tede02

Gio, how much time do you spend on investments vs. running your businesses let's say on a weekly basis? Also, how much time do you devote to an individual idea, on average, before making an investment? This is something I always struggle with. Thanks, Ted

I always understood that some real estate was carried on the balance sheet of corporations at cost. I recall Seth Klarman talking about this as something that investors need to understand because of the potential for an asset that may be far understated on the balance sheet. I'm trying to remember the context of the discussion. I think the classic cases are where companies have owned large tracks of land for decades. There were a few instances here in Minnesota that may be good case studies. Back in 2008, the state purchased several thousand acres from US Steel in northern Minnesota to turn into a state park. I believe the company had owned the land for many years. Also, a Ford plant that had been in operation since the 1920s was closed in 2011. The plant was right in a nice area of St. Paul along the Mississippi River. I believe its now mostly been leveled and is being redeveloped. Both of these properties surely had dramatically appreciated in value since they were purchased. Not sure how they were carried on each respective company's balance sheet.

LOL! ;D

Good interview with Steve Ballmer: http://www.charlierose.com/watch/60463433 He was very forthright with the fact that he owns two investments, Microsoft stock and a global index fund. This is right at the 6 min mark in the interview. That was just kind of interesting. The entire interview is pretty good. They discuss the Clipper's deal, Ballmer's history with Microsoft and the tech industry generally. I also learned that Yahoo had a chance to buy Google for $1b in the early days and they though it was too much. These are always fun stories.

This is exactly why congress can't figure out how to get rid of Freddie and Fannie.

I have experience with Ameritrade, Schwab and Fidelity. Honestly, I've been happy with them all. However, I don't do a lot of fancy trading. Mostly long positions.

You must be an attorney ;D Hopefully most people got my point that the cost of capital to start a law practice is minimal. Not saying being an attorney is an easy path to riches. My dad and grandfather both (dad still practices) had their own law firms by-the-way.

One thing I should probably mention however is that even though many small service firms have no marketable value, they can be extremely profitable nonetheless. What's also nice is they typically take minimal capital to start. To be a lawyer for example, you basically need a computer, phone and an office. Even a lot of the trades require little more than a truck or van and a bunch of tools that are relatively inexpensive. In any of these professions you don't have to be a genius to make a pretty good living.

This is an interesting discussion. Munger also always says "invert." Some have already done this a bit, but what would be the worst business to buy? I would say the majority of small white collar and blue collar service firms are basically worthless (lawyers, chiropractors, accountants, plumbers, electricians, etc.). The reason is that virtually all of the value in these small companies rests in the relationships the owner(s) have with customers, suppliers, etc. Clearly that's why so many of these companies can be bought for the net assets on the balance sheet (and this may be over-paying). I've also worked in both retail and food service. The hours and margins of these businesses always suck.

Does anyone have experience with the paid version of GuruFocus? Is the paid version worth it? I'm always tempted to sign-up in January when they run their once-a-year promotion.

I am a subscriber. We use the service primarily for mutual fund data. I really like the service. I totally agree that the ranking system should be ignored. However, the tool is so handy for finding lots of information in one place as well as looking at comparative performance over custom time periods. I also used to look at my local library's Value Line subscription. Also a great resource, particularly for individual equities. I learned about it by reading Peter Lynch's "One Up On Wall Street." I think Walter Schloss used to rely on Value Line pretty heavily.

I've been using Quickbooks for about six years. It's the same software most small businesses use. I track all of our expenses so it works really nice. The software creates an income statement, balance sheet and statement of cash flows. Plus I can reconcile my bank and credit card statements which is handy. A CPA friend suggested I go this route and I'm glad I did. It's probably not worth it though unless you're inputting all of your expenses. If you want to just track account balances, there are better programs.

I was having so much fun I decided to add the 1950s as well to capture most of the post-WWII era. I condensed the spreadsheet a bit too so it can be printed on 4 sheets of paper. Enjoy. Recessions_and_the_stock_market.xlsx

So a client of mine was surprised to hear me say that stocks don't really correlate with the economy. There certainly is a relationship but virtually no predictive value. This client challenged me to look back at the data, so I did. Attached is the spreadsheet I created that turned out pretty cool. It shows data going back to 1960 including annualized returns of the S&P500 and every market correction (defined as decline of 10% or more), bear market (decline of 20% or more) and recession. I basically set it up in a timeline format so you can see the variable side-by-side. Feel free to make it prettier if you're an excel whiz or just have a better idea of how to display the data. Recessions_and_the_stock_market.xlsx

What is your favorite investing quote or quotes? I'll start us out with a few of the famous ones that everyone knows: "Be greedy when others are fearful and fearful when others are greedy." Warren Buffett "The key to making money in stocks is to not get scared out of them." Peter Lynch "Investment is most intelligent when it is most businesslike." Benjamin Graham

This is an excellent book. I would especially recommend it to business owners and those in sales and marketing positions. As you read the book, you'll think of all the different ways you've been influenced by the various factors the author lays out. One of my favorite parts of the book is when I believe he is talking about scarcity. He tells the story of how his brother sold used cars during college. His method was very clever. You'll have to read the book to get the whole story. :D

I would agree that this is an excellent book, especially for those who are new to the general subject of investing. I started with Lynch's book, "Learn to Earn" at 18 and graduated to One Up On Wall Street as the second book I ever read on the subject of investing. This book ingrained in me the two basic, yet extremely important concepts, that there is a real business behind every stock ticker and to invest in companies that you're familiar with.

This is an excellent metaphor!

I definitely wouldn't call myself an expert but will offer my own experience. I believe the short answer to your question is no. With 10Qs in particular, how much really changes quarter to quarter? I'm not suggesting one disregards them but reading everything line by line is a waste of time. Let's put some context around this. Say you're completely new to the investment game. You've never read an SEC filing. At that point in one's investment career, I think it is important to look at all of the filings in detail. This is the process of gaining experience and learning what information in these reports is really relevant. Over-time your efficiency in cruising through a 10Q or 10K rises exponentially. Then there is the learning curve for each individual company you're researching. The first 10Q or 10k will probably take you double the time it takes to read the second one and so on. Again, once you determine the key factors that are worth reviewing, you probably can review a new filing in minutes for material information (or disregard select filings entirely). That has been my experience. This is an issue I struggled with particularly in my mid twenties when I was really studying guys like Buffett. I think its easy to get this false impression that you need to memorize every little detail about the companies your investing in. That was a mistake I made. I still struggle with paralysis by analysis at times but I try to remind myself that investing is really all about high probably bets. As Buffett has said, look for investments that are obvious. I always try to remind myself that I'll never have perfect information which is why that margin of safety is so critical. Now I just need to practice what I preach! ;D

Kraven and ajc are both exactly correct! ;D Sorry for not being more specific. 8)

I sent Warren a letter when I was in college in the early 2000s and received a little hand written note back. I was pumped! Still have it. At the time, I asked him for any suggestions about good money managers to work for in the Minneapolis area. His rely was very brief and written with a sharpie, "Ted, no ideas re Twin Cities, but good luck! Warren Buffett. It seems like over the past 10 years Buffett's popularity has grown exponentially. My guess is he gets more mail now than ever, so getting a response is probably also harder than ever.

I don't mean to speak for Packer, but I think he's saying that there are so many people following all the big names that it is very rare to see any significant mis-pricing. If you're looking for mis-priced opportunities the S&P500 generally isn't the best pond to be fishing in. I'm in the the financial services business and I absolutely agree that there has been a huge push towards "alternatives." This all came out of 08-09. Basically both institutional and retail investors were looking for a new mouse-trap and the financial services industry has cooked-up a number of products that they claim fit the bill. The other huge push I've personally seen, from a marketing standpoint, is to "tactical" management. It's basically another way of saying market timing which is of-course non-sense. I kind of chuckle when looking at the numbers for all of these strategies because, as you might guess, the S&P has killed them. A few other funds that I think fit the bill (regarding excellent managers who will concentrate and hold cash) include Steven Romick's FPA Crescent and Donald Yacktman's Yacktman Fund. The biggest problem with most mutual funds is they are far too diversified. I think the vast majority have over 100 holdings. At that point, the simple rules of math say you're not going to be much different from average. Fairholme is one of the most concentrated funds you'll find. Bruce seems to like holding 10-20 positions. But I think his top 5 right now comprise 60-70% of the fund.

I would highly recommend "The Signal and the Noise" by Nate Silver. This is an excellent book that I will be re-reading.

This really is a great thread. Throughout my investing career I've really struggled with the question, "When do you have enough information to make a decision." I've found myself getting "caught in the weeds" reading about things that have little value in the decision making process. I also think its a bit overwhelming for novices reading 10ks and so-forth because of all the legal jargon. You learn quickly that 10ks and other filings are all laid out in a similar fashion. With practice you'll recognize what can skimmed or skipped entirely. When Weschler and Combs were on CNBC several months ago, Becky Quick actually asked the question I submitted surrounding this topic. I've attached the transcript which you can read for yourself. To paraphrase, Weschler and Combs said they both look at basically the same things others have already mentioned (corporate filings, trade magazines, transcripts, etc.). The amount of time they spend is another story. Weschler actually said he'll spend 500-1000 hours researching. That seems crazy and perhaps is in need of greater context. I've also heard Wilbur Ross explicitly state that his firm usually will follow a business for several years before making an investment. Conversely, I believe Monish Pabrai has said a few days of solid research on an idea is adequate for him. And Buffett is famous for making investment decisions in mere minutes. This is a curious topic however. Clearly the more time you spending investing, the more efficient you get with your process and decisions can be made much faster (this is what experience is all about). This is where Buffett's "compounding knowledge" comes into play. I think you also have to be very careful reading into things like Weschler's "500-1000 hours" proclamation. What is he really talking about when he makes that statement? For most companies, does enough relevant reading material even exist to spend that kind of time on? I've learned that you just really need to do what works for you. It seems that at some point in the research process, additional information can just become a distraction from the basics of investing: What is the approximate value of this asset? Can I get it at a discount/reasonable price? CNBC_transcript_of_Weschler__Combs_investment_process_answer.docx

I found comments by Alice Schroeder to be very insightful on this subject. She is the one person who has had full access to all of Buffett's files containing years of notes and research. If I remember correctly, she said she never saw one instance where Buffett actually went through a DCF exercise. In a speech, she said basically all Buffett looks for is investments where the chance of losing money is near zero. Then he wants a 15% return on day one. Here's the speech, which is one of the best, in my view, on how Buffett thinks (start watching at about the 20 min mark): I think others have mentioned it in this thread, but I've heard Buffett explicitly state something to the effect of, "The numbers should jump out at you. If you have to do anything beyond simple arithmetic to figure it out, walk away."