LongHaul

Can someone explain number 4 about the "The weirdly intense, contagious devotion of some..." How would this have helped Berkshire so much? Thank You

There was an article in the WSJ recently about how AMEX might be losing share to high end Visa and Mastercard issuers. Whitney Tilson was quoted as switching to Barclay Card which looks great. I ordered one as it seems like a great deal. http://www.barclaycardarrival.com/arrival-plus/?campaignId=1729&campaignId=2043&od=bcarrival&cellNumber=24&cellNumber=9&referrerid=BCSBA1014HPG Anyone have any thoughts on if AMEX is losing its prestige vs high end competitors? I was thinking that after Mastercard and Visa were "demutualized" they increased rates and now their issuers can go after AMEX.

Great Job! I really like this board with many intelligent posts. Some of the comments on the internet make me want to live in a cave but this board is an exception.

Great interview with the founder of Republic. http://www.lightreading.com/mobile/carrier-wifi/republic-welcomes-more-wifi-first-action/d/d-id/713530

Not trying to be a jerk but will you build her models for her if someone hires her? I would have more respect if she came on the board and asked for an internship which shows real interest. I personally went through a grueling process to get hired but learned a ton along the way. She should do all of her own primary searching in my opinion - people will respect her more and she will get a better sense of how the real world operates. The rejections may even shape her life in unexpected ways - mine did.

A lot of wonderful posts. Thanks everybody. That was a great article netnet, especially the 1st part. I agree with Vinod. I think Vinod has studied Buffett well. Buffett generally invests in understandable/predictable businesses with a big margin of safety minimizing the damage from unknowns. A quote I found yesterday on Buffett, "Warren Stays away from the gray areas with almost all of his investments, keeping to what he knows and what is sure of." Munger Quotes “I think we have had a temperamental advantage: Warren and I know better than most people what we know and what we don’t know. That’s even better than having a lot of extra IQ points.” Mr. Munger continued: “People chronically misappraise the limits of their own knowledge; that’s one of the most basic parts of human nature. Knowing the edge of your circle of competence is one of the most difficult things for a human being to do. Knowing what you don’t know is much more useful in life and business than being brilliant.” I think Munger and Buffett have enough humility to admit that they can't understand certain things. I would add a few things about what I have found helpful about limiting the unknowns and risk. 1. Checklists. Business and psychological checklists. I am just not smart enough to remember every risk off the top of my head or be aware what might be driving my subconscious mind. 2. Keep learning and grinding it out. 3. Keep an open mind. Exploratory thought is an "evenhanded consideration of alternative points of view." Change your views when you are wrong. 4. Explore a lot of business failures. 5. Listen to your gut - to an extent. Does something not feel fully right about the situation and makes one uncomfortable? I have had a gnawing feeling in my stomach that some situations were very risky and then they did badly. I choose to ignore them and paid the price. Sometimes your gut or subconscious mind is alerting you to inherent high risk in an investment may be best to avoid. So true. As is this: and you get the power of compounding! I would add temperament. And as Munger says, you have to be a learning machine.

What a debate! I think at the end of the day one has to come up with an absolute value for an asset. If homes in Canada are trading at an unlevered P/E of 35x and are worth 20x then they are massively overvalued, (I made the P/E's up). Eventually the price will reflect the value but people can be nuts for a long time. All the other arguments about land scarcity, govt, safer lending, etc are just noise as illustrated by history over the last 200+ yrs. But wait - THIS TIME IS DIFFERENT!!!!

Has there been any incredibly dumb lending in Canada like the US had with subprime, etc? If so who has been the most aggressive?

How do you figure out what you don't know in investing? I have found over the years that even after a lot of work I can still not understand a key overriding consideration of a business. I think it was Walter Schloss who said that you have to own a business to really understand it. Here are 3 types. I am really interested in type 3, as that is what is more controllable and can cause losses. 1. Unknowns that are identified previously. 2. Random Unknowns. 3. Unknowns that are due to ignorance.

Both are fair points. I have no idea when interest rates will rise. We are in some weird times with interest rates though. ~140 year lows on the 10 year US treasury yield. 140 years! http://www.multpl.com/interest-rate/ Negative interest rates in Germany too. Which is just insane to me. For interest rates to stay low you would have to believe investors would accept 0 or negative real interest rates for an extended period which I think is unlikely. But who knows - I am no expert and if you had told me German interest rates would be negative I would not have guessed that. BTW - German residential real estate seems roughly fairly valued. Japan is probably also. I think there is a benefit for the levered buyer on a present value basis. But the risk seems to be on the downside at these prices. A lot of people attribute the current central bank actions of lowering rates to causing bubbles, etc. It may be partially the reason - hard to say how much though. In the late 1920's, ~2000, and 2006 interest rates were higher and there were bubbles in addition to many other times. No real estate bubbles in Germany and Japan housing that I know of now. So it seems to me that the overriding point is human nature which which gets caught up in bubbles like teenager drinking beer.

Thanks for the replies of why Canadian homes didn't crash. I am in the US and I think it may be easier to spot bubbles when you are outside of the country. Less koolaid being offered daily! I think homes in Canada are about 75% overvalued. I got that from looking at the economist website and comparing the average long term real price and price to rent and both work out to ~75% overvalued. The US wasn't that overvalued overall. If I owned one of these overpriced homes I would immediately sell and rent. That can be a very significant amount of money. I agree that a bunch of other places are in bubbles too, China, Australia, etc.

Anyone know why Canada's home price bubble did not bust when the US went into the Great Recession? Seems like Canadian home prices dipped a little then came roaring back.

Has “The Spirit Effect” Replaced ” The Southwest Effect?” I really liked this article on Spirit Airlines - ticker SAVE. They seem more frugal than 3G who has trash collection ~2x per week. "This focus on cost-cutting employs even the most mundane of strategies; at Spirit’s headquarters in Miramar, there is no janitorial staff; the employees take out the trash themselves." http://airwaysnews.com/blog/2013/07/20/has-the-spirit-effect-replaced-the-southwest-effect/

Yes it is. Frugality is very compatible with a good and rewarding life. Its only in this, the Age of Stupidity, that this even comes up as a question. To the extent that anyone has studied this question and many, many, many have, no one has concluded that the best way to make yourself happy or live a good life is to spend more money. If anything its quite the opposite in every spiritual and philosophical tradition I can think of. Its such a settled point that even philosophical opponents agree e.g. Stoics vs Epicureans The Hedonists (Epicurus) argued that friends, simple pleasures, knowledge would bring you happiness. But they also argued that you shouldn't eat expensive foods or enjoy luxuries because it would make it harder for you to be satisfied. The Stoics argued happiness could be obtained not by changing your external situation but instead by changing your thinking, hence the Epictetus quote: "Man is disturbed not by things, but by the views he takes of them". The one common denominator is that nobody advocates for material possessions or spending money. At best they advocate for not being too extreme in asceticism (Buddhist middle path). You can read the happiness research studies and I don't think any of them has argued for spending more money. Great comments on philosophy of life Rukawa. Keep them coming! It is fascinating that to me that most ancient philosophies and religions formed independently and rejected materialism. One interesting thought is that happiness comes not so much from desiring things because you will always desire what you don't have and be miserable about it. But from eliminating desire so you are never in wont of anything. That is completely the opposite of mainstream society. From my reading of history a good percent of people have always spent money on materialistic things. Now we just have greater means to do so.

So for technology, brand, collusion and regulatory reasons it was basically a great business. How do you think the "moat" has changed over the years with digital TV and cable? Is there a place where I can read more about this power balance? I am really interested. Thank You There is no leverage there because typically a major East Coast market you would have say channels 2,4, 7 as the ABC, CBS, and NBC affiliates, then you might have another independent station (old movies, crappy children shows, etc.) say at 11 and for propagation and signal issues that would be it for the lower channels. So the ABC is not going to induce the CBS affiliate to move so that is out. The independent? Well that was the station owner clown with the bad toupee who do ridiculous stunts like pushing a baseball around an infield with just his forehead (see Ted Turner circa 1977). You want to put your quality product and ratings with that fool?

Excellent analysis netnet. Super helpful. I did not think of the channel as a brand. I would also add that they local station had important content - news, etc. What about channels 7-12 or so? Could those of been used as leverage to pay the affiliates less? Much appreciated. Basically, both the networks and the affiliates behaved rationally. Look at the power dynamics. The content (network) was valuable, but the distribution of content (TV station license) was relatively more valuable. There basically was a government enforced monopoly at the local TV station level, only a few licenses were available. The excess, more station positions, were in the higher channels with poorer signal propagation. That said, even the independent non-network stations did well. Say you were ABC, back in the day, you had a channel 3 affiliate (great signal over the market) and there was a channel 36 available to affiliate with, well you did not want your premium content on a crappy (pre-cable) signal that had lots of noise. There was zero threat to your existing affiliate on channel 3 that you were going to move. Plus, you did not want to rile up all of your other affiliates, to what purpose and the local audience knew channel 3 was ABC, that was part of the brand. (More speculatively, I would also argue that in mature markets in advanced economy, sometimes intra industry, there is a norm of collegiality, that is pretty well defined, at least it was in post war US.) In any case, in TV through the 80's, everybody was fat, dumb and happily making money. (And if as an independent, you managed to score the Fox affiliation in your market, woo-hoo!)

This is a great question. I see 2 main effects of a greater percentage of money in index funds: 1. Less "free float" 2. Greater Non-value based buyers. Let us imagine that indexing goes from 0% to 99% of all funds - an extreme example. I think with less free float there could be additional volatility creating more opportunity for those who are value oriented. In addition there should be a lot less competition as the number of true investors researching absolute value goes down. Probably good for the remaining active value investors. Tricky though. The other thing I have recently realized is that some huge percentage of people don't really know what the index they are buying is worth. I am talking about long term oriented investors too. I have seen it too many times now. Reits and small caps are very expensive now and people are piling in. They don't know the value at all.

A few ideas - definitely read Phil Fisher if you have not. Great book in a lot of ways. 1. Trade magazines. 2. Historical books on the industry. 3. Company failures in the industry. Why did the companies fail? Extremely valuable info. 4. Interviews - call people up. Just start calling relevant people - competitors, suppliers, customers, substitutes. Lots will talk for free. 5. Read all the annuals of competitors, suppliers, etc. 5. Lawsuits and anitrust proceedings can be insightful. Here is the caveat though. Until you really own the business you may still not fully understand it even if you think you do before hand. This has happened to me a bunch of times. I have been humbled over the years and been wrong on many businesses because key drivers may not show up for years. One can easily miss one of these but I think if you keep grinding it out and learning you can keep acquiring more wisdom.

Great interview - thanks for posting. There is one thing I don't understand. Why was the broadcasting business so good? And by that I mean why didn't the 3 big networks squeeze the affiliate broadcasters much more? Hard to get a good answer on this.

Good point. I believe it is the same.

Superb writing by Michael Lewis on Ireland's housing bubble. Extremely entertaining read. http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103

Couple of interesting data points on real estate in Canada. Shiller data http://www.macleans.ca/economy/realestateeconomy/a-canadian-housing-chart-that-puts-the-bubble-in-perspective/ Canada price to rent - Economist http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

Actually I was interested in single family home cap rates or single unit tenant condos. Apartment building cap rates are generally higher. 5% is super low though even for multifamily.

I may agree that Canada is in a bubble - I need some more data. Just curious - if I buy an average home or condo in Canada what is the unlevered cap rate for the owner? This should basically be rent minus taxes, home insurance, maintenance, hoa fees if any and other misc. I would exclude leasing fees, vacancy, utilities (pd by owner I assume if he rented it to a tenant). For maintenance I would assume $1 a SFT for a home which is probably roughly right. This helps me quantify the unlevered return (excluding appreciation/depreciation) of buying a home. For example - in Southern California the cap rate for average places went to ~2% in 2006. That is a P/E of 50 unlevered and makes no fundamental sense. My area in Texas is ~ 5% 15k on 300k home which is nothing great but not so horrible either. Thank You

I was curious of investors experiences and thoughts of buying puts on overvalued companies? The math with shorting is quite negative long term as unlimited downside and being short producing assets is difficult. What about buying puts though? Any help greatly appreciated.