constructive

Would you hold PM if it went to 45x earnings? Nobody thought KO was going to trade at 45x earnings, so they didn't need to worry about valuation, but it did.

"Nevertheless, I can properly be criticized for merely clucking about nose-bleed valuations during the Bubble rather than acting on my views. Though I said at the time that certain of the stocks we held were priced ahead of themselves, I underestimated just how severe the overvaluation was. I talked when I should have walked." 2004 Annual Letter http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=12&ved=0CDAQFjABOAo&url=http%3A%2F%2Fwww.latrobefinancialmanagement.com%2FResearch%2FIndividuals%2FBuffet%2520Warren%2FThe%2520Waiting%2520Game.pdf&ei=fT2eUb7hDOv_4AOt-4DwAg&usg=AFQjCNGLX390XLI-Hg08b_jD4CxKYoQugg&sig2=WxS1nPyJ_sOieBTPJgYekw "But Buffett says he erred by not selling them at their late 1990s peaks. Coke, at 45, and Gillette, at 30, are about 50% below their highs. "Coke and Gillette weren't the focal point of the bubble, but they achieved bubble prices," the Berkshire chief observes. At their highs, Coke and Gillette traded for about 50 times earnings. Buffett said his role as a Coke and Gillette director would have made it nearly impossible for Berkshire to sell its stakes several years ago. As a director, Buffett might have been deemed to be in possession of insider information."

http://static.seekingalpha.com/uploads/2011/4/17/782337-130305496591435-Clemens-Scholl.png http://markets.ft.com/research/Markets/Tearsheets/Summary?s=SIS:MIL http://markets.ft.com/research/Markets/Tearsheets/Summary?s=AT:MIL http://markets.ft.com/research/Markets/Tearsheets/Summary?s=1098:HKG http://seekingalpha.com/article/267316-for-whom-the-road-tolls-reviewing-listed-toll-roads-bridges-and-tunnels

I think Moroun's rate of return was much higher than 4%. My impression was $30M was the cost of the entire business, not just Buffett's stake. It was 25 years, since that article was written in 2004. With $1B in annual revenue, the market price of the business was probably north of $500M. And Moroun may have paid himself dividends along the way. But still, I'd guess the rate of return was significantly lower than Berkshire Hathaway. Hard to beat companies like GEICO and See's.

Have you considered buying sovereign CDS (on Japan, Italy, etc.)? The market is clearly trading orders of magnitude away from your prediction.

Greek CDS were triggered. http://www.reuters.com/article/2012/03/09/us-greece-cds-isda-trigger-idUSBRE82817B20120309 Now whether Parsad and JEast would consider this a major default in an advanced economy, I don't know.

The trend is against "major defaults" and in favor of many small semi-default steps (although the end result might be the same, the process is more convoluted). Because CDS triggering is now very important.

How are you going to decide what constitutes a default? Some people think Greece hasn't defaulted in the last two years, others think there has been one default, others think two. What countries are you talking about? The odds are against you if you include all 196. http://static3.businessinsider.com/image/4d30bc1a4bd7c8a073220000/chart-of-the-day-sovereign-debt-default-jan-2011.jpg

It's basically just Fairholme plus a little Fairfax, he doesn't necessarily size his positions by number of COBAF posts. :) But I do see a problem. VAFGX 1.64% FAIRX 1.00%

Deciding which parts of Berkshire are AA and which parts are AA+ is a bit like counting how many angels can dance on the head of a pin.

https://www.fidelity.com/stock-trading/faqs-international Fidelity seems to be one of the few US brokers with access to the JSE.

Congrats Sanjeev! Given your performance, hard work and great attitude, I'm sure your clients appreciate you a lot! Good luck for the next 7 years.

2007-2008 was a fascinating time in the market. There was huge, very fast sectoral rotation. Financials were hammered from capital losses and raising equity. Speculative commodity prices and producer valuations collapsed. Retailers and consumer goods posted operating losses from declines in discretionary spending. The market P/E was only around 17 in 2007. There were certainly opportunities, if you understood what types of companies had a risk of permanent loss, as opposed to temporary loss.

I don't think those stocks offer favorable risk/reward profiles. All three are unprofitable, PLUG has negative gross margins and APP has negative tangible book value. http://schwert.ssb.rochester.edu/f532/rnm_value_2012.pdf (On average, profitable companies outperform unprofitable companies.) http://www.bengrahaminvesting.ca/Research/Papers/Griffin/Does_Book-to-Market_Equity_Proxy_for_Distress_Risk.pdf (Cheap stocks outperform on average, and distressed stocks underperform on average. You can't just buy distressed stocks and assume they are cheap.) http://www.russell.com/indexes/documents/research/defensive-equity-is-the-market-mispricing-risk.pdf (High beta stocks are systematically overpriced, since some investors seek out lottery tickets indiscriminately.) If you are interested in distressed companies, I'd suggest debt and hybrid securities as a more attractive area to concentrate on.

I think a lot of it is demographic, not sentiment. If it was sentiment, it would be bullish. http://home.comcast.net/~clawedlemew1/census2.gif http://www.aei-ideas.org/wp-content/uploads/2013/03/lfpr11-600x427.jpg http://blogs.lclark.edu/hart-landsberg/files/2012/03/real-wage-and-salary-disbursements-per-capita.jpg

When the market appears overextended, another option besides cash or bonds - which are painful because of negative expected real returns - is moving to less cyclical, less leveraged, higher quality stocks. For example, selling F to buy TEVA.

What I mean by that is that their alternative to buying solar panels & electric cars isn't buying Treasuries - it's taking on less debt. The market is signaling a negative real risk-free rate, but that doesn't mean we should use it.

BTW, don't get me wrong, I'd love to be a SCTY customer. It's on the solar panel ownership side that I think the value breaks down.

I'm talking about cost of capital, not discount rate. Judging by the large car loans and home loan do you think this family will have an average cost of capital less than 4% over the next 30 years? It's nowhere close to being as safe as Treasuries. What if you need to make unexpected repairs? What if you sell the house and don't recoup the cost of your solar addition? True, energy inflation works for you, but regular inflation works against you in this calculation.

$2500 annual savings x 125% oversized x 30 years / $29200 installed cost = 4% IRR Cost of capital is at least 4%, so their solar panels are a bad investment.

Good question. As far as I can tell, distributed solar panels have single digit ROIs, whether SolarCity owns and operates them or homeowners. Take away tax breaks and they would go negative. In contrast, solar farms and solar hot water have double digit ROIs. The reason I think SCTY will have worse economics than homeowners is that they will give up margins for growth. But the moat they are trying to build with their growth is illusory. Not short, but I think the business model is weak, and the valuation is terrible.

Yes, time will overwhelm installation expenses, but if they have the wrong model it will never overwhelm the operating expenses. And in the meantime they are going to need billions more dollars. Also, compare revenues to operating assets. On that basis they're a third as efficient as centralized utilities. That metric isn't going to improve very much unless they increase prices.

It sounds like SCTY gets repaid over 5 years if they are selling you electricity. Then they get paid a second time if you buy the equipment from them at that point, or else they just continue to milk you for cash flow as you continue to buy only the electricity. This sort of model would create a lot of depreciation expenses in the beginning even though they would be hugely cash flow positive (given enough scale and high installed base of customers). Similarly, if you build a hydro dam I doubt you look like an economic actor until it is built and operating. OK. Throw out depreciation, cut SG&A in half, still negative.

Well with -50% profit margins so far, SCTY is looking like a non-economic actor too.

Also, you have to think about how recently the terms of the preferred were amended (mid 2012), and how extreme the terms are. Treasury and FHFA specifically amended the terms to eliminate any possibility of Fannie and Freddie's viability. This wasn't an accident, this was the clear intent.