DTEJD1997

A good set of questions! I would respond that the "risk free" rate of return is about 1% or so, very, very low. Secondly, as long as you are "very" certain that there are birds in the bush, how accurate do you need to be? You can never be 100% sure. There have been cases where I've figured that I'm 96% (19 out of 20 tims) sure there are indeed birds in the bush. How much better would it be to be 98% (49 out of 50) sure there are birds in the bush? Obviously something...but I've found that beyond a certain point, you RAPIDLY reach a point of diminishing returns. For example, you spend 3 months watching and 30 hours researching to reach the 96% sure level. To get to the 98% sure level, you might need to spend 80 or more hours researching. Is it worth it? I guess it might if you dealing in millions of dollars per position...Not so much if you are talking about $5k or $10k positions. A similar thing exists for the number of birds in the bush...If you are sure there are 3 birds, but maybe there are more, how much time is required to get the exact amount? As long it clears your minimum hurdles with some room to spare...is that good enough? I think WEB said you don't need to know if a man weighs 385 lbs or 360 lbs to know that he is fat... The end result is the same...

I wonder why Buffet says he "does not understand retail". He owns several companies that are retailers OR have significant retail operations. For example, Dairy Queen, See's Chocolates, Cavalier Homes, Nebraska Furniture Mart. There may be other examples too. Running a retail establishment is not rocket surgery. Find stuff people want to buy, get it at a good margin, keep inventory turning, keep overhead relatively low, don't use a lot of financial gearing....Wash, rinse, repeat.

I don't see how there is a ghost of chance that Detroit avoids bankruptcy. If you read the special auditor's report, you will see how bad things are. If it were not for the casinos, Detroit would have been done a long, long, long time ago. If you are trying to collect property taxes, flip a coin. Half the property owners don't pay it! 40% of the streetlamps don't work. There are tens of thousands of abandoned buildings, something like 40 square miles of vacant land. This is a sad portent.

Constructive: Thank you very much for the information! This was not the one I saw however. I forgot to mention that I think it was based in California. They have been in operation for many years. They borrowed too much money, restructured the debt, and the new debt was trading for a discount, even though cash flow appeared to cover it well. I should have bookmarked or printed it. I usually remember things like this, but this one escaped me... Thanks

Hey all: I am embarrassed to say that I read an interesting article the other day about some high yield debt on an Indian Casino and now can't find it. I thought it was on VIC, but I am not sure. I simply can't find it anywhere. It was trading for about $.80 on the dollar and was current on their payments. Has anyone else read this, or know about it? Thanks!

OP: High yield debt is a different game than equity investing. With that being said, there are some opportunities out there, but the only way you are going to earn above average returns is to go to obscure stuff that is mispriced. Kind of like with stocks. With that being said, some interesting opportunities have been posted over at VIC: For example: A). MTR Gaming 11.5% bonds @ 104 there was another gaming bond that was trading at like .80 on the dollar. It was issued by an Indian Tribe and they were current with all payments. high risk, but very likely mis-priced. Not a lot of opportunity in this sector...

Crackspread: Please don't take any criticism of Biotech stocks personally. These just aren't traditional "value" stocks. Sometimes they are, but not usually. The thing is, their drugs/compounds are going to work OR they are not going to work. It is very, very hard to gauge the efficacy of these tests and drugs. You very well might be right, it is an interesting situation, but how do you model sales? cash flow? earnings? dividends? you can't...thus most of us "value" investors are going to take a pass. I've seen many, many ten baggers, I've even seen 100+ baggers, but they all take time, sometimes even decades to play out. The point I was trying to make was that it typically takes more than a year or two, and I've never bought or worked with a stock that I thought in advance would be a 10+ bagger. When I research or buy, I might know that it is undervalued, but it is so hard to put a target price on something, is it worth 2x the money? Very well could be! Is it worth 3x or 4x, maybe, possibly....but anything beyond this, there are so many variables, too large a time frame, it is just too hard for me to model. If you do well with this biotech, you might have a skill for evaluating them. It is just a hard thing for most of us to do. Good luck. Keep posting, and let us know how it works out.

Hey all: Most of the really, really big gainers that I've seen (I'm talking 10X or more), just kind of turn into that. You don't usually know which ones will turn into the really huge gainers, they just sort of happen. You know that they are good investments, that they are undervalued....but I've never seen one where I think that "this is going to be a 20x return" and then it becomes that. The really big baggers just kind of happen, at least in my experience.

I would caution against ANY biotech company. Most of them flame out. Not to say that is necessarily the case here... I would also suggest that these are very, very hard to evaluate unless you are medical doctor, chemical engineer, etc. The biotechs also seem to go through cycles. At certain times everybody is making money in them, and at times, there is nothing going on nobody is making money. I prefer to stick with things that are easier to evaluate and where the penalty of being wrong is not a 98% or 100% loss. I would also suggest that a 30X return is rare, exceedingly rare. I've never had one myself, but I've seen them. The 30X returns take years or even decades to happen. I don't think I've ever seen one that happened in 1 or 2 years. Good luck, but be aware the risks are tremendous.

Hmmm: $100k? That is larger than a small amount, and bigger than a tiny amount. You are in kind of weird position... Not enough to buy most established businesses OR to buy a smaller franchise... One of the things I would look to do is maybe invest in precious metals. SPECIFICALLY, I would go around to the "We buy Gold" places that are independent dealers and introduce myself and say that I buy primarily silver & silver coins, and I'll buy in small quantities and pay more than the refiner. I would also buy gold coins & high end gold jewelry, pay them more than the refiner...but just barely. I would stress that I come running with CASH, so it is easier to deal with me than the refiner. You also have to have a certain minimum amount to make it economically feasible to go to a refiner...deal in amounts smaller than that. Once you get the metals, sell it online in small quantities to retail investors. Have a target of maybe 12% net on silver coins...there is a HUGE market out there of people that want to buy $50 or $100 worth of silver coins at a time. They will pay high prices simply to have it in their possession. If you could get enough supply, you could EASILY sell $10k a week. Over time, I bet you could sell more. The key would be turning it very, very quickly. You would not want to be exposed too much to commodity swings. If you are selling $10k+ a week, you would be turning your inventory quick. You can also make money on the gold coins, but the margins are thinner and the dollar amounts much larger. I have personally made some money by buying USA gold coins for a bit above spot....and then selling them to collectors. I've bought several coins that had about 1/4 oz. of gold in them from the 1840's, 1850's, 1880's etc. They aren't really highly collectible, BUT they do have some minor collector value. I bought them for about $400 a piece and then I sold them for about $500 a piece, so that was a nice 20% margin. These were good deals, and the gold margins are typically much less, likely 10% or even less. HOWEVER, if you can buy $3,000 of gold and make a quick 5% or 6%, not too bad for an hour or two of work. Another way to make money doing this is to contact attorneys who do estate planning. They know families who have inherited coin collections and are looking to liquidate them. If you have CASH IN HAND, and can do a deal in a few days, you can get some very good deals this way. So if you could do $10k a week in silver, maybe $3-4k a week in gold coins, and then $1k in other collectible type stuff (rare silver dollars & such), I think that would be a good use for $100k.

LC: You have a very interesting, very good way of apprising this situation... In my instance, the young folks I know are going to state schools and small, lower priced private schools. I have heard stories that there are small, liberal arts schools that are indeed charging $50k a year that are primarily in the North East. For example Wellesly College website projects that the cost to attend for 2013-2014 will be approximately $57k. This amount makes me giggle. It is so beyond the pale it boggles the mind. I suppose if you come from an exceedingly wealthy family, it is OK. I just don't see how this makes economic sense under any reasonable circumstances. $228K at a MINIMUM for an undergraduate degree? You will be paying well over $1,200 a month just in interest! If I am not mistaken, student loans are now variable rate, and could rise in the future. What if interest rates go to 10%? There is something called "Income Based Repayment" in which the government covers your payment if your income falls below a certain threshold. The problem with this, is that it lasts for 20 years. So you will be in your mid 40's before your student loans are taken care of. How are you going to save for your children's education? Your house? your retirement? Something's gonna blow out...

Hey all: I am based here in the great state of Texas. One of my interests is education. I am starting to come to the conclusion that higher education is breaking down in the USA. WHY? In a lot of schools, the cost of education has become so great, it almost does not make sense to get it. I realize there are secondary and tertiary benefits, such as finding a spouse and making friends. I am discussing this from a purely economic standpoint. Of course, everybody knows that law school is terrible investment, and that private liberal arts colleges are not rewarding...but now it is spreading to "regular" state schools. An example. A good friend's daughter is going to "Big State University". This is a well regarded school, with a good reputation. Probably not a first tier school, but still an excellent choice. This young lady desires to become a nurse. She is bright, but not bright enough to secure a scholarship. She is also reasonably hard working. I am reasonably confident she will do well in her studies. At this point in time, nursing is a good profession. Here is where problems come up. She & her parents have been saving for school for several years now. Unfortunately, they waited a bit too long, and simply saved with no investing. They amount they have set aside will be exhausted before her first semester is up! For you see, "Big State U" with a reasonable allowance for room & board is projected to cost well over $100k for 4 years of her education. Probably about $115k or $120k, but who knows? Costs are still going up. To fund her education, they are going to borrow substantially all of the money. This young lady does not have a credit history, so her parents had to co-sign. This was required. In the USA, student loans are not tax deductible, nor are they dischargeable in bankruptcy. So here is the problem. This young lady, while receiving a good education, will have $100k+ in debt when she gets out of school. A nurse is a fine job, and it pays relatively well. The debt this woman will have will be 2-3 times her starting salary. What happens if it takes her 6 months to get a permanent position after graduation? Under the BEST reasonable circumstances, she will have a difficult time in life. Her parents think the interest rate on the loans will be about 7% or so. Her monthly interest payments ALONE might be $700 to $800 a month. She will have to live very, very frugally for many years after graduating to get this debt paid down. She will most likely have to defer buying a new car, buying a house, getting married, or starting a family. I question whether her getting this education makes sense from an economic standpoint. This is assuming that everything goes well. She has to graduate, she has to get a job quickly. She has to stay employed. If she runs into any extended length of unemployment she is in serious, life altering trouble. This is also for a degree in which there is ready opportunity for employment. What of Journalism, English, History, Art majors? I don't see how this ends well. What of students who are going to school 5-6-7 years from now? Are they going to owe $200-$250k when they graduate? Any thoughts on this?

Ok Guys: Here is one problem with a "forever" holding period. This assumes you are not large enough to have an influence on management... How many companies can you name that will/were good investments for 40 or 50 years? I can only think of a handful. How many companies were good investments for 5, 10, or even 15 years? There are probably too many to even name.

Hey all: Wow, Buffet admitted he made a mistake on Coke. If I remember correct, Coke's NORMALIZED P/E got into the 40's, perhaps even the 50's. That is WAY overvalued by ANY objective valuation metric. I don't care how great a company it is. The clear decision should have been to sell it. You can't just buy & hold forever. If it is cheap buy more, fairly valued? hold, grossly overvalued? SELL. I understand when you are talking investments that are 9 figures in size, moving in & out is a concern, and you should not do it lightly. Where did Buffet think KO was going to go? It is such a good company it should trade for a 70X P/E? Or maybe that Coke was going to have some explosive growth ahead of it? It just shows that there is a time to sell for anything....

Unless you have a private company like See's, I think buy and hold "forever" is a huge mistake. Buffet made a HUGE mistake with Coke. I think it was in 2000 it was something like $70 a share. I think in the year 2013, KO is just about at the same price. Think of all the bargains Buffet could have picked up in tech crash, or the crash in 2008, or heck, even buying KO back a few years later for 1/2 the price. I've personally seen people buy stock (housing builders) in the mid 90's see them go up 25X, 50X or even more, and then lose a TON in the housing crash. Unfortunately, the highest return I've had yet is only about 4x. However, if I got a huge gainer, like 10x or more, I think I would either sell covered calls, OR maybe have a trailing stop. Trees don't grow to the sky, and neither do stocks. Things also change over long periods of time. Heck, look at GM in the late 50's, and then look at GM in the late 70's. I think a long holding period is GREAT, but don't get married to your stock!

Kind off topic....but here is an interesting thing about the northern border. It is MUCH MORE SECURE than the southern border with Mexico. There are gun boats patrolling the Detroit River. They are run out of the Coast Guard station near the razed Uniroyal plant on Jefferson. These things have four 300HP outboard motors and two M60 .30 cal machine guns. (that are visible). The Northern border is not supposed to be militarized....I could make an argument that this is a breach of the treaty with Canada.... There are rumors that drones are also patrolling the river & Lake St. Claire. There are NUMEROUS high powered security cameras watching the entirety of the river. These things can see for miles. This is a fact, not rumor. Homeland security is watching the border 24/7/365. There are also heavily armed border patrols going through downtown Detroit. I am talking bomb sniffing dogs, and guys with MP5's. I've seen them personally. So what is the problem we have with Northern Border? Too many Canadians desperate to get into the USA? Funny how the border we have virtually no problem with is heavily defended. Meanwhile down here in Texas, the border that we do have PROBLEMS WITH is almost wide open. I would not be surprised if there are MILLIONS of illegal immigrants in Texas alone. Why is this? Seems kind of odd.

Sometimes the best deal...is the one you walk away from. I suspect if you did this deal, you would STILL be working on it. You probably also be tearing your hair out and be at the end of your rope. Looks like it was best to walk away. Let someone else deal with it. Excellent writing, as always. Keep up the good work!

yes, it is time for another bridge crossing along the Detroit river. There has been many a time when traffic is backed up 1/8 mile or so, and you are on the middle of bridge. It is the middle of winter and you can ice chunks flowing down the river....and the wind is howling, and the damn bridge is swinging. You can feel it shifting & flexing in your car. Trucks in the other lane also shake the bridge. There you sit, at a standstill, waiting for traffic to move. Then you remember how old the bridge is...and how far down it is into an icy Detroit River.... It can work on your nerves, believe me :-[ Yep, time for a new, more modern bridge. Maybe keep Ambassador primarily for freight, and new one for passengers...

The Ambassador Bridge is certainly an investment gem, no doubt. There are few different ways to get across the border. You've got the Bridge, tunnel, train tunnel in Detroit. Until the 80's (90's maybe?) there was a train ferry that carried trains across the river. It was odd that there was a train tunnel AND a train ferry. There is also a "truck ferry" that carries hazardous cargo prohibited in the tunnel or on the bridge. Then, about an hour North of Detroit is the Blue Water Bridge that carries trucks & cars between Port Huron & Sarnia. This bridge got a TON of traffic when there was a problem a few years back at the Ambassador Bridge. So the Ambassador Bridge is not a monopoly operation, but it is a good toll collector! As an aside, there has been talk for years of building a second bridge one block away from the current Ambassador Bridge. It is partly a reaction against Mr. Maroun, partly to alleviate traffic, and partly as it is desperately needed. The Ambassador Bridge is 90 years old!

Hey all: As a native Detroiter, I have used the Ambassador Bridge, many, many, many times.... I can also attest that the Forbes article got it's facts WRONG. A few miles upriver, there is a tunnel from Detroit to Windsor that carries car & truck traffic. There is also a train tunnel too.... That tunnel was a publicly traded company until the 90's. It paid a tremendous dividend and my family owned a very small chunk of it. I believe it was eventually bought out by the Ontario government and one of the Detroit pension funds. That was a real gem that 99.99% of investors never knew about. I think it's stock traded 1 time a month or so...not really a stock for day traders! ;D

Hmmmm: There are a lot of "lottery tickets" out there, that is for sure. I think they tend to be concentrated in tech, medicine, and things where if their product works, they will make a lot of money. Some property development is like this... There are other stocks though that might even be cheap and have "lottery tickets" attached to them. For example, MHGU owns an interest in vacant land in the Bahamas. It appears to be very nice land and is beach front property. If it gets developed, it should be worth a LOT of money. The amount would be very significant in relation to their market cap. Another restaurant company with a "lottery ticket" attached is ARK Restaurants (ARKR). They now own a 15% interest in the Meadowlands race track. There is speculation that the Meadowlands will be allowed to become a "racino". If that happens, ARKR's interest will almost certainly be worth a LOT more than what they paid. Additionally, they will control all the food & beverage for a significantly increased location! I have several other "lottery ticket" stocks, but I think there are two good examples. The other nice thing is that these are both "value" stocks. MHGU is making a lot of $ relative to it's market cap, and ARKR is probably value play too...

That is a nice story. It sure sounds like the young woman could use the money. Kudos to the patron for giving it to her. It is good to hear a nice story, wish we had more of them.

Hey all: I think "journalism" has been on a decline in the USA for a very long time. I had a paper route in high school back in the 80's. I can remember reading the paper every day and thinking "this is odd, almost everything is an AP newswire reprint". They had let go most of their writers and were simply carrying AP stories for 80% of the paper. Fast forward to today, and it is the same thing except worse. In addition to just reprinting the newswire, the press has lost all skepticism and desire to "get to the bottom of things". I thought a "free press" was supposed to have a critical eye and watch & question those in power. The media in general now has very little desire to get to the bottom of things. Where are they on the national debt? what happened in Libya? Education? Government spending? Unemployment? The Middle East? Barrack Obama's past? The list of things they are asleep at the switch on is a long one. Why is it that Al-Jazeera, Russia Today, and the British Press are better than the USA press? A fully functional "free press" is critical for an informed population and a healthy republic.

Hey all: I think the EASY money has already been made in the community bank stocks. This was one of my favorite sectors back in 2011. You could buy stocks at 25% of book value...They were starting to turn the corner but yet were left for dead. There are still bargains out there....SBFG is probably one of them. They are trading for UNDER 8 P/E and at a discount to book. They just raised the dividend, and I am almost sure it will be raised yet again in the upcoming 12 months. Earnings are somewhat better than what they appear to be as they are taking amortization charges from acquisitions a few years ago. Oh ya, almost forgot, check out the insider's activity, specifically how often & at what prices they are buying stock. Stock is trading for $8.35. A year from now, I don't think there should any reason why this is trading for less than $11/share...

Hey all: One of the best income strategies I've used has been to write out of the money calls on volatile stocks that I have large capital gains in. You are protecting your gain, and you are also harvesting volatility. The percentage you earn on your original investment can be truly enormous. Heck, the return you get on your current position can still be pretty good. The buyer of your option has to be correct on BOTH the direction of the stock and the time frame in which it will achieve it. Kind of like betting trifectas at the track or "parlays" in sports betting. You have to get everything right to make money. I would argue the smart money is in selling (writing) them, both options & parlays.