thefatbaboon

Buffett taught me how easy it is to make money! I chanced on Buffett and BRK in my late teens and it immediately made sense to me and i dedicated a few years to studying and learning everything I could about him and then slowly implemented what i learnt. And over the subsequent decades everything unfolded logically and pretty much as expected. It blows my mind how so many people don't pay attention. I have a young social acquaintance who told me he's really interested in investing a year ago and I said he should study Buffett and learn how to value cash flows. I bumped into him again 6 months ago and I reiterated my suggestion and made a couple of book suggestions. Just the other day we were at a birthday party and he lent over and said with complete sincerity: "I know you're focused on the Buffett/Value approach but I have been spending a lot of time studying technical signals and I've decided to do a course on technical analysis". I said: "Very interesting. There are so many good way to approach the market". And we both nodded seriously at one another and went on our ways. Over the last two decades I've only come across a handful of people who pay attention. Buffett makes repetitive chitchat with Becky Quick a bit too much these days, but that doesn't change the fact that the man is a god. He's to investing what Euclid is to Geometry. And anyone interested in the logic of money making who doesn't spend a few years studying Buffett is insane.

hahaha. awesome

True. But so can other things. Leverage is just a risk among risks. Most should avoid it, but then again most should avoid direct stock selection and go through indexes. Thought experiment: Which of the following is riskier: 1.) A ten stock portfolio, equal sized, made up of whatever the current ten most recently discussed names on the "Investment Ideas" section. or 2.) An investment in the S&P 500 index where one buys $115 for every $100, borrowing the $15 on margin. (Margin for decent sized accounts today costs less than 1%.)

Agree with xo1 on Coke. This is Buffett's style - he likes to flatter people into performing well. But was quite surprised here regarding his beat down of Winters. This could end up putting Winters out of business. And while Winters is far from a genius, he is a very very long way from the the bottom of the pile.

I use frommi's dumbest method!

I love the word "backsliding"...reminds be of that scene in "There will be Blood". I will never backslide!!

Probably it's been posted before but I really enjoyed so just incase: https://www.youtube.com/watch?v=lUMQylUxbsg

How many people would call their cable provider or switch if they lost Comedy Central/BET/Nickoldeon/MTV? What percent of advertising dollars will continue to flock to internet/mobile vs. television? How much does Colbert leaving hurt Comedy Central? What has been the last big VIAB original content hit since Spongebob? The distribution channels are consolidating, how does VIAB negotiate without sports or a premium channel? I wanted to love VIAB given the 8% annualized share repuchases and dividends. Cash to shareholders > FCF > NI. Todd/Ted own it. All of that being said I just couldn't get comfortable with the questions above. I think revenue is probably materially lower in five years and if they can't hold a flat topline there won't be multiple expansion. Gray, I have tried approaching the content companies in that way..."how many people would call/switch their cable if such and such channel were take off". I am happy to debate the matter but I think it's a too stringent way to approach content companies. Discovery, TLC, TBS, Fox News/CNN, History, ....the only thing a fan is utterly uncompromising about is sports, everything else is probably replaceable. BUT the consumer does want a nice rounded group of options: a Discovery, a Kids, a Comedy, a News, a Movies, a Music. Now Sports is not replaceable but there is a russian roulette game going on where Disney keeps chasing the content costs up and up (a bit like the way Sky used to in the UK) and forcing those costs through the bundle onto everyone & the stock market values Disney and their decade or so of locked up right at a full price. I don't proclaim to have the answer, but I think we need a better way to analyze the content companies than "would I change provider if it was switched off".

On cursory inspection, the tobacco companies don't look like 17 plus compounders to me. Just looking at the 10 year charts, MO and BTI look more like 7% at the most, adding back the Altria spinoffs. (But that is what is interesting. One could argue that Loews did not do that with their company, but of course you could respond that they did not have to; they already had other businesses.) Not sure what I should say...maybe "look more carefully"?

thanks!

the tobacco companies.

Don't mean to be coy but tax strategies will vary person to person, net worth to net worth, investing style to investing style, and country to country. As a very general point for most tax payers who are not successfully deferring most cap gains: tax expense should be part of the valuation process. i.e. make sure a potential "forever" type investment like Berkshire versus a probable "must sell at approach to IV" type like BP has a tax component in their respective valuations. It's important, it's just as much an element of value as anything else. (Edit: that might read a bit vague. If BP goes according to plan and I sell in 2 years and pay 20% on gains and 20% on divs; and then go to cash and rinse and repeat with the next BP...that's different than holding BRK till I die. This needs to be reflected, however imperfectly, in my valuation when I try and see whether to buy)

Interesting post Cardboard. We have been doing this for about the same time so it is good to compare notes. I mean this with the utmost respect but I completely disagree with most of your points! 1. My finest investments have been holding positions with predictably rising intrinsic values even when discounts have narrowed. Some of my biggest regrets have been selling companies because the discount has narrowed. 2. I have been doing this for a couple decades now and enjoy the confidence gained from lessons learnt. It saves me a lot of time and heartache. 3. I have bought many good dividend paying stocks and have enjoyed rising dividends, sometimes for many years. 4. Taxes are massive costs. Having a good strategy to manage taxes has been invaluable. 5. AGREED That all said, if you are prefacing your list of lessons learnt with "IF one is investing in cyclical businesses then lessons learnt are 1, 2, ...5" then I agree with you. Cyclical industries are tricky. I have made money and lost a lot of money: tanker market of the '90s, the iron ore market end 90s beginning 00s, asbestos/building materials, financials 07,08,09...I've become exceptionally careful when I step into these areas, and as my capital and experience has increased over the years I venture in less and less because it's always a hell of a lot of work and very stressful and unless one is really buying in the gutter (think net-net with assets valued at trough) one's margin of safety is invariably a lot less than one thinks. I think that last point merits saying again: MOS in cyclical businesses is smaller than one thinks. Why? because of the often very reasonable probability that there is a bust and that in a bust nearly all cyclical businesses lose money. So, take a company with reserves - say iron ore. Pretend you know exactly whats in them, and what they are worth. Well, say you can buy at 50% of the value. Is that really a 50% MOS? When a decline in iron ore prices would make the mining company not economically viable? I have a pet peeve about cyclicals, on this board and generally, they should be approached (if at all) with humility, skepticism and a lot of care. No one should venture in who doesn't know history because there be dragons. (Didn't stop me putting a couple percent into Sandridge though!! But generally I only allow myself one or two of those kinds of things in the portfolio and only in very small size) If you focused more on businesses with various types of intellectual property then I think your "lessons learnt" would be very different.

jawn, interesting question and not easy to answer. like others have written it is critically important to have self-knowledge & temperament. If you know what you are good at and where within the investing world you belong (and don't belong) then I think you have an excellent chance of beating the market. Take the following example: A fairy godmother gave you $1m. You try some investing and realize you are rubbish or maybe you decide you can't be bothered. I would say that it is very possible to get a return that exceeds the S&P. How? Go to Interactive Brokers, put all your money into a low cost S&P ETF and lever it 10%. Reinvest dividends automatically; let the interest accrue. You'll beat the market and furthermore you don't have to read a single annual report, ever. Many on this board would reject the above approach in favor of the "stock picking & cash as fire power" approach. Research, pull trigger, hold, go back to cash, rinse and repeat. Given the tax implications together with the frequent zero return cash drag - most will find out that over time they are not as good as the market and, moreover, they will waste their lives reading annual reports. If you go down this road be sure you are good and that you love it. For most people they would be better off accepting their limitations and getting a decent understanding of taxes, frictional costs and minor leverage. So, your question, how long till you know if you can beat the market? I would say it depends whether you aim is to trash the market or scrape ahead of the market. Go ahead try and trash it - you'll know within a couple years if you are driven and skilled enough to do so. If you discover that you are not then you'll be better off aiming to scrape ahead through low cunning.

I resolve that no one will write "Cheers!" ever again.

Don't agree and I wasn't suggesting he proceed in secret. I think he could in 2011 announced an authorization, told the market he thought the price was undervaluing the business - i.e.. exactly what he did, except without specifying 110% ratio. Of course, if you're right and he ran the price all the way from the mid 60s to 90 within a quarter, well, no harm done, he tried. Personally I doubt that would have happened but anyway so what, it's not an argument against trying. Singleton managed to buy 90% of his float through repeated tenders and people kept selling to him, Malone"s done more than 50% in L and it doesn't cause the stock to explode every time he announces a buyback; more than a billion b shares were bought and sold over 2011 and 2012 at an average price around $80 - thats pretty deep. IBM and XOM didn't explode upwards (except maybe a few percent on the day) when it was announced he'd made big investments. Not sure why you think a share repurchase that was only taking 10% vol would have pushed BRK up 30%. Anyway this hypothetical debate is rather pointless.

Well obviously I don't know for sure but it would only have been 10% of daily vol to acquire 5% of shares outstanding per annum. (And of course I'm not referring to 2009 when there were much better deals available than BRK! Hence why I said 2011 and 2012.) FYI, Warren bought 10% of daily vol when buying IBM and 30% of daily vol when buying Coca Cola, and Sirius and IBM both routinely run their repurchases around 10% of vol. I think it's reasonable to assume that he could have bought a very decent amount between $70 and $90.

Rubbish. I love Mr Buffett and probably owe all my life's financial success to his influence, but he had the opportunity for all of 2011 and 2012 to benefit his shareholders by repurchasing significantly. Somewhere between 10% and 20% of shares outstanding ($20bn to $40bn). It didn't affect me because I was happy to use margin costing less than 1% to lever my position which i probably would not have done if Berkshire was run tighter - but many shareholders would not have used leverage and his decision to not repurchase has probably cost them somewhere between 10% and 25%.

Apparently, he didn't think that was enough for him. I think at most companies, it would be more than you can be expected. But Berkshire has cultivated a certain shareholder culture over decades ("we're partners", "We'll give you the information that we wish we had if we were in your place",etc), and this seems consistent with that. I've always struggled with Buffett's interpretation on this matter. Yes, disclosure should be very open and fair (which it is) but beyond that his job is to look after those who wish to partner with him rather than those who are selling and do not. I think one can make a very good case that he did a disservice to his loyal shareholders in the way he handled the buyback.

shhhh! don't tell everyone

But Kraven I have long accepted this code ;D You'll note however that even on the list of commandments there is no mention of Brit Cool!

Maybe I'm being bitchy, but does anyone else think Brit Cool should stop giving advice and interviews until she has actually done something? She's 30 years old and the only thing I'm aware of her having done is hire the husband of a friend of hers to run Benjamin Moore and subsequently fire him when he cheated on her friend with a secretary. http://finance.yahoo.com/news/advice-buffetts-30-old-hand-174812229.html

thanks for posting, enjoyed it.

I still remember being shocked by this guy after hearing his comments on an Altria conference call. Altria was in the process of buying back some of the expensive debt they'd issued in the crisis to buy UST. Winters started congratulating them profusely on their savvy move and the CFO mumbled something, obviously thinking to himself "does this guy not realize that we're having to pay substantial premiums (based on current US Treasury yields) to get this debt back in?"

Back to hindsight....in 2011 BRK would've paid no more than ~$120,000/ share on the buybacks. While cash was increasing, investments, and acquisitions, (and the hope that one of the best companies in the world would continue to grow) why not pay a premium to buy back more stock? Short-term this might have been not the wisest decision, but again, hindsight, in the time since (past 3 years) the purchase would've made us more money as the price has almost doubled. Which is my question - I, like most of you, will be a net buyer of stock for many many years, wanting prices to languish for these years so I can increase my holdings. Since I'm not looking to cash out my stock around 2-3 decades from now to support my living and giving needs, is it not an OK decision to buy at the premium instead of waiting weeks/ months/ years for the price to fall to an adequate level (110-120% of BV)?? Or do you just stock pile cash and wait until price is within the range of value? We could've sat on our hands the past 3 years waiting for BRK to get to the 120% BV range, all the while the stock price has increased 80% and BV has 40%. I know this isn't the right way of thinking about it. Please correct me. Thx, FC I think you describe a "right way of thinking" - :D Discount to intrinsic value has a time dimension. And where I am dealing with businesses with high predictability (operations, management, capital policy) I'm perfectly happy to pay up a "few months" so to speak. Say you overpay 5% for a business you expect to return 15% per year for the next 40 years of your life. So what! You're better of making sure you buy it and then those 4 months you overpaid...well...go to the gym, eat healthy, try and get those 4months back in life expectancy ;D