Rabbitisrich
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Posts posted by Rabbitisrich
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http://news.cnet.com/8301-1001_3-10390830-92.html
"In pure dollar terms, Dell was far and away the leader in receiving Intel's largess," the complaint alleges. "For example, over the four-year period from February 2002 to January 2007, it received approximately $6 billion in 'rebates.'"
"In 2006, Dell received approximately $1.9 billion in rebates from Dell, and in two quarterly periods of that year, rebate payments exceeded reported net income. From February to April of 2006, rebates ($805 million) amounted to 104 percent of net income ($776 million). The following 3 months, between May and July of 2006, the proportion was even higher, 116 percent ($554 million of rebates and $480 million in net income)."
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Kawikaho, do you mean that you only liked the BNI investment? Y has most of their holdings, in dollar terms, in energy companies.
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The business model has been broken for Moody's; their moat was based on trust and credibility to demand outsized margins in a market where a few suppliers could be trusted enough to evaluate and grade securities traded in the aftermarket. This isn't the Salad Oil scandal -- http://en.wikipedia.org/wiki/Salad_oil_scandal. When American Express lost money in that swindle, the biz model was still intact and in 1963 the Buffett Partnership put 40% of its assets into that fat pitch.
The bet on Moody's has changed and a permanent capital loss has been incurred. Ergo, don't lose more capital and salvage what you can -- see Rule#1 in investing.
-O
Does anyone care to speculate where Buffett is going with this. Is he planning on selling all shares or simply getting down to a smaller number?
While Berkshire has trimmed positions in the past in order to maintain a basic level of liquidity, it seems like he's sold enough at this point that this is a pull-out.
I don't think that the moat relied upon trust and reliability. Moody's, S&P, and Fitch provided communication assistance; users could attach a rating to a security as a shorthand for relative performance. I don't think you will find many pension fund managers who actually believed that the ratings agencies provided thorough due diligence.
It's kind of like the FICO score. No one in finance thinks it replaces analysis, but it provides a standardized shorthand for less rigorously formed notions of quality. A bull market can stimulate activity to the point that the users only use the shorthand because they drank the kool-aid or they planned on passing the buck.
I'm curious to see what will happen with the ratings system. Moody's might not survive, but it doesn't mean that it's replacement will be any better.
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http://nymag.com/news/businessfinance/47178/
In a word, Mr. Paris sees ever worsening cycles that go something like this: a credit crunch that leads to a recession, which leads to reflation of the monetary supply to pump up the economy, leading to even higher inflation leading to controls, leading to a burst of superinflation when the controls are lifted, leading to an even more severe credit crunch to try to restrain the inflation, leading to an even more severe recession, leading to even more massive reflation (like a big tax cut) . . . and so on, ad disastrum. His book was written a year ago and "So far," he notes gleelessly, "things seem to be right on schedule."
As you would expect, Paris, a Chicago-based officer in the investment firm of Spencer, Trask, thinks this is the time to aim for survival rather than capital maximization. He suggests dividing your $10,000 among "cash equivalents," like Treasury bills or savings accounts (that can be quickly converted to cash); gold coins, like the South African Kruger Rand (which gold enthusiasts agree are more practical for the little investor than investing in gold itself); and stocks in gold-mining companies. Or, if you are trying to maximize capital, he suggests buying only high-quality stocks to try to catch what he expects will be the temporary updrafts in the market. "You had some great rallies in the thirties," says he.
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The Icici Lombard site has an article about changes in the tax laws: http://www.icicilombard.com/app/ilom-en/ICICI-Lombard-news.aspx?rssID=73292.
Sandeep Bakshi also left the firm in April to join ICICI Bank's rural banking division. That, along with the government's emphasis on rural investment and ICICI Lombard's increasing focus on public insurance, might raise fears that rural underwriting will be unprofitable.
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From Bloomberg: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avPkq5Rq.Q9s
A TPG Credit Management LP fund offered Oct. 9 to buy $115 million of bank trust preferred securities for 5 cents on the dollar from Tropic CDO V Ltd., according to a trustee report obtained by Bloomberg News. TPG Credit will pay holders of so- called equity portions another $5.75 million to allow the sale, the document says. Equity holders have the right to decide which assets the CDO sells because they’re first in line for losses.
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Great job, Tariq. Your interviewee provided some really great responses. Is that really how the guy talks in a normal conversation? I have to sit down and organize my thoughts to write like that.
His comments about CRE are especially interesting:
CRE is an interesting animal. 1. There’s a lot of weird accounting 2. The structure of the loan itself. So there are these mini-perm loans for example where on the third or fifth year, the principle balance of the loan is due. A lot of these loans were made between 2005-2007. You still have 2009-2011 where things will come due. But a lot of these mini perm loans get extended out a year. So instead of going to non-performing they just get extended out and to all of us we continue to think they are performing.
A lot of the failed banks had 2-4% delinquencies in CRE and then a quarter later delinquencies shot up to 30%!. So you don’t really see that in other categories as the increase is gradual Q/Q.
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Good point FlyingArrow. I haven't shed my major positions, but I have had more short-term froth than usual. It brings up an interesting question of what to do with your tax reserves. I've had between 5%-8% my portfolio in a business checking account collecting less than 1.5% apr.
Oec2000, the only reason I avoided BCE is that a friend who works as a financials analyst warned me to stay away from ANY high leverage deals. The KPMG solvency opinion came out of left field and demonstrated more convenience than intelligence.
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AIG, Bank of Granite, Geico--you can be sure that Buffett appreciates the value of a good successor!
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Great, thanks.
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Luck helped my performance. Pure luck allowed for certain arbitrage and special situations to close around February of this year. When March came around, I held mostly cash--helped of course by the collapse of my equities--so I doubled and tripled down on the companies I held from 2008: KMX, AN, CBS, DIN, MHK, FFH, MCF, ATPG, WFC, NARA, and groups of net-nets and riskier stocks.
It's too soon to write the book on my performance, however, since I note that my portfolio improved indiscriminately. On the other hand, I learned the value of targeting viable business models weighed down by fears of debt rollover.
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Like you, I couldn't find information about CapGrowth. The claim reads like a group of lawyers hoping for a settlement using the ambiguity of "material disclosures" as a basis for the suit.
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Thomas Brown of Bankstocks argued that the charge-offs to loan reserve ratio had no meaning due to variations in accounting treatment. Can the analyst describe a better criteria for measuring loan reserve adequacy?
Also, how long does a branch have to operate in an area before it's efficiency ratio normalizes?
Thanks Tariq.
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Fair point. But:
The Beijing-based search engine (whose name means "hundreds of times," after a line in an 800-year-old poem) maintains an astounding 70 percent market share. California-based Google trails far behind, with only about 25 percent. As China now has the world's largest (and fastest-growing) Internet community, with 338 million users, market dominance means a whole lot of profit, both now and in the future.
The business world has cottoned on. Baidu's price-to-earnings ratio, a good way to gauge investors' expectations for growth, is double Google's. (Baidu has been listed on the NASDAQ stock exchange since August 2005.) This is in part because China's Internet saturation is only about 25 percent, compared with more than 75 percent on average in OECD countries, like the United States. Meanwhile, Baidu's net income is increasing wildly: 40 percent year-on-year, compared with 18 percent for Google. Every indication points to fast growth and lucrative profit.
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" law of large numbers are beginning to work against him"
If this is true why did the Russell 2000 index (presumably an index of 2000 small to mid cap cap stocks) underperform Berkshire B shares from 12/31/98 to 12/31/08, a ten year period by a factor of 2 according to Yahoo
I am kinda confused .
Why do you think a index, which is proportionate collection of all 2000 businesses should be compared to BRK-B as far as law of large number is concerned? If there are two investment companies having similar skills for capital allocation then we can say that smaller one has better chance due to law of large numbers working against the bigger one. But we can't say that total world index has xyz Trillion capitalization and BRK-B has outperformed the index so law of large number doesn't seems to work against BRK. We need to compare performance of BRK when it had very small capital to work with and performance of later years when it has lot more capital. If performance is similar then we can say law of large number is not affecting it so far.
If you meant it is still doing better than index in rolling 10 year period then that is true but we can't use it to argue that law of large number is not catching up with BRK.
Personally I think ,its difficult( nearly impossible) to produce earlier performance as BRK keeps growing but it will still do decent on risk adjusted basis. Buffet got the oppurtunity to deploy huge cash recently but as it gets bigger it will become increasingly difficult to deploy the cash with high returns.
It's one thing to say that size will increasingly weigh on Berkshire's performance, but it's another thing to predict the actual future performance. When you beat the S&P by more than 10% a year, you have room to slow down without actually being slow.
One thing we should also keep in mind is Munger's statement that Brk's capabilities in the 70's wouldn't have sufficed in the 80's, nor the 80's the 90's, etc... In as much as the performance from the 90's were juiced by the doubling productivity growth rate, the 00's were subdued by excessive liquidity, and by private equity and hedge fund "competition" (although it turns out that they were playing a different game called drinking the kool-aid). In this period of deep uncertainty, Berkshire might surprise people in the 2010's, for better or for worse.
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Here's a nice article by Foreign Policy magazine:
http://www.foreignpolicy.com/articles/2009/09/29/where_google_loses
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At $5M, YTM probably isn't a priority. Fairfax is likely forming a relationship with a management team Prem likes in a visionary industry, in my speculative opinion.
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Sounds like a good weekend listen, thanks!
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California borrowed $8.8 billion, selling notes at yields of 1.5 percent and 1.25 percent, which will be paid off by the end of its fiscal year that began July 1.
My God, the yields are very low on an absolute basis!
That's still a pretty hefty spread from 1 year treasuries, which, at the time, yielded less than 0.5%.
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Here's a link to an interesting article on rating agencies with a description of the Canadian rating agency, DBRS.
"Rating Agencies at the Crossroads," http://www.theglobeandmail.com/report-on-business/crash-and-recovery/ratings-agencies-at-the-crossroads/article1287567/
There's also a quote from Paul Rivett of Fairfax in the article:
“A good way to do it, and a fair way to do it, would be to have investors who use their services – research and ratings – pay for it,” says Paul Rivett, a spokesman for Fairfax Financial Holdings Ltd. “If [the agency is] not good and the analysis is not sound, no one's going to pay.”
I found the article via a Zerohedge post on ratings agencies and Canadian public pension funds: http://www.zerohedge.com/article/rating-public-pension-funds
The user-pay model seems like it could be circumvented by intermediaries. If PG&E, for example, wants to issue debt, then Goldman Sachs can act as the initial purchaser, contingent upon the receipt of a satisfactory rating. In this case, satisfactory implies a rating that allows GS to resell the securities at a slight premium.
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Good recommendations. It looks like Amazon will swallow more of my money this winter.
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DCollon, thanks for introducing me to Atul Gawande. I woke up almost an hour ago but I'm still in my boxers reading his essays. What a compelling essayist!
"The Itch" makes for a fascinating morning read.
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You can't say that you understand value investing until you've read Manga Warren Buffett.
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Partner24, the key to the puzzle is that the presenter always follows your guess by opening a door with a goat. If he opened a door at random, and it happened to be a door with a goat, then you have a 50-50 chance of selecting the car, and therefore receive no benefit from switching your answer.
Also, I should have made this clearer, the host will always pick a door different from your first pick. Otherwise, there would be no point in asking whether to stay or switch.
Fairfax B shares?
in Fairfax Financial
Posted
I agree with the tone of the last few posters. The risk of Berkshire attracting "Mad Money" types will decrease with the company's CAGR. Going forward, Berkshire will probably beat the pants of the S&P in risk adjusted terms, with more modest nominal results. That alone should chase away many speculators.