vinod1
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Posts posted by vinod1
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From what I've witnessed in America, all internet access providers have been deliberately slowing the flow of bandwidth and preventing innovation from the use of that available bandwidth, to flourish. Internet2 is just the opposite and that is what the U.S. needs.
India wants to bring in the future, America wants to try to stop it from growing exponentially.
Here is an example of a great business that would be an excellent model for the Bells. If America had this company instead of AT&T or Verizon, we'd have a truly completely internet, not this greasy mess we have now.
Dhirubhai the founder of Reliance preached — and personally practiced — one mantra throughout his life: Dream with conviction.
He built the Reliance empire from scratch and, in a short span of 25 years, it catapulted to become one of the top Fortune 500 corporations of the world — an achievement unparalleled in history.
http://www.rcom.co.in/Rcom/aboutus/overview/overview_ourfounder.html
"Robber baron". The mantra would be "Dream with conviction and corruption".
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A small rebuttal:
The Aggressive Conservative Investor is a book for the more serious investor as its authors clearly state. For example, "In presenting our position, considerable space is devoted to describing the real world faced by both outsiders and insiders." As such, many that like spoon feed investment advice are turned off of by the he Financial-Integrity Approach (Safe & Cheap) process. Much like value investing going on 80 years now since Security Analysis :)
I read it again several years ago and thought it better the second time. IMHO, it is a top 5 investment book.
Cheers
JEast
Very interesting that one can like Security Analysis but be turned off by Aggressive Conservative Investor. I spent the better part of 6 months going through the first 4 editions of Security Analysis line by line and summarizing the essence of each chapter. So I am definitely not looking to be spoon fed :) Somehow I quite did not get all that much out of the Aggressive Conservative Investor. Perhaps I had high expectations going in.
My detailed notes on the Security Analysis are at http://vinodp.com/documents/investing/security_analysis_index.html
Vinod
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has anyone here read any of the books by Marty Whitman? which ones are the best and how highly would you rate them?
His books are classics. Whitman is a very smart man. All that being said, I have found his books to be impenetrable. I rarely don't finish a book, yet found his to be very difficult to get through and didn't finish the Aggressive Conservative Investor. He spends the first 50-100 pages telling the reader what he is going to be telling them, but never provides too much detail. The rest of those pages is in rants about others in the market and how his approach is much better. Personally, I would stick with his shareholder letters which are fantastic and have his views distilled into something that is actually readable. Just my 2 cents.
I second that. However good he may be as an investor, the Aggressive Conservative Investor is a series of rants about EMH and other things. He does have a good nugget of wisdom here and there but it is extremely frustrating as it lacks in coherence and I would likely not read any book he authors in the future.
Vinod
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WD-40 has been mentioned and it is a good example. Also See's Candies is a good example of a very small company with moat - not public but Buffett has commented on this quite a bit and addresses your question.
Vinod
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Maybe it is more of just the new reduced interchange fees that are coming (i.e. reduced bank profits).
Good for retailers though.
Cheers
JEast
BAC estimated interchange fees to be reduced by about $2 billion annually. This revenue loss would be mitigated partially via other fees so I do not see this as the main issue for the Big banks. My guess is that the market is pricing lower ROE due to potentially higher capital ratios.
Vinod
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I agree, I just do not get the fuss about the new capital rules. WFC, BAC, C have Tier 1 Common ratios at 8.3%, 8.6% and 10.8%. Even if the risk weighted assets shift a little bit with the new rules, earnings are going straight to Tier 1 common capital in absence of any share buy backs and token dividends. Any increases would be phased in as well so I do not see any big concern about equity dilution which I think Fed would try to avoid as well given that management would slam the brakes on loan growth.
Vinod
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Interesting. I hadn't really given much thought to how the rewards are accounted for. So I guess by implicitly paying for my reward with each transaction, I'm really not gaining anything at all. I'm just moving my own money to improve Aeroplan's business. But then, I guess I'm gaining more than if I just had a regular no-rewards card. Too bad there wasn't an option for "give me no rewards but give me lower transaction fees".
That is exactly the argument merchants like Warmart's make. The card companies and payment processors (visa, mastercard) do not agree which reminds me of a quote: Man is incapable of understanding any argument that interferes with his revenue.
Vinod
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Capital One had $500 million in interchange fees on about $13 billion in revenue in 2009.
Vinod
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Credit card companies business model does not work on the subset of people who are very knowledgeable in finance and are disciplined like you. This however is a good statistical bet for the company across the broader population. What proportion of the people would pay on time say 36 consecutive times (just in the first three years)? I would bet a decent chunk of people would end up paying high rates.
This isn't quite true; it depends on the facet of the credit card business that you looking at. Visa and Mastercard make their revenues based on transactions, not based on balances.
It's primarily banks and retail locations (think The Home Depot Card or The Macy's Card) that make their big bucks off of those who don't have a strong understanding of compound interest. Pure-play credit card businesses such as Capital One and American Express are also directly exposed to this segment of borrowers.
Regardless, all players take a cut of transactions executed. So even if their customers get wise (as they should), they will still make very nice revenues on the transactions side. Not as amazing as the retail loans business, but still nice.
I do not even think of Visa and Mastercard as credit card companies. I am referring to the card issuing lines of business like Capital One's US Card segment where most of the money is made on the spread and various fees/charges. The cut from executing each transaction mostly is balanced via rewards so this alone makes up only a small fraction of the revenues.
Thanks
Vinod
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I have an interesting credit card story to relate. many years ago when my son was 12 we went to the car show in our home town. A credit card co. was offering a free tee shirt with a cool picture of some hot car if you would sign up for the credit card my son wanted the shirt so what was the downside. I filled out the application my son got the t shirt and a few weeks later I received a card in the mail with an initial line of credit of 3000.00 which I promptly stuck in a drawer and forgot about it. Once every few months or so I would get a call from the card company call centre asking me if I wanted credit they were always offering me low introductory rates for fixed periods of time. I had a mortgage at the time which was at a floating rate and sometimes the rates they offered me were at rates below my mortgage rate. So I began to take them up on their offers and just pay down my mortgage then when my low introductory rate expired I would pay off my credit card. This went on for quite some time and they were constantly increasing my credit limits because I always paid on time. I consequently sold my home and moved however I still had this credit card with no balance and a 32000 by now limit. I received an offer in the mail for 2.5% for the life of the loan. I called the card company and queried them yes thats there terms 2.5% for the life of the loan as long as I was current. I realized that with minimum payments it would take me 30 plus years to pay this off. So I wrote a check for my entire limit and paid down my mortgage and I know have a 30 year 2.5% mortgage on my home in effect. Of course the credit card co considers me to be a dead beat because I am always current if I am late my rate would immediately increase to 28% or some silly usurious rate. I took advantage of this over 3 years ago. The credit card co by the way was Capital one I believe.
Credit card companies business model does not work on the subset of people who are very knowledgeable in finance and are disciplined like you. This however is a good statistical bet for the company across the broader population. What proportion of the people would pay on time say 36 consecutive times (just in the first three years)? I would bet a decent chunk of people would end up paying high rates.
Vinod
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Their unemployment rate since 1989 peaked at 5.5% and has since come down to 4.5%. It's about double today from where it started out at around 2.3%.
http://www.tradingeconomics.com/japan/unemployment-rate
Why is it that it takes them about 8 years after their crash before their unemployment rate rises even 100 bps? Does it take 3 workers to screw in a lightbulb, and do they never get fired when profitability suffers? Any cultural difference here in the US with regards to cutting staff in the face of slackened demand?
From what I read, Japanese managers would go to great lengths to avoid layoffs. Once read a story of how a manager committed suicide and left the insurance or some money that he would get upon his death for his workers. So I think this is mostly cultural.
You might find some charts on the data you are looking for by googling "The First Cuckoo of Spring? Is Japan A Buy?". It has profit margins, ROE, div yield charts going back 30 odd years.
Vinod
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In the end they are going to raise the limit. We might get a replay of the TARP vote. Congress votes down the increase, markets drop 20%, Congress votes for an increase. Good times.
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SJ-They've owned USG for a time now. Seems to be a similar play to Abitibi...USG is the low cost producer...
Vinod-The holding in Intel is a convertible bond.
-A. Hamilton
Thank you!
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Anyone know what type of investment FFH has in Intel? It looks like its value is about $1 per share/unit and it is not a call or put, so what can it be?
Thanks
Vinod
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I track the warrants of about 10 companies. Here is the URL to get more info from Nasdaq on these
I know that Ford, Lincoln National, Washington Federal, Hartford Financial and First National Bankcorp have warrants outstanding. You can check these from Nasdaq.
Vinod
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In short - To judge, How good the business is -> we don't need goodwill figure.
To judge, How good the management decisions have been in past -> we do need goodwill figure in statements.
This is pretty much what Buffett seems to have said at the AM.
Question 29: Crowd- Questioner asked a question about goodwill, including goodwill when you calculate return on equity and write offs of goodwill.
Buffett: The AOL-Time Warner goodwill should have been written off. In general, goodwill should be not amortized, but should be written off when necessary. Goodwill should also not be used in evaluating a business. What the management is doing and how the operating businesses are doing are what the most important factors. In this case, the focus should be on returns on tangible assets. But when you are assessing how well he and Charlie are doing in calculating return on equity, you need to include goodwill.
Vinod
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The vast majority of the companies have link to "Order Printed Materials" on their investor relations section of their website. It allows you to order Annual Reports, 10-K's and 10-Q. I have a auto form filler plugin installed in Firefox to make it easier to fill in these forms. I get the majority of the forms this way. For companies that do not have this link, I email the investors relations contact listed on their website. Only 2-3 companies do not mail printed reports in among the 200 odd companies that I follow.
Vinod
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vinod1 - I checked your link again (Notes on security analysis) and its down, any way I could get those notes from you?
I just checked and it seems to be working fine. You can give it another shot and if you still have a problem, email me at vpalika in the hotmail.com domain.
Vinod
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First impression is he spent more time laying out the valuation than in previous letters. He didn't do all the math, but he basically laid it out there:
$17 billion in normalized earnings
cash investments of $90 billion
. . . do the math.
There is overlap between the normalized earnings and the investments. We can either do pure look through earnings i.e. his normalized earnings of $12 billion + share of undistributed earnings (adjusted if he already included dividends into normalized earnings) or the standard two column. Either way I think IV is coming to a little above $100 per B share.
Vinod
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Thank you Sanjeev!
Vinod
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Henry Singleton?
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As I look at the supply imbalance developing for AIG stock plus the fact that they have sold most of their best businesses, I get the feeling that it would be unwise to touch them even with a ten foot pole.
Thanks for the caution. I just digging into this in a little more detail as it is very intriguing due to size of Berkowitz's bet and no obvious undervaluation.
Vinod
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Has any one understood the rationale for AIG warrents issues to stock holders? These are issued only to private stockholders (at 0.53 warrents per 1 stock) so the US Govt with 92.5% stake is not getting any warrents. So it effectively means that the ownership of private stockholders is being increased at the expense of US Govt. To me it seems a scenario something like this seems to have happened: The US govt seems to be making quite a bit of money on AIG and much better than say in Freddie/Fannie or on the Banks and this is a backdoor way to reduce some of the US Govt profits and pass on some of the better than expected showing "profits" back to shareholders. I cannot think of any other reason for the issuance of the warrents.
Vinod
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The current market cap/GDP is very high
Isn't this ratio less valid than before since a lot of companies in the S&P500 are heavily active abroad?
ex: Caterpillar have plants and operations in emerging countries that if I'm right are not counted in US GDP.
That's an excellent point. I wonder how that ratio might be adjusted to account for the proportion of overseas business over time?
Dont really know how to adjust for it.
This is also closely related to increase in profit margins in US. Most low margin business has been outsourced to developing countries so naturally the profit margins have increased for US companies in aggregate. So this is a big risk for GMO and those of us who tend to take the same attitude that profit margins are going to mean revert - "This time is different". :)
Vinod
"Fairfax enters India to invest in local firms"
in Fairfax Financial
Posted
From the comfort of living in N. America it is easy to romanticize India from afar.