value-is-what-you-get

If one of the private parties is a Board of Directors whose decisions are destroying owner/shareholder value with an added destruction premium of liability insurance paid for by the company against being sued for doing exactly the opposite of what they are supposed to, then Yes I'm all for goverment intervention on my behalf. Now I'm sure everyone on this board would intervene on their own behalf and sell (or not buy in the first place!), but that's not the bulk of the herd out there. I prefer some sort of requirement for skin in the game doled out over time. Perhaps requirement that any compensation over a certain amount has a medium-term performance (5 year rolling average) kicker built in with clawbacks to keep the book-cookers honest.

I've posted this before but it's probably worth re-stating that the only stock tip WEB has ever publicly given was to some reporter who asked him for one and he gave his usual "well I don't give out stock tips etc" and then caught himself and said "Here's a good one - the day after my death is announced, buy Berkshire". The market hates uncertainty and the derivatives (misunderstood) and WEB's age both create uncertainty and therefore reduced stock price.

Exactly. Manhattan has been unaffordable for as long as I can remember - it's a unique situation so applying an arbitrary measuring stick of income against it doesn't work.

It really speaks to the entrenchment of "yes" Directors on Boards that are supposed to be protecting shareholder value when they stubbornly move ahead on a plan in the face of overwhelming evidence that it is a bad idea. (I consider WEB saying so to be overwhelming evidence) They probably do not want to admit they were wrong to offer underpriced shares for the purchase and so they trudge on. The kicker is that the advice comes from Earth's foremost expert on the subject and it is free!!!

After reading over the annual letter from their website, this sounds like carbon sequestration and oil well rejuvenation all at once. Very basically, the methane Gas that SD has underground is mixed with CO2 so it is unsellable as is. The plant will remove the CO2 making the methane commercially viable. The CO2 then gets piped to OXY who pumps it under pressure down a hole on one side of an oil field in order to boost the pressure of crude oil coming out of the other side of the oil field. It's a technology designed to accelerate the extraction of oil from existing wells and/or bring previously "tapped out" wells back on line for a few more barrels. It's all brand new technology which generally means that results should fail to meet expectations. That said it is also pretty simple technology - like blowing out water lines when you winterize something. I think we'll see a lot of Natural Gas fired Electricity Generation in the near future. It generates 50% less carbon emissions. I also see a big equity sucking machine in SD from $2,379 million in 09/2008 to ($191) million in 09/2009 with a 10% share dilution for good measure. Now most of this is the price of Nat Gas but it still looks ugly on paper and I don't have a crystal ball on Nat Gas price. The market can stay irrational longer than the company can remain solvent! Borrowing from the Dragons "and for those reasons, I'm out" (but still in indirectly through FFH :D)

Good point! The most pessimistic calculator I found puts it at 4.4% for the period from 1965 to present. That is an absolute difference of .97% but a relative difference of 28%! So the hurdle is 9.4% compounding of BV by Berkshire going forward in order to maintain the 1.6 Billion or so per annum in inflation protected dollars. Most simply, BRK BV performance has to beat the annual inflation rate by 5% per annum. What I did notice from the data though is that we have not topped annual inflation of 4.4% since 1991 and even WEB has stated he can't really see any way around increasing inflation in the future if printing presses are used to pay debt. This places an upward bias on inflation going forward.

The problem I have with the analysis of any NG plays is that the supply/demand picture has changed dramatically over the last 2 years with the availability of shale gas in Texas etc. These require $6 Natural Gas to be economical (based on fairly superficial research by me) If that is indeed the case, there is an argument for a runup from current levels but it has a theoretical ceiling. Could be a nice short-term gain though.

Thanks for posting your homework FFHWatcher - the depressed Natural Gas price probably won't last forever.

Thanks for the question - The 5-10 year window was something I picked out of the air and in retrospect it is a dumb estimate arrived at by sheer laziness! The correct and accurate answer is: The annual sales volume is 5% of remaining shares gifted. Originally it was 10,000,000 Class B. Therefore the maximum share volume was sold between August 2006 and July 2007 (500,000 shares). The volume then decreases each year by 5% of last years gift since the base number of shares is 5% less. Half of the gift will be sold by about 2019, that is 13 years after the gift was made. At that time there will still be a selling bias of 2.5% of outstanding shares as a result. 27 years after the gift was made, about 75% of the shares will have been sold leaving a selling bias of 1.25% of outstanding shares. The drag will be there forever and in decreasing amount of 1/4 of 1% of outstanding shares per annum. In fact after 100 years, that is in 2106, there will be a selling bias of 59,196 shares. This is a great lesson in compounding! The average increase in per share book value for the S&P 500 since 1965 when present management took over Berkshire has been 8.9%. The long term average inflation rate in the US since 1913 has been 3.43%. The difference is 5.47%. Berkshire should continue to match or beat the S&P 500 average, so it is probable that in 2106 (100 years later!!) the 59,196 shares will yield more inflation adjusted dollars for the Gates Foundation than the 500,000 shares sold netted in 2006! My perception of the donation was the $37 billion that we hear in the media. I had not fully understood the scope of this gift and that it may well surpass $1 trillion. The arrangement is great - BRK will look after the compounding, Gates Foundation can focus on getting it out there. Thanks again for the question!! Here is the link to the Gates Foundation info on it: http://www.gatesfoundation.org/about/Pages/implementing-warren-buffetts-gift.aspx

WEB's gift required they sell it this quickly. He specifically doesn't want a foundation set up to distribute little drips of money in perpetuity. Foundations set up in this way become prone to the usual human errors over time (pet projects, annual program funding increases, lack of results accountability . . . ad infinitum). His specification was and is to get it out there working now. Help the most people fastest. That is why he chose the Bill and Melinda Gates Foundation because he figured they were smart enough to invest such large sums in humanity in the time frame he laid out. He also liked their model which is to help those who need it most irrespective of location, color, religion etc. I expect he also liked the fact that Bill & Melinda have contributed a great deal of their wealth to the foundation. If you're a net buyer of stocks over the next 5-10 years, then any depression in share price as a result of Foundation sales is simply the gift that keeps on giving! Here it is straight from the source: http://video.google.ca/videoplay?docid=515260011274566220&ei=ihBCS8HDGM7_lQfV-_S7Dw&q=bill+gates+warren+buffet+charlie+rose&hl=en#

"You're neither right nor wrong because other people agree with you. You're right because your facts are right and your reasoning is right—and that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else." - WEB Well done lessthaniv! You nailed that one.

Agreed. It's almost like the questions are an afterthought so he can monopolize/waste WEBs time or something similarly strange. I've seen WEB get a little short with him at times, which of course speaks to the infinite patience of WEB!

To paraphrase WEB - you don't need a scanner, you are a scanner.

Exactly Eric. I've heard it well described as "money doesn't make you better or worse, it just makes you "more so"" Money just amplifies one's existing disposition which is shaped by other factors.

Ahhhhh . . . The Clincher!!!!!!

I'm in Southern Ontario too Smazz - 50 miles North of Toronto - and in these parts when Spring rolls around we don't put the snowblowers away, we just put them off to the side!! ;D

The cheapest and most efficient structure must also contemplate the human/relatives factors involved in what you describe. I would recommend the Canadian Corporation with shares issued to each member with restrictions (if any) clearly spelled out in bold including the mechanism for redeeming those shares if need be. All kinds of things can come out of the woodwork when in business with friends and family!

Just noticed that if you roll your mouse pointer over the Amy Calistri ad when it turns to a hand it looks like she's giving you the finger!

Questrade does handle the US and CDN issue quite well in my opinion. It's not seamless, but it is as far from punitive as I can find for the purpose of contributing Canadian Funds and purchasing US denominated instruments in an RRSP. I have also used TD Self Directed in the past. As far as getting answers or solving issues, I find the Live Chat feature on Questrade works great. I probably spend the same amount of time waiting for a response but the Live Chat method makes it seem realy quick compared to waiting on the phone. They're certainly not full service but they get the job done cheap. Especially wrt exchange rate gouges. I rarely execute more than 5 trades a month.

Gates personally owns 7% of CN and another 2% through the Bill & Melinda Gates foundation. Here's a little food for thought. Locomotive maintenance drops through the floor on all-electric units used in Europe. They also tend to last for about 50 years because they are simple machines. Perhaps the coal car(s) of the future are giant boxcar batteries charged by wind or similar. Carbon emissions to operate=0. I know my train set wasn't diesel.

I concur - and to borrow the words of Charlie Munger "I have nothing further to add"

I think you could see these things as contradictory with a superficial glance. On closer inspection though his integrity remains intact. When he tells his managers to not do anything to lose reputation it is because he knows that most people do not operate on an inner scorecard. In fact the world operates on an external scorecard - houses with brick on the front and vinyl around back etc. He realizes it works this way - he doesn't but most others do. He ran Salomon in a turnaround situation. Goldman was and is a preferred share investment on a huge scale betting that they will still be standing and increasingly propserous from industry consolidation. It's two very different things. I've never heard him say buy and hold. I've heard him say his favorite holding period is forever but that first and foremost he's a capital allocator (move it from the overpriced to the underpriced, hold, rinse, repeat.) Hey don't forget about derivatives - the media says WB says they're weapons of mass destruction and yet he owns them - actually writes them after he says that. What's up with that??? They are weapons of mass destruction when little consideration is given to the underlying risk - when it's in your favour they are tools of wealth creation. There's my 2 cents.

Further to the hedge aspect of coal, Cap and Trade may be a BNI hidden asset as a low emission transportation mode like rail would have plenty of carbon credits for sale every year.

My initial reaction echoes yours Zorro, however, as with most things Buffett, some additional thought has seen some wisdom in this. Why not have speculators wreak havoc with the stock price? I will always regard my stock as a piece of a business - and quite frankly I have been under-served by Mr. Market with respect to my BRK.B holdings. I welcome some wild price fluctuations - with a good handle on value it provides me with an amplified opportunity to either buy at a discount or sell at a premium. This is a luxury we haven't enjoyed except in times of general market turmoil or exuberance.

I seem to recall him mentioning Fairfax by name and that they made over $1 billion off the CDS.