can someone present a rational argument as to why US health care so expensive and ineffective. Also, why not opt for a single payer system? I appreciate the argument for small government but in this case the argument appears moot. The private system is oddly more inefficient...not less. Wouldn't single payer health care solve the problem? If not, why is the US the exception? The US has the highest per capita Health Care costs in the world: http://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_(PPP)_per_capita The results are poor by almost any metric: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html 21 deaths/100,000 live births (2010) country comparison to the world: 136 Infant mortality rate: total: 6 deaths/1,000 live births country comparison to the world: 173 male: 6.6 deaths/1,000 live births female: 5.3 deaths/1,000 live births (2012 est.) Life expectancy at birth: total population: 78.49 years country comparison to the world: 51 male: 76.05 years female: 81.05 years (2012 est.) HIV/AIDS - adult prevalence rate: 0.6% (2009 est.) country comparison to the world: 64 Obesity - adult prevalence rate: 33.9% (2006) country comparison to the world: 6