Rabbitisrich
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Posts posted by Rabbitisrich
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By the way, in light of WEB's article in Fortune, where he talks about he dislikes "currency-based investments," do people still really believe that WEB was not counting on there being value in the equity of BAC greater than $7.14 when he made his preferred investment at a 6% rate?
That was interesting, especially when you could have synthesized something similar to Buffett's investment during the subsequent price collapse. Of course, if BAC fully works out, then in a few years you will hear complaints about Buffett's "guaranteed investments".
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Has Buffett ever hinted at his sources on housing? He mentioned, in an interview last year, that he believed that inventory levels were overstated. Tom Lawler puts out some great articles through Calculated Risk, but his discussions about overstated inventory also presaged the downward adjustments to historical existing home sales.
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http://dl.dropbox.com/u/60381306/120201%20-%20Case%20Study%20I%20%28With%20Disclaimers%29.pdf
Updated Berkowitz case study of BAC, he's thinking fair value around $20
Thanks for the link. I didn't know that Berkowitz had updated his presentation. I think, at this point, the market is looking past non-litigious loss reserves, but there still seems to be excessive penalization for non-interest expenses. The efficiency ratio won't stay at 85% forever.
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What I don't understand about Fairholme funds investors is that Berkowitz doesn't take on a lot of leverage so you don't benefit from ultra-low rates; he doesn't focus on exotic securities or high transaction cost investments; and his expected holding period is long enough to simply cherry pick from his investor letters.
One major benefit to being a shareholder is that Berkowitz will stomach the volatility and maintain discpline in your stead. So if a shareholder pulls out when NAV implies a reasonable probability of bankruptcies, then what exactly was the point of investing with Berkowitz? It makes no sense!
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FERGUSON: Well, certainly Japan is a terrible warning to the United States, that you can get into an awful equilibrium of very, very low growth and an inexorably growing debt mountain. And that is not where the U.S. wants to go. There are various forces in [the United States'] favor. It's socially not Japan. It's demographically not Japan. And I sense also that the Fed is very determined not to be the Bank of Japan. Ben Bernanke's most recent comments and actions tell you that they are going to do whatever they can to avoid the deflation or zero inflation story. The U.K. is actually ahead here. If the game is to quietly give bondholders negative returns without awakening public fears of inflation, the U.K. is doing pretty well. We clearly are more likely in the U.S. to go down the U.K. route than the Japan route.
The National Institute of Population and Social Security Research projects a japanese population of 89.9 M by 2055 compared to about 128 M in 2011. That is borderline Children of Man, and it takes the population back to 1955 levels.
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View the world with skepticism, because that is what makes the value investor different than just any other investor. But hold fast to the credence of buying investments that are undervalued and provide a margin of safety. You toss that away because of macro views and you may be making a significant long-term mistake. None of us are buying the market! Cheers!
In practice there isn't much distinction between a macro view and a fundamental view, particularly when you talk about giants like WFC with trillion $ assets and 240K+ employees. Buffett's wrong assessment of the housing bubble and consumer spending in 2006 led to purchases of WFC in the mid $30s. His view on the elasticity of oil demand in 2008 resulted in the COP buy. I'm actually fully long with a heavy bias towards financials, but it's important to constantly remind oneself of the downsides, especially when the market is cheering you.
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As a cautionary note, I recall the board being rather aggressive during the downturn as demonstrated by the "What Did Everyone Buy Today" thread. Much of the outperformance YTD has to do with averaging down during the panic period, rather than "proving" correct about macro uncertainties.
This post too falls under the conjecture bucket for me. Who's to say the day we posted the "What did everyone buy today" thread was not going to be the day stocks bottomed? The fact that stocks panicked further and we had to average down is only a testament to the fact that nobody really knows when the bottom is in. Our jobs are to buy securities when they fall below our assessment of intrinsic value, and historically, the best time to do so are during major down days. Macro should be disregarded, if enough margin of safety is presented by Mr. Market.
Maybe there is more pain to come this year, but the fact that in 30 days most equities discussed on this board have risen by 30-50% indicates that they were severely undervalued.
There was no conjecture and nothing predicted. My point is to argue against the logic of your last statement, which implies that price movements over a short term "prove" investment theses. That many people on the board have made money does not "prove" diddly about Europe, China, or whatever is the latest macro fear bunny. PlanMaestro and Uccmal noted fundamental improvements in the BAC story, but those improvements have been in process since the 2nd half of 2010 despite volatile swings, which is exactly the point that I seem to be communicating poorly.
Higher portfolio values feel better, but they shouldn't be used to validate an investment thesis anymore than the opposite case disproves it.
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I think he started believing his press clippings and didn't do the hard research necessary to check out the reserves on those too big to fail banks. I finally bit the bullet and after 4-5 years and sold my position at a loss. I had hoped he was he one I could put my kids into.
Oh well maybe Chou's funds. It's up slightly (less than 1%)
What makes you say that? If anything loan portfolio developments since 2010 have validated his thesis (so far).
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As a cautionary note, I recall the board being rather aggressive during the downturn as demonstrated by the "What Did Everyone Buy Today" thread. Much of the outperformance YTD has to do with averaging down during the panic period, rather than "proving" correct about macro uncertainties.
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Well its been nearly 2 months since the majority of this board felt the world was going to hell and a hand basket. We are printing money here at XXXX XXX Capital, LLC (Almost slipped and told ya :) up nearly 22% in the value funds and 7% in our resource funds.
Some investors that are definitely doing well are probably Ericopoloy, and Parsad who were as bullish as I was all through the August-December period. I can't imagine Bmichaud or Munger are doing that great...
Would love to hear and see how some have positioned themselves. Were still totally long, not taking a cent off the table.
We still had a chunk of cash, but all the positions we took are up about 18-20%+ since the middle of December. Our financial equity positions have made up for more than the losses on the original warrants we bought earlier in the year. OSTK is the only thing still keeping us from going above our high watermark from June. Hopefully, they've been working on turning around revenues and that changes after the 4th Q and 1st Q reports come out.
We have alot of cash from ideas that weren't long-term positions and went up alot. Also, we sold our Winn-Dixie position when it was bought out. I think things will get very choppy again through the year and we have plenty of liquidity. Have not and will not sell a single share in BAC or WFC. Cheers!
Agreed on the banks, particularly WFC. The market isn't pricing in the gradual normalization of the payout ratio. Also, NIM contraction is dominating the conversation without actually looking at the difference in volatility between NIMs and ROEs.
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Ericopoly, I think the point that you are missing is a critical differentiator between capitalism and other forms of government. Coercion is magic. When a communist government mandates roles via bureaucratic shuffling, coercion spontaneously appears. It evaporates in a free market because a free market is never coercive due to the name by which it is called. So when a young black child grows up in a ghetto and is given certain role models and pushed through certain economies, he is making a choice to develop into whatever he develops into. The same thing happens when a young white child of two PHDs grows up in Los Angeles and attends Harvard Westlake. Choice and free will.
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OT, but didn't Buffett have an assistant who left to start a money management firm? I believe that he even registered with the SEC at an Omaha location? Has anyone kept up with his progress?
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If you've ever sold real estate, or any other illiquid asset, you would appreciate the value of paper-pushers. Multiple bidders offer something worthwhile, and a seller doesn't care whether the bidders are grimacing or smiling to work.
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On the question of corporate culture (including underwriting and risk management) I think that you have to make a sort of top down judgement. The last CEO has been widely lampooned as a doofus, even pilloried by Buffett in the promotion of "Too Big To Fail"; executives were called to congress and fcic meetings; the media scrounged for any sign of excess; Basel III and Dodd-Frank forced profit center managers to avoid risk and volatility; and rules of thumb regarding collateral (housing moves up and doesn't greatly affect CRE collateral) imploded. The recession slapped handcuffs on the optimists.
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You know what they say: Those that can, do, and those that can't, teach!
Cheers!
Yeah, even his screw ups regarding dividend foreshadowing and equity issuances have been satisfactorily explained by increased Fed sentiment re: EZ.
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Does anyone know where I can find the percentage of itunes purchases/users on windows?
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It's difficult for me to see how it wasn't an insider trade. If the crux of your defense rests upon the notion that the CEO merely suggested the possibility and size of an equity issuance, but didn't commit to an exact date, then you probably did something wrong. Investors can make money from knowing the likely size of dividend/buyback changes before the fact.
The fact that the CEO provided the scale of issuance, particularly following concrete action to monetize pubs, suggested that likely=certain.
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Okay, and thanks for the link.
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Can someone attach a copy of Berkshire's letters in a single pdf? I'm pretty sure that I saw a file that included the 2010 letter.
If not, then I would appreciate a recommendation for a pdf joiner.
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When Whitman threw in the towel he basically said that he didn't realize he was dealing with toxic management and that was what broke his thesis.
"We have interviewed the MBIA people up the kazoo and I am convinced they are utterly responsible, diligent underwriters, and the probabilities are they've done a terrific job," Whitman said.
http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304
Whitman got the monolines completely wrong as exemplified by the ACA Holdings investment. Keep in mind that, unlike Berkowitz, Whitman's thesis actually relied upon Brown and Dunton being strong financial underwriters. Whitman's responses to Ackman never strayed from ad hominem, and he seemed to treat the idea of ratings downgrades as "poor form". I don't remember him speaking up when Brown tried to keep the proceeds of a 2008 equity raise at the holding company, an action that caused the hapless Eric Dinallo to complain, "I thought that we had an understanding."
A lot of big ego talking here too:
"The analysts -- Ackman and all the others -- have no background in distressed securities," Whitman said.
http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304
Yeah, it was an odd display. If you just read his shareholder letters he is a font of good ideas and sober analysis. Then Ackman challenges his thesis and suddenly he throws his name around.
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Whitman also was pounding the drum on MBIA back when Ackman was shorting it. We know who won that one
From a price only perspective of MBIA - this is true. However, I am of the belief that once the lawyers and the judges got involved with MBIA then the law changed which flipped the analysis. In the end, we are in the probability business, not the certainty business. One could fault Whitman on this specific case, but much like John Bogle, he has been a steward of the mutual fund industry.
Cheers
JEast
sorry if you want to be a "steward" you better have lower fees than he does.
Yeah I wouldn't put him anywhere near the same class as Bogle. Vanguard is shareholder owned, I don't think third avenue is. Plus they have rock bottom fees, are one of the largest in the industry, plus Bogle talks out about all sorts of abuses and excess, I haven't heard Whitman do that. Bogle is a constant advocate for the individual investor. I don't know what happened in this case exactly but I read a reasonable amount by Whitman and Ackman. When Whitman threw in the towel he basically said that he didn't realize he was dealing with toxic management and that was what broke his thesis.
That is a bit of revisionism on Whitman's part. His original thesis anticipated excess funds in the case of a runoff. He characterized the 2008 equity as an excess of caution measure intended to pacify the ratings agencies. If you go back to a 1Q08 Third Avenue shareholder letter, his analysis consisted of slicing MBIA CDOs into senior and junior tranches, assuming respective default rates, and then calculating the present value. There was a major assumption that the tranches receive their payments in a vanilla, intuitive fashion and that ratings downgrades do not affect liquidity through forced settlement or collateral calls.
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When Whitman threw in the towel he basically said that he didn't realize he was dealing with toxic management and that was what broke his thesis.
"We have interviewed the MBIA people up the kazoo and I am convinced they are utterly responsible, diligent underwriters, and the probabilities are they've done a terrific job," Whitman said.
http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304
Whitman got the monolines completely wrong as exemplified by the ACA Holdings investment. Keep in mind that, unlike Berkowitz, Whitman's thesis actually relied upon Brown and Dunton being strong financial underwriters. Whitman's responses to Ackman never strayed from ad hominem, and he seemed to treat the idea of ratings downgrades as "poor form". I don't remember him speaking up when Brown tried to keep the proceeds of a 2008 equity raise at the holding company, an action that caused the hapless Eric Dinallo to complain, "I thought that we had an understanding."
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Ericopoly, I don't think that destroyed units are surveyed. Calculated Risk compares year to year changes in housing stock surveys (ACS or CPS/HVS) to Census surveys of new home completions. The difference is the implied units destroyed.
http://www.calculatedriskblog.com/2011/12/american-community-survey-and-total.html
The link above discusses a problem with the ACS survey (CR and Tom Lawler have posted about problems with the CPS/HVS):
However, in April 2010, the decennial Census showed significantly more housing units than the ACS had captured (obviously a negative 1.15 million homes weren't demolished in early 2010!) The decennial Census data itself seems a little off since it suggests only about 645 thousand housing units were demolished during the decade (that would be very low). Most estimates are demolitions are in the 200 to 300 thousand per year range (so the ACS seemed reasonable through the first 9 year of the decade).
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LOL EXACTLY PARSAD ITS ZERO......
And I had this same argument with one of our LP's who has $5 million with Kynikos, hes had that $5 million with him since 1999.
Are you saying that the principal didn't budge over 12 years? What is your LP's reasoning for staying in the fund versus a simple hedging strategy?
Warren Buffett: Baptist and Bootlegger
in Berkshire Hathaway
Posted
Thanks for the link. The article is a good summary of Buffett's maneuverings, but it finds evidence of "crony capitalism" as if the summary proved the case. Any accusation of crony capitalism should, at least, provide a method for distinguishing self-interest from national interest. In this case, there should have been an argument that Buffett's proposals were NOT in the nation's interest. Instead, the author writes:
The bootlegger’s interest does not necessarily mean the Baptist’s ideas are wrong. The Treasury Department considered Buffett’s proposal, but with Paulson leaving at the end of President George W. Bush’s term, it would fall to the incoming secretary, Tim Geithner, to act on it. Geithner tweaked the plan and announced the Public-Private Investment Program in March 2009. It was largely seen as a boon to banks, especially large banks with a lot of bad debt.
The author also claims a parallel between David Sokol and Lubrizol and Buffett and the Public-Private Investment Fund. But Sokol misrepresented his position to the investment bank and to Berkshire, whereas Buffett did not. Or, as the author explains:
After the bailout bill passed, Warren Buffett sat down and wrote Treasury Secretary Paulson a four-page letter proposing a larger solution to the financial crisis: a quasi-private fund backed by the U.S. government that would buy bad loans and other rapidly sinking investments. He proposed that for every $10 billion put up by the private sector, the federal government would kick in $40 billion. As Paulson put it in his memoir, “I knew, of course, that as an investor in financial institutions, including Wells Fargo and Goldman Sachs, Warren had a vested interest in the idea.”
The descriptive aspect of the article is good, but the argument can be summed as anyone who benefits from a public policy should never support such a policy.