Picasso

This and VRX reminds me of the recent Buffett comments in the last AR.

It is silly to think that Buffett is wrong about capital allocation decisions regarding buybacks versus some other XYZ investment decision. He has around 10 "Fortune 500" companies in his operating portfolio and has another 490 to go. I think investors are looking way too deeply into this repurchase program at 1.2x book value. So what if Buffett or Berkshire is good at investing a dollar today to make you want to pay 1.2x, 1.3x, 1.4x, etc? Why don't we all just buy $1 million of Berkshire Hathaway and go to the bank demanding a loan for $1.5 million against that stock since it is so obviously worth more than $1 million? Let me know how quickly you get laughed out of there or better yet post the reaction on Youtube. And so what if you want the market to value it at 1.5x book for you? If you're in this for the long term it isn't going to make much of a difference where it trades around book value. You're going to get your returns over time as Berkshire continues to compound their operating earnings and grow book value. The 1.2x book value repurchase agreement in 2012 was more of an indicator that book value was not giving proper credit to the "real" book value or much less intrinsic value. Not really the case today.

I don't think KinAlberta is suggesting gaming the buybacks, I think he/she is asking whether the market price will reflect the ability for Berkshire to buy at 1.2x book. Given the age of WEB, it impacts how much or when you want to buy the stock regardless of the long-term. Unless of course you just buy it at a fair price and care less about the volatility of seeing the stock fall under $120 in short order. And KinAlberta even references how much better it is to see Berkshire buy more shares even more cheaply. It's like how I think of IBM. If Berkshire sells their stock in IBM, I don't think traditional valuation metrics or buybacks will really matter. The stock is going to take it in the chin, no? That kind of impact whether I want to buy at 1.2x book or 10x EPS, or whatever. The last time Berkshire announced a buyback plan the shares shot up and they weren't able to buy any shares (or maybe a few I can't remember). If Berkshire goes down a lot I suspect we have a market where WEB is finding ways to increase intrinsic value to Berkshire much better than buying shares of BRK. So I don't put much faith in the buyback floor other than it's WEB saying that what he thinks the low side of intrinsic value is. Based on what I gathered from his personality from reading Snowball, maybe it gives him pleasure to say "we'll buy the stock at 1.2x" and see the stock stay above those levels. A bit of an ego thing that highlights the quality of his investor base to trust his judgement and ability to access value. That's speculative but based on his focus outside of share buybacks I think it's a possibility.

WPG

Man that performance is awful.... You know the wheels are coming off the bus when you have to start quoting Dr. Seuss in your investor letters.

Sounds like Tesla to me as well.

Interesting to see the dramatic fall of the big Glencore IPO. http://www.bloomberg.com/news/articles/2015-08-19/glencore-billionaire-club-loses-half-its-members-as-stock-dives And of course:

I'm reminded of what Liberty Media said in the last annual report: The hard part is figuring out which are #3.

Given the recent hit in the likes of DIS, CBS, FOX, VIAB, TWX, I was curious if anyone has a view on the most attractive asset. TV is also a very interesting situation which seems to have been lumped in with the rest.

muscleman, have you managed money for outside investors before?

I was running some figures today and thought this pretty much sums up the situation. Maybe someone else has run it more extensively than I have, but I think it gets the point across. The estimated deficit for the U.S. runs about $500 billion annually for the next four years. Given the current $18 trillion of debt at a 1.6% cost of capital and 5 year average weighted maturity, you add $500 billion a year to that and compound out 2-3% rates and normalize at 5% in ten years. You would have around $27 trillion of debt costing between $1.1 and $1.35 trillion or 40-45% of the current budget. So just paying the debt eats up almost half of the budget. How are the bonds still even close to AAA at that point? Rates can't normalize unless we somehow can magically grow out of this. The market will throw little fits about rates once in a while as it gets nervous but this game is going to need to go on for a long time or it will make 2008 look like a game of patty cake. I think you just have to invest in the same prudent manner (finding absolute bargains with high imbedded returns regardless of macro) and maybe hedge out with a small percentage of your assets if you think the value is attractive in the hedge. Who knows what that hedge is. Edit: I know future revenue to the Treasury will be higher but it seems like going from 10% of budget expense to 30-40% is a killer.

I think if you want to benefit from Buffett (Ted, Todd, etc.), you need to be able to offer something extraordinary. If you are that extraordinary, then just write him a letter explaining the wonderful opportunity to meet with you. I am sure you will be the first.

It might be due to the Sears rights offerings? He's going to need a lot of cash for the transaction coming up with Seritage.

So, we’ll talk about the portfolios. And we might talk about performance, but it won’t be about short-term perfor-mance, because—forgive a perhaps incendiary statement—it’s meaningless. As soon as I read that I lost a lot of confidence in these guys. I get how you will underperform but it seems like there are more excuses with each commentary and then suddenly short-term performance doesn't matter. I'm sure if they outperformed by a wide margin in the short term they would also say it is meaningless?

If you read through his latest ADV you see that he only has three accounts which total about $100 million. Yet his ratio of media appearances to AUM is ridiculous. He is a nice guy but his antics annoy me. I'll try my best to make this my last Tilson rant.

The guy deals in manipulating prices on penny stocks and came up with an idea to sell imported sand as holy. He read the intelligent investor so he must be legit. These types end up ruining their scheme by attracting media attention. Alex Hope a few years back as the genius currency trader, or that high school kid in the NY Post. They all share the same quality of living it up at the club and spending a lot to maintain a certain image.

While everyone is nervous about long rate exposure on these mortgages, you have to ask yourself what happens if you are wrong and rates continue lower. Big pension plans and other buyers who need a certain level of income basically have no choice but to buy and hold. You can't run the risk of rates moving down while you're sitting earning close to zero. To those buyers, interest rate risk is a lot less punishing than being even more underfunded.

I'm waiting for the day that an asset manager, in this case Neuberger Berman, comes out with a paper on why active management is not the place to be.

There is a good book that has data that provides a very compelling case for inverse correlation between GDP growth and stock market returns. Triumph of the Optimists: 101 Years of Global Investment Returns Vinod So this would mean that over long periods stock returns are always negative right? If countries continue go grow (GDP growth) then returns should be negative over the long haul? If you extrapolate out a bit it would mean that equity investing is a losing game, as the world grows we're trying to swim against the tide. Yet this doesn't seem to be the market experience. Since we have numbers the US has grown as an economy and our market has been biased upwards. So how does this jive with the research? When you have a lot of growth, doesn't the market typically assign a high multiple to valuations which reduces investment returns? I think back to when people paid up for emerging markets because you were paying 15-20x for lots of growth. Returns ended up being negative (so far). When there is almost no growth you have very low market valuations, such as the current situation in Japan. This allows for higher future investment returns. Seems intuitive to me.

Alex, I'll take "Signs of a Bad Year" for $500 please.

Berkowitz must be so sick of hearing about SHLD. It's less than 6% of his fund but it probably represents half of his investor angst. I sort of like his fund at this price given the holdings. You get some FNMA optionality after hedge fund guys got beat up, a lot of AIG and BAC which is fine, and the other optionality like SHLD and JOE. His fund is like half 10 bagger types stuff and half beaten up 10-15 ROE type holdings. That's a recipe for unhappy clients but I think he has it managed so that worst case he won't lose on a total basis and best case he hits it out of the park.

Tesla didn't start with the DOE loan. They did several rounds of private funding with about $100 million coming from Elon. Daimler then made an investment which opened up the way to the DOE loan. Also the subsidy issue is sort of weird in my books because the oil industry is heavily subisidized in different forms so the price you pay for oil isn't the full price, especially when you ignore the enviromental costs. I think what makes Elon Musk superhuman is his tenacity and ability to cut through very daunting problems. If you wanted to start a viable rocket company from scratch where would you start? A profitable electric car company? A dominant online payment system? A normal person would not know where to even begin but Elon is very good at breaking down why they are difficult problems and identifying whether success is a possible outcome. He then has the tenacity to solve those problems to the detriment of his personal life and financial health. You start to take out a couple small elements of Elon Musk and you end up in the bin with 99% of the other failures we never heard about.

I think that interview tells you a lot about the guy.

That is slippage. Every broker has their own set of prices when it comes to forex because many of them are setting the dealing rates. Your execution at the market and confirmed later will vary depending on who you do business with. Like I said this comes with the territory of dealing with some of these brokers. I agree it is stealing but that is the norm. I had started a thread on Plus500 which is also in the business of screwing their gamblers but mostly in the form of CFD's.

Saxoband found a neat solution, stealing some money from customers to make up losses... http://brontecapital.blogspot.nl/2015/01/it-is-time-to-close-saxo-bank-down.html This is standard for the forex brokers. You get what is called "slippage" and a certain percentage of trades get reworked at another price. Usually not more than a few percent of total trades, but it happens a lot when things get volatile. Speaking of which, this has impacted Interactive Brokers (IBKR) to a fair degree. Something I have on my list of things to buy at the right price (not there for me yet) but thought it was worth mentioning since some others on this board were interested in the stock.