nsa122

Oh and I bought a little Motif Bio...let me know what you think of that since you've got an ID background :-)

I have similar background/interest (different specialty). Biotech seems like a difficult place to be a value investor with all of the uncertainty and lack of visibility, but I have had the thought that perhaps if you did some bottom feeding by buying shares for less than cash on hand, you are at least getting a discount on what previous investors have paid and effectively getting whatever their intellectual property is for effectively free. There are a few small caps in that situation now, I suspect there were a lot more 2-3 years ago but haven't looked back to see. Seems like even the smart crowd can be wildly wrong about what ends up working and what not. I recently bought tiny amounts of CMRX, PRTA and ITRM...welcome to hear your opinion on any of those. Maybe cheap lottery tickets to some extent. Also own some Gilead, Incyte and Celgene but those are more established/predictable cash flow companies. All of the above may be complete blunders but there's my two cents. There are also some good podcasts around.

http://investor.visa.com/news/news-details/2015/Visa-Analysis-Shows-Retail-Spending-Up-in-AprilAcross-Most-Major-Categories/default.aspx This certainly doesn't replace CPI, but maybe complementary. Seems like Consumer Reports or some such organization could do an annual survey of household expenses for those who were willing to spend the time to contribute.

100% cash

Per well IRR would be great if you had all the necessary data/evidence to independently do the calculations yourself and the decision making power on what to do with the wells' cash flow. But unfortunately, you are stuck putting your faith in a management that usually is heavily biased in favor of drilling more wells as an institutional imperative, and you are along for the ride. I think the long term analysis of value created by say, 10 years of cap ex is a useful metric to tell how much stock to put in extravagant claims of IRRs. If capex has not yielded shareholder wealth (eg DVN), then the reliability of projected well IRRs seems dubious. I imagine all these natural gas wells had fabulous IRRs until the bottom dropped out of the price, which to me is the reason not to reinvest all FCF into more drilling (unless you want to hedge/lock in prices for the life of the well, which I haven't heard of anyone doing, please correct me if I'm wrong).

Comparing XOM and DVN further just for learning purposes. XOM 2013 EV $408B 10yr capex $237B 10yr dividends $90B 10yr FCF $263B 10 year returns w/reinvested dividends--12% 20 year returns w/reinvested dividents--12% Dividend yield 2.6% PE ~10 DVN 2013 EV $35B 10yr capex $58B 10yr dividends $2B 10yr FCF $-1.2B 10 year annualized return w/reinvested dividends--9% 20 year annualized return w/reinvested dividends--9.7% Dividend yield 1.35% PE ~13 So far, doesn't appear that DVN's cap ex has been well spent. I'd suggest that XOM is the BRK of the oil and gas industry in terms of capital allocation. If you look at total return calculator for the past 20 years (dividend reinvestment for XOM), BRK and XOM are neck and neck, despite XOM being much larger in 1993. Given the above, would anyone opt for DVN over XOM at current valuation? Or care to propose a company in the industry that is a better value than XOM?

In response to the original question, I would suggest that if you want to be repaid in dollars (as opposed to dividends of oil or gas), and view the shares as part of a money-making machine, then EV/FCF, projected FCF growth, and return on invested capital should be primary metrics, regardless of the industry. The reserves and production are intermediate steps that may or may not eventually yield cash return.

My admittedly fledgling attempts at valuing these companies are flummoxed by this industry's capital expenditures. Individual firms' capital expenditures are frequently higher than the operating cash flow, or even in some cases, revenue. Even for instance Devon ($24B), has had a net negative free cash flow over the past 10 years (2003-12) (-1.3B per Morningstar). And this is in a decade of some of the highest prices ever. How would anyone value this company, unless you had a crystal ball for energy prices over the next 15 years? This to me destroys any hopes of evaluating these companies on some sort of "value" basis. If they hit a big find, they just double down and place even larger bets on stable/rising prices. These companies managements' are apparently either overconfident in their prediction of petroleum prices or don't particularly care about shareholder return, rather building their own fame and fortune, as evidenced most glaringly by CHK, SD. I suspect a combination of the two. I marvel at XOM's remarkably consistent record of reducing share count and increasing dividends. Their capital expenditures are much smaller (relatively speaking), and I suspect that they get the pick of the litter in terms of acquiring assets from overextended firms when prices drop. Would be happy to hear someone with a conflicting view.

Hi everyone, wanted to get input on internet security. I am reading recently that essentially all passwords are hackable given enough time and resources. What is the best solution for an individual investor? Is anyone using 1Password or another similar service? Any computer security experts on the board have any advice or willing to share how they manage their online finance security? Thanks!

Still all BAC.

If you buy at $40 and sell at $80, presumably you are confident the business is worth something between those two numbers? I could see that strategy if it was a steady business earning $5 per share year in and year out, but I don't have the same confidence with SHLD. How can you so precisely value SHLD? Thanks.

I agree that transportation, given large disparities in citizens' utilization, should be supported by usage-based fees, determined by a free market, rather than uniform contributions. I do not consider transportation to be a public good. http://marketurbanism.com/2011/02/22/urbanism-legend-public-good/ I would suggest if you can quantify any government service that is used by Warren Buffett disproportionately more than his neighbors, then that is an indication that those services should be provided by a private entity rather than government, and supported by user fees, rather than coerced contributions. But even if you do identify a service that you believe must be provided by government, I don't understand slipping income into the equation as some sort of proxy for usage. I don't believe it is the proper role of government to attempt to correct for the "ovarian lottery" or enforce fairness. I would suggest that a per capita fee is not regressive or progressive, because it does not vary based on income. It is simply a fee, just like the price of any other good or service. A per capita fee is "equitable" in that each person contributes equally.

I agree that a recessive tax regime is inequitable, just as inequitable as a progressive tax regime. Rather, I propose a flat per capita fee: each person pays a per capita fee to support the government's mission (supposedly the provision of "public goods"). This would currently be on the order of $12,000 per capita per year in the US. That would be "equitable", no? My personal idea of equity is that financial support of government should be commensurate with voting rights. If financial support of government varies from person to person, so should votes. If votes are equal, each person's financial contribution should be too. If you can't afford to support the government, that is fine, you can get essential government services for free, but I don't think you should get to vote.

One basic question: Why should my income determine my contribution to our government?

With Interactive Brokers it looks like I would pay many times the $7 per trade I currently pay with Scottrade. I guess I should add that I trade a couple of times per year and clarify that I am looking for convenience and consolidated services. My complaint with Scottrade is lack of technological features like photo deposit of checks, and lack of full service bank features like being able to accept savings bonds or other one-off transactions that I still need a bank account for. I'd like to use one institution and website for banking/bill pay and brokerage services, which I suppose narrows options to one of the major banks.