cubsfan

A small & relatively new international fund I hold: FPIVX - First Pacific Advisors International Fund Domestic Funds - FAIRX, FPACX

http://dealbook.nytimes.com/2014/02/25/geithners-book-has-a-title-stress-test/?_php=true&_type=blogs&_r=0

I can't remember if he said to sell (probably not explicitely), but his Sun Valley speech clearly talked about overvaluation around the dot com bubble. I think in 2006, 2007 it was pretty clear that he was not crazy about equities. At the annual meeting he was always getting beat up about having so much cash piling up - why haven't you put this cash to work, etc? I remember one of his answers "If we are able to put all this cash to work - you won't like the conditions under which we are able to do that". I had trouble understanding that answer until 2009 - then I got it.

I get a lot of questions from people around regarding what I actually do, and I feel like I get a lot of disapprovement. I would much appreciate thoughts from fellow investors how to cope with this, and also how to cope with the potential for procastrination when you got all this time to do whatever you like. SwedishValue - interesting you mention this. For the last 5 years, as I've told friends/family what I am doing. They always ask me "How's the day trading going?". This seems to be the public consensus for anyone who calls themselves a private investor buying stocks. Then I tell them that 70% of my gains have been LT cap gains, and intend my holding period to be 1-3 years. Even then they don't quite get it. As a few others have mentioned, one of the tougher challenges is to find LIKE MINDED value investors that you can communicate with. Most of my friends don't really get it - since they can't possibly think of holding a stock for 12 months. Early on in my career before doing this full time - I proved to myself I could lose a lot of money by trading. Only when I started studying Buffett in 2002 (after large tech losses) - did I "get" value investing. If you are met with disapproval - I would venture to say they don't "get" value investing. They think speculator.

This definitely resonates. Some kinds of work stress are positive and even fun, but stress from office politics and working with assholes is not one of them. I'm curious... as a full-time investor working from home, what kinds of contacts and confidants do you develop? Are they fellow investors that you share ideas with? Part of my work schedule involves attending lots of conferences, so I have met many fellow investors. Just about everyone is helpful. There are a couple that I have a steady, ongoing dialog with - some of that involves exchanging investment ideas, a lot of it is just investment strategy and views. And like this CBF forum, although very new to me, I can see there are many worthwhile people to develop a relationship via the internet. You don't have to be a recluse unless you want to.

My questions for those that have "retired" early: Did investing really become a full-time activity once you stopped working? And did you see your returns improve as a result? (I'm in the camp that suspects my returns would suffer if I devoted all of my time and attention to my portfolio.) Did you ever find it socially isolating to be "retired" when everyone else your age was working during the week? Most of the friends I've made in the past 10-15 years were met through work. What kinds of other projects or activities have you taken up to replace your day job? Were they difficult to find? Did you find them before or after you quit your job? Do they give you the same sense of meaning and/or fulfillment that your career did? Has anyone used their "retirement" as an opportunity to find or start a new career? Leftcoast - all good questions, and I think the right questions - In my case: Investing became a full time activity - because there is always something important to do. It's turned into a full time job, because there are few things I would rather do. IF you don't love it, don't do it. With real focus & discipline - your returns should improve. Mine did. But I always had to fight the "urge to trade" and do something every week. I've seen others go down in flames because they are "trying to make something happen". Patience and finding quality investments can't be forced. As far as being socially isolated - yes - there is some adjustment, but that's ok because I am always busy - and I don't waste time. I'm much more productive, because I only work on things that will help me make money. No politics to worry about - just productivity. Your time is your money - you don't waste it. You develop a different circle of contacts and confidents. One of the really great aspects is that I do NOT have to work or associate with people I do not like or respect. That is a benefit I never thought about. Other activities/projects - I spend all my time trying to figure out what investments might be worth or looking for new ideas. It's plenty time consuming. It does leave time for education - which should never end. There are plenty of things to do to improve skills - listening to interviews, conference calls, etc, etc. -- You can't do this unless you really enjoy it - it's too much detail work. When I get burned out - I play racquetball or take the dogs to the park. But mainly I am always thinking about finding another great idea. It can consume you. Done properly, it's a full time job. There is always something to do if you really want to make money. It's about focus. My advice is only do this if you have a burning desire to do it.

Apologies. I read that your objective was to beat the S&P by 10% or more per year, and then I mentally went a step further and assumed that you had been doing it for a sustained period (and on this board we do have a couple of people who have actually done this sustainably and who are in the top 0.01 percent of investors!). As far as my own investing skills, I'm still undecided whether I am slightly above average or whether I'm just lucky. For planning purposes, however, I only assume that I am average because the consequence of being wrong might mean that I'll end up eating cat food! SJ No problem. In my case, I know I've been incredibly lucky. I follow the Pabrai formula - I copy people far smarter than I am. It works wonders.

Of course, if you can regularly and reliably thrash the S&P by 10 percent per year, then it's all academic. But if that's true, then that would put you in the top 0.01 percent of investors? That is a bunch of crap Stubble - so I beat the S&P for 5 years - that doesn't mean anything in the long run - it's just a goal that I set - otherwise I should just go back and get a job - and buy an index fund. I never said a thing about being a great investor, which I am sure you are.

Stubble Look - I never said ANYTHING about a withdrawal rate. I said I needed to see a 10% annual return over an extended period to be able to continue. Otherwise, I should just go back and get a job. And in the first couple years I withdrew no capital at all. When I did start withdrawing capital, it was far easier mentally to set a large expense sum aside and just focus on investing.

I think this implies that you need to make a decent bit more than 10% to stay even because of the volatility in your net worth. If you get a bad year that $150K withdrawal is a lot bigger than after an up year, and you would need to make a lot just to earn that back. If the first year would be a -40% year you would start the second year at 0.84 million. Spend 0.15 million and you need to get a 21% return just to get back to 0.84 million. That's why I linked to that Monte Carlo calculator a few posts above. Volatility matters! I stated this poorly - I figured I needed an 18 month startup period - and I could lose money, but I needed to be able to see that this would work. I knew 10%/yr every year would not happen like clockwork - and a better way to say it - I figured success would be a 10% annual return over 5 years. That would be a MINIMUM for being able to do this full time. In reality my own personal goal was to beat the S&P every year by 10% - which has happened. So volatility may matter - but the focus needs to be LT, not annual.

I did this 5 years ago, having lost my job on March 1, 2009 - during the recession. I'll tell you my experience: You can't be under pressure to make money. I told my wife, if this did not work, I'd go back and find a job in 18 months. Fortunately for me it did work. But I've seen people attempt this thinking that money would consistently roll in. I don't measure my performance monthly - I think of my performance in 6 month increments - the longer the better. You have to love doing this - or I do not think it will work - it's just too hard. Sounds like you do. Much of not putting too much pressure on yourself will have to do with your "burn rate". You really need to be comfortable with that in order to make good, long term investment decisions. So I don't know your burn rate. I started with $1.4M - and a high burn rate - around $150K per year. If your burn rate is significantly lower than mine - it may work with your amounts. But I figured I needed to make approx 10% in order to stay even. And it worked out far better than that - so here I am 5 years later - with the best job in the world. You have to KNOW that you will have a bad year and lose money. That will suck and you'll get depressed - I had periods during the summer of 2010 and 2011 - where it was very hard mentally because of the paper drawdowns that happened with the European banking crisis. You need to be able to make it through those periods mentally - and it won't be fun. It will put pressure on you - you need to know you can handle that. So far, I am waiting for that big down year - it has not happened yet - but it's coming. Something that helped me a lot - a couple years ago - I put 200K aside, essentially for the next 18 months "operating expenses". That helped me a lot mentally rather that withdrawing money from investment accounts to constantly fund living expenses. Also - from DAY 1 - I set aside $25K/yr for education, seminars, subscriptions. I did not have an accounting, finance or investment background - I came out of software sales. So while I had capital - there were important aspects that I did not have. But it was very important for me to not cut corners and treat this like a business - and make the proper investments in my skill development. These are just some random thoughts - I hope they help - good luck!

Here you go: http://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2014/03/03/2014-03-03%20Ask%20WarrenBuffett%20complete%20transcript.pdf Thanks Liberty - I appreciate the transcript, super helpful. I also like watching the video (so much of communication is in the subtlety of body language, etc). I was hoping to see the entire video, but it seems to be non-existent on the web. It seems like CNBC must have it somewhere, but their website is a bit of a maze wrapped in an enigma. They will release the entire interview eventually, after they make you watch all the commercials on each 3 minute clip.

Vitaliy on Putin: http://www.institutionalinvestor.com/blogarticle/3315726/Will-Russia-Go-to-War-Over-Ukraine-Dont-Bet-on-It.html

I think he did answer this on Monday, when he said it would be self serving to promote Berkshire.

After 2 wars in Iraq and Afghanistan, I can't imagine getting involved with this. Don't understand it well, but if Crimea is largely a ethnic Russian population and they want to succeed from the Ukraine - let them sort it out. We can apply our sanctions to Russia, etc - but I'd hate to see any show of force. We should pick our battles carefully if the current ethnic population of Crimea wants no part of the Ukraine.

Packer - the Ramada Convention Center on South 72nd street is centrally located. It's nothing to write home about, but has lots of rooms. I've stayed there - it does the job. I like the location. The Holiday Inn Express Airport is decent, located 1 mile from convention center. Easy to deal with. Nice rooms.

I'm excited. This is so much better than xmas! :D Around what time? It's usually 6:00 AM EST for 3 hours - all of Squawk Box with moron Kernan.

The BAC investment is insane. Best investment he's made in the last however-many years. What's IV on the warrants right now? If you have a strong opinion on BAC, as many on this board do, the compounding on that until expiry is gonna be awesome. For any of you that understand account way better than I do: The economic value of this BAC position today is $10.9B. What is the accounting book value of the position? The preferred stock is classified as available-for-sale, so it is carried on the books at fair value. Ok, thanks - so the Book value of the position is $10.9B - correct? And it's not understated. Previously I should have said both the preferreds and the warrants are AFS, not just the preferreds. Where do you get the $10.9B? The sentence in the letter where Buffett says "At yearend these shares were worth $10.9 billion."? I'm not sure the exact amounts are disclosed or if similar prices can easily be seen. But without being precise, the preferreds can be called by BAC at $5.25B, so they are probably worth close to this (given the directional movements of rates and credit spreads/worthiness). The warrants can be exercised into shares worth $10.9B at an additional cost of $5B, so the intrinsic value is $5.9B (at year end). These don't expire until 9/2021 so there's a lot of time value also (option value= intrinsic value + time value). Not sure how much this is valued at, but regardless we can say that the preferreds and warrants combined are on the balance sheet for at least $11.15b ($5.25B + $5.9B), probably a bit more. You are correct, they should not understated unless Berkshire intentionally marks them conservatively for some reason, which is doubtful. Yes, thanks for that clarification - what I meant was the $10.9B minus original cost - to get a net figure reflected in current book value. I stated it poorly - but that was what I was getting at. I don't remember all the rules for the accounting values of derivatives, warrants, etc - so your AFS explanation is perfect. I wanted to know if the BAC intrinsic value was understated because of accounting rules. Thanks for bearing with me. On page 56 of the annual report the valuation inputs for the preferreds and warrants are disclosed. Since BRK holds other preferred stocks, the total preferred value for BRK is not broken out but par value is a good estimate. The warrants are valued using a warrant valuation model and have a 9% discount for lack of marketability. Packer Thanks for pointing me to that section with the table of discounts.

The BAC investment is insane. Best investment he's made in the last however-many years. What's IV on the warrants right now? If you have a strong opinion on BAC, as many on this board do, the compounding on that until expiry is gonna be awesome. For any of you that understand account way better than I do: The economic value of this BAC position today is $10.9B. What is the accounting book value of the position? The preferred stock is classified as available-for-sale, so it is carried on the books at fair value. Ok, thanks - so the Book value of the position is $10.9B - correct? And it's not understated. Previously I should have said both the preferreds and the warrants are AFS, not just the preferreds. Where do you get the $10.9B? The sentence in the letter where Buffett says "At yearend these shares were worth $10.9 billion."? I'm not sure the exact amounts are disclosed or if similar prices can easily be seen. But without being precise, the preferreds can be called by BAC at $5.25B, so they are probably worth close to this (given the directional movements of rates and credit spreads/worthiness). The warrants can be exercised into shares worth $10.9B at an additional cost of $5B, so the intrinsic value is $5.9B (at year end). These don't expire until 9/2021 so there's a lot of time value also (option value= intrinsic value + time value). Not sure how much this is valued at, but regardless we can say that the preferreds and warrants combined are on the balance sheet for at least $11.15b ($5.25B + $5.9B), probably a bit more. You are correct, they should not understated unless Berkshire intentionally marks them conservatively for some reason, which is doubtful. Yes, thanks for that clarification - what I meant was the $10.9B minus original cost - to get a net figure reflected in current book value. I stated it poorly - but that was what I was getting at. I don't remember all the rules for the accounting values of derivatives, warrants, etc - so your AFS explanation is perfect. I wanted to know if the BAC intrinsic value was understated because of accounting rules. Thanks for bearing with me.

The BAC investment is insane. Best investment he's made in the last however-many years. What's IV on the warrants right now? If you have a strong opinion on BAC, as many on this board do, the compounding on that until expiry is gonna be awesome. For any of you that understand account way better than I do: The economic value of this BAC position today is $10.9B. What is the accounting book value of the position? The preferred stock is classified as available-for-sale, so it is carried on the books at fair value. Ok, thanks - so the Book value of the position is $10.9B - correct? And it's not understated.

The BAC investment is insane. Best investment he's made in the last however-many years. What's IV on the warrants right now? If you have a strong opinion on BAC, as many on this board do, the compounding on that until expiry is gonna be awesome. For any of you that understand account way better than I do: The economic value of this BAC position today is $10.9B. What is the accounting book value of the position?

Thanks for the comments - when you say they do 50% of biz in UK - do you mean outside of Ireland? Also, sounds like they will have a quasi-monopoly in Ireland, when and if that economy turns around?

IRE is acting like a tech stock - anybody understand why the dramatic rise?

Fantastic read - thanks for posting.

That looks like a valuable property or lease. Sears has been there since 1912!