KCLarkin

In July, you could have bought VRTV (IP spinoff) for as low as $32.50. It's at $47.25 today. 45% return in just over a month.

Don't keep us in suspense, which overweight neighbor is your best idea?

IBM

I don't think this claim has a factual basis. For one thing, you do get to invest at book (retained earnings). Over the life of a great company, the retained earnings will be much higher than the initial book value.

This blog post has some good perspective: http://basehitinvesting.com/wells-fargo-vs-small-community-banks/

Hussman is very different than Klarman and Watsa. He has very high certainty based on quantitative models. Yes, he is incredibly smart and has skin in the game but LTCM also had skin in the game. And LTCM was eventually right too. Markets are incredibly complex, unstable, unpredictable things. Overconfidence is not an admirable trait.

Agreed. I've been reading his blog for a while and have posted a few of my favorite pieces in the Macro Musing discussion thread. It is pretty hard to read http://www.philosophicaleconomics.com/2014/06/critique/ and not believe that Hussman is living in his own bubble: "He’s calling for 'zero or negative nominal total returns for the S&P 500 on horizons of 8 years or less, and about 1.9% annual total returns over the next decade.'" As value investors, I think we can all agree that valuation matters but nobody can predict the sequencing of returns with that kind of precision.

Just started reading it and it seems very good. For avid readers, this book is free with the new Kindle Unlimited service.

"WEB and others have said many times that people either "get" value investing or don't - I wonder if the same might hold true for the slothful investment style ... from the informal comments in this thread I would assume that most members would think it is a learnable trait." It's certainly learnable. Motivation is the key. My tax situation makes me highly motivated to defer capital gains. If you are working with a small portfolio or in a tax-free account, you will have less motivation to hold for the long term. Sloth investing isn't the "best" way to invest. In fact, it's quite rare. Deep value works. Momentum works. Magic Formula should work. Indexing works. DFA/RAFI seem to work. Small cap investing works. Dividend growth investing works. GARP works. You just need to find an approach that works for you. It seems like you are still learning and experimenting, which is why I suggested you aren't ready for sloth investing (yet).

TBH, I don't think you are ready to invest like a sloth. It really is that simple (but not easy). Buffett's top four holdings are all 100 year old companies. To pull off this strategy, you need to be boring and have low expectations. It's okay to spice things up but you need to be honest with yourself. It's relatively simple to build a sloth portfolio that can return 8-12%. If you are expecting 15-20%, the sloth portfolio won't work for you. It is a mathematical fact that, in aggregate, traders will underperform the "market". Trading costs and capital gains taxes ensure this result. Buffett has a wonderful essay on this: http://money.cnn.com/2006/03/05/news/newsmakers/buffett_fortune/ And remember, this only works with great companies: "If the business earns 6% o­n capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return even if you originally buy it at a huge discount. Conversely, if a business earns 18% o­n capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result." - Charlie Munger at USC Business School in 1994

1. You need to be invested in high quality companies that you KNOW will be worth more in 10 years than they are today. If you are investing in cyclical plays, asset plays, turnarounds, leveraged companies, or deep value, then the Sloth Strategy doesn't work. If you don't double down when the stock falls by 50%, you are probably investing in the wrong companies (for this strategy). 2. You need the right mentality. Generally, you want the stock PRICE to go down while the business VALUE goes up. You should be worried when prices go up and ecstatic when prices go down. If you aren't, then you will have a difficult time as a value investor. One mental trick is to track your portfolio earnings rather than prices. Look at Earnings Yield rather than P/E. Look at earnings charts (fast graphs or valueline) rather than price charts (google or yahoo). 3. You need a portfolio you can sleep with (e.g. no leverage, sufficient diversification, high quality, cash cushion). Keep some dry powder so you can take advantage of opportunities. 4. Focus on business fundamentals, not macro BS or technical analysis. Almost everything on CNBC or on the web is macro noise that is a waste of time and will detract from your performance. As a full-time investor, one strategy I use is to spend the mornings reading annual reports, etc. Once I check in on the markets at 11am or 12pm, I don't feel as much urgency to act. 5. You need to be willing to trade-off some "performance" to get the benefits of the sloth strategy. Remember WEB holding onto KO in the late 90s. This is often an imaginary tradeoff though. Most people would have better performance if they stopped trying to hit homeruns. There is ample research that shows that the more active you are, the worse your returns. Once you've mastered the above, then stop monitoring prices. Try checking prices quarterly or annually. Set some price alerts so you can monitor buying and selling opportunities. With most of my portfolio, I'm almost there. For example, with WFC and BRK, I don't care what the price is day-to-day. I've owned both since 2009 and have no intention of selling either. If you really want action, set aside some play money. Put the bulk of your portfolio in sloth stocks. Use a small amount (say 5%), as your mad money. Just make sure you keep an eye on the fundamentals of your core holdings. You will need to act if your moat is breached. You may want to act if management starts making bad acquisitions or decisions.

I'm not sure that understanding the technology is that important. Understanding the business model and competitive landscape is more important. If a company relies heavily on selling licenses, then it will be prone to disruption. However, most established enterprise vendors have very significant recurring maintenance and service revenue. If you look at the big software companies (ORCL, MSFT, IBM) they are remarkably stable. Software companies tend to be attractive because they have low capital costs, high ROE, high FCF, high gross margins, recurring revenue, high switching costs... This attracts competitors and venture capital. However, don't underestimate the switching costs especially for mission critical vendors. Also sales, distribution, and service channels can create a very powerful moat. Oracle competes with free software (MySQL) and has still grown EPS at a 15% rate. For established vendors, my advice would be to look at maintenance revenue, churn, organic growth (new licenses). I would avoid new vendors or "challengers". In the past, Wall Street has understood the strength of the software business model and priced these companies at a premium. In some cases, that is no longer true (old tech has been on sale recently). But you also need to understand the impact of SaaS and the cloud on the software industry. In many cases, growth opportunities may be limited as emerging SaaS vendors win most of the new business but that is fine as long as the valuation is reasonable. Some of the SaaS and cloud vendors are interesting but the valuations are crazy high. The economics are also less attractive (less up-front revenue, lower switching costs, etc). One other drawback, reinvestment opportunities may be limited. This is okay is long as the company is good at capital allocation (not normally a strength at tech companies).

How to Win Friends and Influence People - Dale Carnegie

Looks like he should have put his excess cash into IDIX. Lordy. http://www.cnbc.com/id/101728450

This is an intensely competitive business. There are a few whales who have very sophisticated systems for buying the most valuable domain names. You might get lucky and get a good name or two but it is very unlikely.

Awesome! Thanks.

Growth isn't the only reason to pay a premium. Would you rather own Pet Rocks growing at 30% a year or Barbie growing at 10%?

You are joking right? That's Buffett's worst investment, but there are hundreds of thousands of money managers who are dumber than Buffett, their worst decisions must be worse than Brk? no? Yes, but Buffett's mistakes compound at a much higher rate.

Yes, he knew it was expensive before the crash and knew it was cheap after the crash. And he still screwed it up. This is why market timing has such a bad reputation.

For a mature cash cow like Cisco, Shareholder Yield is a good way to sanity test valuation. Shareholder Yield = (Dividend % + Net Buyback % + Net Debt Repayment %)

Owner's Earnings and Stock Compensation: How should I think about stock compensation, especially related to Owner's Earnings? Buffett has made a pretty compelling case that options are a real expense but I often see investors and companies back out the stock expense when calculating owners earnings and adjusted net earnings. Since these aren't cash expenses, and the dilution will factor into EPS, this makes some sense. But I feel this is just voodoo. How should I think about the dilution expense of stock compensation? For example, say I am looking at a company that has $1 EPS (GAAP) but $2 EPS (adjusted) due to $1 per share stock expense.

What does the new buffetology add? I haven't had a chance to read it yet and saw it was written by the ex-wife of Peter Buffett and wrote it off. Buffettology is the most practical book on buffett I have found. Most others are just derivatives of his letters and therefore more philosophical. I'm not sure how much access they had to Buffett but it has content that I haven't seen anywhere else. I watched an interview with Don Yacktman where he was talking about stocks as "equity bonds". A google search on "equity bonds" led me to Buffettology. Otherwise I would have skipped it too.

1. Essays of Warren Buffett 2. Intelligent Investor 3. The New Buffettology 4. Common stocks and uncommon profits 5. Poor Charlie's Almanack Each of these books is deeply flawed but if you read them together you can cobble together a pretty powerful philosophy.

Anyone have the full 2013 letter? Some excerpts are here: http://www.beyondproxy.com/author/allan-mecham/

I worked briefly in the oil industry and my father managed a gas plant. It is definitely not a moatless business. If your gas plant is down for a week because your supplier doesn't have a $10 part in stock, it will cost you millions of dollars. My father's plant consolidated all of their business on NOV. I believe that they entered a multi-year supply agreement. This was in the 1990s, so I would have to look at it more detail before I would be comfortable investing.