ItsAValueTrap

Thanks a lot for the article! Now I see why insurance companies pay ridiculous prices for medical services... the consolidation of healthcare providers reduces competition. From researching DaVita, it is obvious that private insurers pay obscene amounts for dialysis. I do disagree with some of the things in the article. He attacks certain parties for making high profits and high margins. Just because certain parties make a lot of money doesn't mean that they are part of the problem. Some drug companies make a lot of money only because they were lucky. Developing new drugs hasn't been that profitable of an industry lately. 2- I think that a big part of the problem is the limited supply of doctors. Doctors who emigrate to the US have a very hard time getting licensed. The US government essentially limits the supply of doctors. This leads to monopoly-like effects. When all the doctors in an area band together into a single practice, they have little competition. This allows them to engage in behaviours that maximize their wealth. Sometimes recommending bad treatment will make them more money. This is the case in the dialysis industry, as cutting corners flows directly to the bottom line. The dialysis clinics often pay kickbacks to kidney doctor groups for client referrals (they hire the doctors as consultants). Sometimes the kidney doctor groups are allowed to own part of a clinic. This sometimes creates a situation where kidney doctors will refer patients to clinics that cut corners. DaVita was also engaged in the practice of overprescribing EPO. The practice was wasteful and endangered patients. Sometimes doctors will recommend too much treatment so that they can make more money.

Solar seems to be the cleanest and most expensive. However, a lot of the solar panels are made in China where they use coal for cheap energy (it takes a lot of energy to make a solar panel). First Solar's panels are made of toxic chemicals though they will likely play a smaller role in the future. Wind power has problems with noise. The noise generated by the turbines cause sleep problems in human beings. Smart residents will viciously fight wind power in their backyard. The blades themselves also kill birds (you can see videos of this on Youtube). In the future, I think that wind will get a little more expensive as we recognize these costs. Nuclear energy will draw a huge amount of NIMBYism (not in my backyard). Our track record with nuclear is mediocre. We tend to overestimate its safety and to underestimate the cost overruns. We also haven't figured out how to store the waste safely for a very long period of time. 2- In Canada, we do weird and crazy things. Ontario subsidizes clean energy like solar and wind. At the same time, Ontario is also talking about subsidizing a smelter for Cliffs' proposed chromite mine. It doesn't make sense to subsidize pollution... but Ontario politicians want to do it. In Quebec, Strateco isn't allowed to advance its uranium mining project.

If you value houses based on what it costs to rent versus owning, then the US is doing ok. In some areas the cap rates aren't that great. In other areas of Phoenix, it makes a lot of sense to buy a home (especially with a 30-year fixed rate mortgage). The most overpriced real estate right now is in China, followed by Australia, followed by Vancouver. In my opinion. 2- As far as housing stocks go, I am shorting some of them. These valuations are really high. 3- As far as lending to homeowners go, the US was awful in the past and is now getting a lot better. Before, an unemployed person could buy multiple homes with no downpayment (!!!). Now, the loosest lending is being done by the FHA. You need a 3.5% downpayment and there are less people gaming the downpayment to get it down (in the past, you could borrow against the homebuyer's tax credit so the downpayment was close to 0). Credit standards are extremely high right now in China because they are trying to cool down the housing market. Credit standards are higher in Canada than the US. 4- There could be a small amount of bad behaviour going on in the mortgage origination space and in the mortgage REIT space. The mortgage originators have some of the same problems as the past- there is a huge incentive to have low lending standards. The mortgage originators are liable for fraud and faulty paperwork- but these problems won't surface until several years later because it takes a while for some homeowners to be delinquent on their mortgages. Low yields are pushing investors towards buying mortgage-backed assets from these mortgage originators.

I'm not sure that's the whole story. Here's what the SEC has said about Revolutions Medical: http://www.sec.gov/litigation/litreleases/2012/lr22489.htm My knee-jerk reaction is that the company looks A LOT like a pump and dump.

Sometimes a cheaper way to buy Barnes and Noble would be through LMCA / Liberty Media. Check out the LMCA thread. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/lmca-liberty-media/100/

I'm not so sure about that. During the dotcom bubble, they raise capital through debt when they could have sold stock. Right not Amazon is buying back some shares. Their share count went up a little over the past 10 years, but it hasn't really increased its IV by issuing lots and lots of stock.

http://www.bloomberg.com/news/2013-06-24/western-digital-buying-stec-for-about-340-million.html Well this is a head-scratcher for me. Western Digital plans on buying STEC. STEC makes mostly enterprise-grade flash drives. In the enterprise, I see things as moving towards solutions using consumer-level mass market hardware- mass market hard drives and mass market flash drives. The market for consumer hardware is far greater than the enterprise market (and other specialized markets). Consumer hardware enjoys economies of scale that would make it difficult for enterprise hardware to compete. What protects enterprise hard drives is that the enterprise market has specialized needs; the companies making enterprise storage (Netapp, EMC) need to do extra work to get around the problems of consumer hard drives. Google's infrastructure is based on mass market hardware. Facebook uses FusionIO's drives right now... though things could change in the future. But I think that the trend is clearly moving towards mass market hard drives in enterprise storage solutions. (EDIT: Btw, congratulations to those who went long WDC.)

He doesn't even do special situations now... haha. Though I think that John Malone's LMCA is vaguely Greenblatt-like. See the thread in the investment ideas forum. Though Malone has made most of his money from investing in wonderful businesses (e.g. the TCI cable business, cable networks, etc.)... more so than creating complicated situations and wheeling and dealing.

That's not really the problem. Most of the people running the juniors are in it for themselves. And many of them don't even have mining backgrounds. The people running the hot Internet companies- Facebook, Groupon, Amazon, Webvan, Pets.com, etc.- are actually trying to make you money. The valuations might be dopey but at least they're not corrupt. Very few of the juniors out there are trying to make money for shareholders. The level of corruption there is absurd.

Running a retail operation is really hard. That makes it possible for some people like Sam Walton, Costco's founders, etc. to be a lot better at it than others. It's open ended and there are different ways to create value. It's really hard and a lot of intelligent people fail at it. 2- In the past, some retailers have used too much leverage. Just like any other industry.

I wish you luck! You may find Selwyn Resources to be interesting. An activist shareholder tried to get the company to dividend out its excess cash. Then the CEO (who was actually pretty good for a junior mining CEO) turns into a complete asshole and tries to hold onto his job. Drama! I don't think some CEOs will be too happy with you disrupting their management employment agency.

He hoarded physical silver and owned Cliffs Natural resources back in the day. I suppose that it's interesting that he didn't seem to have invested in silver mining companies. Certainly Buffett has a good track record because of things he didn't own: - Investment banks going into 08/09 - he sold out of Fannie/Freddie - Tech stocks in 2000 - things outside his circle of competence etc. etc. With a restaurant company, it's easy to do a cursory check for fraud. You can Google street view their locations and read reviews of their locations. With an exploration company, it's so much hard. If you look at the Bre-X fraud, the senior miner that was about to buy Bre-X didn't get burned by fraud. That's because they were going to run their own assays on Bre-X's drillcore. It so happens that Bre-X intentionally destroyed their drillcore (!!!). So Freeport McMoran brought in their own drill rig (or drill contractor) to re-drill holes. At the bare minimum it cost them several thousand dollars (probably a few million though). Institutional investors didn't do that level of due diligence and ignored the red flags (e.g. destruction of drillcore). They got burned. Retail investors obviously didn't do their DD. They got burned. And Bre-X like frauds still exist today. The idiot geologist in Bear Lake Gold falsified assay results. Investing in this sector is hard. It's probably easier to stick to one foot hurdles like Altius Minerals and Northfield Capital. These companies have good management teams (their compensation is very low by junior mining standards) and they trade at discounts to private market value. In my opinion, book value is a very poor proxy for the private market value of a junior's project. And it's incredibly hard to value exploration/development stage projects to begin with. There is a huge amount of uncertainty before you start exploring and the value of the project changes rapidly as more information is uncovered.

Here's an old thread that's pretty relevant: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/gold-chart-gone-hyperbolic/msg52543/#msg52543 PARSAD: "It is simply the most corrupt industry I have seen!" MOORE: "Don't get it twisted, the Juniors, are our national treasure." (I agree with Parsad on this one! And I disagree with Moore.)

1- Waste money on stock promotion, insider compensation, directors & officers insurance (that covers them from shareholder lawsuits...), and other G&A. 2- Chase dumb projects. At the extreme, some juniors will chase stuff with no hope of being economic- underwater mining, mining placer deposits, etc. More typically, juniors will often continue to sink money into a project where the initial results aren't that great; this is to keep the story going. Some of these CEOs are very good at promotion but have no clue on how to make money (or they don't care)... e.g. Robert Friedland. Some different viewpoints: http://sprott.com/news-centre/why-i%27m-excited-about-this-market/ http://adventuresincapitalism.com/post/2010/03/07/Mining-worse-than-airlines.aspx (mine) http://glennchan.wordpress.com/2012/10/08/investing-in-junior-mining-a-recap/

Watch out, most of the junior mining sector is a huge value trap. In aggregate, they destroy shareholder capital even when commodity prices rise. I'd much rather index retail stocks than junior mining... it's not even close.

Life-saving medical treatments and drugs.

Ok we're going in circles here. Was their disclosure written in legalese or not? Let's just agree to disagree. You seem to be long the stock so I wish you the best of luck. *Disclosure: No position in the stock. I covered my short position and made money.

In some cases it's about leverage / being more aggressive about taking risk and getting returns. 2- Sometimes there is a tax component to it. If a multinational US company has cash overseas, it has to pay repatriation tax if it brings that money back to buy back shares. If they don't bring it back right away, they can re-invest the money and basically enjoy an interest-free loan from the US government. If they borrow money domestically, they can use that money to buy back shares while deducting the interest payments against their US taxes. Their loan is backed up by their overseas assets. The overall strategy keeps their interest-free loans from the IRS intact. On the surface, this strategy might look silly. If you buy back shares, you are returning capital (to shareholders). You are unraising capital. If you take on debt, you are raising capital. Raising capital while unraising capital seems silly. But there are reasons to do this related to taxes. This is why Apple may borrow money even though it has a huge cash hoard.

It seemed to me that the bid wasn't really serious at all and that it was played up to mislead investors. It is probably the CEO who bears responsibility for doing it.

I've been doing some research on DaVita. I can see why somebody might be attracted to the stock. Kent Thiry is one of the best CEOs in that niche. Davita and Fresenius post similar returns on capital though Davita stock has performed better due to superior asset allocation (?and faster growth?). HOWEVER... Thiry strikes me an unethical. Yes, the whole for-profit dialysis industry is unethical. The economic reality is that only the cutthroat survive. Both Fresenius and Davita have paid settlements over Medicare fraud. But, Thiry strikes me as an unethical person. -He talks a lot about improving patient outcomes. Yet his company was putting patients at risk by overprescribing EPO just to make a little extra profit. They reuse dialysis filters (unlike Fresenius, which has moved towards single-use filter). Many of the staff at DaVita are unhappy that cost-cutting measures are putting patients at risk. -He talks a lot about saving the American taxpayer money. Yet DaVita has participated in many instances of Medicare fraud: overprescribing EPO, wasting drugs, etc. -Thiry's salary has grown much faster than Davita's profits. Presumably, the board made Weschler enter into a standstill agreement. Berkshire Hathaway gets very little out of the standstill agreement while the board of directors gets extra job protection. DaVita actively tries to create monopolies in local markets. For example, they paid doctors to enter into 10-year non-compete agreements. Patients do not want to drive excessive distances to get to a dialysis clinic (especially if they are so sick that they cannot drive themselves). So if there is only one clinic near them, they don't have much of a choice.

I think the legalese has them covered. If you read the disclosure carefully, they point out that it is: - non-binding - subject to financing etc. etc. In other words, it could amount to nothing. To me, the disclosure about this anonymous consortium looks deceptive although legally they made sure that they covered themselves.

Is it possible for natural gas prices to go even lower in the future? It seems to me that shale technology continues to improve. Looking at Southwestern Energy's presentations, they have indicated that their cost per well has been dropping even though they have been drilling wells with longer laterals. That they have been drilling longer laterals suggests that technology is improving. Part of the drop in costs can be explained by things like lower rig count. But it seems to me that technology may continue to improve and drive costs down. (*I don't really understand shale technology.) If improvements in technology continue to lower costs, then this could be a bad thing for natural gas producers. Here's what Munger has to say about technology and commodity prices: http://ycombinator.com/munger.html Production has gone up slightly & definitely hasn't dropped. http://www.eia.gov/naturalgas/weekly/

I have a little fear that high returns on equity are unsustainable. It's a commodity industry so anybody can get into it and bring returns down. Thankfully, because it takes a while to bring new supply online, the industry historically hasn't been extremely cyclical. There are a few oil & gas companies that are able to sustain high returns on equity (e.g. the oil Contango Oil & Gas, not the new one). It's because they make good deals, have the lowest exploration costs, and don't chase projects with low returns. Obviously not everybody can do this. As far as the oil(&gas) majors go, you could look at what Buffett is buying. 2- Technology could play a role in all of this. I believe oil production in the US is increasing ??due to oil in shale formations??. I have no idea if what happened with shale technology and natural gas might happen to oil. Technology that causes the cost of production to fall dramatically can be a bad thing for existing players because there will lots of new supply that brings prices down. This happened with Berkshire's textiles business and it has happened with many of the natural gas companies.

Is this a leveraged ETF? They are huge ripoffs and sell out their investors. Short them (in *very* small amounts or not at all), don't go long them. Buffett stopped hedging a long time ago. I don't think that it's worthwhile.

A year later, it looks like Premier is *still* trying to sell the assets. Here's the earnings press release: http://www.sec.gov/Archives/edgar/data/796764/000117184313002262/newsrelease.htm I have some quick analysis here: http://glennchan.wordpress.com/2013/06/03/premier-exhibitions-4q13-closing-this-position/ *Disclosure: I have no position in this stock.