LongHaul

That is a Great Dale Carnegie quote. I need to re-read his book. You can only control what is within your control. If others want to act like whining 3 year olds then that is out of our control.

I used to live in Manhattan and although there are a lot of good people many are arrogant and there are a lot of wimps. If you really think about it, arrogance is demonstrated stupidity. And they are wimps. AC is not some natural right that will be up 100%. I live in Texas and sometimes it goes out and we deal with it. Maybe we should all strive to be tougher and complain less in our daily lives as there is much more strength in all of us than we realize.

Any thoughts on Buffett's preferred stock deals that he has done in the past? It seems like he takes preferred at a high coupon (tax efficient to Berkshire) and also gets warrants. So the cost can be very high if the stock does well over many years. But there can be some risk is the business does poorly, for example US Air.

I think 50% for 5 yrs would be very hard for Buffett or Munger today or anyone else for that matter. When he said that this year I immediately thought the odds were low it could be achieved, right now, over 5 years. The 1950's in the US were the best decade since 1950 for the stock market. 19.3% annually. But stocks were really cheap in 1950. Perhaps he remember that time. http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

A few sites I found helpful. Good PDF translator. Website is confusing but does a decent job translating larger PDF's https://www.onlinedoctranslator.com/translationform Japanese Financials site https://www.kaijinet.com/jpexpress/Default.aspx

I had never heard of this but it is a sort of short autobiography by John D Rockefeller. Excellent book. https://librivox.org/random-reminiscences-of-men-and-events-by-john-d-rockefeller/

The Munger article was brilliant. Lots of nuggets of wisdom.

Interesting article on overstated cash balances. I have heard of situations in China where bank managers and auditors were bribed to change cash or overlook incorrect amounts. https://www.wsj.com/articles/phantom-4-billion-joins-accounting-land-mines-shaking-chinese-market-11558352421

For some reason i had always assumed that certain things were set in the genes like Schizophrenia. Totally wrong. There is a complex interplay between genes (predisposition) and environment. One very likely risk factor is drug use from ~15-30. Pot, cocaine, etc. One stat shows 5x the incidence of becoming Schizo with pot use when young. The jury is still out apparently. Given that Schizo is so serious of a mental disorder, I would personally advise anyone under 30 to totally avoid pot and other heavy drugs. The downside is just to great. Although I may never know 100%, my uncle got into heavy drug use in the 60's (pot, lsd) and developed Schizophrenia. Totally messed up his life and words cannot describe it fully. Interesting site - see the odds ratio for what may cause higher odds of Schizo that is non family related. http://schizophrenia.com/prev1.htm This study showed an 86% reduction in Schizo for healthy families vs dysfunctional ones. http://www.schizophrenia.com/familyenv1.htm The above family data was really surprising and I wonder what else that this complex interplay.

I like Tilson but this marketing (assuming it is real) seems super aggressive. I find it highly distasteful. If you point to all your best calls then point to your worst as well.

Dwy and Cigarbutt- great comments. very helpful on current climate. Let me clarify something - what I was most concerned with was a company with modest debt - perhaps 3x normal EBIT or so that hits a rough patch. How to structure that capital structure to minimize the chance of default is the puzzle. However it is done - seems like the equityholders and company would want minimal chance of triggering bankruptcy which could transfer the upside to the creditors. Bank debt with weak covenants could also be the way to go if the covenants are in practice non-existent. Depends I guess. I wonder what the long term cycle effects of having bank debt covlite and having non banks own them. I think Cigarbutt is right that easy lending will exacerbate the cycle. At least that has been the history of credit cycles for 200+ years. And like Mattel (great example) with easy money some will (and be allowed to do) some really dumb things, in fact the more money lenders will give the more it will be spent. So much for learning anything from the financial crisis. Quick article on ballooning debt https://www.marketwatch.com/story/these-5-charts-warn-that-the-us-corporate-debt-party-is-getting-out-of-hand-2018-11-29

Fair points. To me long term bonds (if possible) are like financial catastrophe insurance vs bank debt or other short term debt. The company may pay more but it less likely to be forced to file if the credit window is shut at the wrong time. Interesting perspective, but can I ask why you view bonds as better insurance vs. bank debt? Structurally, bonds are subordinated to bank debt and bonds don't always* have security in the form of assets which would likely mean they are at risk of lower recoveries than bank debt in the event of default. According to JP Morgan's most recent default monitor issue, the 25 year average recovery rates for all bonds was 41.4 cents vs. 66.4 cents for 1st lien bank debt. Another feature of bank debt which I view as more attractive than bonds is the lesser chance of being "primed". To be primed means that the Company issues more debt that is structurally senior than you. Lets say you have a $1,000mn EV company with $400mn bank debt, $400mn bonds, and $200mn equity that trades at 10x $100mn EBITDA. Through the bank debt my leverage is 4x and bonds are 8x. You invest in the bonds because you view the worst case scenario as the Company being worth 8x EBITDA, so your bonds are covered at 100%. The Company decides to utilize a $200mn incremental bank debt facility (were assuming 0 benefit to EBITDA here just to keep it simple). Now, there is $600mn bank debt ahead of your $400mn bonds. At 8x EBITDA, your bonds are now only covered at 50% while the bank debt still receives a 100% recovery. The incremental bank debt is senior to your bonds, but equal (known as "pari passu") to the existing bank debt so their claim on value is the same. The point here is that bank debt typically offers you more of a cushion for the Company to pull different levels without potentially impairing your value. The trade off is usually a lower total return vs. the bonds but bank debt may be better risk adjusted return given the downside protection offered by covenants and structural seniority in the capital structure. I agree with your analysis from the creditors perspective. Being in a first position secured with bank debt is better than an unsecured bond position all else equal. My quick comment was from the perspective of a equity holder of the company where I would want an almost 0 chance of being wiped out in a financial crisis or deep economic downturn.

VGSH is a great etf. ~7bps in fees for a short term treasury ETF.

Fair points. To me long term bonds (if possible) are like financial catastrophe insurance vs bank debt or other short term debt. The company may pay more but it less likely to be forced to file if the credit window is shut at the wrong time.

This is not really as big of a deal as you might think it is, but as with most things..."it depends" the majority of the time. Its actually in the banks best interest for the company to remain solvent and out of bankruptcy, and they will accommodate (kick the can down the road) most situations. Covenants like maximum debt ratios and minimum interest coverage can be amended and waived by giving a fee to the banks or raising their interest rate (or tightening up other covenants as well). So if a company takes a temporary hit in earnings and becomes in danger of busting a covenant, it will almost always get amended or waived. A bank will only really give a firm "no" if the company has been playing fast and loose for a long time. Like if its the 2nd or 3rd time approaching the bank in a year with a problem or something. Even in situations where a company is on the brink of default I've been amazed how accommodating the banks have been when, in my opinion, they shouldnt have been. I've actually never seen a company put into bankruptcy because they breached their leverage ratio or something. In fact, WIN was not put into bankruptcy because of a covenant breach, the banks were in the process of working out a solution for them but they ran out of time. The majority of the time I see a company go into bankruptcy is because they have a liquidity problem of some sort. Staying with Windstream - they went into default because they had a liquidity crunch that prevented them from financing their ongoing operations and they sought bankruptcy relief to receive debtor in possession financing so they could keep their lights on while they worked the problem. Windstream is a highly capital intensive business with significant working capital needs. They have historically always kept a low cash balance and used their revolving credit facility to finance working capital. When the ruling came out that decided their sale leaseback transaction was a violation of certain covenants it created an event of default. An event of default is not always an automatic bankruptcy, there is sometimes a "cure" period where the company has a month or so to "fix" what is causing the default. The problem here was that Windstream's revolving credit facility becomes inaccessible if an event of default exists. Since they had a low cash balance and could not access their revolver, they could not operate their business. Since they couldn't operate their business they couldn't fix the problem. Therefore, seeking bankruptcy relief was the best option so they could access a new source of liquidity. To your comment "if the company has value greater than debt...banks put the company into bankruptcy anyway" this is not really true. Depends on who owns the bank debt. JP Morgans leveraged finance group (the agent on some leveraged bank debt) is not going to "opportunistically" put the company into default because what benefit would they get for it? They can't own the equity. Some hedge funds that own the bank debt might not even opportunistically put it into default because they'd rather just waive a covenant default in exchange for higher rates and give the company time to work their problem while owning a good piece of paper. Aggressive hedge funds will only do this from the stance of a bank lender only if the company truly has big problems, in which case their is likely zero equity value anyway. Equity investors tend to over value companys, and Im comfortable saying that as a blanket statement. The reason is because they focus on future growth opportunities and value based off that. Even a lot of equity investors that use "conservative" valuations are still aggressive by credit investor standards. So its easy to think that creditors might be pulling the rug out of the equity when you think its worth several turns higher than what they say, but in most cases I'd be they're probably right and you're too aggressive with the valuation. Of course, even credit investors come to different opinions on this. In bankruptcy its called a "valuation fight". It will literally come down to lawyers arguing to the judge the merits of one valuation method vs another. Most on this board are familiar with the ZINC situation - you can read the docket notes and see that the judge's opinion on value came down to cost of capital assumptions in one case. It really just comes down to the motivations of different creditor groups which I'm happy to get more into. This is a lot so far, but I'll round it out with another point. Someone below commented that you can't always see the terms of the bank debt. This is not true. Bank debt agreements are always filed with the SEC - I've never, ever been in a situation where I couldn't find the information publicly in SEC filings. The rabbit hole of credit investing and understanding bank debt covenants is very deep and (rightfully) appears to be a lot for those unfamiliar with it. It can even feel like its unfair. But the fact is that, in my opinion, if you want to be a good investor you absolutely need to understand this stuff. I have seen stock pitches, even on the valueinvestorsclub, where a big part of the pitch is a return of capital to shareholders that was actually prohibited by the bank debt covenants! This was a big reason why I went short equity and long bonds in FCAU last year. Every one bought into it because they expected a massive return to shareholders that was actually prohibited by their bank debt covenants. I figured that the return either wouldn't actually happen or would be smaller than expected. Its just a tricky concept. But I'm happy to answer questions over it! Interesting stuff. Seems to me that all else equal a company is in a position of weakness if it needs to maintain certain financial ratios. If the company does not maintain the ratios then it is at the mercy of banks/vulture funds and the "value" at the time of bankruptcy. If the equity claim has a call option for the upside on the company, bankruptcy could transfer that call option or value to the creditors - and unfairly so. The first 4-5 pages were interesting then 71-72 has examples of senior creditors undervaluing businesses in bankruptcy. https://www.hbs.edu/faculty/Publication%20Files/Valuation%20of%20Bankrupt%20Firms_ec9b67e7-4286-4581-a1d0-eb2c2a3a7ffe.pdf There was also a line on page 2 that I liked: "US bankruptcy law resolves valuation through negotiation." I would add sometimes "or judge" to that.

thx for the posts and info. I agree most of the time banks adjust covenants and the credit window is open to viable underlevered companies. Sometimes they are not though during bad economic times, etc. Lets consider the perspective of the company that has about half of its value in bank debt and the economy tanks, earnings tank and the credit window is shut. Seems very risky to me to be reliant on bank debt and if the company is violating covenants the company is at the mercy of the lenders - perhaps extremely aggressive ones like vulture funds. Very long term bonds seem much safer from a probability of default. I would be interested in examples of where the creditors took a lot of the value from equity, when there was real equity value. Frankly, I think this happened in Lear corp and may be happening with PHI right now.

Does anyone have any knowledge or experience with the risk of bank debt and covenants? The reason I ask is that it seems like bank debt can be very risky. If a company has value greater than the debt but a temporary downturn in earnings, from any number of things, the banks can just put the company into bankruptcy upon violation of covenants. If aggressive vulture funds buy the bank debt and want to own the company then they could use the covenant violations as an excuse for putting the company into bankruptcy and trying to convert to equity. I am very interested in any experiences or knowledge on this subject.

Seems like a really great price comparison site is needed. Perhaps I just don't know of a great one yet.

Anyone use this Wikibuy - thoughts?

You can try to call Finra and ask them specific data questions. I am not sure what might be available.

I think the Finra trade data comes from actual trades reported by brokers and dealers so I think it is highly accurate. There is a also a screener with it which is decent. Not sure about pulling raw data but I think the site is meant for small users as they don't want people pulling 20 pages of data all at once. Inefficient if you ask me.

More on this topic. Really interesting. https://fs.blog/2013/05/pluralistic-ignorance/

This was excellent Liberty. Thanks so much for posting. I would also highly recommend these notes (~10 minute read) Liberty, 1. Have you confirmed the sleep notes at all? I'm not sure what you mean. Do you mean if I know the notes to be accurate? I've listened to the podcast but haven't read the notes, so I can't say. But if you meant something else, please let me know. I don't subscribe, I'm not sure where I found the site... Maybe just Googling for the podcast to post it here. Seems like a good resource. Sorry, that was not clear. I'll try again. Is the sleep research on the podcast accurate with research studies?

This was excellent Liberty. Thanks so much for posting. I would also highly recommend these notes (~10 minute read) Liberty, 1. Have you confirmed the sleep notes at all? 2. Do you subscribe to podcast notes and what do you think of the site? thx, Ron

You could talk to a manager of your fitness club (if you have one) for some info. There might be some good articles on the industry from a trade publication.