bargainman

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.

So I was glancing at the lastest 10-k and it had this in it: GOING CONCERN At December 31, 2008 and 2007, the Company had current assets of $23,556 and $95,893; current liabilities of $686,125 and $349,268; and negative working capital of $662,569 and $253,375, respectively. The Company incurred a loss of $1,088,588 during the year ended December 31, 2008. The Company receives quarterly cash inflow of $25,000 from management fees and $11,500 from investment distributions, but expects quarterly cash outflow of approximately $130,000 per quarter for 2009, assuming the acquisitions discussed in Note 11 are not completed. The Company expects to meet its short-term requirements through the liquidation of one investment to raise approximately $42,000 in cash; return of the advance made for the development rights of Hooters restaurants in Nevada in the remaining amount of $70,000; and loans from its CEO in the amount of $50,000. The Company expects to have sufficient funding available from these sources until the possible second quarter of 2009 close of the acquisitions of HI and Texas Wings. Subsequent to the close, the overhead requirements would be covered by distributions from the operations of HI and Texas Wings. 24 In the event the acquisitions do not close, the Company expects to have sufficient funds available to meet its requirements until May 2009, when the Company is scheduled to receive a distribution from an investment in the amount of approximately $1,275,000. At that time, the Company plans to repay the line of credit, any other short-term borrowings and have sufficient cash to cover all overhead requirements for at least another year while increasing the funds which Advisors manages. If the above events do not occur or if the Company does not raise sufficient capital, substantial doubt about the Company’s ability to continue as a going concern exists. These consolidated financial statements do not reflect any adjustments that might result from the outcome of these uncertainties. Going to dig around a bit more, but thought I'd ask. Does anyone know the status of these events? In particular did their 1.275 million sale happen? Also here: http://www.sec.gov/Archives/edgar/data/1106838/000114420409028984/v150530_8k.htm it looks like their plan to buy all of Texas Wings Hooters 45 stores was terminated. On the other hand it looks like they are acquiring Hooters? http://www.sec.gov/Archives/edgar/data/1106838/000114420409024044/v147997_10q.htm On March 11, 2008, the Company entered into a Stock Purchase Agreement for the purchase of Hooters, Inc., Hooters Management Corporation and their related restaurants (collectively “HI”) from the nine current individual HI shareholders, many of whom will continue to stay involved in the ongoing operation as shareholders of Chanticleer. The transaction is valued at approximately $55.1 million and could close in the second quarter of 2009. The closing of the transaction is subject to Chanticleer raising the necessary debt and equity financing to complete the acquisition. Chanticleer has retained an investment banking firm to assist in securing the equity capital necessary to close the proposed transaction. Chanticleer has completed all other conditions and is in process of raising the necessary debt and equity financing to complete the transaction. (See current status below.) Looks like they recently changed from a BDC to a regular operating company. Anyone else following this other than Parsad, who had previously said he wasn't going to comment?

The decline in California has been brutal. 50% in some places. San Francisco, San Jose have areas with 40% declines. The government has done very little to help California, at least in the Bay area. The special refinancing they've set up only goes if the loan isn't more than 105% of the house value, which with 40% declines just doesn't cover it (even if someone put a 20% downpayment). Also any of the special refis above 417K haven't hit the system yet, so people with those loans (most people) haven't been able to refinance in the bay area. Florida has been similar, but at least most condos aren't above 417K. Several properties went from 350 to about 150 so the crash has definitely happened. Supposedly it's going to continue down another 10-15% on average.

Are you really serious about this? You wish there was a great depression 2? have you read about the Great Depression and the human suffering that occurred at that time? You wish there was a Great Depression so you could buy stuff really cheap and make money? This crash has been unfair to a lot of people for many different reasons. But life is unfair, that's no reason to wish for human suffering on that scale. I would never wish for a Great Depression. Go read Grapes of Wrath and then think about what you are wishing for.

Yu, I generally agree, and I heard that "Talent is Overrated" and "Talent Code" goes more deeply into that aspect. I started the former but haven't gotten through it yet...

Michael Sellers would famously disagree :-) http://www.beearly.com/pdfFiles/Sellers24102004.pdf "And the reason is that it doesnt much matter what your IQ is, or how many books or magazines or newspapers you have read, or how much experience you have, or will have later in your career. These are things that many people have and yet almost none of them end up compounding at 20% or 25% over their careers."

Another article on FFH's latest 13F http://news.morningstar.com/articlenet/article.aspx?id=292186

You could also invest in defense stocks like Fairholme's been doing. Bruce says, and I generally agree, that no president is going to want the US to get attacked on their watch. Add to that the power of the military industrial congressional complex and it's probably not a bad place to have some money.

If you look at this link: http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=6315174&format=PDF and get to page 38 there's some interesting reading. I tried to copy it here but the PDF is protected. Basically they manage the insurance investments Graham and Dodd style, and claim that since 2000 to 2008 while the Wilshire 5000 has dropped 25%, their portfolio has gone up 44%, while the equity portfolio section going up by 109%. If you don't count 2008, the total return was 75% vs 244% for their equities. So they are at least reasonable value investors, even if 2008 smacked them up.

OK one more thing then I'll stop :-) I do agree that if you're not capable you should definitely NOT be concentrated in your investments! So if you break it into a chart with the 2 dimensions being "capable/not capable", and "diversified/not diversified" I'd make it be this: DiversifyFocused CapableOKOK less capableOKNOT OK I think I'm up to about 5 or 6cents by now :o

Personally i don't buy an all or nothing approach. There is a range. Also as I pointed out in my post above there are many value investors who have averaged very high returns using a highly diversified approach. Including Ben Graham the father of value investing! I mean is anyone going to argue that Ben Graham was not "A capable investor"? Being that he wrote Security Analysis, the Intelligent Investor, was the teacher of Buffet, among many others, that he used a highly diversified strategy in his partnership, that he was incredibly knowledgeable when it came to investing and analyzing companies, I don't buy that 'if one is a capable investor, one should be concentrated". Ben Graham was most certainly a more than capable investor, confident in his skills, and he chose for many many years to be highly diversified. I think highly skilled individuals can choose to be diversified. Seth Klarman is often quoted as saying "You never know everything". (and sorry Ben Hacker, I am just learning more about him.. I knew he had been holding 40% cash, but something made me think he was a focused investor.. just read that apparently if he's going to take a 10% position, he wants a board seat...) That is so true. I mean I work at a 6000 person company every day, studying it inside and out all day long, and I know next to nothing about it! If someone isn't a full time investor they have no hope of truly understanding everything about a company. Even if they are a full time investor they probably don't know a whole lot. I mean Buffet bought GenRe and almost got killed! Buffet! When Buffet bought Geico he told someone "This is the first time I've bought an investment that may go to zero". I think that Buffet was really the first or at least the major proponent of concentrated investment. But remember, Buffet knew Security Analysis inside and out. Apparently he used to recite passages of it back to Dodd and Graham. He read it many many times and had what sounded like an almost photographic memory. He's brilliant and probably there are few who will ever be at his level. So the question is, if he was the guy who started the 'focused investing" trend, are you really in the same category? I'm certainly not. That said I know a lot about investing and am not in the know nothing crowd either. So I'm somewhere between. Because I don't choose to concentrate 40% of my worth in a single investment doesn't make me a "not capable" investor, just like it didn't make Walter S., Ben Graham, Royce, or any of the others who were highly diversified 'not capable'. Even in other styles there are successful highly diversified capable investors (Peter Lynch and Shelby Davis come to mind) As Sanjeev said, nothing can be viewed in a vacuum. But my main point is that other than confidence in one's abilities, and capability as an investor, there are other factors that can decide if someone should be highly diversified or not. Also, highly capable investors can and do choose to be focused OR choose to be diversified! I just have to hammer on this point cause it keeps coming up over and over, and the implication is always "if you're very diversified, you're not capable". But that's so untrue. Just my 2c added to my 2c in my previous post for a total of 3.5c (since I probably repeated some of my previous post :-) )

Always a fun discussion, to diversify or not? Buffet reversed his position a few years ago. He used to tell the public "20 punchcards, use each one wisely". But since then he learned that inexperienced people were taking him up on it, and then he's started saying "if you know nothing, diversify widely with a low cost index fund, if you are an expert you don't need to hold more than 6 positions". Remember, Buffet's mentor Ben Graham, who's method Walter S. followed, was an advocate of wide diversification. I think he held 100 or more securities at times. Apparently this was one of the sticking points when they discussed collaborating on an update of the Intelligent Investor. Buffet ended up just writing the preface since they couldn't agree. Royce also follows a high diversification model, but part of that is their large asset bases and small cap focus. Walter S. did, and so does Tweedy and Browne, both Graham followers. Fairholme, Klarman, Sequoia, Longleaf, and Buffet go for the less diversified model. Personally I think that the more control you have over the business, the better it is to be concentrated. Mark Jr has a huge degree of control over his own business, so it makes sense to go all in. That said, I'm not sure I buy the comparisons when it comes to people like Watsa, Buffet, Gates. The truth is that any one of them could lose all their money in FFH, BRK, MSFT and still have enough money to live the rest of their lives without working. They each have millions outside the company stock, so the number and risk is a lot less relevant. They aren't relying on their stock for their retirement really. That's not the case for me, so going all in doesn't make sense. Speaking of GE, and the Financial services bringing the whole thing down. What if we get another Katrina, or two, plus an earthquake? How badly would that hurt FFH? I imagine they have reinsurance in case of such an event, but I don't know enough about their insurance to know for sure. Also if you get one of these 1 in a 100 years disasters, what is the counterparty risk on the reinsurance? I agree that FFH is diversified both because it is an umbrella company, and it has a portfolio of other companies, but the 'fat tail' event prevents me from making it a super oversized position. it also prevents me from putting too much money in the cat-insurance sector. Just my 2c :-)

Nice notes and thread on MKL at the BRK meeting from Durrell at the Fool: http://boards.fool.com/Message.asp?mid=27675288&sort=whole

Ah, I wouldn't be too worried. It was a bunch of Columbia Business School groupies doing it! Now if it was Eminem or some hollywood rap fiends I'd be more inclined to agree! Even though I don't really know what "jumped the shark" means :-)

Both Interactive Brokers and Thinkorswim are now in Canada. Either one I'm pretty sure will allow options trading. IB is super cheap but has some annoying minimum monthly charges and lousy customer service, TOS is a bit more, but still pretty cheap as far as brokers go, and has great customer service. Neither have option levels so you can trade whatever kind of options you like. That said I'm not sure how their RRSP accounts work. But in the US they allow options in IRAs.. May be work checking into...

Yo Warren B! I love the little run at 1:49

Tex, I'm curious what your newly minted selling strategy is? I've been thinking about this lately too. I'm thinking about a modified version of value cost averaging, but haven't really worked out a set of guidelines or anything. I want something that's at least reasonably mechanical so I automatically take profits when stocks go up and invest more as they go down. Apparently some study found that dollar cost averaging was no better than just randomly buying, whereas value cost averaging was statistically better. It's an interesting point that the marketing has been relentless on the 'long term stock ownership' front. I know Mauldin has written at length about the fallacy of this argument (or has published letters by others who have).

I think you guys are missing the point of Snowball. But I would expect as much from a group of hard core investors ;D (I say that affectionately by the way) She wanted to write a book that was all encompassing, not just focused on his investing. I found the personal aspects, choices, and sacrifices very interesting. (I'm not totally finished, about another 150 pages to go) The way he mixed the life of an Omaha hamburger eating guy, with Kay Graham's elephant bumping. The dichotomy in his life. Reading the part about Salomon Brothers was like having deja vu! It was like reading all about the investment banking fiasco we've just been living through with Bear Sterns and Lehman Brothers! Except that it happened 15 years ago! The more things change.. the more they stay the same. Talk about leverage, commercial paper not being rolled over, loss of primary lender status, wall street pricks.. it was all there! I think it was very revealing. I don't think the intent was to go into each of his investments with a fine tooth financial comb. She certainly could have done so, she met Buffet because she was an insurance analyst, and Buffet liked her writing. But that wasn't the idea of the book. I found the split with Susie-o to be heartbreaking, but maybe I'm just a sentimental fool! :'(

The problem with these sorts of return figures is that they are based on two randomly selected points in time. Not a rolling average. The market just crashed! Of course the return is going to be lower if look at it now. What about 1 quarter ago? 2 quarters ago? 2 years ago? Randomly selecting two points in time "today and x years from today" is random and statistically nonsensical.

You're right, Mr Market is having a pretty depressing day! :) Remember, Mr Market is irrational impulsive manic depressive, don't let him drag you into his state of being!

Uccmal, why don't you just roll the GE calls up and lock in the gains? I assume if you had 7.5 strikes you are sitting on a reasonable gain no? The nice thing about GE is that the option spreads are pretty tight, even for leaps. The 7.5 2011's bid/ask is 7.2/7.35. So you could sell those and roll to the 15 2011 bid/ask of 2.86/2.95, for a credit of $4. That way you lock in some of the gain, and keep the upside. That's one of the advantages of LEAPS instead of stock is that it's easier to lock in gains and keep upside. You could also look at buying 2011 puts to set up a synthetic rolled up call, but that seems more complicated to me, even though it's one transaction less..

I recommend you look at the fairholme fund site. They have a conference call with the PFE CEO and CFO. Bruce Berkowitz has made PFE a 19-20% position in the fund! talk about confidence in his position. I hope he's right! His general take is that the guys in charge are businessmen, unlike before when they were scientists. They have an unbeatable distribution system in a highly regulated industry. Apparently they are growing their generics business and are looking to be the distribution partner for other smaller companies that can't handle the distribution by themselves. I think he also talks about them in the OID interview which is also posted on his fund's website.

Looks like Morningstar is reviving their Ultimate Stockpicker's portfolio, and is looking at adding FFH. Here's an article they just put out: http://news.morningstar.com/articlenet/article.aspx?id=286665