ExpectedValue

I spend quite a bit of time talking to developers. The consensus is that Apple's iPhone is still the most popular mobile. What Google is doing is coming out with many different mobiles, at different price points. That works to an extent for giving them more market share. But, when you look at things from an applications perspective - if you are a developer hoping to get rich, the iPhone is the mobile to develop for. You are only focusing on one type of phone and the display is standardized so your apps tend to look and work better. I know a lot of developers who have personally moved to using Google phones, but it is mainly due to that company's embrace of open source software. They still develop for the iPhone.

Thought some of you might find this interesting since we were discussing MSFT/APPL

a downloadable version: http://www.scribd.com/doc/34107224/ECReflectionsontheSovereignDebtCrisis

Plan B did not work so well when he invested in financials.

I think the team at McDonalds has done a phenomenal job in returning cash to shareholders and turning things around after hitting lows back in 2003. Imagine you purchased one share of McDonalds back in 2003 for $13. What's happened since then? As a shareholder, you've received about $8.90 in dividends. Buybacks have reduced outstanding share count from 1.262M to 1.077M. And operating income has come up from $2,835 to $6,841. Plus, the mix of company owned / franchise stories ratio has declined from 36% to 24% (improving ROIC). Oh yeah - and now your share price is now at $66.

I have a buddy who is a macro trader that recommends this book: http://www.amazon.com/Exchange-Rate-Determination-Forecasting-McGraw-Hill/dp/0071415017/ref=sr_1_4?ie=UTF8&s=books&qid=1278011521&sr=1-4 Written by the leader of the number-one-ranked foreign exchange rate research team in the world, this exhaustively researched yet fluid and reader-friendly book covers tools and methodologies used to forecast exchange rates over different timeframes including: Short-Run--Tools examined include moving-average trend-following trading rules, sentiment and positioning surveys, FX dealer customer-flow data, and more Medium-Run--Macroeconomic indicators examined include trend in real interest rate differentials, current and capital account balances, relative monetary and fiscal policies, and more Long-run--Forces that give rise to long-term cycles are discussed, including relative productivity growth; trends in a country's terms of trade, savings, and investment; and more

I thought this was interesting, JNJ versus 10 year treasuries: http://highway6.com/images/58318351ccb7388fac6cfa0c46e88229.png I go into a bit more detail here: http://streetcapitalist.com/2010/06/30/value-in-large-cap-stocks/ But overall, I think large caps are representing good value right now relative to everything else that is available.

Microsoft is probably going to go the way of IBM. Its consumer lines will gradually be eroded by Google and Apple to the point where they abandon them and then retrench to make software for the enterprise/business segment. For an investor, this obviously presents an issue - I would guess that over the next 10 years FCF will decline, so I think it will be a mistake to not handicap for that when you do your analysis.

Yep, the audio is bad. I listened to the presentation a few times (using headphones) and wrote out a transcript of the lecture. This is not exactly what was said but I think it gets quite close: http://streetcapitalist.com/2010/06/24/li-lus-2010-lecture-at-columbia/

Where can you find Graham's analysis of US Steel and American Radiator? Is that in Security Analysis?

I think that quote is an over-generalization. I have a feeling that Buffett is really referring to ignoring analyst recommendations. After all, Buffett got his Korean flour mill net net investments from a book put together by Citi. Sometimes sell-side research can be pretty awesome. I remember reading one about a regional bank, where the analysts got into a car and visited areas around Ohio where they were having their biggest loan losses, to give a more clear picture of what was happening. Since I'm based in Texas, that kind of research can be helpful.

I agree - I doubt it. My guess is that Wendys was being looked at by PE acquirers, the sector seems a bit hot right now for them (the recent CKE acquisition). I would imagine that Sardar's goal at AAP was to go activist and press the company to enact similar changes as Eddie Lampert pressed for over at AutoZone

A number of problems have been pointed out about this study: http://www.fivethirtyeight.com/2010/06/are-you-smarter-than-george-mason.html

Just discovered this site: http://lab.arc90.com/experiments/readability/ Looks pretty interesting to help reading.. not sure how well it'd work for 10Qs etc though.. I use Readability and it is great for reading long newspaper articles or documents. Not so great at reading 10Ks, it will almost assuredly mangle any tables in the document.

I think some people on this board look at CNA and think it must be good because the Tisch family is involved... but that is really not the case and its a bit of lazy analysis.

I download the documents in the form of PDFs and throw them into a program called Skim. Skim lets you go through and put digital sticky notes / highlight / take notes on PDF files. This does not get around the whole eye strain issue, but what it allows you to do is tear through a PDF document so that you end up with a few pages of notes that you can review.

Relatedly, I think there might be some opportunities on the shipping side instead of drilling. At these prices, Tidewater (TDW) looks pretty cheap, they have a great balance sheet, international operations to offset from the gulf moratorium, and a good history of capital allocation. Over the last decade they have refashioned some of their oil shipping vessels and resold to other acquirers.

I don't think you are allowed to buy back shares while you have an outstanding exchange offer.

Republic Services

This is flat out incorrect. For a period after the 1930s, Coca-Cola slipped behind Pepsi in terms of sales when Pepsi decided to increase the size of their packaging while maintaining the same price. Furthermore, Coca-Cola has improved/modified their formula over the years with small iterations. The company could have been behind even more, had it not been for Roberto Goizueta. I believe Warren Buffett's own investment in Coke only occurred after the changes guided by Goizueta. I'm reading a book about Coke at the moment and would be happy to provide you with passages and page numbers.

Sony walkman didn't have a lock on the cassette format. Nor was there a distribution moat since you couldn't connect to them all via the network. Here's the thing. Apple has 3 big businesses: Computers, iPods, iPhones. The first it owns 3-5% marketshare, the second it dominates, the third it has a lot of smartphone market share, but that's a small small percentage of the total mobile market share. ie. In spite of it's size, there's still room for growth. Apple doesn't have a lock on the mp3 format. I have a creative ZEN mp3 player and I have 1400 songs on it, none of which were purchased from Apple. They certainly don't have any lock on either the hardware nor the music formats. I regularly listen to audiobooks and podcasts on my ZEN without a problem. In fact I don't think I've ever regretted not paying more for an iPod. Especially since buying my kids iPods recently and seeing that they don't do anything my ZEN doesn't. I've owned creative mp3 players for about 5 years now, my current one is my 3rd. Every time I look to buy a new one, they are always cheaper than iPod. As for computers I have the best of both worlds, a dual boot system running Ubuntu Linux and Windows XP. I do almost everything on Linux and I have winXP running on that same machine for when there is something I need windows for. For instance, I prefer photoshop to Gimp and the software my company requires me to use to work from home only runs under Windows (which is strange, because my machine at work that I log in to runs Red Hat Linux). Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. I understand that for some, form>function, and these people are willing to pay more for boutique-type products that look good. That is a legitimate market niche that Apple has taken advantage of. It isn't for everyone though, and they certainly don't have a "lock" on anything. And you represent like what -- 1% of the population? Most people I know aren't using Ubuntu or Zen mp3 players. I'm know for sure that there is a segment of the population that refuses to drink carbonated beverages, does that make Coca-Cola's moat weaker? No, because most people drink some kind of coke product. The fact remains that Apple has leading market shares in mp3 players and smart phones. In addition to that, they pretty much monopolize content distribution for those devices. Yes, you can hack other solutions out, but most people do not do that. That is the big difference between what Apple is doing versus what the Walkman had. The Walkman was purely a music player, they didnt get a cut of the content. Actually I only represent about 0.00000001493% of the population of this planet, as do you. But I was just saying that they have a lot of market share, but they don't have a lock on anything. It is appropriate that you used Coke as an example. No one would say they have a lock on the beverage industry. Like Apple, they have a strong brand with large market share, but that is all, anyone who wishes can drink carbonated beverages their entire lives without ever drinking a Coca-cola product. All it would take to bring it down is a few years of poor management or, in Apple's case more than Coke, a change in technology that the company was late implementing. Steve Jobs isn't going to be around forever, and Apple almost disappeared the last time they lost him. Also, holding on to your brand in the rapidly changing technology sector is a completely different thing to holding on to it in soft drinks. When is the last time you saw an Admiral TV? W.E.B. doesn't invest in tech companies, because of the unpredictability. I'm a digital ASIC design engineer and I don't invest in tech companies either for the same reason, not even the one I work for. --Eric It's a bad idea to put broad rules like refusing to invest in tech because WEB does not. After the bubble burst, there were a number of tech companies with clean balance sheets, tons of cash, that were trading below NCAV. These were wonderful opportunities. Even Apple traded around that level. I'm not saying Apple is a buy right now, or that I'd ever invest in the company, but your blatant refusal to acknowledge their moats is pretty questionable. You can toss out old names of tech brands all you want, most of them are apples to oranges comparisons. Just like the Walkman, Admiral TV may have sold a lot of TVs in the past, but they weren't also getting a cut of the distribution as well. I just don't see how you can ignore all the switching costs they put in place - if you buy an iPhone and decide to switch to a Blackberry, the money you spend on applications is down the drain. Same if you get an iPad or even iPod (which limits music transfers) you don't totally have control over what you buy and as a result you become more tethered to Apple. It's pretty powerful. I can understand that there are some people in tech who absolutely disdain Apple and their cultish-following. But as a value investor, you should be willing to set aside your biases and give props to a good business model when you see one.

Sony walkman didn't have a lock on the cassette format. Nor was there a distribution moat since you couldn't connect to them all via the network. Here's the thing. Apple has 3 big businesses: Computers, iPods, iPhones. The first it owns 3-5% marketshare, the second it dominates, the third it has a lot of smartphone market share, but that's a small small percentage of the total mobile market share. ie. In spite of it's size, there's still room for growth. Apple doesn't have a lock on the mp3 format. I have a creative ZEN mp3 player and I have 1400 songs on it, none of which were purchased from Apple. They certainly don't have any lock on either the hardware nor the music formats. I regularly listen to audiobooks and podcasts on my ZEN without a problem. In fact I don't think I've ever regretted not paying more for an iPod. Especially since buying my kids iPods recently and seeing that they don't do anything my ZEN doesn't. I've owned creative mp3 players for about 5 years now, my current one is my 3rd. Every time I look to buy a new one, they are always cheaper than iPod. As for computers I have the best of both worlds, a dual boot system running Ubuntu Linux and Windows XP. I do almost everything on Linux and I have winXP running on that same machine for when there is something I need windows for. For instance, I prefer photoshop to Gimp and the software my company requires me to use to work from home only runs under Windows (which is strange, because my machine at work that I log in to runs Red Hat Linux). Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. I understand that for some, form>function, and these people are willing to pay more for boutique-type products that look good. That is a legitimate market niche that Apple has taken advantage of. It isn't for everyone though, and they certainly don't have a "lock" on anything. --Eric And you represent like what -- 1% of the population? Most people I know aren't using Ubuntu or Zen mp3 players. I'm know for sure that there is a segment of the population that refuses to drink carbonated beverages, does that make Coca-Cola's moat weaker? No, because most people drink some kind of coke product. The fact remains that Apple has leading market shares in mp3 players and smart phones. In addition to that, they pretty much monopolize content distribution for those devices. Yes, you can hack other solutions out, but most people do not do that. That is the big difference between what Apple is doing versus what the Walkman had. The Walkman was purely a music player, they didnt get a cut of the content.

Actually, Apple is doing a pretty good job in digging moats around computing. If the iPad ends up being successful, they will essentially have a tollbooth around computers - you want to develop an application for the iPad? You have to give a cut of every sale to Apple. This is pretty powerful. They have already had a lot of success with doing this on the iPhone and iTunes. You use the devices to control the market and then put tollbooths around the devices via your content/application markets. With iAds they are poised to get a commanding share of the advertising market that is created for mobile phones. I'm not saying Apple is a value stock. It isn't. But calling it a bubble stock is premature. The company generates something like $10B+ in FCF per year, has $41B in net cash (more than Microsoft). It is pretty telling that Apple doesn't even consider Microsoft as much of a competitor. Apple views Google as its biggest competitor as both companies are betting on computing shifting towards mobile devices.

I think it is unwise to cite Kobos 'free books' stats because those are usually public domain books where there is usually a good deal of double counting. I agree with John - something like the Kobo stands little/no chance of gaining any meaningful market share when you have Apple and Amazon putting out their own products.

If you think it is as easy as starting a website, you are sorely mistaken. There are a lot of less visible aspects to their service, everything from the back-end servers that handle content delivery, to the content distribution rights they have, to their pre-existing 14M user base. Those users contribute to the site with their reviews and also get back suggestions via the algorithms that analyze their rental and review histories. That's extremely beneficial when you have a huge library of content and want to promote usage of the service. Not only that, but they are also -ALREADY- paying users. You can't just replicate something like that with some start up website. It's similar to the intangibles that come from social networks that reach critical mass. Plus, there are some benefits to all the content being under one roof by a party that isn't owned by movie studios. Hulu is a good example of this. It is owned by media companies but they fight with each other; resulting in content being removed prematurely and the users of the site suffering.