Palantir

I always assumed WEB liked Jack Welch.

Interesting to find out about Mr Garcia Parames. Seems like a really intelligent guy, reading his comments from years ago on the Spanish Economy and its unsuitability to the Eurozone, and it seems very prescient now. You cannot fault him for missing out on Inditex...value investors tend to avoid these mega growth stories, and Mr WEB himself has missed out on many of them....MSFT, AAPL, SBUX etc etc....

BV is simply a reference point. It is not a proxy for IV, but rather a "floor".

^ I was just thinking that as well. The buyback price is 81, it might be a good idea to watch closely, or better yet, sell puts near the target price. Regarding Sandy, is it really a given though that BV will be lowered due to insurance losses? I would think that BV would grow (from Berk's other operations), but the growth would be offset by Sandy losses. Shouldn't we need an overall loss for the quarter to shrink BV?

^ No...I figured it out....buying at IV ensures that your return is equal to discount rate if your growth assumptions hold. In that case, then a large margin of safety is not really that important I suppose.

I understand it is arbitrary, but it is difficult to determine investments when you're trying to look years into the future. When you're doing deep value, you can put an estimate on the worth of an investment and something like a 40%+ discount in theory gives you a good chance of a good return. I'm going to ask another n00b question. Say you buy a stock exactly at the intrinsic value estimated by the model, say your model assumptions are something like 8% growth and 10% discount rate into perpetuity. What is your expected return if you buy the stock? I suppose if it is expected to be high even if you buy right at IV, then a small discount for a great firm could be justified...

I know that when you invest in deep value situations, you tend to look for firms that are trading about 40% below intrinsic value or so, in order to have an appropriate margin of safety. However, if you're investing in a growth firm, a franchise with an economic moat that has a strong growth rate and expanding market share, what's the appropriate discount to look for? For example, I'm looking at Red Hat (RHT), and I've estimated the IV to be 60, but it is trading at 50....

HPQ? Yucky.

Yeah...but what's the point of buying these tiny firms? It's not going to make a material difference to Berk's position.

Exactly, Apple is not about market share, they're making much more on every Apple product sold. Google on the other hand, is really about turning software into a commodity and using a large userbase to drive search. Different business models. Think about it, Apple would gain market share if they slashed prices on their Mac products. They're quite expensive.....compared to my very good laptop which I got for $500. I think Google has a much more serious threat in Windows Phone - they can replicate Google's business model.

I disagree. I think a "moat" is something that is personell-independent. That means, you can replace the key employees in a firm, and it is still likely to do well. KO springs to mind, AAPL does not really. This also rules out many other firms. Many businesses are kept in place due to relationships, as you noted, I don't consider them to have true "moats". What happens when that relationship frays? I agree that investors blow it out of proportion, as I noted earlier. However, my opinion is that companies with moats are just really rare and rarely ever undervalued, and getting too fixated on the competitive advantage can eliminate many good investments. I consider inertia to be a substantial moat, especially in a business where there is not substantial change. Companies with strong distribution chains can really crush competition using their size. I am long Neustar (NSR) for that reason....let's see how it goes...

I think the concept of a moat is a little overblown, especially by beginning investors. IMHO very few businesses truly have economic moats, and yet many businesses do just fine. Coke is said to have an economic moat, but that doesn't mean Pepsi cannot do well... The following is a summary of what I read on the internet: In technology, the message seems to be "software replaces hardware" and basically specialized hardware providers are going to be replaced by generic boxes where software does the work. For example, a mechanical clock is replaced by an electronic clock - a box with a circuit in it, or a CRT TV replaced with a computer monitor - a box with a computer in it. I could find more examples, but I think the idea is that whenever you need specialized hardware to manipulate information, software will do that job in the future. Intel's strength is that a lot of software is written for the x86 instruction set, but in the future it is likely more and more software will be independent of the processor platform...

In the US there seem to be two tickers for Fairfax - FFH and FRFH, what is the difference? Sorry for the n00b Q.

Basically what I think is that value investors tend to look at a large pile of liquid assets on the balance sheet as somewhat of a "backstop" - basically, "even if things get really bad, at least I'll be able to buy the cash and get the business for super cheap". Or another way some value investors look at troubled firms is - "yeah sure the business has problems....but it's still really cheap." I don't think that works here, as firms can very quickly destroy value and this margin of safety that might be apparent can evaporate. I think in businesses with rapidly changing technology, you should focus on buying good businesses that you expect will do well over the long term and are going to increase market share. But that's just IMO. Say INTC FCFE drops to half its normalized value - say roughly 7.5B/annum...is this still a good value? That's what I think could be a realistic outcome - Intel simply shrinking into a smaller firm.

In my opinion capital allocation is the easiest part of the business, and I feel there are many people in Berkshire and outside Berkshire who can take that role. I don't feel Mr Munger is correct - IMO Berkshire's core strengths are in its operating businesses and the fact that its huge float allows them to invest with free leverage. Those things will not change with WEB's absence.

I think that's just the wrong way to look at it. Firms with declining moats can waste away their cash, and destroy value very quickly. I think it's a mistake to only look at it because it is "cheap"...rather you should focus on business model going into the future, that's where the margin of safety is. If you find strengths within Intel's business model that you feel will create value in the future, that is a different story. Are you long INTC? EDIT: I think MSFT is actually cheaper than INTC. It is trading at less than 10xFCFE, and you also have to take MSFT's 65B net cash pile into account.

Simply put, I see a contracting "economic moat" for Intel in the future. "Industry leading" position can be very ephemeral in this space.

Then we should probably all buy DJCO aggressively after market corrections. 8) This is actually what Munger has been doing with DJCO for some time now. What is Munger doing with DJCO? I'm curious to hear your opinion of its future prospects. I'm a shareholder, who really bought it as more of a cash cow + portfolio basis.

Why do you feel there was conflict between Ajit Jain and Hamburg?

I see your point...but it is highly questionable whether INTC, HPQ, and DELL are "high quality" names...

10% is just a guideline, point being if market went down substantially what positions would you initiate? Please don't take the numbers literally.....

Basically firms (franchise style investments) you like but are pricey right now. SAM - Boston Beer Co RHT - Red Hat Inc FFIV - F5 Networks

Here is where I believe you are mistaken. BRK already has these outstanding managers. They are the ones that truly run the firm, they broadly report to WEB, but he gives them total freedom in their operations. I feel you have not given his lieutenants enough credit. I confidently feel that if one of his lieutenants like Jain, Abel, Nicely, or Weschler became CEO, BRK would continue to prosper. I do not know anything about FFH, so I don't have an opinion vis a vis BRK.

I am confident BRK can do well long after WEB passes. I don't believe Berkshire needs him to run, and the way it is structured, with negative cost of float, good investment managers, and very strong operating businesses, WEB's absence IMO is not likely to be impactful. I feel Ajit Jain's departure would have a larger impact than WEB's.

I think it makes sense to sell BRK, if you have better investment ideas ready to fire. I think the intrinsic value of BRK is about 1.5BV, so there's roughly 20% upside to these shares, and now that a buyback plan is in place, it will no longer be chronically undervalued. I feel like selling from time to time, but I'm going to wait till it hits the 1.5BV mark.