tede02

I agree with most of the comments here. I think it really just comes down to opportunity cost. If you are weighing a stock buyback against a specific acquisition, what offers the most attractive risk/return opportunity? That seems to me to be the fundamental question. It seems like stock buybacks are very hard to accomplish at good prices. Most businesses have cash and profits at the top of the business cycle. That likely corresponds with a high stock price. When the economy contracts, stocks can get cheap but most companies want to hang on to cash and de-lever. It seems Steve Jobs missed out on a big opportunity to buy back a lot of Apple. The story I've read is when he started running into the problem of having too much cash, he called Buffett and asked what to do. Buffett asked him if his stock was undervalued and he replied "yes". Buffett suggested he buy-back company stock but Jobs never acted on the advice. I also wish Berkshire would have bought back more stock a few years ago when it was trading around book value. Buffett knew the company was significantly undervalued (and said as-much) yet he only bought back a trivial amount in the open market and a block of shares from an old shareholder who died.

Reading Greenhaven website. Very interesting.

http://www.wsj.com/articles/opec-sees-oil-price-below-100-a-barrel-in-the-next-decade-1431347035 This was in yesterday's WSJ. Type the title into google if you can't get access directly through the link. I've been reading more about the fossil fuel markets and oil and gas industries generally in recent months. I've learned how many variables drive the supply and demand factors (they are countless). This may seem obvious to some, but I've also learned how close fossil fuel production and consumption are in terms of volume. In other words, the world produces about 90 million barrels of oil a day and consumes about that. The slightest imbalance can cause prices to rise or crash extremely quickly (as we've witnessed recently). I think some people have gotten overly excited with OPEC's proclamation. Perhaps their policy is to keep oil prices under $100 per barrel. But, from what I've learned, the volatility in oil prices (and fossil fuels generally) isn't going to change. Changes in technology, world economics, politics, etc. are far more powerful than OPEC in their ability to disrupt supply and demand (especially quickly). From an observational standpoint, its just amazing to me how oil prices in 2008 nearly reached $150 per barrel only to drop under $40 within about 12 months. And of course last year, prices went from over $100 to around $50 in about six months. My view is this extreme volatility isn't going anywhere.

Interesting little blip in today's WSJ..... http://www.wsj.com/articles/moneybeat-deals-are-getting-dear-1429493348 16.5 The average Ebitda multiple firms are paying to acquire U.S. companies this year, the highest on record. Not only is U.S. deal making surging, so are valuations for U.S. companies. Buyers are paying 16.5 times earnings before interest, taxes, depreciation and amortization, or Ebitda, for companies. That is the highest level since 1995 when Dealogic began tracking the data, according to Dealogic, and easily exceeds the previous high mark of 13.3 times Ebitda recorded last year. Rising U.S. valuations also have lifted the average valuation globally to its highest level on record. The average enterprise value to Ebitda multiple stands at 12.4 world-wide. Enterprise value represents a company’s stock market capitalization minus a company’s cash, plus its outstanding debt. The increase in valuations comes as deal activity is surging. So far this year, buyers of U.S. companies have announced $448 billion worth of acquisitions. World-wide, $1.08 trillion worth of deals have been signed. Both are at their highest levels since 2007. Yet buyers are paying just 25.2% above where the sellers’ shares were trading the week before the deals were announced. That stands as the third-lowest level for a year on record, according to Dealogic. With U.S. stocks hovering near record highs, but having lost some of their momentum, and the Fed looking to raise rates for the first time in nine years, the modest premium suggests sellers aren’t holding out for an even richer payoff.

I would be very careful with REITs at this stage. We are a long way into the current cycle and prices have been juiced by additional factors, low interest rates and foreign money in particular. Non-traded REITs are likely abhorred by most on this board and there is merit to being skeptical of them generally (fees are high and lots of conflicts of interest exist with the outside managers). That being said, one portfolio I like is KBS III. I primarily like it because the REIT bought its first property in 2011 and has continued to raise money and purchase properties throughout the real estate recovery. The year 2011 was right at or near the bottom of the real estate market and thus a significant amount of this REIT contains properties purchased at attractive cap rates. I also like the manager of the portfolio, Keith Hall. As I understand it, Hall worked at Drexel Burnham with a number of people who eventually ended up at Oaktree Capital. Hall implements a value strategy. He likes properties that are not fully leased because he can buy them cheaper, inject capital if needed, and bring the occupancy up to increase cash-flow and therefore value. The current dividend is over 6%. I think some margin of safety exists mainly because of the timing the portfolio was assembled (it seems like the probability for some capital appreciation is good). However, I wouldn't expect any huge total returns. My anticipation is in the upper single digits annualized over time. The high internal expenses of these instruments really act like gravity on returns. Because this is non-traded, you can still buy today at a fixed IPO price. However, keep in mind you don't have liquidity with these instruments either. Full disclosure: I am a shareholder.

Good video. Nothing I haven't heard from Greenblatt or Marks before. However, I think Greenblatt's advice to look where others aren't looking is spot on and can't be repeated enough. The big boys simply can't play in the "kiddie" pool and the "kiddie" pool is actually huge if you're an individual investor. I also liked how Greenblatt addressed the idea that today its a lot harder to deliver returns because more smart people are involved, technology, etc. Greenblatt basically said that although its true more smart people are involved today, the ones who are really good typically get too big very quickly. Therefore, they can't play in small & micro caps for example. In other words, his view was that there are new people always recycling through and making the same mistakes all novices make.

Check hotels in Council Bluffs and west Omaha. Those will likely be your best shot.

Good discussion. My experience with exercise is the same as Oddball and Merkhet described. When I'm working out a lot, I can strangely get by on less sleep (I'd say about an hour less). On average I work out 3 days per week. However usually a few times a year I'll turn it up for a few weeks or maybe a month and workout 5-7 days per week. This is when I really notice the difference (more energy during the day and less required sleep).

Always wish I could get by on less sleep. I read about some of these people who can get by on 4 hours or less and wonder how its possible. I've found that I really need about 8 hours on average to be 100%. I can go with less occasionally, but if I need to concentrate and do a lot of reading, I need to be rested. Wasn't sure if my question should read how much sleep do you "get" on average or "need".

Nice to see a large publication continue coverage on Freddie/Fannie. For better or worse, you would think more attention would add pressure and lead to a quicker resolution.

http://www.gurufocus.com/news/327623/warren-buffett-exclusive-interview-

Jason Zweig's WSJ column today has some interesting numbers on indexing. Zweig, who generally trumpets indexing, does a good job laying out the trade-offs of active vs passive in this brief column. A few good quotes by Jim Grant and Howard Marks. Nothing ground breaking here but I just thought the article read very nicely and the numbers on indexing's impact on the overall market were interesting. http://blogs.wsj.com/moneybeat/2015/04/03/investing-in-stocks-against-the-indexing-goliath/?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird

Thanks Nate. The part about ego is interesting and there is no doubt in my mind that its a reality. On the podcast your point about stocks with market-cap <$1 billion resonated with me (I believe Greenblatt has talked about this as well). I think you're right-on about the little guy being able to gain an advantage in this area of the market. I also really liked the point about smaller businesses typically being less complicated. Last question, what is your preferred stock screening tool(s)? One thing I've tried to find without success is something that can find all the publicly traded companies in a specific geographic area. For example, I live in the Minneapolis area. It would be nice to be able to pull up all of the publicly traded companies within the state of Minnesota. Thanks, Ted

Why does a company like PDRX even have publicly listed stock? The company is so small, why even bother? Same goes for a lot of the microcap banks. Any thoughts?

Congrats on your ongoing success! Really enjoyed the podcast!

"Value" strategies certainly have not performed well relative to the market or other strategies if you go back to 2009. Would others agree that this should not be a surprise? It seems that value naturally would underperform in a strong bull market, particularly in the latter stages when multiples get lofty. Value investors are most likely to avoid the sectors that are driving market returns because chances are they are trading at lofty valuations (and can often get loftier as the crowd chases the bull). This is going to drag on relative performance, in the short-term. I think those with a sound process and strategy will be redeemed when the bear finally returns. Many of the shareholder letters I've read from fund managers echo these sentiments. Steve Romick of FPA Crescent had a lot of valuation data in his letter to support the funds conservative positioning. I think he makes a great case even though the fund has suffered in the short-term.

Agreed. I've never read Security Analysis completely through because of this. However, I am curious about the newest version with the updated commentary by today's gurus.

Around the 53 minute mark, he discusses some of the issues around indexing that I've been thinking about and have been discussed on this board.

Excellent video. One of those that I could watch many times over. Thanks!

I was looking at this too and listening to what Buffett said on CNBC this morning. It basically looks like a double, DAY 1! That certainly seems like a hell of a deal for Berkshire. I think it's more like a double, Year 2. Also, on the "2. Over the longer-term, Kraft should be able to leverage Heinz's international distribution. " point - there are certain brands - Philadelphia Cream cheese for example - that Kraft did not retain the International rights to. Perhaps Mondelez will make a deal to send them back to Kraft, but there may be a few brands like Philly that can't just be plugged in to the Heinz international distribution network. Good point on the 2 year double. I'll still take it! ;D

I was looking at this too and listening to what Buffett said on CNBC this morning. It basically looks like a double, DAY 1! That certainly seems like a hell of a deal for Berkshire.

I would suggest reading Nate Silver's "Signal and the Noise" for some context around forecasting the economy. You only need to read the chapter on economics. Anyway, I personally view recessions as inevitable, but unpredictable. The stock market doesn't even really correlate all that well with the economy. Take a look at the attachment here. I've posted this before, but I created a worksheet that compares GDP and stock market growth annually going back to 1950. It's very interesting and may be helpful. All that being said, my wife and I max out our 401k through payroll deferral. That money is systematically going into the market. My wife and I also do Roth IRA conversions every year which equates to $11k. Additionally I try to build up my taxable investments annually at a similar rate. My mentality is our 401ks are buying into the market over time. I don't spend any time monkeying around with them. However, with the Roth and taxable savings, I allow that to build up in cash until I find something that seems attractively priced. This is also the cash that sits and waits for the next correction. To me it seems like a nicely overall balanced strategy. Recessions_and_the_stock_market.xlsx

Two trends that seem as if they could hold asset prices up for a while are low interest rates and instability around the world. As long as interest rates stay low, I will not be surprised if risk assets hold up or go higher. Everyone is desperate for yield. As Howard Marks said the mentality goes, "If I can't get safe yield, I'll just have to get unsafe yield." Further, I've read that lots of foreign money continues to pour into the US because it is seen as a safe haven throughout the world. Ongoing capital flight from Russia has been well reported. I'm sure anyone with money in the middle east has taken action to get it out of there. And lots of concern continues to surround Europe, particularly the southern countries. I keep tabs on Shiller's CAPE ratio and market cap relative to GDP. Both are very high from a historical perspective. But I always remind myself that just because assets are expensive, it doesn't mean they can't get more expensive. That's what's interesting about markets, there are really no "rules" like there are in science. Really crazy things can happen for a long time.

I would love to see an updated episode of this titled, "Where are they now?" Here's an article on what happened to Garrett Van Wagoner: http://www.wsj.com/articles/SB10001424052748703954904575109840731853782

As I recall, Alice Schroeder has said straight up that Buffett doesn't use DCF. He agrees with the concept, and has mentioned the John Burr Williams theory many times. However, as I understand it, he does not literally use DCF or any modeling. Actually here's the clip of Schroeder talking about going through all his files when she was writing the biography and never seeing any modeling, cash flow projections etc.: The one thing I've learned is if you are spending a ton of time trying to project cash flow, discounting, etc., that should be a sign in itself that the price is too high. During a shareholder meeting a few years back, Buffett's words were, "It has to be obvious." I think its good to play around with DCF to see how small changes in both growth and discount rates can have huge effects on your calculations. Playing around also gives you a sense of what various cash flow streams are worth generally. But literally applying DCF, in my view, is just a waste of time. There are too many variable. Munger bought Wells Fargo a day from it hitting bottom in 2009. When asked about it, he simply said he had to buy it because, "It was too cheap."