ItsAValueTrap

I wouldn't go long the leveraged ETFs. 1- They have excessive trading costs and could lose 5-20% of its "assets under mismanagement" just from trading costs. Note that they often don't trade liquid products and they have to trade every day. (I don't know the situation for TBT.) 2- You are better against excess volatility / you are betting against Mr. Market. 3- And of course you have to pay the management fee, which is a little excessive. http://glennchan.wordpress.com/2012/11/07/leveraged-etfs-a-market-inefficiency/

Yeah I mean the junior ones.

Are you saying that you would trust PV-10 estimates? My problem with the oil & gas industry is that I don't trust them. They can distort the economics of their wells with few repercussions. This is a recipe for disaster. Rampant lying in the industry with few repercussions for lying is a recipe for disaster. This is how I see the majority of independent oil and gas companies out there (and junior miners, chinese reverse mergers, etc.). It will end badly. What does book value have to do with anything? Full cost versus successful efforts accounting will yield different book values for the same company. I'm starting to think that they are buying things outside their circle of competence. Buffett's style is to do business with people with integrity. So if the management team is honest, then you can probably trust their resource/reserve estimates. He has invested in oil&gas for a long time... Exxon, PetroChina, Conoco Philips, etc. I don't think he ever got burned with reserves or economics being overstated. Munger or Buffett has made some kind of comment about being bad at judging resources/reserves (and technology). In hindsight, his forays into commodities don't seem to have been as brilliant as his other moves. He hoarded physical silver, invested in Cliffs a long time ago, etc. etc. I think that Buffett is on another level compared to other investment managers out there. It's just that it's hard to get crazy returns out of some commodity industries. Here's what he said in his 1989 letter:

Ok now I see why Musk's sales team was trying to get customers to pay earlier. http://www.sec.gov/Archives/edgar/data/1318605/000119312513222426/d538782d424b5.htm#toc538782_12 Tesla recently announced that it is selling stock. That kind of thing takes at least a month to put together. (Does anybody know the actual timeframe? I believe it takes a few months at least.) It takes time for all the lawyers and accountants to prepare the paperwork, to re-read everything, clear everything with the investment bank's compliance department, etc. Anyways, Tesla management seems to really know what they are doing. Selling stock at a high price is a good strategy. (And yes, Elon Musk is crazy because he is taking out a loan to buy even more Tesla shares. Get rich or die trying I guess.)

Why not Google "oil and gas reserve estimation" and come to your own conclusions? Or try this Wikipedia page for a start: https://en.wikipedia.org/wiki/Oil_reserves Management teams can: 1- Hire only engineers that are extremely optimistic. 2- Pressure the engineers to deliver a high number. I don't think that they pay them off to inflate reserves. It's not bribery but the effect is the same. It's because reserve estimation is inherently uncertain. You might get a lot more or a lot less oil/gas than you initially expected. It's really hard (or impossible) to differentiate between honest mistakes and dishonest estimations. A side effect of this is that it is almost impossible to prove fraud. This means that there will be few repercussions for inflating reserves.

Well of course there are ways to inflate/deflate the PV-10 value. Even Contango Oil & Gas under Ken Peak had to restate their reserves (downwards).

You can try to figure out the market value of all their assets. It's related to the PV-10 value of their reserves. However... I think that most oil and gas companies inflate the value of their reserves. This is more likely if they are constantly issuing stock. 2- When oil and gas companies sell their assets, they will often open up a data room so that buyers can do due diligence. I'm not happy that I cannot do the same level of due diligence (and I don't have the expertise to do it anyways)... so most of these companies will fall into the "too hard" category. It might be ok to go long the companies with honest & good management. (That means no dishonest CEOs like the ones at Chesapeake, Sandridge, ATPG, etc.) In some cases a company might sell off a portion of its assets, so you can infer a value about the rest of the assets.

Here's people on valueinvestorsclub.com talking about it: "Shorts taken out and shot" http://www.valueinvestorsclub.com/value2/Topic/TopicDetails?topicId=201 "Rules for Shorting" http://www.valueinvestorsclub.com/value2/Topic/TopicDetails?topicId=200 writeup on TSLA http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/84973

The borrow is around 37%... more expensive than credit card debt. (This short hurt. I covered my common on Thursday and still have put options.)

Well there are publicly traded stocks that own other stocks. Because of the high commissions, you would expect underperformance to exist *somewhere*. How can it possibly be efficient to own other stocks and to slap a management fee on top of that? Either that company owns mispriced stocks, or the company itself is mispriced. You can. In roulette, you can predict the motion of the ball. See Ed Thorp's work on it. In the lottery, you can lower your EV by trying to split the pot with other people playing the lottery. Some numbers are overchosen in the lottery- important dates, lucky numbers, superstitious numbers (or the opposite of them), etc. etc.

Davita's and Fresnius' margins seem to have stayed the same over the past decade. http://www.gurufocus.com/financials/dva http://www.gurufocus.com/financials/FMS I'm guessing that economies of scale have been offset by lower profitability of the overall industry. (Does anybody know the actual answer to this? I don't.) 2- This blog is interesting: http://whyisamericanhealthcaresoexpensive.blogspot.ca/search?q=dialysis It seems that the level of dialysis care provided depends on social, political, and ethical issues. An argument can be made for spending more money on keeping people alive. An argument can be made for spending less money and allowing some people to die a peaceful death (instead of being medical zombies). And then there are issues of fairness.

In 2011 it averaged out to around $49,000/year in revenue for a patient. 2- Please... sign up for organ donation. Kidney disease is a terrible thing. You're tied to a hospital (and you still have health issues because dialysis doesn't replace all the functions of a kidney).

I don't think that they are. I believe that medicare customers are free to change clinics. Allowing customers to change clinics is very important. If they weren't allowed to change clinics, they would have a hard time going on vacation since they HAVE to find a city with a suitable dialysis clinic. The government also wants to have competition amongst dialysis providers. (Even if it's not a good idea???) 2- I don't really understand how all the Medicare and Medicaid rules and regulations work. The government has numerous competing goals: a- Reduce cost to taxpayers. Quality care may reduce costs to taxpayers. b- Ensure that patients receive quality care. In theory, you can do this by giving bonus payments to clinics that deliver quality care. c- Avoid fraud. Usually when you transfer money to other people, fraudsters will figure out how to abuse the system. If you allow bonus payments for quality care, then unscrupulous people will figure out how to game the system. So Medicare might be layering on all these insane rules to stomp out fraud. Unfortunately, they may not be doing a good job of ensuring quality care. d- Sometimes the politicians interfere. This can lead to really dumb decisions. If they think that Medicare expenses can be cut (because they want to be seen as people who create efficiencies and cut out excessive spending and can balance a budget), then this could have reactions that causes overall costs to go up. (e.g. dialysis clinics are forced to provide crappy care to stay in business, which affects the health of patients, which end up requiring really expensive treatment when they have health problems) Apparently this leads to a crazy system with lots of dumb rules. It seems to me that Davita has grown much faster than the overall market.

Some information on standstill agreements: http://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?article=2948&context=wlulr

I believe here's the thesis in a nutshell: 1- Returns on capital are very high. http://www.gurufocus.com/financials/dva EBIT / (Net fixed Assets + Working Capital) is around 50%. In other words, pre-tax ROIC is roughly 50%. 2- Davita is really well managed. Ken Thiry became the CEO in 1999. His asset allocation is top notch. He buys back shares when they are cheap, uses stock as currency when it is expensive, etc. etc. This is mostly a bet on management. Thiry came in and turned the company around because the previous management team made a mess out of it. If Thiry dies, it will be really bad for this company. I don't think that Davita has a moat. --- This is a wonderful business selling at an ok price.

Clearly there is some price where puts are so cheap that it would make sense to buy them. And there is some price where they are so expensive that it makes sense to sell them. Let's just... agree to disagree.

Expected value might be positive and it might be negative. Who knows?

I would respectfully disagree. Could you expand on exactly what you are disagreeing with and why? Options is a zero-sum game if there were no transaction costs. If they are mispriced, then either the buyers or sellers of options will win out. I don't see why one side would be better all the time. Of course in the real world there are transaction costs (hidden and explicit). A hidden cost is when somebody has inside information and suddenly buys a lot of put options. Those with inside information tend to buy more options than they sell them. So there's an asymmetry there that you have to be careful about. It's a lot simpler to deal with common stock, as stock is less complicated and has significantly lower transaction costs.

I think a lot of it is presentation. Pusateri's has awful customer service. They have some serious food safety issues (they were shut down by health inspectors). Their aisles are cramped. Presumably everything else they do is done very well. The decor is very fancy. The lighting is pretty good. They offer valet parking. Their food is clearly overpriced (I think this is part of the appeal). They do have an excellent selection of high-end foods (and lots of stuff that is very hard to find). Instead of going to several different specialist stores (e.g. a bakery, a butcher, etc.), they bring everything into one place. Because Pusateri's has priced any sane person out of their stores, you only deal with "like-minded" people there (mostly old rich people). I think that's part of the appeal and is difficult to mimic. Loblaws sells some high-end items on par with Pusateri's (or arguably better)... but it's not the same because they also sell knock-off brands in the same store. They don't have a high-end image even though they sell some high-end food.

I'm not so sure. In Toronto, there are ridiculously overpriced supermarkets such as Pusateri's (and apparently McEwens). While they sell mostly high-end items, they also sell staples such as Philadelphia Cream cheese and Patak's curry. You can find those items at low-end supermarkets. Yes these high-end supermarkets will charge ~30% more. Everything at the supermarket is overpriced. But that's the appeal of the supermarket. It's a statement about the buyers. They will pay markups because it's the identity they want to be associated with (pretentiousness, appreciation for quality, etc.). It's like going to a country club with crappy and overpriced food. If you appreciate high quality but don't like overpricing, you can figure out who Pusateri's suppliers are because they name their pastry suppliers on their signs. If you go straight to the supplier's retail location, you can buy the exact same items for a lot less. And they're probably fresher too. That last 5-10% of quality costs a lot more. If you go straight to their supplier, it will likely be roughly the same price (e.g. up to 30% less). There are some people who legitimately appreciate quality. --- Perversely enough, I think that overpriced supermarkets may be better businesses than efficient ones (e.g. Walmart, No Frills). Efficient supermarkets are about operating efficiently in a commodity industry. They will always be in a low-margin world. The check-out process at No Frills is really efficient. They don't make you sign your credit card receipt or to put in your PIN because they know that fraud is low. They use really fast credit card terminals (you have to wait less time for the terminal to communicate). You don't wait for the clerk to pass the terminal to you because it's mounted right in front of you. A lot of other supermarkets just haven't caught on and have slower checkout processes. An overpriced supermarket sells something other than food. They sell something intangible (you can call it pretentiousness if you want). And they have wonderful, *sustainable* margins. If their CEO leaves though, they could be in trouble. Do not short businesses with above-average return on invested capital.

As a general rule, accounting firms will usually put out really good white papers on complicated tax issues. They put out this free information because they want to get customers to pay for their really expensive fees. But you can still enjoy the free information they give out. Here is some information about valuing deferred tax assets on PWC's website: http://www.pwc.com/gx/en/communications/telecom-industry-accounting-group/valuing-deferred-tax-assets.jhtml 2- I don't put that much importance on DTAs when I look at companies. It is usually a small detail that doesn't matter. It can matter if a company has huge amounts of operating losses. But with those types of companies, you need to be extremely concerned about whether or not that company is going to make money going forward. If they are going to make tons of money, the DTAs are just icing on the cake. If they aren't going to make lots of money, then your investment may go to 0 regardless. You need to pay the most attention to the company's ability to make money- not the DTAs.

I would respectfully disagree.

So what about superstar athletes versus bench warmers, superstar musicians versus the starving artists, etc. etc.? What's wrong with pay that's linked to your performance and linked to how much value you generate? We should have problems with people who get paid without generating value for society. Spammers, people who skim money from others (e.g. market makers), people who commit fraud, etc. The investment bank CEOs who needed to be bailed out- their pay is pretty offensive. They did a bad job and walked away with more cash than Ron Johnson (who mostly didn't get paid in cash).

Boy, just looking at the diagram makes my head hurt....

Ok I am trying to piece together the Malone empire. Here's a diagram of all the trackers and spinoffs and mergers. Hopefully I haven't made any mistakes. See attachment. http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/liberty-media/?action=dlattach;attach=1650