LongHaul

Thanks for the great responses everyone. "Basicly things are bad, they will spin around the truth, stay vague and tell positive unrelated anecdotes to throw up a smoke screen. If they are good and honest, they will tell it like it is. " Well written Yadayada. I have had some experience with these B.S. types and they are repulsive. It is far more effective and efficient to be honest.

How to recognize bad management? I am curious what characteristics investors on this board have noticed to recognize bad management besides the more obvious signs - all else equal - low margins, less organic sales growth than peers, continually investing in money losing projects. Any nuances that people have learned over the years are appreciated.

Great questions about one of the most critical skills. I'll give it a try.

So I generally meant for major life decisions - choosing a new job, new career, whether or not to go to grad school, or even in choosing whether to date someone or not. My first instinct is to think of it like an investment - to focus on the downside. Clearly this is the wrong way to go about such things. I think it is prudent to carefully look at the downside of major life decisions. I think it is smart. However, I like what Ben Franklin did - see below - as I think it is the most rational as it tries to encompass all the facts upside and downside. I also agree with the statement that just being a cynic is lazy. “My way is to divide half a sheet of paper by a line into two columns; writing over the one Pro and over the other Con. Then during three or four days’ consideration, I put down under the different heads short hints of the different motives, that at different time occur to me, for or against the measure. When I have thus got them altogether in one view, I endeavor to estimate their respective weights; and where I find two, one on each side, that seem equal, I strike them both out. If I judge some two reasons con equal to some three reasons pro, I strike out five; and thus proceeding, I find where the balance lies; and if after a day or two of further consideration, nothing new that is of importance occurs on either side, I come to a determination accordingly.” –Benjamin Franklin http://www.artofmanliness.com/2009/08/17/how-to-make-a-decision-like-ben-franklin/ I think what risk someone is willing to take is a personal life decision. If I can avoid dying or getting injured with minimal cost then I think that is the most rational. Everyone has to accept some level of risk - ie driving. But remember you may take a risk and have a little fun but if it costs you your life and decades of fun and life experiences is it really worth it.

As I have gotten older and with young kids I have become more careful and consider the downside of my actions - especially as to physical safety. I heard the CEO of a major energy company always holds the railing of the stairs. At first I thought this was too much and laughed. But it is really a free backup system on safety where he also sets the tone. Basically I think it is good to have a margin of safety or backup system for your life. With spending money I am frugal and my wife says it is too much so I have been trying to balance it all out. I think the balance comment was right on. I think one reason people buy so much is that they have a hole in them and a desire for something. They buy the product and then the desire is gone and they feel happy - for a little bit. Then they have new desires and are unhappy again. So the true source of happiness is not getting more stuff to fulfill unlimited desires - because you will always want more which will make you miserable - but to be content with what you already have. Most religions and philosophies mention this and I think it is right on. Louis CK funny as hell on this. Everything's+Amazing+ +Nobody's+Happy I am not sure of what you mean by always looking at the downside. For safety that is great. For small purchases just look at it in its entirety and make you best call. Feel free to elaborate.

Great post COC I liked this part the best: "I hope all of this long-windedness helps you, and maybe some others, re-focus on simple, and sound, investing. Focus on what's important and the day-to-day will get a lot easier. And when you find a situation where the action (buy) is clear, don't be timid. And if it isn't, just don't do anything. This isn't the only way to invest, but it works." And yes EBITDA is total BS.

Wonderful post Andy. I appreciate your honesty. Definitions of patience: 1. Steadfast despite opposition, difficulty or adversity. 2. Able or willing to bear. 3. Bearing pains or trials calmly or without complaint. 4. An ability or willingness to bear provocation, annoyance, misfortune, or pain without complaint, loss of temper, irritation, or the like. I think it is instinctual within us humans to be impatient. I feel the pull of impulses and impatience. Right now I think a lot of stocks are overvalued and I am not willing to buy at these prices. I find it difficult to wait it out. In early 09 it was enduring and willing to be patient for stocks to be fairly valued. I remind myself that 2+2=4 and try to look out at the expected return from holding a company for the next 3 years. The short term quote doesn't matter as long as I am right about the value. Also, I will review the fundamentals of the company when I start doubting myself. If the company's value is still there I will just tough it out. I think Graham said that the ultimate virtue is courage in investing when you feel alone. Personally I have made a book to myself. It is not much, but it helps me think long-term and be patient. It has my thoughts at various times when I was impatient and the consequences of reaching and being impatient (06-07), quotes on patience and other information. We are all human and get pulled daily by our emotions in a tug of war so I think we need these reminders for clarity. At least I do. Marcus Aurelius wrote a book to himself called Meditations. He was constantly pulled away from his stoic philosophy by humans who were difficult, greedy, bad, etc. The book helped him deal with everyday life. I would highly recommend the book and Stoic philosophy. The books are not a "read once" and never return type. I read them more for grounding. Some old quotes on patience Nietzche: "Passion will not wait." "Being able to wait is so hard." "All men's miseries derive from not being able to sit in a quiet room alone." Blaise Pascal

I very much enjoyed this. Dan Ariely Interview: Why Humans Are Hard-Wired To Create Asset Bubbles http://www.peakprosperity.com/podcast/84804/dan-ariely-why-humans-hard-wired-create-asset-bubbles

Parsad - that CEO sounds nuts. There is a probably a bell curve with how CEO's rank in owner orientation. The toilet fixing CEO is probably near the top with Buffett. Your CEO sounds like Vomit and I certainly would resent working for him if he is as bad as you say. If he really is toxic I would remove him quickly. It is so hard to identify with that type of CEO for me. I am involved in a business and the entire thing is extremely lean. Not a wasted penny. The guy running it is trustworthy, tight and effective. It's great. I think it is rare though. To Oddball Stocks point - I also know of contractors who are honest, did quality work and were reliable and they did extremely well vs. weak competition.

I think you need a few things generally. There will be exceptions. 1. Capable Mgmt. 2. A real moat that will be a durable competitive advantage. 3. A demand wave behind you. 4. Competitors messing up. 5. Ideally a cheap price. Over 50 years $1 turns into $117.39 at a 10% CAGR.

I have no idea on the timing but I believe China has perhaps the largest housing bubble in all of history. The prices are sky high with ~2% net rental yields in many places and extreme overbuilding. 5-10% net rental yield is probably a better fair value. So prices could easily drop >50%. The age old real estate bubble with an enormous credit cycle I think will still apply here. I think the bust will be bigger than almost anyone expects. Interesting to think of the secondary and tertiary effects. And it is not just China - I think it is a big emerging markets and related bubble that will go into a bust. Other real estate bubbles that are related to the commodity boom may include Australia, Brazil, parts of Canada, and others. Of course almost noone will believe it until after it happens. It has gone on for so long and the skeptics have all been wrong. But that breeds complacency, overconfidence and optimism.

"Ultimately the votes are not binding when it comes to compensation. Coke does know that he's not happy. Even if he voted against it, would that have changed the vote…The approval level would be a bit lower." Actually, the vote to approve Executive Comp is just advisory (non-binding), but the votes for the equity plan (to issue more options and shares) must have shareholder approval to get issued. And I think if Buffett took a public stand before the vote, there is a decent chance he could have affected the outcome. From Coke's recent 8-K just filed. Item 2. Advisory Vote to Approve Executive Compensation. Votes regarding the advisory vote to approve executive compensation were as follows: Item 3. Approval of The Coca-Cola Company 2014 Equity Plan. Votes to approve The Coca-Cola Company 2014 Equity Plan were as follows:

Buffett is a great investor and a great person - so I am nitpicking here, but I still think it is important. I disagree with Buffett abstaining from voting against Coke's compensation plan. Buffett clearly didn't agree with the plan and thought it was excessive. I think it is a weak argument that because he didn't want express disapproval of mgmt he didn't vote against a potentially highly dilutive/excessive plan. It is a bad precedent and lacks courage. Three key virtues are wisdom, justice and courage. If you lack courage, then wisdom and justice will not be implemented . Thoughts? Here are his key comments from the CNBC transcript. "BECKY: That was 83 percent for the votes that were cast. Why— why did you abstain? BUFFETT: Well, we abstained because— we didn't agree with the plan. We thought it was excessive. And— I love Coke. I love the management, I love the directors. But— so I didn't want to vote no. It's kind of un-American to vote no at a Coke meeting. So (LAUGH) that's— but we— I didn't want to express any disapproval of management. But we did disapprove of— of the plan. The plan— compared to past plans was a significant change. And— there's already a 9 percent or so overhang in terms of options outstanding relative to the amount of sh— shares outstanding, 8 percent— 8 percent— 8 percent to 9 percent. And— this authorization of another 500 million shares. Not all of which would've gone on options. But that's another 11 percent of the company. And— and— I thought it was too much. And— I talked to my partner Charlie Munger, and he thought it was too much. So we abstained."

[amazonsearch]How to Lose $100,000,000 and Other Valuable Advice[/amazonsearch] I liked this book immensely. The Author - Royal Little actually made a lot of money because he turned Textron into a conglomerate. It was refreshing because Mr. Little wrote the book after making a lot of money but talked candidly about many, many mistakes. Reminded me a bit of Buffett because he tried and failed to do well with a textile company and then branched into better businesses. If anyone knows of other books where the author goes into many mistakes and failures I am all ears, as I think failure is underrepresented and critical to learn from. P.S. I got this at the Library from Interlibrary loan - Highly recommended to save money.

I loved Sam Walton's book. One thing that really struck me was that there were a ton of discount retailers initially in the 50's and 60's and Walton beat them all. That was really impressive.

"yes, you should make sure you don't download copyrighted material (like this tv show) as it's stealing and you become a distributor of illegal content while downloading. other than that, it's pretty safe. turn on encryption in the software if you want to stay private." +1

Houston, TX

A huge number of CEO letters I read are a total disgrace and make me want to vomit on the PR person that wrote it. Jamie Dimon's was just fantastic this year. It was very real and a great reminder of a lot of good things about the world and America. Has lots of other insights for everyone. http://files.shareholder.com/downloads/ONE/3084643199x0x742267/e2efaf60-814f-430e-869e-6889ba3ec0ec/2013AR_Chairman-CEO_letter.pdf BTW - when I was visiting a Chase branch my 3 year old son asked if they Chase you. I said "only if you don't pay them back!"

What are the most hated stocks/sectors right now? Might be a good place to look for longs. Russia and the Ukraine come to mind. Short selling has been run over - not sure how to play that.

I am frugal. Can a value investor buy Prada then get good values in the market? Perhaps, but I have some doubts because of the emotional contrarian element. I like the Dollar Menu at Mcdonalds. I really just get the Spicy McChicken which isn't too unhealthy. I don't think they make any money on the sale.

A few comments: Buffett does a lot more than just concentrating wealth by passively buying stocks. He has at times acted as an activist, provided counsel on boards and encourages his major holdings to have long term perspectives. He started Berkshire Re by Hiring Ajit Jain. He has and currently owns a bunch of businesses as part of Berkshire and he fits the great operator mold for how he likes his businesses run. Geico accelerated its spending after he bought it even though there was income statement hit as an example. Great operators have a very significant benefit for society. When he was young he was extremely entreprenurial. As a passive investor I think it is almost entirely concentrating wealth. Your gain is someone else's loss on any stock. The exception to that is that I think financial markets are more efficient with value investors. How bad would the Great Recession have been without value investors stepping in? We'll never know. So it probably does lessen the troughs - especially for debt markets - which is good thing. Less wasted human potential. Personally - I feel guilty just investing passively. I think it gnaws at me at times. And I think Uccmal made a great comment - it isn't a productive emotion at all. Sometimes I think I should of been a doctor but I just love business/investing too much. Time for me to go work at McDonald's! Maybe there is some way we can take action to change this - perhaps if a lot of us own shares in a company we can encourage the mgmt to be long term oriented. So many are not.

I never invested. So I did a case study as to what happened. I only came across it after following the threads on who would benefit from higher oil production in the US. Nice play on Conrad Watsa - What did you see with Conrad Industries? The thing that concerns me with some of these plays though is that there is a greater fool element at work when the profits go nuts for a short period of time investors go crazy. But then over the long run some of these business are difficult and the low ROE settles back down. Not so easy to value.

Aker Philadelphia Shipyard This was an interesting case study for me. They are one of only 2 Jones ACT shipyards in the US that are big in tankers. With the oil boom in the US there is a lot of oil that now needs to be transported within the US. Aker has received a lot of orders for new ships and are riding the boom and the stock has gone absolutely crazy. It was trading for about a $7m market cap in mid 2012 with about $85m tangible book. Made $1.53 EPS in 2013 and stock was ~.70 USD in mid 2012. Pretty extraordinary. USG was a 20 bagger into the housing boom. It seems like a lot of leverage riding a fundamental boom and you can really make a lot of money. In some sense stocks of highly leveraged companies are like warrants on the company. Anyone else have any examples of 10+ baggers with say 5 years with what the cause was. Stock chart below http://www.akerphiladelphia.com/iframe.cfm?path=218,292&uri=http%3A%2F%2Fir%2Easp%2Emanamind%2Ecom%2Firn%2Fportal%2Fmain%3Fkey%3Dakps_std%26amp%3Blang%3Den%26amp%3B Jones Act Background The U.S. cabotage laws, commonly referred to as the Jones Act, require all commercial vessels transporting merchandise between ports in the United States to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag. The law applies to any vessel operating between two U.S. ports, whether in the continental United States, or non-contiguous states of Hawaii and Alaska, and also Puerto Rico. It functions to as a barrier to entry for low-cost foreign carriers, which are not subject to the same wage, labor and environmental regulations faced by U.S. shipbuilders and operators.

I lot more people would save if they were like my grandmother. She went through the great depression and went hungry at times in the 30's. That is a harsh learning lesson with a lot of pain but I know people who I don't think will learn any other way. The older I get and the more I see people pissing their money away on the useless wants the more in favor I am of tough love - even letting people starve a little. There is wisdom through suffering.

I am not actually 100% sure that Ametek hasn't had margin expansion due to mix changes. I don't think it is leverage that I see. My thesis right now on Ametek is that they have pushed up prices too much. I could be wrong about this but it smells like it.