vinod1

Did anyone get a hard copy of FFH 2008 annual report? I did not get from my brokerage firm so I sent letter to FFH but still did not get one. I followed up with another letter to FFH but still there is no response. FFH website has this statement Shareholders may request a copy of our audited financial statements free of charge by writing to the Corporate Secretary at 95 Wellington Street West Suite 800 Toronto, Ontario, Canada M5J 2N7 Is this address correct? Anyone has a suggestion on how to get a printed copy of 2008 AR? Thanks Vinod

"The arguments for and against ultimate inflation are both unusually weighty, and we must decline to choose between them." - Ben Graham, Security Analysis Vinod

1. What discount rate is used for valuation and what variables/data does he use to determine this? Given that inflation in India is persistently higher compared to developed countries and more prone to upward surprises, does he make any adjustment for this in his estimate of discount rate? 2. Does he use any data sources in addition to Corporate annual reports for his research? Is there something like a valueline that summarizes several years of historical data? 3. Does he have any position sizing limits to limit the maximum size of a single position or sector? 4. Does he try to structure the portfolio into various strategies Net-Nets, Arbitrage, Turnarounds, Inevitables, etc? If so could he eloborate on the various strategies? Vinod

Thank you! I only scanned the report but I am having trouble reconciling their IV estimate of only 107K while using a 1.7 book multiple for Insurance. I am not sure if they missed the investments but this does not sound right. Vinod

The only thing I can think of is a non-dollar denominated Sovereign Inflation Protected Bond. Something like the ETF, WIP may provide this protection. But it does not have options, so it would not be possible to lever up with a small amount of money. Klarman also mentioned about having bought a low cost inflation protection investment, so his portfolio may provide some guide. Vinod

You can add in the occasional asset/license sales by Govt but that is usually not a significant factor for US. Vinod

All Govt spending (every single dollar spent by Govt) has to be supported by one of the following 1. Taxes 2. Debt (T Bills, T Notes, T Bonds sold) 3. Printing Money Deficit is by definition funded by 2 & 3. The Govt has to fund the $1.6 trillion via #2 and #3 this year. Vinod

I do a somewhat similar check for stocks over 10 year periods, but I try to check how much earnings have increased as a result of retained earnings rather than use the market values. A stock can start the measure period at an expensive level and end the period deeply undervalued, in which case it fails this test. Vinod

I do not think this is a good test. Yes, it provides a quantitative check on intentions but it is a way of "using the market to inform you rather than to serve you". A better test would be "Has the intrinsic value increased by at least as much as the amount of retained earnings". I think the answer to this questions would be a resounding yes. Vinod

I was trying to research Buffett's purchase of KO and came across this article. Nothing much new but I have not read this article before. http://www.nytimes.com/1990/04/01/magazine/buffet-takes-stock.html?pagewanted=all Vinod

kawikaho, Check the mechanical investing board at fool and backtest.org to see if it fits your need. I am not sure if they have the data you need but it might worth a try and it is free. Their approach is too black box for me and have not really looked at what they have. I have a bunch of old S&P Stock guides that allows me to thumb through the data way back to 1984 but that is about it. Vinod

Eric - Great to have you back. Vinod

Could it be Martin Wolf of FT? He writes exceptionally well and is not ideological. By far the best. Vinod

Agree completely with Mark Jr. A few additional points 1. Buffett when he was running his partnership never had more than 40% of the portfolio in a single asset. Only after he was in control of Berkshire that he put his net worth into it. 2. This is what He said on this subject Charlie and I operated mostly with 5 positions. If I were running 50, 100, 200 million, I would have 80% in 5 positions, with 25% for the largest. In 1964 I found a position I was willing to go heavier into, up to 40%. I told investors they could pull their money out. None did. The position was American Express after the Salad Oil Scandal. In 1951 I put the bulk of my net worth into GEICO. Later in 1998, LTCM was in trouble. With the spread between the on-the-run versus off-the-run 30 year Treasury bonds, I would have been willing to put 75% of my portfolio into it. There were various times I would have gone up to 75%, even in the past few years. If it’s your game and you really know your business, you can load up. I do not think anyone can approach the level of intensity and focus and depth of understanding that Buffett brings to an investment. So for us mere mortals it would not be prudent to assume that we would have the same level of understanding that Buffett has on any investment. The thing to worry about in investing is "things that we do not know that we do not know". These kinds of surprises are far too common. 3. I would look at Klarman sizing and he generally had a 10-15% sizing on his top investment. This is I think a reasonable position for a very high probability, large margin of safety and with low probability of large loss. A larger position would be reserved for truly once in a lifetime, 20 punch rule kind of picks. Even in this case I would limit it to say 20-25 of Portfolio with maybe an exception for Berkshire, since it is managed with the understanding that several owners might have 100% of their net worth in it. 4. A wide variety of business lines might reduce some kinds of risk but a single business is exposed to certain risks that cannot be eliminated like litigation, rouge employee acts, etc. 5. My estimate for a blowup (defined as permanent loss of 30-40% or more of IV) would be something like 5% of more for FFH. That is we can expect one such event every 20 years. So this is not something that I would be comfortable putting anywhere near 50% of total portfolio. Vinod

Although it has a cheesy title, I liked "How to pick stocks like Warren Buffett" by Timothy Vick. No great insights and nothing fancy but it summarizes Buffett's approach pretty well. Vinod

Does anyone else get the impression that Sokol would be taking over Berkshire after Buffett? He seems to be standing out ahead of the others for this role. Vinod

Eric, What broker do you use for this account? I am planning to do the same and trying to minimize the transaction costs. Thanks Vinod

The basic principle I am adhering to is that I want to own more of a particular security at a greater discount to IV than at a lower discount to IV. For example, I would want to have a 10% position when it is trading at 50% to IV and maybe a 8% position when it is trading at 70% of IV. I categorize my investments into specific types such as exceptional business (due to either a great business moat, great jockey, etc), net-nets, discount to break-up/liquidation value, arbitrage, discount to debt debt capacity, etc. The principle above is what I would apply to securities that fall under exceptional business like Berkshire. I intend to hold them forever but plan to take advantage of market fluctuations by increasing/decreasing allocation in inverse proportion to market movements (or more accurately price to IV). I would never short as it is very risky - market can remain irrational longer than I can stay solvent. I do not disagree with you at all that regarding taking action based on our expectations of Market. That is what I was asking Viking. I reduced a little bit based on above, not because I am expecting Market to go down. It seems to me that market might go down, but I do not want to take any action based on that expectation. Vinod

This is not one of his better letters. You should read "The blackstone peak and the turning of the worm" and his other letters right at the peak of both 1999 and 2007 mania's. His methodology is pretty robust and for me he ranks right up with Buffett. The main underlying principle in his method is Mean Reversion which does not seem to be inconsistent with Graham. Vinod

It would be good to have another perspective on investing. Books by William Bernstein The Intelligent Asset Allocator and Four Pillars of Investing give a pretty compelling case for indexing. It would at the very least allow to properly evaluate one's performance by comparing to a more realistic benchmark instead of S&P 500 which I find is inappropriate for many value investors. Vinod

Nice list. One method I found useful, is by reading an Audit and Accounting guide for the industry if there is one. Vinod

They are not the same! When you buy at a discount to IV, you have a margin of safety. You would do fine selling it a lower discount to IV. Say you buy at 50% discount to IV, you can choose to sell it when it is only at a 30% discount to IV and still do fine, but would not do as well as when you sell it close to IV. When you buy at a premium to IV, there is no margin of safety. You are just hoping for a greater fool to show up. Vinod

Viking, There is indeed a strong case for tailoring the approach for our own individual psychological makeup. Especially when it is working so spectacularly! I make much smaller adjustments, basically increasing decreasing individual stock allocations by a maximum of about 30-40%. Increasing allocation when discount to IV is high and vice versa. Vinod

Viking & Smazz, Are you not basically betting very heavily that the market would give you a big opportunity again? What if market does not give you an opportunity to re-enter at a good price? Why would you forgo an attractive opportunity at a high confidence level, which is what would be possible with a strict bottom up value investing to a low confidence level macro bet that a very very attractive opportunity would be made available? Would it be fair to say you are making a macro market direction call? Just trying to reconcile what has been repeatedly drilled by Graham/Buffett, et all to ignore macro and stick to bottom up with what you are proposing. Just as a thought experiment, if we imagine that the stock market has played out a little differently since the market top in 2007. Say that from the time S&P 500 topped at 1565 in 2007, it had dropped only during the last few months to where it is now (900 odd), without the intermediate dive down to 676 and back to 900. Would you be investing now because of the 40% drop (without the mind being polluted by recent memory of 676)? If so, is this not a case of "Using the Market to inform you"? I ask this not to argue but because every fibre in my body says, the market is going down, down, down and to sell so that I can invest at a lower price and I am resisting this temptation due to belief in Buffett/Graham, value investing philosophy and need for discipline. Thanks Vinod

Sold some but only because discount to IV is much lower now. If I wanted to hold $xxx amount of something at 40% of IV, I would want to hold a little less at 60% of IV. That said, I also want to free up some cash cushion to take advantage of any "shooting dead fish in a very shallow barrel with water drained" kind of opportunities that may come up. Portfolio at an allocation such that I would be happy to see either a 50% up or 50% down move. Vinod