value-is-what-you-get

You're right! But this is CNN - their goal is not to argue effectively - or even reconcile their seemingly disparate arguments. It would seem that the objective here is to sway public opinion against government healthcare by providing a buffet of arguments - choose whichever one you'd like to embrace Joe the Plumber.

I agree there's lots of blame to go around but Greenspan a hero!! ??? Munger is saying that Greenspan is a hero for admitting during recent testimony on Capitol Hill that he had "made a mistake" in trusting that free markets could self-regulate. He is a hero for saying he was wrong when he was considered the most powerful man on Earth by some. It is completely contrary to the locker-room mentality that creates these messes and in keeping with the type of rational thought required to prevent them in the future. While most in his position would stick to their guns and focus on legacy building for the history books, he takes a bullet for the greater good. For that he is indeed a hero.

"Beijing is promoting electric car development to curb surging demand for imported oil, which communist leaders see as a strategic weakness, and in hopes of taking a leading role in a promising industry." Here's the article: http://www.bydit.com/doce/news/20091013105316.shtml P.S. Mid-American investment now officially a ten-bagger! Currently trading at 83.00 HKD.

1. Cheap labour instead of expensive machines. 2. Here in Ontario the auto manufacturers say give us the money or we'll leave. BYD are asking for government to provide incentives to buyers of their battery powered line to bring the cost to consumer down to compete with carbon spewing alternatives. They already have the top selling gas powered car in China for three months of this year - the F3 model - so that one doesn't need any incentives. Increased volume will decrease cost. 3. Same way the "newbie" started making batteries with $100K loan in 1995 and grew to supply 60% of global cell phone market despite well entrenched competitors. I expect they'll apply similar technique to the gas/hybrid auto market. There is currently no other mass produced battery only powered vehicle available for purchase - i.e. no entrenched competitors - they are it. That being said, I too believe there is no margin of safety at today's price. I revisit it often though as things move pretty quick in Shenzen!!

Agree on all points. Another contributing factor to GM and Chrysler problems was the "short-termism" practiced by those running the companies. The unions pushed for a better and better deal for their members and management acquiesced on some really expensive long term plans so as not to disrupt this quarter's or next quarter's production numbers/deliveries. Well that all came home to roost as we have seen. Short term gain for long term pain.

I'd say Fairfax then Berkshire then Fairfax again. Given a hypothetical chunk of money with which one is to decide between the two, I would think Fairfax stands a much better chance of increasing value over time, both short term and long term, for the various reasons esteemed boardmembers have already posted. That said, we have a real gift (albeit bittersweet to say the least) in knowing that the day after Warren's death is announced, the Rock of Gibraltar will go on sale. He's said as much himself as it's the only stock advice I've ever heard him give - "after my death is announced, buy Berkshire." Then, after a price move back to reality and beyond, out of Berkshire and back into Fairfax. If ever there was a dip one could profit from, this must be it. Criticisms, thoughts welcomed. Disclosure: Own Berkshire and Fairfax

I heard a very plausible explanation (a sportscaster whose name eludes me) and it is a classic margin of safety value play by Balsillie. If he were to approach the NHL and say we want to put a team in Hamilton, they would say OK it'll cost you about $400 million for that market and you'll need to make some additional payments to Buffalo and Toronto for pulling "theoretical" fans of their teams. Balsillie wants to pay around $200 million for the Coyotes out of Bankruptcy and basically get a 50% margin of safety on a team in a fantastic market for hockey. I lived in Hamilton for a long time and their Junior team (The Bulldogs - not sure of the league but they're like the Toronto Marlies) routinely put 3,000 - 4,000 fans into Copps Coliseum. Hamilton would definitely show up if the NHL did and I personally think it would be terrific for NHL hockey in Ontario/Buffalo not to mention all the junior players and kids growing up and playing in such a rich hockey environment.

Soooo . . . you won't be buying one then? That's not a BYD car in the video - it looks like a Russian test. I also have high hopes for this company and expect that your tainted product fears won't come to pass because the company was founded and is run by a man of high integrity who has been praised and supported by two of the best judges of integrity - Munger and Buffett. BYD was nothing in 1995 and became a large scale battery manufacturer supplying about 60% of the cellphone market's batteries over 10 years or so. As Munger says "I wouldn't bet against 10,000 Chinese Engineers" I understand the import bashing, but I don't see where any of your arguments apply to this company specifically.

Most definitely WEB uses the freight train index as an economic activity indicator but I also think the educator/humorist in him was throwing a barb at those who use stock price indices to gauge economic activity. (Look at how much stuff people are buying, as opposed to much stock people are buying.) The freight train index is a great measure of industrial economic activity however our economy is more diverse than that. In as much as the freight train index is a good measure, it's not perfect, but it does conform to the adage of preferring to be partially right over exactly wrong! (Freight train index vs S&P500 for example) Any thoughts from esteemed board members on the larger service base and greater diversification of industries now present in our economy vs Great Depression Era reliance on fewer industries? For example, option trading adds no value to anything yet it is an industry employing people who spend money and make it no matter how many widgets are being sold by the company they sell options on. I realize this is a simplification as it is a small industry however if there are enough of these small industries do they not lessen the damage of economic downturn?

I bought the stock at $2.45 or so for the yield, it promptly (6 weeks later) dropped to $1.25 after the dividend was suspended so I exercised some discipline and sold at a 50% loss due to the fact that the reasons for my purchase no longer existed (monthly distribution yield)). 50% drop is a bitter pill but it looks like I saved myself another 50% drop from that point judging by recent prices. As it happens, I was in the Brick last night in Barrie Ontario (a fast growing new area) and you could hear the crickets and see the tumbleweeds despite some great pricing!! It may be a bit premature for building a position- just my gut opinion. I know FFH owns it and all that, but it's a fairly miniscule position relatively speaking. If you want to bet on furniture, take a look at Leon's as well - they have a better balance sheet. Remember - lethargy bordering on sloth!!

Now there's a quotable quote! Nice one Uccmal. The past few months have sprouted more than a few of those types.

The Gates Foundation et al will receive 5% of WBs stock every year. The proviso attached to it is that it must be spent in relatively short order - no holding on to it and doling out 6 or 7% a year in perpetuity. This places a downward bias on share price (i.e. long term BRK.B stock on sale). My rough math suggests that if the 5% donation this year were sold in the market, it would represent between 8 and 9% of the total annual volume of the stock (about 17 days worth of total volume for B shares!!) The gift that keeps on giving!

We all know smoking cigarettes is ridiculous although at some point Doctor's did TV commercials promoting their benefits. So was driving around without seatbelts and dumping motor oil down the drain etc etc. I wonder what we as a civilization and/or individually are doing right now that in 50 or 100 years will appear so obviously ridiculous as Doctor's promoting cigarettes was only 50 years ago? Two things that spring to my mind are our complete dependence on oil and war as some sort of solution for anything. Any other thoughts from the sharp minds around here?

I like the ads. As a Google adwords advertiser myself, and also knowing with extreme detail the content of this site, I find it interesting to see the advertisements that get displayed based on the content of the pages. It's a fluke that I get to examine the Google Adwords model from this unique perspective. One more free benefit from my expensive membership fee . . and I'm learning a lot about local businesses in Fairfax VA too!

I distinctly remember seeing an interview with Warren and of course the nice reporter asked him if he had any stock tips. He gave his usual gracious answer (considering the inanity of the question) and then stopped himself for a second and said "Yeah here's one - the day my death is announced - Buy Berkshire" This known event - a certainty - will be his final and profitable lesson to all regarding letting the market serve us, not educate us. It's the only time I've ever heard or read of him recommending a stock - and I don't think it was a joke although she giggled away anyway.

Thanks Eric - great stuff again form Munger!

Hi kawikaho, I had an 8 unit building in a small town and also owned and lived in one half of a duplex. The duplex was my own house and the second unit I rented at slightly below market rate to local college students. I threw in some perks like no rent in the summer etc to get them back in the fall. I also never rented to anyone who didn't show up with their parents. That criteria was very successful in the student rental business as was the fact that I lived there. I would never consider being an absentee landlord for student rentals. It was mainly to offset my household costs so no extensive ROI or anything was contemplated or done. Let me address your criteria on types of renters. (families professionals etc). I found that turnover is a big money and time sucker. Professionals = turnover. As soon as they are stable in their new job they go and buy a house or condo of their own and you're scrubbing and painting and showing all over again. It's a natural to think you want someone with a good job who will pay the rent on time etc. but they don't last and an empty unit is unpaid rent. The most stable and reliable tenants I had (and therefore slowly converted 6 of the 8 units to them with the exception of the top floor which was a climb) were single females over 50 years old (just watch out for drunks). They want a nice quiet place to live (forever), usually have extended support systems (family and children) who help with rent expenses if need be, and they give you a call and let you know the moment a little thing goes wrong. This way you can fix it quick before it becomes a big issue. They each gave me 12 post-dated cheques a year and offered me home made cookies and coffee when I'd go to fix a dripping tap or some such thing. Then while you're enjoying the coffee and company they let you know every little detail of what's going on in your building while you're not around. Absolutely ideal tenants. Believe me I've seen the tile falling off the shower wall in a young professional guy's unit who never even bothered to call cause it was no big deal to him that the underlying everything was getting rotted out every time he took a shower!! Also, before you buy the place, check to see if there are any outstanding work orders with the local fire department. They'll inspect a multi-unit building and write up any violations and then stick them in a file and get on the owner once or twice a year. It seems these can sit in a file forever and are not registered on title or anything so your lawyer won't find them unless he actually calls the local fire department and asks. This is not a standard thing so make sure you request it. In my case it cost me $10K to have a secondary means of egress installed for the third storey, but more important than the money is that you want the place to be safe. When all was said and done I would describe the experience as a part-time job performed during hours of your choosing that bleeds away a bit of disposable income from time to time and returns a great big fat payday at the end which makes you forget all about the work and BS and only remember the nice old ladies and their home-baked cookies!!

Yup done it for many years - learned a lot about tenant quality etc. Rules depends on your jurisdiction - I had rental properties in Ontario Canada - Mike Harris was good to landlords some time back and his legacy continues today!! Glad to share what I know with a fellow boardmember-

Just stumbled across this one - http://www.valuecruncher.com/companies/1002 Incorporates Margin Of Safety in an interactive application. Doesn't screen every company though.

Agreed Rabbitsrich - and from one simple act - producing a quick accurate copy of a document - XRX had 17 billion in sales last year and I can't remember the last time I saw a machine that said Xerox on it. I think a moat means more than barriers to entry by competitors, it includes the gap between entry and catching up if at all possible. We may not "Google" anything in ten years time but I expect Google will be a larger company kicking out more cash than they are now.

Google's moat is a fairly general term. Having read a lot on Munger including his books, I think that his version of moat would include a number of things other than the usual search speed etc applied to search engine companies. They have an easy to use Pay-per-click advertising service (main revenue generator) which can be targeted and monitored and tweaked and scaled instantly by the user to such a degree that newspaper, yellow pages and radio ads look like a childish game of blind man's bluff in comparision. I don't think Google or the internet will eliminate radio or TV ads as there are always people who can be persuaded/herded by a compelling ad, but there seem to also be a lot of people who go looking for what they want and find it using Google. The moat also contains an army of Phd's (a Phd is almost a prerequisite at Google and Munger likes people who are smart like him). Google builds their own servers and own unmanned server farms all over the country that look like military installations including some with dedicated water treatment plants for purifying cooling water for servers etc (lots of hardware). Big sharks in the moat in the form of mindshare (we Google things, movie characters Google things - it's a verb now! - we don't Firefox them or IE8 them). Perhaps most importantly they have big goals, namely to digitize everything so all information is searchable by everyone, and young leaders who seem to be getting there fast. None of these things are unassailable if Google drops the ball or gets into some kooky di-worseifications (thanks to Peter Lynch for that term) but seeing as how they are oriented towards a huge goal and generate mountains of cash from the existing machine to pump back into the machine advancing towards the goal (they're way ahead and accelerating) and are led by young dedicated people, I can see how Munger states they have the biggest moat he's seen. . . . and after all that I don't even own any stock!

MTM figure is inherently flawed and as Uccmal correctly states it tends to skew results further in good times and bad. Sort of a legitimized incorporation of folly in both directions. I believe the main reason for MTMs implementation in the first place was to keep individual greed and incentive bias off the financial statements but the results are less than perfect. That said, this looks like a powerful tool for capitalizing on Mr Market's folly prices against our own IV calculations, the epitome of which has been kindly demonstrated to us by the circus surrounding Berkshire's Equity Puts. Find the MTM figures in the financial statements (the bigger the better), determine the direction they will accelerate Mr Market's folly and position yourself accordingly.

Here, here!! Now I distinctly remember Warren pointing the finger at the ratings agencies as being complicit - something to the effect of financial institutions would dangle the $600,000.00 fee the credit rating agency would collect and then make some slight changes (to the downside) on the bundled securities and ask "Is it still AAA?" and if they said yes they'd tweak a little worse and ask again. This would erode and erode until they had junk with great ratings. Then the next bundled group would start off with "Well we had AAA on that last batch so what if we start there and add just a dash of junk to it - is it still AAA? (great big fee dangling enticingly off to the side)

"And incidentally, the one thing that's very important now is banks--and this may come as a surprise to you. Banking has never been better in one sense. I mean, the banks are getting their money very cheaply, deposits are coming in, spreads have never been wider, all the new business they're doing is terrific. They will earn their way out of it, in most cases, overwhelming number of cases. And they should not be spooked by the idea they're going to have to issue tons of stock at some very low price under the circumstances where the very actions of--that that may be coming keep pushing down the price. So that's spooking, you know, people in the banking business. But the banks can earn their way out of this. I mean, the average cost of funds for Wells Fargo, for example, the fourth quarter last year, was 1.44 percent. I can earn money with money at 1.44 percent. I mean, it's cheap. It's abundant and the spreads are terrific." - Warren Buffett March 9, 2009

I'm not an Accountant but my understanding of Goodwill is that the rules changed as a result of the dot-com scenarios which saw one company acquiring another for more than it was worth but the acquired company already had $x of Goodwill on the books so you got values after two or three takeovers which got a little out of whack. The example that comes to mind was when I shorted Laidlaw back when it was $10.75 a share. They bussed 80% of all the kids in North America to school every day and yet carried Goodwill on their books greater than the value of the buses!! They had made a crummy acquistiton of a company that had made crummy acquistitons (Safety Kleen). It seemed like a prime candidate for a short and it was. The rule change meant that a company has to look at the Goodwill number every year and adjust according to reality. For instance if they were to re-buy the same asset today, how much Goodwill would be attached? That is the new number and they adjust it accordingly on the Balance Sheet but only downwards if necessary. So you're right, Goodwill is a non-cash charge (although at some point it was paid for!!!) and it does reduce the tax liability but it is only partially discretionary in that it has to have some basis in reality. I think the write-downs are simply a case of the reduced prices of everything causing estimates of the cost of acquiring similar assets to also be reduced and hence the Goodwill charges.