bargainman

Yes. The last one was awesome. Small crowd and great speakers last year. They follow SNS, FFH and others. Mostly deep value, smaller cap. This year the speaker line up is different but it still sounds like a really good group.

Can someone walk me through the tender offer mechanics. I have some shares of ORH. I've been told that i would have to tell my broker that I want to tender my shares to FFH if I want to sell them. Now what happens if I don't tender them? Will FFH still end up buying them out? Presumably there will be some people who just have ORH and just aren't aware of the Tender offer or too lazy/busy to tell their brokers to do it. What happens to those shares? Thanks.

I'm really curious about Level 3. I've seen them mentioned on the board from time to time. although I can't seem to find many posts on the board now that I'm searching. What is the thesis on these guys? Looks like Longleaf and FFH are two major holders, and looks like they went from 100+ to a buck, but I don't know much else. Has anyone posted a more thorough investing thesis/valuation on them that I'm not seeing via search? Thanks!

The question I have, after reading more than half way through "Fooled By Randomness", is: Is Buffet's method for demonstrating the non-randomness really valid? In the book Taleb talks about survivorship bias, and how many times people aren't looking at the full sample set. In the article Buffet specifically only picked 7 *successful* managers. He never talks about all the managers that went through Graham's class and used his methods that were unsuccessful. If they were unsuccessful they never would have made it in the business and would have just dropped out. So that leaves me wondering. The first time I read Buffet's article I agreed with everything he said But this time I'm not so sure. According to Taleb you can't just look at the successful people and draw this conclusion. I mean there are a *lot* of Value funds out there. How many of them actually outperform? is it statistically more than other index and growth funds? Makes me wonder... Thoughts? Has anyone else out there read Taleb's book?

Here's a dumb exercise: just see what the top of the market cap is going to be 20 years from now. Say we take Exxon, which is about 300 billion in market cap. Say they grow at a rate of 5% a year. They'll end up being about 800 billion. If they grow at 10% they'll be 2,018 billion (2 trillion). So if BRK is about 150 billion today which is about 1/2 of Exxon, it's not unreasonable to think that they'll end up at 1 trillion in 20 years right? (very broadly speaking with hands waving all over the place :-) ) Still that's between a 5 and 10 bagger from today. Which isn't bad but won't make you rich. Now FFH has a market cap of 6 billion.. Say they are able to grow at 15% for the next 20 years. That would make them a 98 billion market cap company. Seeing that the higher end of the market cap range might be from 800 and up, that's not too unreasonable. That would be more than a 10 bagger, closer to a 20 bagger. Not bad again.. Now say we take SNS. MCD is about 59 billion, at 5% for 20 years it will be 156 billion. If SNS at 336 million market cap today grows at 15% for 20 years we're talking 5.4 billion, so again more than a 10 bagger closer to a 20 bagger. With a lot of room to grow still since that would be no where near the size of MCD even today. If Sardar pulls a 20% a year for 20 years a la Buffet and Peter Lynch SNS will be a 12.8 billion company. Again, not out of the realm of possibility even compared to MCD's valuation today... Speaking of FAIRX, he has about 9-10 billion in assets today. I'm not sure how much more he can take and keep beating the averages. I think that the largest mutual funds that are actively managed like Fid Magellan and Fid Contrafund are around 50 billion so that's at max a 5 bagger. Say Contrafund goes from 50 billion and grows say 7% a year, that would put it at a 200 billion fund. So if FAIRX got up to that it'd be at most a 20 bagger.. Of course at the way FAIRX keeps gathering assets I'm not sure they get to grow that fast from actual appreciation.. Anyway, like I said, lots of handwaving, but I like testing the boundaries of possibility.. Like back when we had the tech bubble and we had CSCO and MSFT trading way beyond those boundaries...

Say you were going to retire in 20 years. What 5-20 stocks/funds would you buy and hold/trade around during that time? Just curious what people here thing. A few reasonably obvious choices are: FFH, BRK, LUK, MKL, SNS. I've heard people say Bidvest too. Funds FAIRX, TAVFX.. any others? 20 years is a pretty long time for compounding to work it's magic.

There are many ways to interpret data. Even Jeremy Siegel the bull stay in equities forever and ever wrote in his book that following a simple 200 Simple moving average ended up lowering volatility significantly while matching the gains of equities over all. The problem with buying and holding an index is that it can be very volatile and that the long term is ok if you're investing for 150 years but most of us don't invest that long. Here are some interesting links: http://chinese-school.netfirms.com/Warren-Buffett-interview.html Dow Jones Industrial Average Dec. 31, 1964: 874.12 Dec. 31, 1981: 875.00 Dow Industrials Dec. 31, 1899: 66.08 Dec. 31, 1920: 71.95 There's an interesting article here: http://news.goldseek.com/MillenniumWaveAdvisors/1235315243.php skip to the bottom: "Living in Paradise" here is the 20 year commentary: We can divide the 20th century into 88 twenty-year periods. Though most periods generated positive returns before dividends and transaction costs, half produced compounded returns of less than 4%. Less than 10% generated gains of more than 10%. ... There were only nine periods from 1900-2002 when 20-year returns were above 9.6%, and this chart shows all nine. What you will notice is that eight out of the nine times were associated with the stock market bubble of the late 1990s, and during all eight periods there was a doubling, tripling, or even quadrupling of P/E ratios. Prior to the bubble, there was no 20-year period which delivered 10% annual returns. ... In the 103 years from 1900 through 2002, the annual change for the Dow Jones Industrial Average reflects a simple average gain of 7.2% per year. During that time, 63% of the years reflect positive returns, and 37% were negative. Only five of the years ended with changes between +5% and +10% -- that's less than 5% of the time. Most of the years were far from average -- many were sufficiently dramatic to drive an investor's pulse into lethal territory! Almost 70% of the years were "double-digit years," when the stock market either rose or fell by more than 10%. To move out of "most" territory, the threshold increases to 16% -- half of the past 103 years end with the stock market index either up or down more than 16%! Read those last two paragraphs again. The simple fact is that the stock market rarely gives you an average year. The wild ride makes for those emotional investment experiences which are a primary cause of investment pain. ... Not understanding how to manage the risk of the stock market, or even what the risks actually are, investors too often buy high and sell low, based upon raw emotion ...

Just keep refreshing and looking at the Ads on this page. She'll pop up eventually in one of the served up ads :-)

In the recent youtube video of Buffet in the furniture store, he pointed out something relevant I think. He said the US is creating some reasonable number (I think it was 1.3 million?) households a year. There is currently an oversupply of housing since we were building 2 million a year for a while due to artificial demand. But a few things will happen. The growth in households will eventually catch up with the oversupply, and people who are deferring purchases will eventually push that demand higher in the future. I think with Japan, not only was the population aging like in the US today, but population was stagnant if I remember correctly. Also they have a very stringent immigration policy from what I've heard, so growth from that angle didn't help things. So not only was the RE bubble worse and the stock market more inflated, population isn't going up and it's getting older...

Really interesting call transcript here: http://www.kineticsfunds.com/pdf/Conference_Call_6_30_2009.pdf These guys are really interesting. Talking about the exchanges, China, ETFs, the forced selling that went on earlier this year among other things. They have a very unique perspective. They seem kind of like macro value investors.

I'm not sure where this comes from. In every interview/call I've heard Bruce speak, he's usually quite humble, saying others are smarter than him (or at least Buffet and the LUK guys). I don't think I've ever heard him trumpet himself in a boastful way at all. Bruce saying that Lampert wasn't as brilliant as hyped was just a statement of fact. He still says EL is very smart, and obviously thinks so otherwise he wouldn't have 5%+ of his fund in there. I mean people were hyping Lampert like he was some god who was just going to turn the giant Sears/Kmart conglomerate on a dime. The fact that he didn't live up to the hype is kind of anticlimactic I think. Turning a company that size takes a great operator who attracts great talent. Lampert is a great investor, not a great operator. Everything I've read says he's aloof and painful to work for and painful to even talk with. Some article/interview with a guy who worked with him at his hedge fund for years said that the guy never got to know Lampert, EL just had a personal shield around him. That's not the kind of person who is going to attract top talent to turn around a giant company like Sears and Kmart. If EL was hard core he would have liquidated SHLD, selling the real estate and brands etc. But I think EL ran into the same problem that Buffet did with Coke and other large positions. At some stage doing these giant scale liquidations is just too taxing on the human side. Liquidating SHLD would have meant putting 10s of thousands of people out of work for profit, and I don't think he wanted to do that without giving the turn around a go. Unfortunately for him, in the middle of the turn around came the largest recession in decades. Or that's what I think :-)

Bruce from Fairholme has often said that they researched all the real estate. Back then he said they ended up *conservatively* with around $100 per share in real estate. Then he said he adds the brands, plus what you'd pay for the largest appliance servicer in the US, plus the other bigs and pieces, and you get a reasonable amount more than what it is today. Personally I'm starting to think that SHLD is closer to a cigar butt than a BRK investment. There probably could be downside in the stock price in the near term, but in the end the company has a pretty good downside floor in liquidation. I don't think EL will be able to mess that up. Actually my guess is that there are a few more puffs left actually.. Buy when it drops and everyone is maligning it, sell when it jumps... Also, and this is purely my opinion and speculation, I don't think EL is suited to be a Buffet. The managers who work for Buffet generally praise the man to no end. I don't think I've heard a single good thing said about EL from his operations staff. Also EL was talking about running experiments in many different Sears and Kmart stores to make sure that the concepts work before rolling them out on a larger scale. That works to a degree, but not when you lose staff, and not when it paralyzes the business. Anyway, that's my 2 cents :-)

The problem is that the buy and hold crowd never points out the opposite side of the statistic. What if you missed the 30 worst days? What would your returns be like then? I can't remember where I saw it, but it was very significant. Siegel in his book showed that doing something simple, like tracking the 200 sma, got you close to S&P returns with a significant reduction in volatility. I agree it all has to do with context though...

I agree with Sanjeev. Apparently in credit busts it takes about 5-6 years for housing to find it's bottom. The huge issue with real estate is leverage. IRAs aren't leveraged. Most people would put down 5-20% on their home. So if it goes up you get a 5x-20x multiplier. But same on the way down. The other big consideration is the baby boomers. Many are close to retirement. After this dump they aren't likely willing to jump in. Either that or they will be desperate, sit out the rally,then buy at the top.. Hopefully not, but that's usually what happens..

Let me put a twist on the same question. Warren Buffett of the... and BRK of the... I'm more interested in them if I can invest with them! :-)

Regarding kawikaho's point on laptops, and also the point made earlier about people not 'preconfiguring online' as much anymore: I think there's a pretty good correlation here. When I used to have a desktop, all I cared for was the specs. I mean one desktop is the same as the other, then I can get the keyboard I want, monitor I want etc. When it comes to laptops though, I want to feel and see what I'm getting. I'm going to be carrying it around and typing on its keyboard. I was at the Costco the other day, trying out the dell laptop they had, and it had this tiny trackpad, and worse of all it was off center to the left. Most people are right handed. So it was very uncomfortable to use. Lenovo took over IBM's laptops, and IBM used to be a typewriter company, so they generally know how to make a comfortable keyboard. Dell's history is beige boxes as cheap as possible. Great for the server business, not so great when a greater and greater percentage of the business become laptops. That said, people have made the point that they are pretty darn cheap.. and who's going to argue with Watsa! :-)

I'm not sure if this is true everywhere, but for people who are underwater in a state where the mortgages are non-recourse, even if they walk away from the mortgage, in the end the bank will end up putting the difference in the loan value vs the house value on the person's 1099 at the end of the year. So if there is a significant incentive to not walk away. It's something that's not often talked about, but from what i've heard it is the case. So say a mortgage is underwater by 100K and the payer walks away. At the end of the year they'll end up with an extra 100K as reported income and owe the IRS taxes on it. From what I've heard..

I'm really curious on what you base this assertion. The fact that Biglari has outperformed the S&P by 17% per year (if I remember correctly from one of Sanjeev's posts) over the last 7(?) years in his hedge fund, and is using WEST as a vehicle for investments in the future makes it at least somewhat special/interesting. The fact that he focuses on capital allocation and finding the best use for capital as opposed to just putting money back into the same businesses is somewhat special compared to a lot of companies out there. The fact that at the age of 30 something he's had a very successful hedge fund, taken over a reasonably large public company in a proxy battle, and turned it around in a very short period of time is somewhat interesting. I'm not a complete Sardar groupie (I do think he's had his share of less than perfect moments), but I don't see how you can say that WEST is "absolutely nothing special or particularly interesting". Please let us know what you base this statement on. Thanks.

Take a look at this thread where Sanjeev briefly discussed Chanticleer: http://cornerofberkshireandfairfax.ca/forum/index.php?topic=822.0

2 notes about Miller. One is that his 15 year record is supposedly a fluke of the calendar. Apparently it's because the end date was a particular month that he just happened to beat the S&P for 15 years in a row. If you look at other months supposedly he doesn't beat consistently (just read that somewhere I didn't do the math myself). Second, I'm pretty sure I have heard him write or say something along the lines of what you're saying. Freddie and Fannie I think were either zeros, or were going to go up 10x supposedly. So that's why he made the bet. Problem is that a lot of these companies were correlated to the same thing, so a number of those zero/10x big bets went bad.

Link, I think there's really little point in trying to 'unlock their secrets' per se. The options markets are traded by market makers who have been at it for years and years, so I don't think there are many inefficiencies to be exploited in the options themselves. Where I think there are inefficiencies is in the fundamental analysis of the underlying stock, and you can use option set ups to take advantage of those. Options themselves don't really present much in the way of arbitrage capabilities as far as I can tell, since otherwise the market makers would be the first to take advantage. There are so many market makers out there trying to get an edge that if you try to play their game you will lose. They have way lower costs both in commissions and in use of margin. I think the best way to win the game is to pay more attention to the long term and the fundamentals where I think market makers tend to pay less attention.. That said knowing a lot about combos I think is helpful in terms of knowing what sorts of options you have when a trade goes bad etc... It's definitely an interesting intellectual exercise when greeks are involved :-)

I'll second the thinkorswim recommendation. Check out their chat archives. They have great sessions by folks who have been market makers for years so they talk a lot about risks that aren't obvious at first glance.

In all fairness, not many people did (including Buffett). Miller's fund got hit hard last year, but most money managers did. Miller has always been largely a buy & hold guy, so he's not someone who typically sells all his stocks heading into a recession. The thing that bothered me immensely about Miller was that he bought stocks with large parts of his portfolio that had huge risks that he couldn't possibly have understood. I mean he bought large slugs of Freddie and Fannie as the market was getting unstable, there were huge signs of government intervention etc. There's no way he could have understood what was on their balance sheet. No way. The big disappointment I had with Nygren was that he bought such a huge slug of wamu. I mean once again, did he really understand the balance sheet? Maybe he did. Did he even think about the risk of a run on the bank? I'm not sure if he did or not. Also, it was his biggest position. Was that really the best possible idea he could have come up with? Very disappointing IMHO. Fairholme also got hit hard but none of the positions were permanently impair the way that Miller's were. Almost the same with TAVFX (except for MBIA and I htink there was another one there too..). So to me, everyone got smacked unless they used puts or got some CDS. But the ones who got hit cause they bought something they didn't understand were the disappointing ones to me...

The thing I wonder about is if this is going to have a huge effect on the American psyche or not, the way that the Great Depression did. The Great Depression stayed in the American psyche for a very very long time. People were frugal when they remembered how hard it was to get food on the table. Apparently even though overall unemployment was 20% (or 25?), the unemployment in the cities was 40% or so. The thing is that over the last 20 years Americans have had it beat into them that they need it now, they deserve it now, they should spend money now! I wonder how long it's going to take to reverse that effect. 2 things I see having a serious effect are 1. housing - both people losing their houses, and their kids/kids friends remembering how it was to default and foreclose and be forced out of the american dream; and also people who bought in too high who just honestly thought the most things would fall would be 10% or something since "it's never happened before", and seeing their life savings or more demolished for a long time even if on a 30 year fixed. and 2. the baby boomers who basically saw their equity vanish and their 401ks get destroyed with conservative companies like AIG and Freddie etc. That of course assumes that the boomers don't get pulled into the market again as it keeps going up and htey get afraid that 'they'll miss the boat". I think the first has the potential to have a very large ongoing effect on the american psyche. I'm not sure if it will have the same degree of severity as the great depression where people had to wonder from city to city looking for work (still remember the haunting pages of "Grapes of Wrath")... On the other side of the fence it's probably going to be a long time before companies and creditors are willing to lend so freely too... Just some random thoughts...

Yudeng, you always come up with interesting posts. I'm curious, what sorts of option combos do you use, and what sorts of oversold/overbought 'indicators' do you look for? On the combos are you mostly buying options or selling options? Do you set up synthetic longs, or do ratios/backspreads? I presume you look more for unlimited upside scenarios than for selling theta decay? Is that right? So maybe buying calls and either selling puts to fund them, or selling a fewer number of sooner expiring calls? Then what do you use to time your exits and entries? Do you just use the classic 'calculate intrinsic value', buy at a MOS and sell as it gets close to the IV? Or is there something else you're referring to? Thanks for any insight. Bargainman.