bargainman

Speaking of reinvestment, one comment that WEB made was that the capital investments in Burlington and the utilities was greater than depreciation, then he waxed poetic about doing good for society. I guess I was curious about this. He didn't say anything about the maintenance capex vs new, but I must assume that if they are putting a lot of money towards capex, that maintenance capex must be smaller since he surely would not agree to invest unless the ROI on the new deployed capital was good. Any thoughts on this?

The one wet blanket to all this talk of accelerating cycles and innovation is energy. Gates talked about it recently and it sounds like the problems are just not like the tech sector. In part because of regulation and infrastructure, but also just the scientific challenges and underfunding.: http://www.smartplanet.com/blog/smart-takes/bill-gates-us-energy-research-underfunded/23521

A better faster calculator that can be used for massively more interesting and useful purposes, in a much cheaper fashion than before. For an example take a look at this TED talk: Moores law for genetics. Soon we'll be able to sequence our genomes for a pittance. And by soon I mean within the decade or sooner. With regards to combusting to become a living being? That's a tough one. There are several theories on that. I think Ray Kurzweil thinks that it's all about the number of connections, and theorizes that computers will have the same number of connections as the brain sometime around 2035 if i remember correctly. Also worth reading is this: http://singinst.org/overview/whatisthesingularity/ But there's someone else who thinks Kurzeil radically underestimates the number of connections needed. I'm really not sure whether there will be a singularity or not. The reality is that today 'greater than human intelligence' already exists IMO. Think about how smart someone with a computer is vs without. Think about how smart someone who has access to the latest technology of any sort is vs someone like this: http://thecnnfreedomproject.blogs.cnn.com/2012/02/13/hope-for-vietnams-children-of-the-dump/?hpt=hp_c1 Today we've already seen years of exponentially growing intelligence. Computers are designed with computers. Then those new computers are used to design the next breed, which leads to exponential advancement. So there are two forces that pull on eachother I think. The people who have access to technology get smarter and design better technology and pull away from the 'have nots'. But then there's the other effect where things keep getting cheaper and more accessible to everyone, preventing the 'have's' from pulling away too far. Think of how cheap it is today for someone to have a smart phone which has more tech in it than mainframes did maybe 50 years ago! But the pace keeps increasing. There are things like this: basically 3d printing is becoming more and more accessible, even for biological tissue. There's also talk that some company has figured out how to take your cells and convert them back to the precursor to stem cells (pluripotent stem cells) with full telomeres in place (resetting the time clock basically) http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2011/02/28/want-a-new-cardiovascular-system.aspx So people may not need stem cell donors they may be able to reuse their own cells. Lots of stuff to be both excited about and fearful of as well! But as someone else pointed out the food vs growing population part is a bit scary. It sounds like yields are no long increasing at the same rate as before, and top soil continues to be depleted.. Not sure how much further technology can help there..

My strategy has two key features that I like: 1) you can move up the strike price of the hedge as the share price rises (you can sell the original hedge to harvest some of the value) 2) tax advantages (if this becomes a long term holding you don't get to take a tax loss on the call option volatility premium until you sell). But the put premium can be deducted as soon as it expires (or you sell it) Scenario (call): 1) You bought the $5 strike 2014 call in December when it was trading for $2. 2) Stock moves to $10 and you want to move up the strike price of your hedge? Can't do it. Scenario (margin+put) 1) You buy the common with margin at $5 per share in December and the put costs you $2 to hedge 2) Stock moves up to $10 and you want to move up the strike price? 3) Answer: Buy the $10 put and sell the original $5 put Well in the call scenario you change the hedge by selling the 5 strike calls and buying the 10 strike calls. it's just put call equivalence after all. Anything you can do with puts one way you can do with calls the other. But the tax advantages are the real difference. If you sold the calls to a higher strike you'd get hit with taxes. No great way around that. (other than buying puts at that stage...)

This is one of the most interesting parts: "The settlement, if all states participate, will also include $3 billion to lower the rates of mortgage holders who are current." Everything so far has been to try and help the people who are foreclosed on or close to foreclosure. (in many cases because they shouldn't have bought that expensive a house in the first place!). I've been reading a little here and there about this deal potentially allowing people who are current and underwater to refinance. That would allow a whole new neglected demographic to refi (arguable a more responsible demographic). But it also sounds like that deal would be DOA in congress. (Not sure if that is the same as this deal Parsad linked to) http://www.washingtonpost.com/business/economy/obama-to-announce-new-housing-refinance-plan/2012/02/01/gIQAw8YghQ_story.html "almost anyone who has a credit score above 580 and has been paying his or her monthly mortgage bill on time for the past six months be able to refinance.... Christopher Mayer, an economics professor at Columbia who has gained attention for his mortgage proposals, said he’s “a big fan of what the president has proposed for refinancing government-guaranteed mortgages. . . . The program really says for the first time everybody is eligible.”"

Yup this is his own fault for not closing the fund to outside investors when he had the chance. I wonder if he'll learn his lesson and close it next time he has a good run. Or maybe he'll switch to JOE and make a deal with Eddie to close up shop at Fairholme. He still has a lot of money though. Still about as big as YACKX for example... As a shareholder I'm kind of upset by his refusal to close up shop back in the day...

Sanjeev, I find this amusing coming from a sterling hedge fund manager as yourself. We all know that great managers can suffer terrible years, but it doesn't make them bad managers, and they aren't worth firing just cause of a bad year or two (especially in the investing world where a lot of returns over short term time horizons can be luck) :-). I generally agree with the philosophy of honest and fairness though, but as tombgrt alluded to, it sounds like Pattison practiced it with a bit too much rigidity for my taste. Jack Welch did something similar with GE (and many companies now follow his practice or a variation of it). He famously forced everyone to identify the lowest 10% every year. Most of the time the low performers left on their own accord, or were place on a 'performance improvement plan, so he said. As tombgrt pointed out, everyone has rough days, months, years. You don't throw out a star just cause he's had a bad streak. But what do I know about car sales? :-) And maybe car sales aren't anywhere as random as investment results can be in the short term.. I guess if you get really good with the closing techniques maybe it's easy to perform at a high level all the time...

Speaking of Target and Walmart I think this has been posted before, but it's an interesting visualization of their growth over the years: http://projects.flowingdata.com/walmart/ http://projects.flowingdata.com/target/ also one for costco http://projects.flowingdata.com/costco/ Walmart: How many stores does Walmart have? Walmart reports unit counts each month and the most recent can be found by clicking here. At the end of fiscal year 2010 Walmart has over 4,300 stores and clubs in the U.S., and more than 8,400 units worldwide. Target: Today, Target operates nearly 1,750 stores in 49 states, including more than 240 SuperTarget® stores that include an upscale grocery shopping experience Costco: As of September 3, 2010, Costco has 572 warehouses Sears: There are 870 full-size Sears stores in the U.S. and 188 in Canada Kmart: As of January 29, 2011, Kmart operated a total of 1,307 (6 closing by early 2011) Kmart stores across 49 states, Guam, Puerto Rico, and the U.S. Virgin Island

IIRC Pattison had the reputation of firing his lowest grossing car salesman every month at his dealerships regardless of their past history. Like Buffett, just cause he's charming doesn't make him any less of a shark :-)

2 things to consider - Eddie is an insider, and knew about the lousy performance coming up, so maybe he couldn't sell. - SHLD's float is small and has been shrinking, and Eddie owns most of SHLD, so who's he going to sell to? Selling AZO might have been his only option. Although I suppose he could have distributed SHLD shares 'in kind', since it sounds like that's what he did with AZO anyway..

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.

JEast, Whitman also was pounding the drum on MBIA back when Ackman was shorting it. We know who won that one.... Just pointing out he's been wrong before.... (as we all have :-) )

I have been saying this for 2 years.... Because... he doesn't know!!!! He knew when he bought it.. he was going to liquidate.. then he realized he didn't want the firing of several hundred thousand employees and their families on his hands/conscience, so he changed his mind. Then he approached it in a data centric logical sort of way and said he would try a different thing in every store and see what worked, look at the data, and replicate the things that worked and kill the things that didn't. But from what I read the execution was lacking.. Hence it was a case of garbage in garbage out on the data. Then he got that biggest financial crisis and credit crisis and real estate crash since the great depression on his hands. Then he kept not investing in the stores which made the business and the business's reputation deteriorate... He's smart but he's no oracle. I'm sure he has some general plan, but I'm sure it's fluid.. and when your plan is fluid sometimes it's better not to communicate it lest you get a cognitive bias, the same reason Pabrai doesn't discuss his investments... The other thing about that Buffett quote... “When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” It doesn't quite apply since Lampert never had a reputation for brilliance when it comes to management, just investment. That's a whole different ballgame.

Are you sure about this? Since I own some shares, everytime I want something related to tools or appliances I always check out Sears, and invariably I can find the same thing elsewhere cheaper, sometimes significantly so and sometimes with better terms. For example I was looking for a deep freezer, and found one cheaper at Costco with it's fabulous no questions asked return policy. Every time I've read Lampert's letter, I remember him talking about how they don't want to compete on service and the overall experience, not price. With Walmart, Amazon, Home Depot, and Costco competing on price, I'm not sure what else they are going to compete on. Target kind of competes on price and convenience.. Not sure about others...

On my bought shares I participate in Interactive Brokers' "Stock yield enhancement" program which gives me some money for lending my shares out. I'm not sure if it's enough to offset the advantage of doing a synthetic long, but it's something. Also I'm not sure if anyone saw this analysis, but would appreciate comments. They supposedly take the real estate and assets into account, and still come up with $6/share target. According to them it's the deteriorating cash flow plus the pension liabilities. http://notablecalls.blogspot.com/2011/12/sears-holdings-nyseshld-worth-6.html Sorry if that's been posted already, I haven't worked my way through all the SHLD threads just yet :-)

This article seems strangely relevant... http://www.mnn.com/green-tech/transportation/blogs/supercars-and-the-dictators-who-love-them

"Isaacson writes that after helping choose the name Lisa, Jobs refused to acknowledge paternity for years, even after a court-ordered DNA test proved he was the father." wrt employees it wasn't anything they did, it was Jobs. That was who he was.

Here's a simple solution that I haven't seen anywhere. Just let people who are underwater refinance. No mortgage forgiveness, just refi their current principle at today's rates. Banks wouldn't have to take a writedown cause they are still going to get the money back. I don't understand why banks don't do this today. I know someone who bought at the peak, put 20% down, took a 30 year fixed, and bought a house within their means, unlike a lot of others around them. Now the house dropped in value about 45%. The bank won't refinance unless they put another 20% equity (80% loan to value), meaning they would have to basically put almost another 40% down, on top of the original 20%, which they aren't going to do. But it's the same house on the books that's backing the loan so the reality is that it's not more risk since it's the same collateral before or after the refi. if the banks would just let people who are underwater refinance without forcing them to put down another 20-40% in equity their payments would go down significantly. The peak was around 2006-2007, so that would only add another 5 years to the loans if they were 30 year fixed... Or just refi at todays rate for 25 years instead of 30 without requiring a loan to book of 80% on a current property that already has a loan to book of 115%+! It seems like everyone out there wants to help the people who should not have been in their homes to begin with, just to keep them in! How about helping the responsible ones who got screwed even though they thought they were being responsible? And in the process not screwing anyone really!?

Sorry if I'm being dense but what does he mean by 'side pocket'?

I haven't seen this posted here yet: http://www.truth-out.org/goodbye-all-reflections-gop-operative-who-left-cult/1314907779 it's a very shocking view of what's going on, by a previous GOP guy who quit cause he couldn't take it anymore. How Obama was meant to get past this sort of stuff is pretty hard to see. But maybe if had better relationships it wouldn't have happened in the first place. I remember reading a book call "After the fact" on why some presidents were a lot more effective than others, even though it shouldn't seem like they should be. I think they used Jimmy Carter as an example. The main point was that presidents who had been around the legislature for a long time, had done people a lot of favors. As a result they had a lot of political capital coming into the presidency. As a result, those presidents tending to be rather effective, whereas the others did not. I guess it's just Cialdini's reciprocity principle.

The thing I'm confused about is how he repeats over and over again that their focus is combined ratios and profitable underwriting... However on this board everyone is constantly talking about how they are a mediocre insurance writing operation, and their real strength is the investing side. If I remember correctly their recent combined ratios have not been stellar. How do we reconcile what he says about their focus on underwriting profit, and their lack of underwriting profit?? Can someone more experienced w/ FFH explain this? thanks..

Take a look at M. Lewis's article on Greece, then decide if it was a political or cultural problem: http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

None of this is the point. Of course NFLX is still a good deal.. problem is that Reed has created the classic case of false scarcity. Anyone who has read Cialdini's book influence will recognize what he has done immediately. You don't give people something for free, and then take it away or charge for it.. Or if you do so you don't do it all at once in a massive big publicized move. Check out this page, about half way down: http://books.google.com/books?id=mTYj9XUlYvMC&lpg=PA246&ots=9Z9yAkbcmZ&dq=cialdini%20influence%20revolution&pg=PA257#v=onepage&q&f=false This sort of newly experienced scarcity is what caused revolutions. He should have known better.

Wow, this is really something. She's really something. I guess I hadn't done much research on her, but my earlier impression was that she had done a pretty good job at Autodesk, was that not the case? But boy this is the stupidest thing I've seen a CEO/ex CEO do in a while. WRT handling analysts and media, perhaps Nardelli or the guys over at ATPG could give her a run for her money :-P Also just saw this: http://finance.fortune.cnn.com/2011/09/08/carol-bartz-yahoo-disparagement/ Apparently she had a non-disparagment clause that could cost her 10 million, although rumor is that Yahoo won't act on it..

Packer, This is interesting. But I think that what you are saying in effect is that the standards that the president should be held to higher than the standards each and every congressperson should be held to. I guess I agree in principle that that higher office should have an exceedingly high standard wrt leadership ability. However there are 2 sides to each negotiation. Obama IMO has tried harder than the republicans to strike deals including more Republican principles. Now with regards to his effectiveness. What is frustrating is what you pointed out.. that clearly something 80%+ of the population is in favor of can not be passed. Why is that? Well you can either attribute that to Obama's ineffectiveness, or you can attribute it to the effectiveness of a small minority to control the agenda through tactics like fillibusters etc. I'm not sure if this is accurate: "Obama on the other hand developed a relationship with one senator so he could get 60 votes in the Senate. No outreach to anyone in the opposition until he was forced to with Boener and then only the minimal effort to appear to be working with him." I assume you've researched this more than I have though. I guess I don't keep up on the details of washington relationships, but given Obama's youth and inexperience, what you wrote would not surprise me. The thing that strikes me is that the climate seems very different than from the Reagan era. There was a great speech or write up a few months or a year ago by a long time congressman or senator. (I can't remember his name, but someone did post it here). He talked about how much things have changed since the Reagan era. He said back then that congressmen moved to DC and worked with eachother, and worked hard to govern, whereas now since the Newt(?)/Clinton time, all freshmen congressmen are forced to work the polls back home all the time to keep the party in power, the heck with governing! The speech had a lot of eye opening comments. Does anyone remember the link/speech I'm referring to? The other thing I found frustrating was the recent 'debate' where every candidate said they would not accept an increase in taxes even if it came bundled with a 10x or 12x decrease in spending. (I don't remember the exact ratio). I find that incredibly frustrating. I mean how is that fiscally conservative at all? It's frustrating that neither party is fiscally responsible. Even Reagan raised taxes. Anyway all I can say is that I hope things improve. It's hard to watch this circus over and over again... I must say I'm happy that we can discuss politics on this board with respect and a calm demeanor, something one can not say about the media in general and a lot of the internet. It says a lot about the quality of people on the board. Thanks to all of you, and Sanjeev of course!