bargainman

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

I don't really track things in quite as much detail, but here's one website that might be of interest: http://icarra.com/

It seems to me that the only ones who didn't get killed where Watsa, who hedged and took the smart side of the CDS bet, some other Hedge funds who also did the CDS thing, and the folks at Renaissance Re who just seem to be head and shoulders above everyone. Everyone else got killed. Kinetics Funds just put out a conference call, and it's an interesting read/listen. One of the guy's points was that everyone got a giant collective margin call. The only place they could sell stuff to meet that margin call was the stock market. One of the only liquid regulated places left on earth. So that's where they went. So there are a pile of stocks that got killed for no fundamental business reason. They got killed cause someone had to raise a heck of a lot of money very fast. That said, there is a big difference in the way that these folks got blasted. For example Fairholme, and Kinetics stocks got killed but the companies they own are doing as well as ever. Bill Miller, Pzena, Dreman, Nygren, and others of the contrarian value line got killed with bets on financials like AIG, FRE, Fannie etc. I'm not so sure about Whitman. To me that makes a big difference even if the quotational loss is close. But maybe I'm deluding myself that there is a difference...

"So it was the lost of the uptick rule and not the over leverage and bad loans? " well not to go too out there, but between the uptick rule, and the FASB account mark to market rules, there's certainly a case to be made for some grand conspiracy ;)

Correct me if I'm wrong but it seems to me they are moving things even further than where they were in the Clinton years. The tax brackets are the same as Clinton, which is fine. But... they are reducing the deductions for mortgage interest, charities, and state taxes. All of these moves are bad for high tax high cost states like California and New York. (both voted for Obama). I really wish they would start indexing these things to cost of living in different regions. Even their recent mortgage package proportionately helps the states who need it less than the states that need it more. They really don't seem to have a sense for regional economics out in DC. Strange since Pelosi is from California, you'd think they'd know better... :-P