JBird
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Posts posted by JBird
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I tried to answer the same question for myself this past summer while working at an investment firm that had a subscription. I read through the past 5 years of material. It's always an interesting read. The manager I worked for credited Grant's for helping him avoid catastrophe in the financial crisis. Pre-recession, Grant's was waving red flags about the expansion of credit at 20% a year. So my boss was avoiding banks altogether.
Grant is somewhat obsessed with negative views about fiat currency and the Fed's bond-buying program. I stopped reading because after a while he's just flogging a dead horse. Is it worth the price? In my view it's not. But If you're really interested in macro-econ and have plenty of disposable income it's probably worth a try.
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Just goes to show that, although 50% returns with small sums is possible, few will do the work required to uncover the opportunities. It's probably less about being smarter than the competition and more about outworking them.
Hear, hear.
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Shareholder: Recently, at Wharton, Mr. Buffett, you talked about the problems of compounding large sums of money. You were quoted in the local paper as saying that you're confident that if you were working with a small sum closer to $1 million, you could compounded at a 50% rate. For those of us not saddled with a $100 million problem, could you talk about what types of investments you'd be looking at and where in today's market, you think significant inefficiencies exist?
Buffett: I may have been very slightly misquoted, but I certainly said something to that effect. I talked about how I polled this group of 60 or so people I get together with every couple of years as to what rate they think they can compound money at if they were investing small sums: $100,000, $1million, $100 million, $1 billion, etc. And I pointed out how the return expectations of the members of this group go very rapidly down the slope.
But it's true. I could name half a dozen people that I think can compound $1 million at 50% per year -- at least they'd have that return expectation -- if they needed it. They'd have to give that $1 million their full attention. But they couldn't compound $100 million or $1 billion at anything remotely like that rate.
There are little tiny areas, as I said, in that Adam Smith interview a few years ago, where if you start with A and you go through and look at everything -- and look for small securities in your area of competence where you can understand the business and occasionally find little arbitrage situations or little wrinkles here and there in the market -- I think working with a very small sum, there is an opportunity to earn very high returns.
But that advantage disappears very rapidly as the money compounds. As the money goes from $1 million to $10 million, I'd say it would fall off dramatically in terms of the expected return -- because you find very, very small things you're almost certain to make high returns on. But you don't find very big things in that category today.
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2) He has said that if he could go back to a small portfolio, he would seek out Ben Graham net-nets.
He never said he'd only invest in net-nets. And I'm quite certain he wouldn't limit himself to such situations.
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The yield is 7%, but you make a capital gain of 3% if the price of almonds (along with the cost of producing them) rise by 3%.
So that would be a 10% return (7% real plus 3% nominal).
Yes
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I lived in Modesto, CA over the summer which is big-time Ag area, almonds mostly. I got interested in exactly what you're talking about for the exact same reason. I've never farmed myself, but I was able to meet 4 farmers and an almond broker who shared their experience. Much like housing, farmland prices are determined largely by comparison to nearby farmland. It's also adjusted for terrain quality, general weather conditions, etc.
It depends on what you're farming, but earnings are usually quite cyclical. (Weather conditions, waiting for new trees/plants to mature, off-years to allow land to rest)
"I bought a farm from the FDIC 20 years ago for $600 per acre. Now I don’t know anything about farming but my son does. I asked him, how much it cost to buy corn, plow the field, harvest, how much an acre will yield, what price to expect. I haven’t gotten a quote on that farm in 20 years." WEB 2009 Berkshire meeting
Over the summer almonds were selling for ~$2.50/lb. An acre will yield roughly 2,000 lbs. At that yield, your total costs will average ~$2.00/lb. Pre-tax profit is ~$1,000/acre. I don't know the tax rates but I'll use 30% for the example, so ~$700/acre after-tax.
If almond prices rise with the cost of production, that ~$700/acre is akin to a perpetual annuity. In a world of 7% required-return rates, the valuation is $10,000/acre. Farmland in the Modesto area is selling for anywhere between $17,000 and $30,000/acre.
You're absolutely right. What's smart at one price is dumb at another. I think that aside from knowing future crop prices, predicting the future economics here is pretty straight-forward. So just stay on the look-out for price tags that are sensible given an appropriate discount rate.
I found this presentation insightful: http://www.almondboard.com/Growers/Documents/The%20Economics%20of%20Growing%20Almonds.pdf
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Thanks for posting. I enjoyed his golden parachute article on Blackberry.
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Personally I keep it parked in an AMEX savings account earning .85%. No minimums, or any fees. Otherwise I'd look into low-duration bond funds; preferably one with no load and a low expense-ratio. MWLDX for example.
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I don't have cable anymore. It takes a bit of getting used to but I'm very glad I don't have it. I now exercise and read a lot more than before. And...I save money by not having it! To be fair, I live alone. If I had a wife or kids, I doubt it would be so easy to ditch the cable. ;)
Ditto
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I enjoyed their presentation more than anything else at the pre-FFH dinner meeting this year, it appears that they are living true to their stated beliefs.
Can you talk a little about that presentation?
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Irrespective of the number, is the bull market just getting started?
Isn't this a question for an Oracle?
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Helium: T-bone1, any specific reasons why helium might fit the profile they are looking for?
I don't want to speak for T-bone, but I'll add a note. Helium is an extremely important resource; it's used in things like MRI machines to achieve super-conductivity. Unfortunately it's being depleted far too quickly. It's effectively a non-renewable resource and it grows more scarce by the day. I can't predict the future price, but if we have any sense whatsoever the price of helium needs to rise.
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any other interesting bits? I didn't get to watch it.
From memory: BRK has ~40 billion in cash-equivalents now, and ~$38 billion of that is in Treasury bills. He's not worried about getting repaid. They'll spend 10 billion on PP&E this year. He's happy with the IBM investment and would be glad to see the price go down to 170 and stay there for years (because of attractive repurchases). If he knew that scenario would play out he'd buy more shares. They've added to IBM this year but aren't buying today. They just spent $1 billion on a new acquisition in Europe. He's sure per-capita Coke consumption will continue to grow, but not as fast as it used to. He's happy with the new Benjamin Moore CEO, and earnings there have never been stronger. BNSF is set to match or slightly exceed its best month ever in rail-way shipments, a record set in 2006. He thinks it's stupid and immoral to use the debt-ceiling as a political weapon of mass destruction, and thinks the move should be banned.
Sara Blakely, Founder of Spanx, was on the show and told her story. Warren said she's the epitome of the American Dream. I would agree with that and add that she seems like a wonderful person; it's worth spending a few minutes reading her biography. She recently joined the Giving Pledge.
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That is awesome! +1 for your wife.
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Thanks for posting.
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Right, that just doesn't create a normal distribution curve.
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better if we can do a poll on age vs networth
I'd be interested to see that. Can a poll thread be made that has more than 1 poll question? I'd break down the net-worth question into different age brackets but I don't want to do it by making 5+ threads.
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Interesting, thanks.
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I'm going to assume you meant Mars. Where did you read that?
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Because 20 years seems far away. :P
I'll PM anyone interested with wager amounts.
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I think that a human will walk on Mars in the next 19 years. I'm hoping to make a fun bet with someone that disagrees. Any takers?
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That's another good explanation and I agree. To be sure, I'm asking, do you think that buybacks change per-share intrinsic value; forget dividends or the aim of returning capital to shareholders.
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After working through a few examples I must say you've got me here. I now agree that if your aim is to return capital to shareholders you're always better off doing it through repurchases than dividends (given the current tax code), regardless of the buyback price.
Given my earlier example I'm still inclined to say that buybacks at various prices affect the per-share value. Do you agree? Or do you want to blow up another one of my paradigms?
I guess that's right, but there is no cost to get the dividends whereas he has to pay commissions to sell bit by bit. I think ultimately the biggest reason to pay the dividends is to broaden the investor base.
What's the advantage of having a broad investor base?
Toronto's Mayor Rob Ford...Worst Person In The World
in General Discussion
Posted
Literally just too top heavy:
http://deadspin.com/5962381/here-is-a-gif-of-toronto-mayor-rob-ford-trying-and-failing-to-play-football