Parsad

LOL! That's hilarious. Cheers!

Is there any economic rationale for not accepting less than 1M (or having limits in general)? Depending on which exemption or regulations the LP is filed under, they may be restricted in the total number of partners they can have. Cheers!

Got it from the horse's mouth. It is Mohnish! He said those were shorts, not pants. Does that make it better? ;D Cheers!

I'm pretty sure that's accurate now. See that's what I do! I blow these guys up to million dollar limits quickly, so that other investors below that threshold have fewer places to go and some have to turn to me! ;D Nice guys, great results, good for them. Cheers!

They do at Berkshire. I think a bigger concern would be if he may do something stupid and blow the company up with excess leverage or poor underwriting. Cheers!

I'm the short, bald, chubby guy next to Mohnish in the middle. Alnesh is to Mohnish's left and Guy Spiers is to my right. Cheers! I bet you're sorry you posted that pic at this point. It is what it is, my friend. It is what it is! ;D Cheers!

I'm the short, bald, chubby guy next to Mohnish in the middle. Alnesh is to Mohnish's left and Guy Spiers is to my right. Cheers!

Yes, he has a moustache presently. Cheers!

I wasn't mentioned until the 2005 edition, where the chapter written was titled "A View From Vancouver...Lunch With Prem Watsa". Cheers!

Mohnish and Guy are in Vancouver right now for the TED Conference, so Alnesh and I had dinner with them tonight. According to Mohnish, Guy's book is fantastic! A no-holds barred book on how Guy's life was shaped by value investing, including some salacious and emotionally very truthful chapters. In short, he doesn't just talk about the intellectual framework of investing, but how it affects and changes your life. Go to the thread below and you can pre-order on Amazon: http://www.cornerofberkshireandfairfax.ca/forum/books/the-education-of-a-value-investor-by-guy-spier/ It was a rip-roaring night! We had dinner at Maurya Restaurant because as Mohnish put it..."Sanjeev just get me some fu*king Indian food! None of this fusion sh*t we had last night!" ;D Cheers!

I'm pretty sure it's going to lead to pay increases for my "staff". LOL! Why...do you let them see your account statements? If so, that's your fault! Cheers!

This argument of moving capital from one place to another, and that it adds no value to society, is something Charlie has often said...but I disagree. It depends on how it is done. If you are talking about the general investment industry, where there are high fees and no added value then yes, it adds no value to society. In fact, someone commented that taxi drivers don't add value to society, which is incorrect as well. Taxi drivers are a fundamental part of how people are transported...to work, to functions, to research facilities, to shopping malls, etc. These are occupations that are heaped in along with housekeepers, convenience store workers, etc, and given little value, yet they are jobs that are part of the fabric of society. Those occupations get little respect, unlike teachers who are said to add value to society. The truth is, most of my teachers were not very good, except for a handful...and the best teacher I ever had came to me in my 30's named Warren Buffett! More has happened in the last eight years of my life, than the previous 36 years combined! What about someone like Mohnish? He's accomplished more in the last 14 years, than his previous 34 years combined! How has Mohnish's success as a portfolio manager not been a boon to society. Not only is his work affecting hundreds in the United States and Canada, but his work with Dakshana is going to create a generational effect in India over time somewhat like compound interest! What do you think he is now going to do with Dhandho? Every dollar of wealth he now creates for himself is a dollar of wealth that will go back to society. And with the way Mohnish's mind works, each dollar will have some sort of leverage effect. So in my opinion, the value to society should not be measured by the occupation of the individual, but by the effect and consequences of their individual existence...be it whatever occupation they may hold! Cheers!

Hi Txlaw, This has happened to a few people in the last couple of weeks. Please clear out the cache in the phone, tablet or laptop. Sometimes stored pages or info won't update as they continue to go to the same stored page. If it still happens after clearing out the cache and history, send me your IP address for you phone, tablet or laptop? Someone I banned was using hundreds of IP addresses…some of which belonged to other boardmembers. Not sure how that occurs. Let me know if that works. Cheers!

Collected over $148M in the first financing. Is seeking only one other $2M investor...otherwise done. Expects the insurance acquisition to close in several months based on state regulators. Looking for another acquisition target...probably another insurer with part of the remaining capital. Will list in 2015 and do the IPO with Pabrai Funds putting in $70M if pricing is good. Cheers!

You think it's Mohnish. Doesn't look anything like this guy! ;D Cheers!

True! I would think Buffett's arm hair would be lighter. Although the skin tone doesn't seem dark enough for Prem. Keep guessing guys...Mohnish has not emailed with the answer...he might never email with the answer! Although, the more outrageous they get, the more likely he will. Cheers!

Neither Prem, nor Mohnish would be caught dead in those pants. Those are white guy pants! ;D And a snakeskin/crocodile belt with those pants and the "Dhandho" shirt...that is pure Buffett! Cheers!

So many of you think Ted? Why...the pants and belt? That had me wondering too, since I've never seen Buffett wear those type of pants. Anyway, keep guessing as Mohnish has not put me out of my misery yet! Cheers!

That's what he said. My response to him was: First, the guy is not hairy enough to be you. Second, his pigmentation, old age freckles/spots, and loose skin around the elbows would seem to suggest that this man is a geriatric. Finally, the man is standing in Buffett's office. I'm guessing it's not you! But to maintain the envelope of mystery and this charade, I will post it on the message board and have people guess who it is. The answers will amuse! Cheers!

What do you mean, sir!!!!! I think he got that from me. If he starts ending every paragraph with "cheers", then you can definitely blame me!!!! Ooops!! My bad!!! Cheers!!!

Any guesses?! Cheers!

Hi Folks, For some, if you clicked on the "full site" tab in the mobile version, it got stuck there and there was no way to revert back. Everytime you open the browser, it would just go to the full-site. Watermelon Webworks added a little "mobile site" tab at the bottom on the right hand side of the "message board" homepage. That will get you back to "mobile site" if you were stuck in "full site". It's very small type right near the bottom on the right hand side. Please let me know on this thread if you are experiencing any other issues with the mobile site or full site. Cheers!

Shell will cost you a lot more than that. You also have to be careful what type of shell you buy, because there is still legacy liability risk depending on the type of business that operated under the shell previously. Cheers!

Where this guy finds the time...I don't know! But Mohnish did a webcast with students from his alma mater on March 3, 2014. Cheers! http://connect.clemson.edu/p5p8l4xcy35/

Unfortunately, I just found this email in my spam box. It's from boardmember Pedro Zuloaga, who compiled this very complete list. Thanks Pedro and I'm sorry I didn't see the email sooner! Cheers! Public Company General Valuation Checklist (1/24/14 revision) Bias What is your bias regarding the company and industry? How do you feel about the company? (what are the first thoughts that cross your mind) Before starting the valuation, do you think this company is undervalued? If so, why? How are you managing your bias? (which typically is optimistic) Why are you considering buying this stock? Is someone you admire buying the stock? What are the biases that could impair their rational thinking? Is there any non rational reason that is embedded in your thinking? How are you adequately managing through your biases? Are you open to consider an opposite view about the company? Circle of Competence The Industry/Moat Do you understand the industry? Why? What is the consensus view of the industry? What is the size of the industry? Is the industry necessary for society? Is the industry good for society? What is the growth rate of the industry? What is the cycle of product change? Do competitors behave rationally in this industry? What is the distribution of market share in the industry? Has market share been stable for companies in the industry? What is the market share of the company in the sector? What is the nature of the industry? What is the current and prospective regulatory climate? What is the supply demand dynamic of the industry? Is the industry capital intensive? If so, do industry participants have differentiated goods? Do industry prices reflect direct operating costs rather than capital employed? (excess production capacity?) Is there excess production capacity in the industry? If so, is this a temporary condition? If so, why? Can companies replicate their model as they go from geography to geography? Do the companies need local economy of scale? Do you have a cultural/business understanding of the market the company is in? Why will the industry sector face tailwinds in the future? Over the next 10 years, will this market likely materially expand or shrink? Could the industry be impacted by major technological change? What unique insight do you have about the industry? The Company/Moat What is company’s position in the industry? How does the business make money? What is the company’s business model? Do you understand the company’s history? Do you understand the company thoroughly? How capital intensive is the business? What is the sales/capital ratio? Can the business be easily duplicated? What are they key value drivers? What could change with these drivers? Does the company have pricing power? How will do the business do if: a) inflation goes up? b) under a deflationary environment? Is this a compounding business? (What is the ROIC vs cost of capital over the last 10 years for this business?) Over a business cycle, do earnings that are retained by the business earn an incremental ROIC that is substantially above the cost of capital? What is the year over year trend in incremental ROIC? Has is been deteriorating as the firm grows? How much longer can the firm keep growing with ROIC above the cost of capital? Could regulatory/legal issues materially impact the economics of the business? What is the state of labor, supplier and customer relations? What is the current stage of life of the company? Is the company’s reinvestment behavior consistent with it’s stage of life? Does the company have: a) an attractive capital structure? b) favorable long-term supply dynamics? c) favorable long-term demand dynamics? What are the company competitive strengths and vulnerabilities? Does the company have pricing power? What is the nature of the pricing power? Do you understand the company’s competitive advantage in every respect - products, markets, trademarks, employees, distribution channels, societal trends, and so on - and the durability of that advantage? What is the nature of the company moat? (i.e. local economies of scale, customer captivity, patents/technology, brand) What is the nature of the durability of the moat? How can the company moat be eroded? - Foreign competition - Technology changes - Country specific dynamics What are potential impacts of changes in technology? Can a competitor leverage the internet/technology and compete with a lighter business model? Is the company the low cost producer in it’s sector? If so, how will the company be able to maintain it’s low cost status? What is the potential for scalability? What is the state of labor, supplier and customer relations? Do you understand the country’s regulatory/legal framework (if you are investing outside your home market)? Management How long has current management been in place? What is their long term record? If short term, what is their previous record? Did you listen to the company’s conference calls and read the 10K’s through an entire business cycle? When bad news happens, is management frank, or do they dress up the information? Is the information presented in the financial statements and conference calls shown in a promotional or aggressive way? Is financial information presented in a clear and concise way? Is management good at capital allocation? (provide examples) - have they added value with acquisitions - have they repurchased stock when the stock was undervalued? - When does management increase share buybacks? (hopefully when company is undervalued) - have they used free cash flow in the best interest of the shareholders - have they diluted shareholder value through excessive use of options/grants? Are management’s interests aligned with shareholders? - do they own a material amount of stock? - have they shown shareholder friendly behavior? - Is there heavy insider buying? - What are management incentives? How do management salaries compare versus their competitors? Quality of Earnings Over a business cycle, is there significant discrepancy between the income statement and the statement of cash flows. If so, why? Any unusual trends in revenue recognition or expenses? Are there significant restructuring charges? If so, why? Are one time items, one time? If not, did you normalize? What is the trend of revenue and accounts receivable growth? What is the trend of inventory growth versus sales growth? Is there negative inventory divergence? Are interest charges growing rapidly as a % of income? If so, why? What is the trend and impact of valuation allowances on net income? Why? What is the trend in bad debt reserves? If there is an increase? Why? Are there changes in LIFO/FIFO and depreciation methods ? If so, what is the impact on earnings? Reviewing the cash flow statement, are there any major discrepancies between net income and working capital items ? Review trend for inventory. Is inventory growing quicker than net income, are they expecting growth (or are items not selling)? Are there big differences between GAAP taxes and income taxes? What is the trend for deferred tax assets? If deferred tax assets have gone down, and net income up, explain why? Are company operating metrics (i.e. revenue growth, operating margin, sales to capital ratio, DSO, capital structure, ROIC) consistent with industry averages? If not, why not? Are there sudden changes in standard expense items (i.e. a big drop in S,G&A or R&D expenses as a % of revenues)? Are there frequent accounting restatements? If so, why? Mr. Market How does the equity risk premium compare versus the Baa bond rate and the real estate cap rate? Are conditions normal for the markets? Does the market understand this company? Why is the market mispricing this security? a) Are there forced sellers? b) Is the industry or company out of favor? why? Are macro considerations drowning out micro considerations? If so, what are they and what could make the macro considerations change? Who is the marginal investor? Is this constituency facilitating market mispricing? Intrinsic Valuation Financing Considerations and the Balance Sheet/Leverage Are there any red flags in the trends of debt issuances and repayments? What are the trends in short term liquidity and long term leverage ratios. What is the interest coverage ratio? What is the schedule of debt coming due? Would the company be able to continue funding itself for operations if capital markets were dislocated? Does the company have enough cash coming in to cover obligations to pay out cash? Could the company default? What would be the trigger? What are the debt covenants? How much invested capital has the company needed each to fund the last 5 years of operations? What is the mix of working capital and long-term assets? Reviewing the common size balance sheet are there any unusual trends noted? How much of the goodwill in the balance sheet is “good goodwill” vs overpayment for acquisitions? Are there large intangible assets that are not on the balance sheet? Are there hidden assets or liabilities? Inputs Consistency check: a) is risk free rate in same currency and terms (real versus nominal) as cash flows, and b) are cash flows and discount rates matched up (i.e. equity cash flows/cost of equity)? Are you using the most up to date numbers? and normalizing as appropriate? Discount Rate Checks For your cost of equity, are you using the implied equity risk premium and the current risk free rate as the foundation of your discount rate? If not, why not? How does the implied ERP compare to the Baa bond rate? Is this reasonable? Are you incorporating country specific risk? (source of revenues, location of production facilities). Are you adjusting country risk to the locations where company gets revenues? Are you multiplying the relative risk of your company relative to the market to the market equity risk premium? If not, why not? Does your measure of relative risk of your company reflect: - the nature of the product or service (discretionary vs. non discretionary) - operating leverage (fixed costs as percent of total costs) - financial leverage - capital intensity/need/ability to access capital - the different business sectors it operates in, if applicable For the cost of debt, did you use the YTM for bonds outstanding, or was it based on the company debt rating or default risk associated with the interest coverage ratio? When adjusting for the tax benefit, did you use the marginal tax rate? Did you capitalize operating leases? Is the cost of debt a reasonable number? In your model, confirm that your discount rate change as your firm matures? Cash Flow Checks Are you using a normalized operating income and is your base year number reasonable? How do these numbers compare against industry averages? Did you incorporate research and development and acquisitions as part of cap ex? (is amortization of r&d included in depreciation and did you adjust for r&d tax benefit)? Did you compare depreciation to cap ex? Are investments in cap ex consistent with where the company is in it’s life cycle? Did you make sure that there are no financial expenses mixed in with operating expenses (i.e. operating leases)? Did you adjust for NOLs? Is working capital investment reasonable? Did you normalize non cash working capital over the business cycle? If working capital is negative, is your assumption regarding when it becomes positive reasonable? Growth Checks Are your growth assumptions internally consistent (g=reinvestment*ROIC)? Are your reinvestment and return on capital assumptions as you move through time consistent with the stage of life the company is in? Is the length of the growth period where the ROIC is higher than the cost of capital reasonable? If it is more than 10 years, what are the sustainable competitive advantages that merit this growth? Did you check industry averages for ROIC and reinvestment assumptions? Terminal Value/Firm Decline Why does the firm earn excess returns during stable growth? Are those competitive advantages sustainable? What is the growth rate assumption? (It must be lower than the growth rate of the economy) Does your valuation model consider changes in debt ratios through time? How have you incorporated the company’s eventual decline in your valuation? Are you being internally consistent? For emerging market firms, are you considering that those markets may evolve? Valuation Model What model (s) did you pick for your valuation and why? Is this the right model for the stage of the life of this company? Did you use nominal cash flows? If not, why not? Other Valuation Items Did you address cross holdings? Did you value them separately? Did you add cash and marketable securities to the value of operating assets? Did you value other assets or liabilities? (i.e. pension benefits, lawsuits) Did you address management grants/options? (if appropriate, did you incorporate grants into reduction of future cash flows) Does the company deserve a complexity discount? If so, how are you incorporating the discount (i.e lower margins, reduce ROIC and length of ROIC above cost of capital)? Is the marginal investor diversified? Can you imagine any unknown unknowns that could impact the industry or the company? Have you reversed engineered the market assumptions that drive intrinsic value? How do they compare to your assumptions? List all contingent liabilities and their potential impact to intrinsic value? Relative Valuation Is the multiple consistently defined? (both the numerator and the denominator should be to the same claim holders in the firm) Do you understand the fundamentals that drive each multiple, and the nature of the relationship between the multiple and each variable? Did you pick the right multiple? Why? What are the average and standard deviation for this multiple, across the universe (market)? What are the 25 and 75 percentile values? Is it unbiased sample? Remember that if you control for differences in risk, growth and cash flows, you can expand list of comparable firms significantly. What is the companion variable for the multiple? (operating or net income divided by denominator of multiple) Do valuation fundamentals (cash flows, risk and growth) explain a significant portion of the differences across firms in the sector. What is the predicted P/E for the company? Did you check if the company is undervalued at the sector level and at the market level? If not, why not? Value of Control Have you done a status quo and an optimal intrinsic value analysis? What is the current probability of change of control assumed by the market? Can the company increase cash flows? The length of the growth rate? Can it reduce it’s cost of capital? Is this likely? How entrenched is management? Are there any takeover restrictions? Is there capital structure limitations? (i.e. different voting rights) Value from Optionality Is there a real option that has economic value embedded in the company assets and can it be valued using option pricing models (is there a traded underlying asset, exclusivity, uncertainty, life and cost of the option known)? a) is there an underlying asset whose value changes over time in unpredictable ways b) is there a payoff on this asset contingent on a specific event occurring within a finite period? Is there an option to delay, to expand, abandon, or financial flexibility? Is the assumption of continuity in the option reasonable? Stress Testing the Valuation/Margin of Safety What is the base/best/worst case valuation? Is the stock undervalued in both intrinsic value and relative value? How much of your value comes from assets in place, stable growth and growth assets? Did you stress test for: a) estimation (model/inputs) and economic uncertainty (changing markets) b) micro (management, company market/competition) and macro (interest rates, county specifics, policy) c) Discontinuity risk (nationalization, event (natural or man made), lack of access to capital markets) Did you compare liquidation value to the going concern value? Are stocks cheap relative to bonds and real estate? (compare implied ERP with Baa bond and cap rate) When you stress test the valuation what is your margin of safety? What is the short interest? Could the shorts render equity worthless? How could there be a short squeeze? What are the shorts thinking? The Investment Decision What are 5 most important pieces of data that drive your valuation? Do you have the right mental model and tailored checklist for this company. Write your investment thesis in one paragraph. Did you intensely look for evidence that disconfirms your investment thesis. List all the ways you can think of to kill your investment thesis and invert. What do you know and what do you not know? How much asymmetry is there between upside and downside? Will an event serve as the catalyst for the market price to move to the intrinsic value? Is the company an attractive buyout candidate? (i.e. lots of cash, good cash flowing, low/no debt, strategic consideration for others) What is the catalyst that will take the stock to fair value? Are the any activists eyeing the company? How can the value of hidden assets be unlocked? What is the value of the assets in place versus the growth assets? What is the bear case for the company? How can the bear case play out? What is the bull case for the company? How can the bull case play out? What is the intrinsic value for the company from an intrinsic, relative valuation and contingent value perspective? How do they compare to market pricing? What is the band of uncertainty around intrinsic value? What is your margin of safety? What can go wrong? What is the opportunity cost of your capital? Is liquidation value higher than the business continuing as a going concern? How does this position impact portfolio correlation? Does the stock have enough volume for the trade? What are the acquisition prices for businesses with similar characteristics?