ExpectedValue

the shift towards instant streaming will probably dramatically lower their expenses, take some time to look at how much they spend on postage right now. so the cloud is a major tailwind in their favor since they have invested in instant streaming boxes and their subscriber rates are climbing.

If anyone has any suggestions for this, feel free to shoot them my way. Hoping to put up the second post, the balance sheet, next week.

I agree, I thought his CDS primer was really great. I wonder if it made its way to the folks at Fairfax when they looked at doing the CDS trade.

I know that many of you have already read Michael Lewis' Vanity Fair article Betting on The Blind Side, The Big Short or The Greatest Trade Ever which all feature Michael Burry of Scion Capital. I saw that Burry's posts from Silicon Investor were still available and went through them. I found it to be a really interesting evolution of a value investor and think some of you might enjoy it: http://streetcapitalist.com/2010/03/24/learning-from-michael-burry/

to me, it comes down to the fact that bruce berkowitz runs a very concentrated portfolio while pushing $15B in assets. This really narrows down his universe of opportunities and makes plays like AIG/C which are contrarian but offer tremendous amounts of liquidity.

A friend recently attended a talk given by Prem Watsa, here are some of the thoughts. These are notes that were given me, so I am unable to verify their accuracy but from the sounds of it, these appear to be very much in line with what Watsa has said in the past: http://streetcapitalist.com/2010/03/03/prem-watsa-of-fairfax-financial-on-insurance-and-investments/

I think it comes down to a risk/reward for Berkshire. If you look back at 1987, he did basically the same thing, investing in a number of preferred / convertible securities. These kinds of bets probably make sense for a business the size of Berkshire because all he has to do is bet on survival and get paid handsomely at rates well above the market's.

Haha, I am actually a fan of this show as well. Partner is right, for every one question they answer they add 10 more. The Writers are pretty adamant on not answering every question.

Awesome Max, that looks about right.

If you look at the cover of the Buffett LEH report you see a list of page numbers and then what appears to be a compensation table. The problem is that the page numbers do not match up with the actual page numbers in LEH's 10K.

Serpico is one of Al Pacino's best movies

if you don't have access to sell side research reports, you can go back and find a list of asset manager deals, just by searching the newspaper and see what the multiple is yourself. After you get together a list of deals you will have a good feel for the price/multiple paid.

Similar filings at AZO and AN.

I used to have this mentality, but I discovered that listening to podcasts while at the gym is a good way to optimize my time. It would normally be time spent where I am unable to read (such as when I am lifting weights) -- so I may as well listen to the audio Economist or London School of Economics lectures. I also find most of the material interesting enough to motivate me to workout longer. Ex: the other day I spent another 20 min on the treadmill because I was listening to a great LSE lecture on the Greek banking system.

I always thought that Klarman would be an ideal CIO. He really has a good ability to avert risk taking and build cash when things get overheated.

http://www.zerohedge.com/sites/default/files/SocGen%20-%20worst%20case%20debt%20scenario.pdf http://highway6.com/images/0a81bebbbd138f8e5ff387f1abebebd8.png

Bruce Greenwald’s comments on the BNI deal (link: http://www.advisorperspectives.com/newsletters09/46-greenwald3.php): I know you own Berkshire Hathaway, so I have to ask you what you think about Buffett’s purchase of Burlington Northern. It’s a crazy deal. It’s an insane deal. We looked at Burlington Northern at $75 and I’ll give you the exact calculation we did. You don’t have a high earnings return. They are paying 18 times earnings, but it’s really much worse than that. They report maintenance cap-ex very carefully. They report depreciation and amortization, and they report only about 70% of the maintenance cap-ex. So they are under-depreciating, and their profit numbers are lower than the true profit numbers – and in a bad way, because the tax shield for the depreciation is undergone too. Their profitability is much lower than it looks. Buffett’s paying 18-times [at $100/share] and at $75 he was paying 16-times. Our calculation is he was paying 21-times. Secondly, there are two kinds of assets. There are the rights-of-way, which you can’t get rid of. So there’s no issue about having to earn a return on them because you have to keep it in the business, and because there’s nothing they can do with those rights-of-way. If you look at the asset value of the non-right-of-way equipment, and you write it up because it’s more expensive than it was originally, you get an asset value that’s very close to the earnings power value. We didn’t see a lot franchise value or hidden asset value. The other thing is that if you try to calculate sustainable earnings, you have to cope with the fact that earnings are up enormously since 2003, when oil went up. There is a simple calculation you can do, which compares the cost-per-ton-mile for freight for a truck versus a railroad. If you build the increase in the price of diesel fuel into the post-2003 experience, when revenues suddenly start to grow, what you see is that the entire growth of the revenue is accounted for by the energy advantage that the railroads have and therefore how much business they can capture from the truckers, and how much pricing they can get because the competition is now more expensive. There is nothing special about the railroads. It’s entirely an energy play. If you look at what their margins should have gone up by, given the energy efficiency, the margins go up by only about half of that. So you don’t have a good aggressive management over these five years producing outsized returns. We looked back at when they did the merger with Santa Fe, because then they did increase margins. But they got bored with it, and margins started to come down. The same thing happened recently. We don’t see a lot of hidden profitability in the culture of the company. It looked to us like an oil play. He has a history of making bad oil play decisions. And that was at $75/share, we thought there were better oil plays. At $100/share we think he has lost his mind.

ill have a transcript by monday morning-ish

http://grab.by/ajV

Actually Sanjeev, Greenblatt just came out with an updated back test of his book's methodology, to take into account the recent turmoil in markets: http://info.formulainvesting.com/results/ +194% for Magic Forumula versus -20% for S&P

I think that valuing currencies is pretty tough... There are a couple books by Rosenberg, FX Determination and Currency Forecasting that deal with fundamental analysis of currencies. The fact is, you're going to be trying to figure out how two economies will be performing in the medium to long term, which is pretty difficult. Most successful global macro guys don't only take long term positions but are rather in the markets day in day out, trading daily. What that allows them to do is constantly test their opinions so that they can change their positions if their hypothesis turns out to be incorrect.

Yeah he's really bright, that's pretty much how he talks. I just spent couple hrs just writing down word for word what was said on the phone call and then I cleaned up grammatical errors.

Oh yeah, sorry about that. He couldn't answer the Citi question specifically because he didn't want to discuss that particular name. About provisions though, was that related to Citi or more broadly with banks? Basically, he re-iterated over and over that bank provisions are going to vary based on factors of geography and loan composition. In general, if a bank did mostly early stage credit loans, then provisions will likely go down as time progresses because those problems are/have been worked through. For banks with a higher concentration of later stage credit problems, provisions may have to go up. I don't know if that helps any.

A lot of you submitted questions to me for this, I tried to get everyone's questions answered: http://streetcapitalist.com/2009/10/14/my-interview-with-the-bank-analyst/

Great questions! Adding them to the list