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Extending the number of years means you have to write it down for accounting purposes because of time value of money. The asset isn't damaged, it's an accounting loss.

I think there is already a movie in the works starring Jennifer Lawerence

There's obviously something wrong when Berkowitz was so bullish on BAC in the past and when it dropped down to $12 a couple of months ago he didn't add any. Fundamentally, BAC has increased in intrinsic value since he first brought it (several years of earnings on the balance sheet, buybacks and dividends in play now) while Sears has eroded. So if there is a chance to get back into a big winner at a huge discount (a round trip back up to $18 would be a 50% gain), why not allocate some of the portfolio into it? Due to redemptions, Berkowitz is actually making a bigger and bigger percentage bet to stuff like Sears (which is losing value every day) when some of his previous high conviction investments suddenly got really cheap again (while they gain value every day). It looks really dumb to me. Berkowitz is just stuck in some not very liquid positions and his career is on the line, so he is stuck going all-in. Logically, an investor that is not constrained like that would not allocate his portfolio that way, assuming he has the same theses as Berkowitz on Sears, Freddie/Fannie, St. Joe and BAC.

The amount of calories, or sugar in particular, in a can of Coke actually isn't that bad. Compare it to a Starbucks mixed drink or a glass of orange juice. A lot of stuff has a lot of calories in it, but soft drinks have become the punching bag for everything wrong with the American diet. Realistically, it is portion control. It's not about substituting away from Coke, as people usually replace it with even higher calorie/sugar alternatives like fruit juices. People just need to consume less. I suspect that the anti-soda campaign is heavily funded by food companies that want to push their "healthy" (not really) alternatives that often costs more. People act like juices or some other miracle vegetable shake is better than Coke because it has nutritional value, but who actually lacks nutrients in the developed world? Most people eat far more nutrients than they need. If you need to cut calories, replacing Coke with water helps. So does eating less of other stuff too. But you can't just replace Coke with other stuff that have calories (even if the other stuff has nutrients, because excessive nutrients do not make you healthier), which is what a lot of people do. You have to eat less in total.

The problem with just using a bunch of rules is that the returns are almost always driven by something that you didn't originally anticipate. For example, you could end up taking huge sector bets. The good results are almost always a set of rules that is a proxy for avoiding tech stocks during the tech bubble and avoiding finance stocks during the financial crisis. Also, with such a small number of stocks in the portfolio (10 in this case), it is probably one or two stocks that drive the bulk of the returns. So if you keep fiddling with a bunch of rules, you will eventually get the right sector bias that avoids the crises and you end up holding that one company that drives all your returns. You should already be suspect of this strategy going forward because it says to switch to 100% treasuries whenever EPS estimates for the SP500 trends downward. We know the last three decades has been the biggest bond bull market ever as interest rates got cut down to zero. You are not going to get 19.79% returns going forward by shifting into bonds because rates are at zero already. You are not going to get capital appreciation there.

The CFA has a lot of value for financial professionals in China and some other countries because they value an American credential (rightfully or wrongfully, people there trust American). A lot of investment firms like their analysts to have it because it is good from a marketing perspective. I'm not on the sales side, so I don't know how much it helps, but many of the big investment management/advisory companies like it. A small part of it may be a legal butt-covering exercise because it is a thing they can list to show that they are doing their fiduciary duty. A lot of students take it (or at least some of the exams) because they want to prove that they are interested in investing and they don't have much they can put on their resume. But I think for people who are already in the industry, it doesn't really help your career. You learn far more doing your job. I finished all 3 tests and I felt that it actually took away from my abilities because I was spending so much time studying for some of the more useless topics than going into greater depth on the stuff that is most useful to me. I'm not sure how useful it is if you want to switch from a different field into investment management. I hear people say that is not as useful as it used to be because firms are less willing to hire unconventional candidates today. Most of the larger investment companies are playing by the book post-financial crisis as clients don't want anything weird (they don't want to invest in the fund that is made up of lots of people from random backgrounds).

I think what is far more important for people in Western society is exercise. If you look up the diets of people in the past, they ate tons of sugar and carbs. You have societies that primarily consumed carbs (ex: potatoes or rice) because protein was expensive and scarce. It only becomes a problem when people sit for more than half of the day. In today's society, it is very easy to end up sitting for 12+ hours a day (8 hours at work, 2 hours driving in car to/from work, 2 hours at home). People end up with very little muscle mass on their body, so they cannot use up the carbs that they eat. A lot of people don't look fat. They eat a lot of salads. They look very nice with their clothes on. But they actually have far higher body fat percentage than they realize because they have very little muscle mass. When these guys consume a little extra carbs, it can still bring their blood sugar up. I think for those people who work in an office, it is extremely important to hit the gym and lift some heavy weights. You can't let you muscle mass atrophy away, because then your metabolism would go way down as there is no lean mass to sustain and you will end up with "too many carbs" even though you eat very little. You have to undo the damage of sitting for an extended period of time. Different body types have different dietary needs. People have started viewing sugar and carbs as the plague because their lifestyle caused them to have bodies (either too fat and/or too little lean mass) that can't use much of it any more. If you look at the Asian American population, diabetes have suddenly become a major problem (significantly higher than average) because they prefer to eat so much rice or noodles. Their ancestors ate the same diets for thousands of years and they had very long lifespans. It's not that carbs suddenly became bad. It's their body chemistry that has changed because of disuse and sitting around all day.

The simplest explanation is that he has a non-zero allocation to stuff like cash, fixed-income, etc which are expected to under-perform the S&P500 significantly during up years. I think this is the part that often gets forgotten when people buy Berkshire Hathaway. It probably should not be benchmarked to the S&P500, because Berkshire is far less risky that the average stock in there, but Buffett uses it as a high bar to compete again.

If you already know some statistical characteristic about the data, it is pretty much cheating to exploit that in a backtest because it is basically having access to future data. If there is no economic reason for the seasonal trend to exist, it is hard to have faith that it would continue to exist into the future. Financial datasets are actually very small, there is a severe lack of data before the 80s that doesn't have significant selection, survivorship, or other biases, so you expect some patterns to emerge in the data. If you keep flipping a series of 12 coins, and you do it 20 times, you might notice that the 5th coin came out heads 15/20 times. A lot of times when people see seasonal trends, it is just that. In fact, half of the published research I read are nonsense because they fall into the trap of looking at biased data. The most common one is doing stuff that exclude financials or exclude a certain type of stock, or they have variables that heavily bias stocks into or out of one sector. You can imagine how avoiding tech during the tech bubble or financials during the financial crisis can easily add significant annualized returns over a 20-30 year backtest period. For example, if you are doing research in 2010 or 2011, and your dataset ends in 2009, anything that gets you outside of financials would look amazing. A lot of papers get published like this. In terms of a short term hedge, you can't do an active hedge (as in picking out 100 statistically overvalued, low quality stocks and shorting them) because the trading cost of putting it on and taking it off 3 months later would likely eat up any gains, so you are limited to passive hedges like shorting an index during those months. But if you actually believe that it is possible to use statistics to generate outperformance, you can find stronger relationships that have economic rationale than just seasonal ones (ex: a weighting scheme based on P/E ratio beats out market cap weighting). Why hedge out a few months when there is evidence that you can go long/short the entire year or go long on cheap, high quality stocks only? You will probably make more money that way than looking at the seasonal trends (and that is assuming that the trends continue). I've done a few experiments with seasonal trends, but it never made sense to rack up the trading costs to modify our optimized portfolios for a few months and then undoing it.

That timeframe has also been really good for long/short quant funds. I work for a quant fund and we have a small long/short fund that we are running to build up a track record. Made about 11% last year and about 6% so far this year (both after trading costs), going close to 100/100 without additional leverage. We were also pretty conservative and had really tight boundaries on the business, industry, and sector deltas, so we barely deviated from the index weightings in all of these categories and held 100+ positions on each side. We don't expect to keep posting numbers like this, a more realistic return based on our backtests would be in the 6-7% range or so, meaning going forward it may be lower as more and more people use quantitative techniques. Also, since we don't sell this product to clients yet (just managing internal money to build a track record), we are not charging performance/management fees which could bring these returns down significantly. The attractiveness of such a product will likely depend on interest rates. I would much rather invest in a market neutral product instead of getting a few basis points on short term treasuries. In theory, you can leverage up these products or do something like buy S&P500 ETFs and use that as collateral to fund a market neutral strategy or buy an S&P500 future and hold a market neutral product. But there is tail risk to things blowing up in an unexpected way (which is why we are super conservative with our business/industry/sector deltas as well as our large number of positions for diversification). If the market were to become far more efficient than it is right now, there would be a lot of trading costs associated with market neutral strategies, and that drag can bring returns down very quickly.

Yeah, if I were to recommend an investment for an ordinary person, I would probably tell him or her to buy a house. Renting and putting the excess money into an index fund may be expected to do much better, but even the vast majority of indexers greatly under-perform the market because when that crisis ultimately comes and they see a -50% across the board like in 2008-2009, they end up selling out in panic. Sadly, I know a lot of people who did that right around the bottom in 2009. To most people, stocks seem intangible and difficult to understand. They can't see or touch it, so they lose faith in the system when the headlines are all calling for the end of the world. Real estate, on the other hand, is very tangible as they can see and touch it. Also, the difficulty of selling a home often prevents people from being stupid.

There is very little premium to the warrants, so they basically let you "borrow" money for an intermediate term (about 5 years on the B warrants) for a little more than the dividend yield. It is very cheap leverage for a decent time-frame with no collateral requirements (no risk of margin call or anything). If you think the analysts are right about 2015 earnings, GM is only trading at 7x that. It is easy to see how this can be a huge winner if you are borrowing at around 4% and buying something at 7x earnings. Of course, if you intend to have low market exposure, it would probably make sense to hold less cash and more GM common than to hold more cash and GM warrants. No need to pay any borrowing cost at all in that scenario. But for those that want a large GM position and the ability to put cash to work elsewhere, GM warrants is a very cheap way to do that.

Boston, MA

Goldman has actually slowly trickled back down to book value and 10x P/E, so buybacks this year will add a lot of value. We talk about BAC and C a lot here, but lets not forget about one of the higher quality banks like GS. I'm buying some at this price.

For decade long investments, such as Weshler's investment in Davita, I would not be surprised if the hours add up to 500+. It didn't take me too long to invest in BAC two and a half years ago, but since then I've kept up with developments, read the annual reports, stayed active in the BAC thread on this forum, etc. If the BAC thesis plays out and it goes up to $25+ in the coming year or two, I would have to consider it as a potential "hold forever" (or until obvious overvaluation) type position due to the huge unrealized capital gains. Those hours add up over time.

Good, good. So when I piggy back off his ideas and do an extra 3 hours of research, that is 503 hours into the investment.

The "young people are smarter" trend has actually started to disappear. Since 2000, the age that Nobel Prize winners in physics, chemistry, and medicine did their prize winning work has been going up. For physics, the average age the prize winning work is done is in the late 40s. The illusion that young people are smarter is actually related to how science advances. For example, once quantum mechanics was developed, the biggest physics discoveries were all based on quantum mechanics. However, most of the quantum physicists were young people. Older scientists had their own projects that were still in process that were not based on quantum physics, those experiments may have positive results, but the research is not viewed as ground breaking as the new quantum physics research even though it may be just as intellectually challenging. Some of the old physicists converted into quantum physicists, but the colleges were creating far more young quantum physicists. However, as the field matured, the average age of the scientists making the discovery went higher (now there is the same number of old physicist and young physicist). If there is a new groundbreaking theory, the pattern will happen again. This pattern happened with computer science and other computer related technology because computers became big in the late 90s. Far more young people went to college for computer science, there are many times more computer scientist in the late 90s and 2000s than there were in the 70s or 80s. So obviously, when a discovery is made, it is more likely to be made by a young computer scientist because the young computer scientist outnumber the old ones by maybe 10:1. But as the field matures, the average age will go up. If a field loses popularity, then all the discoveries will be made by old researchers instead of young ones because there are very few young ones. Of course Zuckerberg is going to talk up young talent, because he is a member of the group and most of his employees are too. Also, he wants to recruit the top graduates from the colleges so he is pandering to them too. Just wait 20 years for the field to mature and there will be as many old computer scientists as young computer scientists. Then we'll see that the old guys are doing the same stuff as the young ones.

A Charlie Munger one would be better for that. I would totally buy a Munger FatHead.

This reminds me of a video from a talk that Buffett gave to MBA students. When Buffett says he doesn't understand technology, he really means he doesn't understand the economic characteristics of technology. In the talk, he listed several examples. 1) The car changed society far more than people could have imagined, but out of 2000 or so automakers, only 3 of them survived (since the financial crisis, GM and Chrysler went down, so Ford is the lone survivor today) and they have not been that great of a business. It is ridiculous to think you can simply pick the 3 winners out of that pile. 2) The airplane exceeded all expectations. Nobody would have guessed that it would be a standard way of travelling and shipping stuff. However, in aggregate, if you add up all of the income of all of the airline companies that ever existed, they would still have a net loss despite the billions upon billions of investment dollars being poured into the industry. They can't even get a 1% return. 3) Kodak was one of the iconic companies that had a moat wider than Coca Cola's. But the digital camera destroyed the photo film industry. But the digital camera business is a terrible business. Buffett understands bitcoin far better than people give him credit for. He probably understands it to the same level as most software engineers. Just because someone can program computers, it doesn't mean he is any good at one of the narrow computer science topics such as cryptography. They have no advantage over Buffett. What many bitcoin speculators don't realize is that while they understand the technology, they are completely clueless about the economic characteristics of bitcoin, which Buffett understands far better. We might be all be using crypto-currencies in the next 10 years, but the most likely outcome even if that happens is that all the bitcoin investors lose all their money. There are many flaws with bitcoin, which can be addressed by future crypto-currencies and bitcoin would go the way of AOL or MySpace. And assuming that a crypto-currency does gain acceptance, the most likely way it would happen is that it would get the backing of a national government (i.e. you can do stuff like pay taxes using the crypto-currency). There is zero chance that the crypto-currency would be bitcoin, that nation would create a new crypto-currency (it may be a clone of bitcoin) where they control the initial supply. Everybody would drop bitcoin overnight and use that currency because it would provide a legitimate way to convert a significant amount of crypto-currency to real life products.

BAC at the end of 2011 and beginning of 2012. A lot of us are invested in BAC and forget that it was $18+ in 2010. It dropped -70% on the reputation smear from Countrywide related lawsuits, but the solvency of the bank was never really in question.

I wonder if the NSA or other U.S. government organization actually knows more than they are saying. Given all the NSA spying headlines, they don't exactly want to reveal all their cards and explain how they know.

Depending on your current lifestyle and how well you can invest, you might need more than a million. For simplicity, say the SP500 returns 10% annualized, you have $1M, and you make $100k/yr with your day job. You can just work your day job and index to get $200k/year. To match that, you need to beat the market and earn 20%. But if you fail to beat the market by a significant percentage in the first few years, you would never catch up to the "work and index" strategy because under that strategy you would have saved a lot more money and put that money into the SP500. Compound/geometric growth is the 8th wonder of the world, but starting capital matters. Even with a lower compound rate, if you have extra money to put in because you have a day job while you are young, you will end up with more money at the end because we don't live forever. This is especially true if you intend to buy a house or some other big ticket item that will use up a significant percentage of your networth, because your compound period is actually a lot shorter than you think. You can make a spreadsheet of some sample scenarios based on how much you earn, a few annualized return rates for the SP500, and then you can see how much you have to beat the market by before it makes sense. Also, keep the Monish Pabrai "cloning" principle in mind. You can beat the SP500 by buying Berkshire Hathaway or imitating the value guru's best buys. I put a huge portion of my networth in BAC (common and warrants) once Berkowitz, Buffett, and Munger (via DJCO) made significant investments into it. There's no buy signal stronger than that trifecta. I'm not sure if I could have done any better even if I spent 40 more hours each week on top of what I already spent. Cloning takes little time so you can work a day job and beat the SP500 by a significant amount. So you either have to be able to really stomp the SP500 (ex. Buffett making 50% annualized with less than $1M), have a lot more starting capital (probably closer to $5M), or be in a very low paying job right now before it makes sense to stop working and become a full time investor.

Broker margin isn't guaranteed. They can raise margin requirements depending on market conditions, we saw some of that happening in 2009, particularly with financial stocks. Since the risk of many big banks getting wiped out was very real, it was suddenly no longer accepted as collateral. Also, how much margin you have depends on the current market value of your portfolio, which is far less predictable than float. Your portfolio can fall 50% and the maximum amount you can borrow would get cut in half (or more, as margin requirements typically increase during market volatility). There is probably not much difference if you are going going to leverage 10-20%, but it is a big difference if you leverage more.

Just take a look at the actual stock exchanges. It is really difficult to run. You occasionally have busted trades and they have to go back and cancel them. You have companies like Knight Capital who has a ton of people looking over their code and testing it, and they can suddenly go bust because somebody didn't catch a negative sign somewhere. Most of these bitcoin exchanges/dealers don't even make profit yet. They are running with minimal manpower. When a venture capitalist gives one of them a few million dollars, they are not going to spend a year and all that money to upgrade security (which is largely invisible), because the venture capitalists would be very upset if you tell them that your old system was insecure and that you have not created any new features in the last year while your competitors are catching up. If the big boys who have decades of experience and far more funding can screw up, these tiny bitcoin exchanges/dealers are going to screw up far more often. And this is completely ignoring the potential for intentional malfeasance, which is very easy given that they are unregulated and authorities are far less likely to pursue a bitcoin thief as opposed to one that steals U.S. dollars.

Others probably know better than me, but I believe companies can release financial information in a press release outside of the regular quarterly and annual filings, but they'll probably have to file an 8-K with the SEC as that is clearly material information.