jay21

Highly recommend Plan's website. I still revisit some articles every so often.

I don't really track my performance, but I just logged on to my brokerage and apparently my brokerage accounts are up ~20% YTD per my brokerage's return calculation (I'm shocked). I have a lot of cash that isn't in my brokerage accounts that weighs down the return, but some of that is an emergency fund/living expenses etc. My savings however accounted for the bulk of my change in net worth this year.

Race, you may also want to think a little more about your frequency of high return ideas. Opportunities can arise even without a broad market crash. Off the top of my head there have been quite a few good risk/reward situations that popped up since 2010: BAC, JPM whale scandal, News Corp scandal, JEF, etc. There's probably a lot more, but I've been following financials the closest over the last few years.

Although, I do not clearly understand your model, I think you are making a few assumptions here that maybe you should think about a little more: 1. An investment will meet the required rate of return 2. The return will be experienced constantly (i.e. a smooth 15% a year) Let me know if and how you considered these. Probably a few more that I will think of later.

Can't wait for the sequel, $1 million to $1,500 in 3 days.

I went to school and live in a major city on the East Coast so I probably skewed the data. I believe starting salaries for nurses in major cities are >50K. Just a quick google: http://money.usnews.com/careers/best-jobs/registered-nurse/salary The 10% - 90% band is 44k to 96k with median being 65k. So 80k is high, maybe I should have picked 65k or lower. But I don't think that changes the conclusion. I was more trying to illustrate a method than give a definitive answer. I would think the delta between a HS degree and becoming a registered nurse is high enough in most areas to warrant a sizeable investment. Also found this: http://www.drexel.com/online-degrees/nursing-degrees/nursing-salary-guide/index.aspx

Carvel46: I hope our society STARTS to think of education as an investment. At this point in time, a LOT of education is a VERY POOR INVESTMENT. In fact, some education is a life ruining investment...Please see the thread I started "For Love or Money?". I can give this board a second example...A good friend's daughter started her studies this Fall at a well known state university. The school is good, with solid reputation. The girl is bright and hard working...but not bright enough to qualify for a scholarship. She would have got one at the local city college, but not the State U., which is where she wanted to go.... She is studying to be a nurse. In 3 years when she graduates, will nursing be a good choice? Probably...but who can say for sure? So here is the rub...the family & girl are borrowing at least 90% of the cost of her tuition, which will be at LEAST $100k by the time she is done. So this girl will graduate with $100k+ in debt. That is assuming she succeeds in her studies (highly likely, but not a certainty), that she graduates in only 4 years, not 5. What happens if she takes 6 months to find steady work after graduating? What if she works part time and takes a YEAR to secure full time employment? The interest ALONE on her debts will probably be $500 a month, perhaps more... So is this a good investment? From an economic standpoint, perhaps not... She will probably have a good time, make friends, perhaps even find a spouse, so it is hard to gauge simply on economics. How do you put a price on the intangibles? So I would argue that she is taking a TREMENDOUS economic risk. If there is any problem, any bump in the road, and she will be in very serious trouble. The cost of education is going to shrink the middle class tremendously. Heck, it has already started... If she is just HS educated, maybe she makes 30k a year. And if she becomes a nurse, let's say she will make 80k (I know it's less when you start but you can make more than 100k as a nurse I believe so I used a round figure somewhere in the middle). So that's a 50k difference in pre-tax wages that she will gain. I don't know the correct multiple to place on wages to get a value, but let's say it's 10. So just HS educated she is worth 300k, as a nurse 800k. The cost of education + foregone wages needs to be 500k to be breakeven. Or we can put it another way: She will forgo 120k in earnings and have a 100k in debt for 220k in economic costs. Therefore, assuming a ten multiple, she needs to increase her earnings by 22k to break even. You can debate my assumptions. But the point is that I think we can come up with a back of the envelope way of determining if that 100k debt is worth it. I think to become a nurse, in most cases, it probably is.

We are thinking the same way, I just wasn't careful in how I described my example. yes, two shares of upside. two dividends missed. twice we "borrowed" $18. Thus, 1 missed dividend per $18 borrowed. Therefore, the missed dividend of 1.08 (per call) is 6% of the "borrowed" amount of $18 per call. I get that 1.08 / 18 is 6%. I just don't understand why we would think we should get the 1.08 in the first place. If we had bought $18 of shares, we would have got a 3% yield, or .54. If my choice was to buy the common unlevered or to buy the call, or some combination, nothing was going to give me a 6% yield, so why would I be missing that unattainable 6%? Example 1: Using portfolio margin Let's say I only have $18 to my name and I buy 1 share of common stock for $36 using $18 of money borrowed on margin. I get dividend yield both on $18 of my own capital tied up and on $18 of the borrowed money Example 2: Using calls I don't get a damn bit of dividend on my own $18 of equity, neither do I get a dividend on the $18 worth of synthetically "borrowed" money. In Example 2, I not only miss out on dividend yield from the $18 borrowed, but I also miss out on the dividend yield from the $18 of my own equity that I contributed. So that's why it's 6% cost and not 3% cost. Because you synthetically borrowed only 1/2 the price of the stock, but you gave up the dividend on the entire thing! Your own money got no yield. Normally, if you invest your own $18 into the stock you get a 3% yield. But that vanishes when you add $18 of "borrowed" money to the deal. So you multiply it by 2, and thus it becomes a 6% cost of having added $18 of leverage. What yield premium should be applied to the secured liability to get to an apples to apples that you wanted?

Where did you see Tepper's returns?

Anyone have any picks for bond funds in general? I hear Doubleline a lot. And I know Third Avenue and Fairholme have distressed funds. I want to do the homework now so when there is another opportunity in the bond markets I can have a play set up. The opportunities in distress and PL RMBS were amazing from 2009 to 2011. I want to make sure I can take advantage of it next time.

Sold out of NICK and GLRE. So now from largest to smallest: BAC BRK MKL LUK FIAT MDLZ Thinking about buying more of FIAT, LUK, and MKL.

I'd take it. I think one pro you didn't mention but that might be implied is that you may have team working for you (maybe not immediately but in the near future). If things don't work out, I would think you have a great point on you resume. Also, sovereigns is a huge field. Find something that interest you. Maybe you don't like macro, but you will love analyzing the different term structures. Or you will learn about sovereign defaults through Greece. Or analyze bank NPLs, CDS pricing, etc. If it includes agencies, you could fill a whole year learning about RMBS, and the higher yielding types like support bonds, POs, IOs, etc. Also, how wide of a mandate is the HY stuff (is it only performing, can you do structured credit, CDS...?) and how much leeway do you have with the 50 - 50 split? There's plenty to do and plenty to learn, and you will be in a much better position career wise.

Thanks for this. I've been thinking about starting a position in LMCA (more specifically, a 50-50 split between LMCA and Global). Not too comfortable with SIRI, yet.

After seeing XOM was the secret stock, I took a quick look this morning and it does seem expensive. An enterprise value of $392B with a TTM FCF of $12.6B. Capital expenditures seem to eat a lot of the operating earnings each year. FCF was $40B in 2008, but the highest it has been since then was $24.4B in 2011. I'm sure it will be a home run for Buffett, but I don't know why. I understand why he would want to own XOM, I'm just not sure why he is buying it now. He's getting a great company at a fair price, I'd rather see him get a great company at a great price. But then again, in 20 years it won't matter if BRK bought it at $60 or $100, it will be still be a great investment. I may own some amount of BRK for 20 years, but I don't usually hold my other stocks very long. Once they are fairly valued I start looking elsewhere. I suppose it is different if you are managing many $Billions. I am sure that Buffett has some micro insight that I don't, but looking at the macro backdrop, this company couldn't this be a great inflationary investment assuming that they are a cannibal as another poster suggested? Their product will increase its price in an inflationary environment. They are issuing expensive debt that will decrease in value in an inflationary environment to buy fairly priced stock that could appreciate in an inflationary environment. I don't have any insight into XOM so I could be wrong.

Found it: http://www.valuewalk.com/2012/01/warren-buffetts-letter-to-hank-paulson/ While not pertinent to the discussion, I find it amazing that he was trying to basically structure an ABS CDO. Profits would have been pretty fat on this.

Can someone please send me a link to the plan/letter that Buffett sent around during the financial crisis? I can't remember if that was for F&F or more of a TARP type plan.

I think understanding the core concepts of Kelly is helpful, but I find its use impractical because of the subjective inputs. The way I have been investing is I think about the position and its risks vs upside. Then I bucket it into a general 5% 10% or 20% "optimal" bucket. I generally buy in around 50% to 75% of the optimal bucket in order to leave room to average down. The idea can move into different buckets if something changes (e.g. my knowledge, price, company event, etc.). I also try to limit the amount of industry overlap I have. For example, I think banks are very cheap and a fair amount fall into the 20% bucket, but I do not own 4 or 5 banks.

Kraven, I am in agreement with you on a lot of what you are saying (even though my investments can be considered to be centered around gurus). In particular, I am surprised to see "emotions running high." Besides, the BBRY deal not going through, weren't most of what people upset about highly visible? How can you criticize the hedges and the long duration bond portfolio after the fact? Most people knew how they were positioned and the risks associated with that. But now that that hasn't led to considerable BV growth, I feel people are upset. Maybe I am missing something.

I have read 2 sample issues and while the first half dealt with Fed policy macro econ, the second half dealt with individual securities, which were well done (I particularly recall his write up on autos including GM). I'm not sure if it's worth the price, but I enjoyed the sample issues.

I liked this part: How would you sum up your investing approach? I'll mention one of my sons, Stephen, and Jason Subotky, who also works here. Jason says: "It is almost always about the price." And Stephen says that when you buy a stock, you should always be happy if, when the stock goes down, you are willing to buy more. If you can't do that, then you probably own too much. A while back, my family and I were sitting around the dinner table, and we were talking about investing. Another of my sons, Brian, who does not work with me, but who has his own mutual fund, was in his late teens or early 20s at the time. And he said, "Let me see if I get this right, Dad. Basically, what you have said is that if you buy above-average businesses at below-average prices, on average it is going to work." So what you are trying to do is stack the odds in your favor. It is a little more sophisticated than my son's explanation, but it's a good summary.

I think that income inequality is mostly a vanity issue (i.e people believe the "wrongness" is the fact that someone has more than them as opposed to a deficiency in their standard of living). The more relevant metric is the growth in the standard of living for all citizens. Clearly, people have much better lives now and it seems that what is considered "normal" now would have been considered luxurious 15 years ago. Examples: multiple cell/smart phones, cars, premium cable etc. What standard of living do you think the minimum wage should allow? Does the fact that some people have much more money change that answer? While I agree that the public school system is terrible, I believe that it is very possible to have upwards mobility from some of the below average schools. If parents stress the importance of education, a child still has many opportunities to learn. The access to the internet alone can give access to many different topics. Look at the free encyclopedias, Khan academy, and other resources that a person could easily access. A driven student can get an (above) average education from the internet alone. To your point, maybe some of the worst schools do not have access to theses resources, but I believe the vast majority of schools do. The defined benefit plan is a horrible plan. The liability is very uncertain and involves many actuarial assumptions. Look at what happened to GM. Also, along these same lines, I thought this article by Dave Merkel was great: http://alephblog.com/2013/10/31/the-municipal-pension-payment-curve/ Ultimately, these plans can lead to extreme financial stress. I believe that people should be responsible for their retirement and not companies, municipalities, governments, etc.

I hit a pay wall. Can you provide highlights?

I sold GLRE awhile ago so I don't follow it closely, but I don't think they are that exposed to cats. They are very selective there. Also, the closest thing I have found to a mini-BRK is MKL. I just wish they were a little more aggressive on the asset side sometimes. This post has me thinking. Do we care if the multiple adjusts as long as the compounding is high? Obviously, it will be a bonus, but we still get the high compounding. Also, shouldn't we want discounts? It opens up another lever in the form of buybacks. In this case though where it appears there could be an ethical issue, Biglari would probably try to raise capital himself and buy the shares rather than do share repurchases to benefit holders.

Disagree. If I am making 1% risk free, by taking on 1% of credit risk I double my yield. If I am making 2% risk free, by taking on 1% of credit risk I 150% my yield. More reasons to take on credit risk when rates low.

dataroma had an update on Bruce: http://www.dataroma.com/m/holdings.php?m=fairx He's out of CHK, Sears Canada, MBIA, and Fannie/Freddie common