ExpectedValue

The one thing I'd caution people on is you really need to adjust to running with these. A lot of people make the mistake of doing too much too soon and end up injuring themselves. It was a slower process for me - I used the Couch to 5K program to gradually run longer in them. It's helpful to watch the videos on youtube about Pose Running, a big part of switching to minimalist shoes is you need to switch to using a midfoot strike which takes some getting used to. The Pose Running drills really help with teaching you that. I use the Five Finger Spyridons for some of my runs, but also have a pair of Nike Free 4.0s for when I want to go a bit longer/have an easier run.

Have any of you set one of these up? Could you share your experiences? What custodian did you go with? Why? Right now I have an IRA through my work, which I invest mainly in equities, but I'd like the ability to invest in non-public assets too. Some of the custodians I've seen on google seem kind of sketchy or really high in fees.

Buffett has used analysts too - I think this is part of the role that Tracy Britt performs, also he had Ian Jacobs: https://www.santangelsreview.com/ian-jacobs-the-402-fund/

I try to pull historical data over the last 10 yrs or so and look for patterns. If there is on average some level of acquisition spend that seems sizable I will see what % of sales that is on average and use it to drive up my maintenance capex as % of sales to adjust for it. So for example, if capex is usually 1% of sales but acquisitions average 4% of sales annually over the last 10 years, I will calcuate maintenance capex as 5% of sales.

To me it comes down to figuring out what a company is going to earn, often there might be accounting nuances here because you'll want to strip out non-recurring expenses and other one time items to figure out the earnings power of the firm. Then it's a matter of making a call on growth and using that to discount your cash flows over time to arrive at a value for the company and see how it compares to the price. Once you've done this/understand this you can revert to something more shorthand like using a simple free cash flow multiple. These things can get tricky when you start thinking about growth rates, so it's best to be conservative and look for things with large margins of safety. Understanding the business is critical. If you underestimate things like the industry or competitive dynamics you'll almost always misestimate your normalized earnings power and growth rates, without those you're going to be in a tough spot when it comes to valuation. I think with things like comps or asset based valuation methods you really have to be careful. Comps to me are tricky because an industry's valuation might just be inflated because of some temporary phenomenon. When things revert, those comp valuations would compress. Asset-based valuations are tricky to me because you usually use those when things are going really really poorly. The way I always think about it though is that if the company cannot achieve an adequate return on capital with their asset, why should you think anyone else can? It's dependent though on what the asset is. Specialized equipment is different than a securities book. Book value is a poor means of measuring asset value. You also have to understand that management's incentives are not aligned with your own, so even if liquidation value is there, management might do whatever they can to keep their jobs and take their salaries.

This is doable, Andy Beal's Beal Bank is a good example of this. The disadvantage to using a bank-structure for float is going to come from the liabilities side as your deposits can walk easier, making your funding less sticky. Also, I may be incorrect, but I've heard that banks in the US are precluded from owning non-bank businesses.

I don't think the cost of education is as much as you make it out to be, at least in the state of Texas. Your real issue is the cost of living. For reference, I graduated from UT in 2009, so I've got some recent experience with this (and I used full loans during my time at UT). Tuition at UT hits an upper limit of around $10k a year. The remaining $15k of costs you cite (to get to $100k for a year) come from mostly room & board and other things related to costs of living. Most students do not incur the entire $100k debt burden on their own. In most cases, for students from middle class families, the parents will use federal parent loans to cover the costs associated with room & board, which will might be $13-16k a year. The student's loans will usually cover tuition and books, so call it $44k for the entire 4 years. Contrast that with a school like Baylor, where tuition is likely to be $30k a year or $120k the entire 4 years. --> Note that in Texas, there are programs like the Be-On-Time loan through the state, which should be applied for for financial aid. This is a really good program because it will cover at least some of tuition in the form of a loan (0% interest, fixed) that is converted to a grant if you graduate within 4 years. If the student graduates with $44k in debt I don't think it's too bad. The only time I think you end up with cases were the student is taking on $100k in debt is if their parents have some kind of poor credit or are simply unwilling to help shoulder the burden by taking on parent loans for costs of living. In this specific case, the student really ought to make different arrangements. This might include going to a commuter school, using community college to do their first 2 years of college, working while going to college, something like that to reduce the costs. The costs of living expenses are a highly variable aspect of all of this. Even though the school might forecast $15k a year on this, it can be dramatically reduced, depending on how frugally the student wants to live during college. For instance, after a year in the dorms at UT I opted to go to an apartment with friends. My dorm's monthly fee was $850 for rent and a meal plan. Living with friends shifted that to $400 rent and $200 in food, so a savings of $250 per month. I was still within walkable distance to campus too.

I think the Trader Joes versus Whole Foods debate comes down to market segmentation. I live in a part of town where Whole Foods and Trader Joes are pretty much right next to each other. I almost exclusively shop at Whole Foods. Why? Whole Foods (at least to me) tends to have superior produce and meat. I mostly buy vegetables and stuff from the butcher's counter, so everything else is less relevant. What I've noticed, from going to both stores, is that the Trader Joes crowd tends to be made up of students. Generally they've got less income and are seeking convenience, so frozen meals, snacks, processed foods, and cheap booze of course are kind of what they're after. A good piece of meat or really high quality vegetables are less relevant to them. So I don't necessarily see Trader Joes destroying Whole Foods' business, I think they can knick away at some parts of it (I see some people walk into my Whole Foods with bags from Trader Joes for instance) -- but unless it's an area that consists solely of college students I don't see it doing that.

I don't think you should attribute CN to Gates, that's more likely a Michael Larson of Cascade pick.

I would just say this - The traditional routes into the buyside typically come from either working ibanking or equity research. They typically stick around for two years and then leave. There are some people on this forum that took a non-traditional route to start managing money, but they're really the exception, not the rule and as a result they tend to have a skewed perception on this kind of thing.

Canadian sites are Kitimat and Douglas Island, should add up to just shy of 1 bcfd. US sites that should be operational by 2017 would be Cheniere/Sabine Pass and potentially the Freeport LNG terminal. That's 4.4 bcfd. To give context, US nat gas production is around 70 bcfd right now. Trucks could be pretty helpful, I estimate they can do around 11 bcfd in additional demand but there's no really time horizon set for that, I doubt it will happen by 2017. Keep in mind that there's plenty of really cheap gas out there. Only about 33% of current production comes from dry gas wells. The rest is coming from wells where you get NGLs or oil, where the economics can be much friendlier. When you look strictly at dry gas wells, it's really tough to beat the Marcellus, that can really ramp up and add -A LOT- to supply while being economical at $3.50-$4.

I interact with a lot of sell side analysts and do a decent amount of calls with them. I don't think starting out in equity research is a bad gig. People like to make fun of analysts for their price targets and I agree, those are generally not too great (they tend to be very short term-focused). But some analysts really have a great, in depth knowledge over the industry they cover and I enjoy reading their stuff. When I talk to analysts, I'm much less focused on asking them about valuation and instead use most of my calls to learn how industries work. For this, they tend to be very good.

I wouldn't look to a concentrated investor's stake as meaning a business is particularly strong or not a fraud. Pabrai was a big Delta Financial and Pinnacle holder, both of which turned out to be 0s. On the point of frauds, look at the Chandler Bros and their Sinoforest investment or Southeastern's Olympus investments. What about CV Starr's chinese fraud investments? In regards to the dividend, while you all are correct about the yield being high, sales and margins seem to be on a downward trend, what if mgmt chooses to save their jobs at the expense of shareholders? The company seems to be diluting owners already, what if they choose to acquire a new business at a bad price in desperation to keep their jobs, rather than liquidate?

No, Diversified Retailing was an actual company. He's not using that to refer to Tesco

I was wondering if anyone knew about Chris Stavrou and his Stavrou Partners fund. Would be interested in learning more about him and his approach to investing. I've seen him mentioned in the acknowledgements in Alice Schroeder's The Snowball and I think he appears in some old issues of OID.

Eddie Lampert deserves a mention here. Barring what has happened with Sears, AutoZone is a pretty clear example of what can happen when a company with pretty good underlying fundamentals is then influenced into making good capital allocation decisions. AN seems to be using buybacks intelligently too. I think over the last 10 years, AZO has reduced shares outstanding by 2/3rds which is pretty staggering.

So what? He didn't make the bulk of his money in his partnership days - he made the bulk of it through Berkshire. Buffett's a pretty smart guy and he must have realized that the easiest path for him to accumulate large amounts of wealth over the long term was not through running his partnership, but taking advantage of the inherent leverage of the insurance business. If you want to generate good returns for your personal account (or really small fund) you are much better off studying what Buffett did in his partnership days. If you want to become a multi-billionaire, you're better off studying what Buffett did with Berkshire and the Economist spells that out for you: He took advantage of the insurance structure's non-callable, low/0 cost leverage and bought underpriced high quality businesses. Leverage + high quality business = Good returns. That's it. You can't dispute it.

In the Economist article, they say that he bought high quality businesses that were down on their luck and amplified the returns on those investments with leverage from float -- what's incorrect about that? If you really sit down and study Buffett, you will see that is exactly what he did for the most part. Every 10 years or so when the market goes haywire, he's able to deploy capital into situations like the preferred deals he did during the financial crisis (he did similar in the late 80s) and generate extra returns, but for the most part it's all come down to levering up high quality businesses. Now these businesses do indeed tend to exhibit low beta traits, that's true -- but I think that's just caused by the fact that they're high quality businesses with stable cash flows (ideal for levering).

Does a business have a great moat if they have to constantly rely on acquisitions to maintain (not just grow) their cash flows? M&A is pretty tough and most people say that companies usually overpay for their acquisitions, it's something I've always wondered about in the context of Dell and HPQ.

That's exactly what I'm talking about. A guy can make a profit on it yet it might not be a value trade at all. It might just be a trader under the grand delusion of seeing a future that is just completely made up. But that grand delusion gives him the discipline to sell after a big rally because he believes it to now be close to intrinsic value. So to see if an investor really has the talent to spot a large discount to intrinsic value with a high degree of accuracy you do this to him: 1) Ignore his actual track record 2) Look at what he purchased 10 or 15 years ago 3) Based on the actual underlying cash flows of the past 10 or 15 years, use that information to see whether the investor is actually talented at all in terms of assessing intrinsic value This doesn't mean he can't make money as a good volatility trader. But it might be good for a given investor to be handed a report card that is grounded in reality. Some of them might actually be highly surprised because I doubt they audit their own results like this. Why does this matter? I still don't understand what you're getting at here. There seems to be this belief that value investing is all about buying something and holding it forever -- like Buffett has sometimes done. I think that's not correct. Value investing is pretty broad and practiced in different ways. Ben Graham's approach and Buffett's partnership days were more short term oriented, where you bought things at a low price and sold them when they hit fair value. That's all it was back then. Now people seem to think you have to hold forever which I believe just one flavor of value investing. Intrinsic value is not static, it fluctuates with time. It doesn't seem particularly insightful to think about "long term performance" of companies, because most companies die.

Companies that are cheap often have problems. Warren Buffett's high quality version of value investing is just one flavor of investing. Look at the distressed debt guys, they're value investors. They're good at sensing when the market overreacts and pounce on it. But I wouldn't be surprised if many of the companies they make profits off of eventually fall back down into bankruptcy and go away.

What does it matter? The academics wrote the paper discussing the investment results for Berkshire Hathaway. The results and drivers of those results are pretty simple to decompose. You had his great investing skills, amplified by his access to leverage, which allowed him to really grow book.

I think your point is irrelevant. There's actually more than one study (I read one by the guy who helped Einhorn start up his reinsurer), which points to the fact that a significant amount of Buffett's good investment results came from the "structural alpha" generated from the insurance operations. E.g.: low/0 cost leverage without the ability to be pulled during market declines. He still outperforms, even without it, but you can definitely see that a big chunk of the results came from being able to lever up returns.

http://www.treasury.gov/press-center/press-releases/Documents/tg40_capwhitepaper.pdf ^ I think that is it

http://www.mondaynote.com/2012/08/05/saving-private-rim/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A