JBird
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Posts posted by JBird
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If Berkshire compounds at 6% then you have:
- 7.1%
- 7.5%
I think it's possible and maybe likely that the majority of his shareholders could find at least one deal (maybe 1%-2% of their capital, assuming 100% allocation) with higher returns. I wouldn't have wrote this if I thought the floor for BRK was 10%.
Then why do you own the stock?
- 7.1%
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I think BRK shareholders would currently be better served if BRK paid a small, once-a-year, and variable dividend
Why?
So you receive $1 in dividends, and you net 85 cents. Have you thought about what rate you would have to compound at to make this sensible?
If Berkshire compounds at 10% for a decade, you need to compound your dividend proceeds at 11.8% just to match Berkshire's performance.
If you're in the top marginal tax bracket paying a 20% tax on dividends so you'd have to compound at 12.5% to break even.
Are you hoping for a dividend because you have so many other better investment opportunities?
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As of Feb 29, 2016, the market value of DJCO's stock portfolio was $109 million. The portfolio consists of $74.6 million in WFC (68.5%), $28.8 million in BAC (26.4%), $5.4 million in USB (5%).*
I estimate the intrinsic value of the Daily Journal by summing its stock portfolio valued at market ($109 million), plus excess cash (~$5 million) minus its margin loan ($32 million), plus the intrinsic value of the legal publishing business ($5 to $30 million), for a total of about $90 to $115 million. That's $80 a share.
DJCO is valued at $275 million and has an implied valuation on the legal-publishing business of ~$190 million (DJCO market cap - stock portfolio + excess cash - margin loan).
I think DJCO is a reasonable short-sell candidate. To hedge shorting risk, and to short the valuation of the legal-publishing business specifically, one would short DJCO and go long the DJCO stock positions in proportion to each stock’s representation of DJCO’s market capitalization.
Put on the following trade: 1) Short $X worth of DJCO 2) Initiate a long position in WFC worth .27 of X, a position in BAC worth .10 of X, and a position in USB worth .02 of X. Finally, 3) As the implied earnings multiple on the legal-publishing business collapses from 190 to say, 40, the short should be covered and the long positions sold.
This short trade has roughly 55% upside, less borrowing costs (which are currently zero). In order to sustain a permanent loss of capital on this trade, the earnings from the legal-publishing business must grow to justify and then exceed a $190 million valuation. I estimate that in order to do so the earnings must compound at 30% per annum for at least a decade.
It's worth noting that a true groupie and cloner has taken an enormous position in DJCO and may be partly responsible for the current stock price.**
If you have any disconfirming evidence I'd love to hear about it.
* http://whalewisdom.com/filer/daily-journal-corp#/tabholdings_tab_link
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From the Intrinsic Value Section,
Here is an update of the two quantitative factors: In 2015 our per-share cash and investments increased
8.3% to $159,794 (with our Kraft Heinz shares stated at market value), and earnings from our many businesses –
including insurance underwriting income – increased 2.1% to $12,304 per share. We exclude in the second factor
the dividends and interest from the investments we hold because including them would produce a double-counting
of value. In arriving at our earnings figure, we deduct all corporate overhead, interest, depreciation, amortization
and minority interests. Income taxes, though, are not deducted. That is, the earnings are pre-tax.
IV?
$160K + 10x $12.3k = $283 k/A share
+ 12x $12.3k = $308 k/A share
If we really go crazy,
+15x $12.3k = $345 k/A share (that would make WEB's 1.2x BV buy back a 50 cent -dollar purchase)
Tilson's August 2015 estimate was $275K and a projection of $305K in a year from then. We're there now, ha!
It's important to note at the bottom of page 4 of the letter that all earnings are stated on a pre-tax basis. If I remember correctly from the AGM a couple years ago, he thought the operating businesses in aggregate were worth 8 or 9 times pre-tax earnings.
So the calculation would go more like 160k + 99k.
$170 or so per B share.
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This is great! Thank you. Do you have the newspaper clipping of page 2 by chance?
Just click on the hyperlink that he attached. When it opens the new page, at the bottom click Pages. The follow up page is 7 pages after the first.
And thanks so much for sharing!
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From my understanding, Buffett and Munger are not suggesting to always do the most financially beneficial thing when they say to be rational. I don't think either of them regret getting married (at least with their 2nd marriage), or having kids, or taking time off to play bridge.
The advice is rather geared towards not letting your emotions clog your judgment - having the right temperament in investing, or willing to change your decision if the facts change, focusing on your inner scorecard rather than living someone else's life. All these things are obvious and logical but often times people don't do what's right.
In terms of spending money to live and enjoy your life - that is arguably the rational thing to do over collecting as much as cash as humanly possible, because if you're not having fun then what's the point of earning in the first place? Working away just to grow your bank account is rather irrational imo!
Whether Buffett or Munger agree with this or not, what you've said is totally correct.
To be rational is to behave in accordance with logic or reason.
There's nothing mutually exclusive about behaving rationally and having a lot of fun outside of work-- and in having a good work-life balance.
If your definition of rational is to be money-obsessed and devoid of emotion, then it's time to revisit your definition.
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JBird,
Happy to try to help you transfer the audio file to your computer. If you tell me what type of phone you have (iPhone or Android) as well as which program you used I'll try to be as helpful as I can.
Thanks. I sent you a PM
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I'll post my full-length audio clip as soon as I can figure how to transfer the damn thing to my computer.
Here's the highlight of the meeting for myself:
Me: Hi Charlie, I'm JD from Phoenix. At Berkshire last year you said that rationality was one of the things that was most important to you. What advice can you give to someone who's looking to improve his own rationality?
Charlie Munger: Well I say if you start working at it young and keep doing it until you're as old as I am, that's a very good idea. It's a very good idea, and it's a lot of fun-- particularly if you're good at it. I can hardly think of anything that's more fun. I think I have a lot of cousins in this room, and--and I can say you're on the right track.
You don't have to be the Emperor of Japan to get fun out of rationality. You can avoid a lot of hopeless messes, you can help other people scramble out of their messes, you can be a very constructive citizen if you're always rational. And being rational means you avoid certain things. It's like, I don't want to go where the standard result is awful.
Where is the standard result awful? Try anger. Try resentment. Try jealousy. Envy. All these things are just one-way tickets to hell. And yet some people just wallow in them. And of course it's a total disaster for them and everyone around them.
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Thanks for posting-- that's great stuff.
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This might be a stupid question but how do you figure out your return if you add funds everything month? I suppose it makes sense to just look at the total commited funds at year end which sorta compares to being in cash thoughout the year, ie it lowers the returns on both the upside and down side. I think I did 15-20 percent but will have to check the numbers.
Time weighted return is ridiculously hard to do by hand. Thankfully Schwab does it for me.
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Just because one big shot (two with Bozo) launches rockets straight up, you think it is the ultimate formulae.
Huh?? I have no position on the best means of space travel whatsoever. What did I say to even hint that I did?
I just asked you a why question...
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Accelerating a spacecraft to orbital speed requires more than 60 times as much energy as accelerating it to Mach 3. It would also require an elaborate heat shield to safely dissipate that energy during re-entry
Not clear when they will get there or even if they are planning to.
I just read about Falcon Heavy last night on SpaceX's website.
"When Falcon Heavy lifts off next year, it will be the most powerful operational rocket in the world by a factor of two. With the ability to lift into orbit over 53 metric tons (117,000 lb)--a mass equivalent to a 737 jetliner loaded with passengers, crew, luggage and fuel--Falcon Heavy can lift more than twice the payload of the next closest operational vehicle, the Delta IV Heavy, at one-third the cost."
http://www.spacex.com/falcon-heavy
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Cardboard: What they're are doing seems incredibly complex and I guess cheaper but, wasn't the space shuttle a more novel idea? They were re-using the space shuttle that was landing on almost a regular airport runway.
Elon: A lot of people think it was reusable—but the main tank was thrown away every time. Even the parts that did come back were so difficult to refurbish that the shuttle cost four times more than an expendable rocket of equivalent payload capability.
Cardboard: Ok. So what about some kind of plane that is able to take-off. Seems to me like it would be a much safer, cheaper and reliable way to fly people and payloads than the current method.
Why does it seem cheaper and safer to you? I'm surprised that anyone on this forum has such expertise in aerospace engineering. What is your professional background?
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"Apologies for any typos" LOL
Came across this from Jeff Bezos on twitter. "Congrats @SpaceX on landing Falcon's suborbital booster stage. Welcome to the club!"
Pitiful.
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I was in my apartment by myself, shouting at a descending rocket.
This was completely amazing!
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What Munger has done is created a system—worldly wisdom—that allows him to generate the same chemical rewards in an activity that has a positive net present value. When you learn something new, your brain gives itself a chemical reward, which motivates you to do the work necessary to be a successful investor.
Operating within a sufficient reward system seems to be the critical factor if you're going to keep the learning machine turned on for long periods of time.
I think for the most part, successfully engaging in an activity that requires sustained effort over long periods is going to require a serious amount of reward and reinforcement from your peers. Serious bikers ride with other bikers. Serious scientists collaborate with other scientists.
I don't think wisdom-seekers are any different. Sitting on your ass and reading takes some effort. Remembering the big ideas and applying them to your daily routines takes some effort.
When I first began learning the "Buffett / Munger" mental models, the ideas resonated so strongly with me that the chemical reward for learning them was in itself a sufficient feedback loop to continue learning. Over time that's waned.
I look at the base rates for individuals who have an active interest in this sort of thing, and hope tends to fade. But I guess that's life. Like William the Silent said, it's not necessary to hope in order to undertake.
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Unsurprising results but nonetheless interesting comparison between Third Avenue's performance against value index funds:
What is a value index fund?
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Always insightful. Thanks Eric
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I learned the power of the inner scorecard. Although this isn't related to investing, it's powerful, enduring and valuable. If I could ask him one question it would be if he regrets never selling his Coca Cola stock.
Buffett did say in 2004, "Clearly, Berkshire’s results would have been far better if I had caught this swing of the pendulum. That may seem easy to do when one looks through an always-clean, rear-view mirror. Unfortunately, however, it’s the windshield through which investors must peer, and that glass is invariably fogged. Our huge positions add to the difficulty of our nimbly dancing in and out of holdings as valuations swing.
Nevertheless, I can properly be criticized for merely clucking about nose-bleed valuations during the Bubble rather than acting on my views. Though I said at the time that certain of the stocks we held were priced ahead of themselves, I underestimated just how severe the overvaluation was. I talked when I should have walked."
I've learned so much from Buffett it's wonderful to reflect back on. Only Charlie Munger and Elon Musk have helped shaped my life and worldview as much as he.
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I've taken the 7, 63, and in process of taking the 66. As a prospective investment advisor representative, you must be operating under an Investment Advisor (IA). They'll give you the ID #.
The exception to this is if you are the IA. If that's so, you'll be filing Form ADV with either the SEC or one or more states. If that's the case you probably wouldn't be asking the question.
Feel free to PM me.
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First time I've ever cursed out loud reading the morning news. Sad to see that happen, and hope they bounce back quickly.
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I think this is a great thread idea.
I'm really looking forward to Tesla's autonomous driving systems for a) convenience and b) safety. As long as the price is reasonable I'm a buyer.
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Space X
in General Discussion
Posted
Hahahaha! Thanks for posting Liberty.
Just phenomenal work by SpaceX-- such a pleasure to watch.