ItsAValueTrap

Stocks related to real estate: Homebuilders. The best-managed ones are LEN / LEN.B, TOL, NVR Mortgage servicing. OCN, ASPS, WAC, etc. *These stocks may be mostly unaffected by a housing recovery. Their dynamics are very different and are mostly unrelated to home prices or housing transaction volume. Mortgage origination. *Not sure how they are affected by a housing recovery. Retail / home renovation - Home depot, Bed Bath, etc. Some REITs, e.g. RESI/AAMC *Long Altisource/ASPS, short KBH (homebuilder). Because I am short KBH I don't want to see a housing recovery happen... though it is bound to happen eventually. IMO homebuilding stocks have really high valuations.

I completely agree. He engaged in a lot of really inappropriate behaviour... especially when he accused the CNBC host of bulling him, didn't disclose whether or not he had a long position in Herbalife (while accusing Ackman of talking his book and trying to conduct a bear raid!!! what hypocrisy!!!), used language inappropriate for broadcast, and starting digging up an old grudge instead of talking about Herbalife. I really want to see Icahn lose money on this. Apparently he has no position in Herbalife now. (Though honestly I think that the longs are going to win in this battle.) I think that Ackman was pretty civil about all of this. If you were mean, you would rip Icahn a new asshole for being a thief, hypocrite, bully, racist, etc.

A bunch of hedge funds could transfer their shares to cash margins, which means that their shares can't be loaned out. This could cause a really insane squeeze. It's not just the price moving against you that can cause a squeeze.... Ackman's broker will gleefully liquidate if there are forced buy-ins. (The broker can front-run Ackman's trades for a profit too. Technically illegal, but Goldman did it to Copper River alleges somebody who used to work for Copper River.)

Hmm Antar seemed very pissed on his blog. EX-wife Yeah that's embarrassing for him to have been taken in. Actually I'm disappointed at how little fraud Antar has found in general. Anyways, I will probably just watch all this drama unfold from the sidelines. I never really researched this stock.

Constructive, that's a good point. However... things got deeply personal with some of the short sellers. Sam Antar is unhappy that Byrne (and/or his associates) stalked him and started dragging his ex-wife into it. Of course, I doubt that Antar would really go out of his way to harm Byrne. Antar feels that Byrne crossed the line. *No position in Overstock, though I have a limit order to short it if the share price gets short squeeze high.

I never really figured out how to market it well in the first place... virtually all of the money I have made is from licensing my technology/algorithms to one company. I never made much from selling plug-ins. Regarding the 4 hour work week... I can see how it could work but in practice I don't think it works out that way. Look at Tim Ferriss (the book's author for anybody who doesn't know). Does he really work 4 hours a week? You can view him as a full-time author/speaker. It's just that work and play are lumped together. 2- In a broader sense, most entrepreneurial ventures will reward you for working more hours. Conversely, competition will punish you for not working hard enough. Maybe it's better to tap dance to work- do work that you enjoy. It looks like even Tim Ferriss is doing that now. The alternative is really to make a huge amount of money at once and to live off that. Or, find a part-time job that pays really well. Like medical test subject.

There are a lot of software startups without business-domain knowledge. Paypal for example had zero domain knowledge since they didn't set out to do online payments in the first place. Ycombinator funds a lot of startups where the founders don't have business-domain knowledge. Hmm I think that there are examples of businesses selling their time. In the Internet bubble days, consulting companies made a lot of money. Right now there is a mini-repeat as you can make money doing smartphone/tablet apps for people. A lot of companies don't have somebody who knows how to setup a software division. They may try to do software in-house only to find that it has turned into a huge disaster (the government is usually a great example of this). There is demand for outsourcing. IBM is a good example of a software/IT company.

It's probably because you don't do software. ;) Generally, you get what you pay for when you hire a software engineer. There may be labour arbitrages available. These arbitrages usually exist because they are hard to pull off (language, culture, experience, talent). I think the tricky part is (A) finding a good programmer who (B) you can communicate with. It's very hard to find good talent... even in your own country. If you want to start a software business, it really doesn't matter where you start it. The world is global nowadays and you can write software from anywhere. If you know what you're doing, you can start a software company in the US and do the labour arbitrage between US and some BRIC country. You can simply connect American companies to cheaper offshore labour and collect the arbitrage (which can be significant).

I started a one-man band.... see http://www.colormancer.com. I made software tools to help photographers make their photos better. Starting your own business is a rollercoaster ride of emotions. Most of the time things don't go your way and it's depressing when you aren't making money and succeeding (in the beginning, you will not make money... very very few people do). Sometimes things do go your way and you are elated. Because I didn't have a lot at stake, I did not break down and cry like the people on Kitchen Nightmares. To some degree, KN is a TV shows and the producers may try to instigate drama to make a compelling story (e.g. using Gordon Ramsay, finding people on the brink of bankruptcy). But I would break down and cry if I was about to lose virtually all of my net worth. 2- There are a lot of people who sit around and dream. Some of them actually go and start their own businesses. The majority of these people get brutalized by reality. A small minority of people will go on to make most of the money in their given industry. These people are really good at what they do and tend to work like crazy. (Unfortunately I lack the latter... I enjoy image processing but I don't enjoy writing software.) Our capitalist system is pretty Darwinian and the rewards tend to be unevenly distributed. 3- I don't think that starting a software business is a bad idea. It's not so bad if you fail. Many people with failed software startups end up finding work for another company doing related software. (This is my situation... sort of. Sometimes I freelance.) You end up with employable skills. 4- Some really good books to read to understand small startup companies are interviews with founders. Founders at Work (the interview with Paypal's founder is great) Micro-ISV / Bob Walsh I found those interviews to be the most helpful. Founders at Work covers larger companies. If you want to understand software startups, I would definitely read those books.

I would stick to my circle of competence and start another software business. I know that you specifically disallowed software in your original post. :) But seriously... software is a good low-risk business. You just need to add time and your other expenses shouldn't be more than $10k. The reality is that most peoples' software businesses fail. 2- Starting a restaurant would scare the crap out of me. You have to put a lot of capital at risk. The restaurant business is very tough and competitive... just watch the UK version of Kitchen Nightmares. Even really successful restauranteurs had a tough time. McDonald's made very little money when it started (and one franchisee was barely staying afloat). David Chang of Momofuku was not successful when he first opened his first restaurant and was about to go out of business (until he changed the menu away from "authentic" food). His opening of his second restaurant was also a disaster. 3- Execution may be far more important than having a good idea. Sam Walton didn't have a lot of original retailing ideas... he stole almost everything. He became one of the world's richest people (at one point #1). A lot of software businesses had not-so-great ideas that evolved into something else, e.g. Paypal was originally into phone-to-phone money transfers between cell phones.

I believe in 2009 it was highly leveraged??? The investment in Sirius was also leveraged in a sense since Sirius was a distressed company at the time. Liberty saved the equityholders from bankruptcy. Sirius itself has a lot of leverage... which is why it was about to enter bankruptcy in the first place. In general, Malone's style is to leverage his companies. A- It has tax advantages. B- It increases returns. As far as the safety of the leverage goes, there are sometimes elements to the debt that make the debt less dangerous. -If Malone merged all the companies together into one entity (or kept them together as one entity), overall borrowing costs would be lower. But then all your eggs would be in one basket. With several different companies, one company might go under while the other companies should still do fine. -Longer maturities -It used to be that some debt could be repaid in stock -Debt repurchases. As people panic, the debt gets cheaper and the company can repurchase its debt at a good price and deleverage itself.

If you play the Graham and Dodd cigar butt game, you need to constantly flip your assets. Buffett moved past that... though it took him a long time. He says Berkshire Hathaway is his biggest mistake (because he should have bought a See's Candies-type business instead). By buying quality businesses and not selling them, it's more tax efficient right? And owning private businesses is more tax efficient than owning stocks. This is what I understood from reading Carol Loomis' book. 2- Another way of looking at never selling is this: Buffett will sell a business (private or public) if things are bad. He tried to sell Genre's derivatives business because it was an atrocious business that lost a lot of money. Buffett wants to own companies with durable competitive advantages that stay durable. Sometimes this doesn't always happen (e.g. World Book Encyclopedia killed by the Internet, Fannie/Freddie was sold due to bad management, etc.). He is hoping that the business doesn't deteriorate in a way that causes him to sell. 3- Yet another way of looking at it is this: Buffett wants people to sell him private businesses at bad prices. In exchange, he will take care of their baby and hold onto it forever.

I don't think he has a main vehicle anymore? In general, the ridiculously difficult to understand parts of the overall Liberty empire tend to be the "best". Obviously in the past, he structured the Liberty/TCI split so that nobody would understand Liberty. But of course valuation always plays a role. Here are some stocks in the Liberty/Malone empire: LBTYA - Cable assets Liberty Capital - Difficult to understand; a huge stake in SIRI and other misc. assets Starz - The Starz content company. I believe this might be a more "vanilla" company compared to other ridiculously complicated assets out there. DTV - Owned by Berkshire and many value investors. May be a quality growth company. LINTA - Liberty Interactive. Most of the value is in QVC, the home shopping channel. Misc. Internet retailers and other assets. LVNTA - Ventures. Very complicated. Most of the hidden value is in tax-advantaged debt and interest-free loans from the government in the form of deferred tax liabilities. DISCA - Discovery communications, a content company. Ventures (LVNTA) and Liberty Capital may be the most interesting companies to watch. Like all stocks, the Liberty companies are subject to the whims of Mr. Market. In 2009, you could have made several times your money had you invested in LINTA or LCAPA (Capital's ticker at the time). LCAPA went up a lot mostly because it got lucky on the Sirius XM investment. LINTA went up mostly (in my opinion) because it was oversold and fears of its leverage were overblown. *Part of the insane price swings is because these companies are extremely leveraged. Though usually these companies have some long-term debt (and the debt is often publicly traded and bought back by Malone) so the leverage isn't necessarily as dangerous as it looks. I guess I would like to see 2009 prices for these stocks.

He invested in Amex in his partnership days (and it was has largest position). It was even in the headlines over the salad oil scandal. I don't think it makes sense to discriminate against a stock just because of its market cap. On the other hand, I would make an exception for some microcap stocks. For companies with really small market capitalizations, there are unavoidable overhead costs associated with a public listing: listing fees, audit fees, and a board of directors. These overhead costs can suck up a lot of profit. A good management team would avoid that situation (e.g. delist, take the company private, not IPO in the first place, etc.). The microcap space is also filled with many stocks with pump and dump components to them. Pump and dump penny stocks will be overrepresented in the microcap space.

It seems like he defines "good" as non-cyclical. Which implies that he is looking to buy non-cyclical stocks when the market crashes. Warren Buffett behaves differently in market crashes. He was buying a lot of financial stocks (some of which went bankrupt).

I believe the court ordered an independent appraisal of the artifacts that did not take into account the covenants/conditions. 1- Appraisals are just a guess anyways. The artifacts could sell for far more or far less than the appraised value. 2- I could be wrong here, but I don't think that all of the covenants were hammered out at the time. Premier's lawyers at the time were still trying to get permission to break up the collection and sell what they weren't using for the Titanic exhibits. 3- Premier isn't entitled to $110/$190 million... maybe the news release isn't that clear. As it stands currently, Premier is entitled to the artifacts provided that they meet certain covenants. And it can sell them with covenants attached to them (the court has to approve the sale). If Premier wanted cash, the Court could sell it for them and give Premier the proceeds... whatever those proceeds turn out to be. The auction failure suggests that the approximate market value of the artifacts is below the auction's reserve price (whatever it was). If there really *is* a Consortium of serious buyers... they are idiots for overpaying for these artifacts and I am going to get burned on my (very small) short position. At the end of the day, if you really think about it, I don't think that what Premier is saying makes sense. If they sell the artifacts for $189M *AND* they still get to exhibit the sexiest artifacts for the Titanic exhibits... then they'd be having their cake and eating it too. And how would that deal make sense for the buyers if you aren't using the best pieces of the Titanic collection (as Premier is using them for exhibits)...?

If you were willing to pay $189M, you probably would have won the Guernsey's auction. (In my opinion.) That is why I am saying that it is too high. Secondly, and this is the reason why I didn't go long PRXI when I first saw it on VIC (I guess I missed a lot of profits), is that the independently appraised value is for the collection if it were broken up into individual pieces without covenants attached (must preserve artifacts, public exhibition, etc.). Premier's lawyers fought very hard for the right to break up the collection and not being forced to sell it as a whole; the judge was extremely annoyed at that request judging from the tone of some legal filing (I think the link is on VIC). I don't think that independently appraised value is necessarily indicative of the market value of the artifacts. I find the lack of transparency in their conference calls weird... like they are trying to hide something. But of course, this is just speculation. At the end of the day... my short thesis boils down to: auction failed, they didn't meet the reserve price (whatever it was). We'll see who's right! Cheers

I'd like to learn more about dollar stores. - Why does Berkshire own Dollar General? - In general, how come most of the publicly-traded dollar store companies make so much money? They have unusually high returns on capital/assets. - Who will be the ultimate winners and losers?

Some ETFs tend to destroy a lot of the ETF holders' money unnecessarily (e.g. through transaction costs... especially the leveraged ETFs). The short sellers know this and short said ETFs. Unfortunately, this opportunity may be mostly arbitraged "away" as you have to pay interest to short these ETFs.

You can also buy put options on stuff. e.g. you can buy put options on TLT You probably want to stay away from options if they are too expensive though.

As a retail investor, you could short an ETF like TLT (long-term US treasuries... whether it's a bubble or not is up to you to decide). You have to pay interest on the borrow. I'm not really a fan of shorting... but am shorting a small amount of TLT anyways. The reason why I don't like shorting common stock / ETFs are: 1- You need to keep your positions really small. So you make no money and it's not worth your time researching shorts. 2- Illiquidity risk. When you get margin called, your broker may screw you. IB liquidates illiquid positions first... ouch. 3- Buy-in risk. This has happened to me several times. 4- You have to pay interest on the borrow. I shorted ATPG... eventually the borrow shot up to 90%+ (I covered early and avoided that... I also avoided the profits from ATPG going to 0). That interest rate is just absolutely ridiculous... higher than credit card debt.

LVNTA would be extremely leveraged to this. See the thread on LVNTA in the ideas subforum. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/lvnta-liberty-ventures/msg85228/#msg85228

I'm not sure I follow.

Perhaps we could look at airlines versus railroads. Obviously the airplane did not kill off rail. But, it killed off a lot of railroad stocks because the small decline in their business was amplified by their high levels of debt. Sometimes a small decline in business can be a big deal. Of course, transportation is different than storage. The storage companies don't have very high levels of debt. And changes in the computer industry tend to happen a lot faster. You might need to guess the future mix between SSD and hard drives... and how that will affect margins. That's hard.

In my opinion, leveraged ETFs are highly flawed because; 1- They have to rebalance their exposure to maintain a constant 2X / 3X exposure every day. They constantly sell the dips and buy the rallies... most (but not all) of the time, they are constantly buying high and selling low. 2- They generate excessive transaction costs. To get the additional leverage, they often use obscure and illiquid derivatives and swaps. The drain could be 5-20%/year. http://glennchan.wordpress.com/2012/11/07/leveraged-etfs-a-market-inefficiency/ 3- Of course there is the management fee, which is often a little high when compared to Vanguard.