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ya never know! or maybe he's just bearing the cross of someones cruel-fiction ;) Does he Grok those strange transactions. :o ha! i'm just a lost, parched wayfarer. do you have water, brother? :)

thanks, motown, this is good to hear. mfc is so much more interesting as a non-pfic co. now its back to being a merely puzzle wrapped in an enigma, sans straight jacket.

ya never know! or maybe he's just bearing the cross of someones cruel-fiction ;)

i have a few doubts too. smiths lack of detailed disclosure borders on secretiveness. that deserves higher discount factor imo. on the other hand he has a very long track record of strong shareholder returns. looking at the mfcaf long term performance charts shows this beyond a reasonable doubt, even after accounting for the last couple of years when khd got caught swimming naked in a storm, & suffered for it. the charts cut off just short of those last years if i recall, probably figuring that when they were spun out at the end of 06 they had effectively unhitched their wagon. i'm not sure i agree, especially if i were a shareholder who held on to khd in addition to the newly minted mfc. i also think mfc was spun out at a very, VERY stripped down valuation. that put a wind at their back, benefitting subsequent returns. but balancing that would be the spinoffs & other distributions made over many years that apparently arent reflected in their performance record. the story of mfcaf, ttt, khd, & that stranger from a strange land, michael smith, certainly makes for an interesting if challenging case.

hmmm, i still cant find any indication from mfcaf's website that it is a passive investment co, foreign or otherwise. from their 2009 10k annual report are these snippets strongly suggesting they consider themselves to be an operating co, not a passive investment co: <<As part of our merchant banking activities, we establish, utilize and maintain various kinds of credit lines and facilities with other banks, insurers and finance providers, including accounts receivable financing and letters of credit. Such trade finance is often layered with varying limitations, exceptions and borrowing availability based upon financial ratios and other measures. Our principal sources of funds are cash flow from operations, cash on hand and our available credit facilities.>> <<MERCHANT BANKING We also commit our own capital to promising enterprises, and invest and otherwise trade to capture investment opportunities for our own account. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share price valuation. Our investments are generally not passive. We seek investments where our management and financial expertise can be used actively to add or unlock value.>> <<TRADING OF COMMODITIES AND NATURAL RESOURCES Our operations include the trading, principally for our own account, of commodities and natural resources. Such activities include purchasing and selling of such items. To a much lesser extent, we also act as a trading agent for clients. We conduct our trading primarily through our subsidiaries based in Vienna, Austria. These broad-based activities allow us to be in contact with a geographically wide range of producers as well as consumers, creating more opportunities. Our trading activities often utilize innovative and sophisticated trading strategies and structures. We currently trade with commodity and other producers who are unable to execute sales effectively because of credit or currency issues affecting them or their principal customers. We are often able to facilitate purchases and sales of commodities with more efficient and effective execution than many producers and customers could achieve on their own. Commodity producers and end customers often work with us to better manage their internal supply, distribution risk, currency and capital requirements.>> etc etc

different strokes for different folks, i guess. li lu's style is more like mungers, & to a lesser but still significant extent like webs. ofcourse, web does trade, its just that his biggest gains have come from a few big bets, combined with long term compounding of those bets.

wonderful interview, tariq. thank you!

pfic? mfcaf.pk? i had started going thru the annual reports & scouring blogs & message boards like seeking alpha to get up to speed on this co, & have taken a starter position. not once did i see any one make reference to its pfic status until now. i know they have passive investments but i thought they primarily traded commodities on behalf of customers as well as for their own account. thats their main biz. doesnt sound like a pfic in that case. can you expand a little bit? point to a link indicating its a pfic, which i'm embarrassed to say i missed some how? can one bypass the pfic headache by owning it in an ira? and how big a headache is it to deal with all the tax forms of a pfic in your experience?

excellent job, alex. i actually came across your website just a few days ago afer googling BYDD to see whether i could find an investment case for it

i dont know, luk is awfully light on operating businesses, & what they do have is very geared to a strong economy. same with their major investees, jef & acf. i wish they would stop placing so much of their excess funds with 3rd party money mangers & do it on their own. and a few more cash generating operating subs would be nice.

vinod wants the reports for for their time-saving data & crunching. as he says, he could care less about the recommendation. i think he's entirely justified if thats what he he's interested in. not every one has enough hours in the day to start from scratch on numerous co's you want to compile a history of with an eye to seeing if there's an investment thesis there. when used as an initial filtering device, those kinds of short cuts are invaluable. edit...i also meant to give a plug to morningstars combo of analyst reports & some very nice data history tables

while it does seem to be difficult to get much info on him & his dealings, & he is more secretive than your average stranger from a strange land, i have to ask: why the keen interest in mass financial & all things michael smith? i dont see anything in his record there that justifies it, frankly. what am i missing?

broad based US stock indexes correlate pretty well in the aggregate with global stock indexes as well. have you ever plotted the relationship between the wsbase of some of the major european countries & their stock indexes...& found that relationship to be universal? if so then you would expect to see a high degree of correlation in the wsbase movement of all the major economies, similar to their stock market correlation. if not then.....someone's got some fancy theoretical 'splaining to do.

he might also consider buying half a position of the stock & selling otm puts simultaneously. he then has uncapped upside exposure fro owning some stock as well as being paid a premium to wait for the stock to fall into a more attractive buy range. the opportunity cost downside that you mention & the unanticipated risk of something bad happening to the company or market in the meantime exists to some degree or other regardless: whether you have a position of stocks, options, or cash, or a combo of all of them.

there's no question that its a minor miracle web can continue growing brk's compounded book val in excess of a few percentage points per year over the sp500 at brk's present size. and over a 5-10-15 year time frame that really adds up. it could also be argued that over the last 10 yrs brk's intrisic val per share has grown faster than its book val per share because of the relative preponderance of whole co purchases web has made at fairly attractive prices for cash, exchanging a 1-2% earnings yield (cash) for a 8-12% earnings yield. thats evident in the periodic tables in brk's annual reports showing a side by side comparison of brk's book val growth from the 70's to the present with its earnings per share growth. over the last 10 yrs earnings per share have been growing at a better than 20% clip, while book val (and investments per share) has slown from the + 20% in the earlier yrs to 8-10% if memory serves. but still, brk book val will gyrate with the general ebb & flow of the markets over the short term, given its large exposure to stocks....thus the quarter ending jun 30 is like to show a reduction in book val, for what its worth. of more interest will be its operating earnings per share & its see-thru earnings (what ever happened to those tabes that web used to publish now & then?).

Shalab, it should be mentioned that a BIG piece of berkshire's book value growth this year has been due to a sharp reversal of the non-cash accounting hit brk took in 2008- early 09 on their derivative positions...yet another poignant commentary on the perils of looking at data in isolation from the bigger picture: context does matter. but you're preaching to the choir. web is cut from a unique & rarefied cloth, the likes of which we might never see again in our life time. it was my 1st stock, & my largest & longest held for 15 yrs up until 2005. and if brk was about 100 bil smaller i'd still be be on that train.

shalab, your comparison is not really fair at this point in the game. sardar has only been at the helm for a little over a year. the turn around he accomplished in such a short time was remarkable by any standard, imo. but the biz (sns) still has a ways to go before its hitting on all cylanders. not only that, but sb had many legacy issues to deal with from previous mngts long, painfully incompetant tenure. you also fail to note that sns under sb is now generating free cash flow well above its reported, GAAP earnings. but its only the GAAP earnings which impact reported shareholders equity, especially in the short run. i know alot of people are some where between disappointed & outraged at sardars compensation blindside where he proposes to take a 25% cut of book value growth above a pathetically low hurdle rate of 5%. i'm one of those. when i bought in to sns shortly after sb became chairman/ceo i thought i had found a stock that i could hold for (almost) ever.... a rare compounding machine run by an honest, talented operator & capital allocator. that comp scheme was a bolt from the blue, right between the eyes. a total game changer. i cant recall ever being so shocked & disappointed. especially as someone who prefers one decision stocks that can be held for a long, time bought at a decent price. i prefer those over ostensibly cheaper stocks trading at a temporary large discount but which perhaps lack a sustainable abilty to earn high returns over time, & therefore begs to be sold when the valuation gap closes. its just a particular quirk of mine. but i see no need to view sardars record of other accomplishments in a diminished light as aresult

i've been doing the same in my trading account, mostly by selling index puts that have gone deep in the money & picked up delta against a basket of long stock. i'e also sold some longer dated atm calls, sparingly tho, always making sure i have the cash available to handle the possible eventual assigment. its a margin account, but i never leverage it. i basically consider my hedged trading account an alternative to holding cash....more risky but with the promise & potential for far more return. mean while, in my investment account i am slowly putting the tons of reluctant cash to work that came about after the sale of of former largest position, the former co known as sns :(

sanjeev def made the right decision removing the former sns from the company of those two other august names, berkshire & fairfax. it just doesnt belong there in the end. so much potential wasted, done in by the twin vices of greed & hubris.

thnx for that. it will be interesting to compare methodology with alice's back in the day. at a weighty 64 pages its gonna be a slow slog for moi, tho!

this has been a very informative thread....thx guys! has any one looked closely at flagstone re, mark byrnes reinsurance co? seems to have a similar model to LRE, tho they have a very short history to go by, so the jury's still out. i've bought a small pos...would have bought much more but i didnt like the way they ran things on the asset side going into the recession, ie investments. i would have thought that mark byrne would be a tried & true value investor type, but was surprised & dismayed to see fsr adhering to a weighted asset allocation model driven by statistical research. when the markets plunged they sold stocks, saying something to the effect that they were no longer safe or appropriate. methinks they are a bunch of quants over there! well, that might be fine on the underwriting side anyways...and as they have lowered their risk appetites on the asset investment end maybe they can drive attractive long term returns from superior underwriting without risk of undermining those with bad investment results. and i'm definately going to consider LSE after what i've read here. finally, i just checked the fidelity website & found they do offer some international trading. so for those of you at IB that have said you arent quite happy with the account fees etc here's a link to what fidelity offers on the internation front: http://personal.fidelity.com/global/search/inquira/resultsindex.shtml?question=london stock exchange

i agree with your point about the put writes eating up margin & having the cash reserves to cover the potential assignment. i prefer to wait until the implied volatilities pop upward a bit more tho. of course, if that happens then luk will most likely happen to be in a down trend as well. i'll be mildly interested between 20-22, which is when i generally look to sell a few puts at a lower strike. at 18 i'll be seriously interested...then i'll want some stock...or if i've sold puts some sythetic stock via the purchase of calls. btw, i was very disappointed to see them farm out such large sums to those outside investment firms. i hope that young buck justin wheeler whom they just appointed head of the asset mngt group division will give them good reason to re-think that going forward & bring more of their investment activities in house. in the past they've been highly successful with their direct investments, but they've shown a reluctance to engage in it broadly...they've done mostly control or high influence investments with board representation in the past. maybe thats about to change?

i'm always up for a fresh take on brk. its only a token holding of mine these days, so i dont do spreadsheets of my own on it any more. will be interested to see any pro-forma analysis of the impact of brk's acquisition of bni if your current analysis includes that.

good to see! patrick & overstock are ones i'll always keep a fond eye on....just dont have the confidence to invest long term. trading it in small doses, sometimes, maybe. but for all PB's brilliance, he seems to lack the discipline to build on small, measured incremental gains. during good times he seems to be prone to a swing for the fences optimism that then needs to be reversed with a sort of mea culpa retrenchment back to basic blocking & tackling...again & again.

wow wee, he's sure hitting the cover of the ball lately, & doing it with less risk in terms of a less concentrated portfolio....especially crucial when you're a fair number of cigar butts vs best in class type co's. nice going.