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bci23

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  1. This is a serious question that I'm only looking for serious answers on. Can someone explain to me the argument for why the fed buying the bonds of a company like Berkshire Hathaway helps the economy in any way? I can't think of any legit answer that could possibly justify it. I can at least see the argument (but don't agree with) for propping up the bonds of companies that need to tap the bond market for additional liquidity like Boeing or Delta but companies like Berkshire and Apple have zero liquidity concerns so what is the argument for printing money to prop up the bonds of companies like that?
  2. While I would agree that having a framework for making good capital allocation decisions is somewhat intuitive or even obvious, getting organizations to consistently operate in this way is much harder than it looks in my experience. At a decent size manufacturing company, I was involved in the capital planning process for 2020 and the projects people proposed were often not very imaginative or did not move the ball. A project like investing in automation that would allow multiple smaller lines to remove at least a few people from the lines who were doing very manual labor was viewed with some disdain. This is in a relatively commoditized industry where cost determines 80% of success and technology/marketing/relationships is the remainder. Getting everyone to understand the importance of reducing inventories and not yelling at the buyer if, during the transition, things don't go smoothly, is hard. Getting people to understand the trade-offs of such decisions and having thoughtful conversations about why trying to optimize inventories opens up capital for us to grow faster is challenging. Talking with people on the floor about scrap and the cost of the raw material they're throwing away is another example. You would be shocked how many people don't have a basic understanding of the trade offs involved in their jobs. Most people in lower level jobs operate in some state of fear about some past event that scarred everyone. "Oh, well we could keep less inventory of that raw material but we keep 3x as much because we don't want to run out because one time that happened and I got my head ripped off." Even at the Board of Directors level, I doubt how many people really get it. They constantly pay each other more every year, they reprice options lower for executives who have failed miserably, they sign off on acquisitions at prices that would be hard to justify and often don't create value, and the list could go on and on. All that is fair but I think we're referring more to Investor Relations and how the companies talk about their business. IR presentations that just spew on about how important capital allocation and how they only do 20% IRR projects and have little discussion of the actual business are how you sucker in the value investors.
  3. Basically anything that portrays capital allocation as the end all be all thought process instead of anything to do with growing the business/making stuff happen/customer focus is a good way to sucker in a value investor. Capital allocation is overrated imo in that it doesn't take much thought to say "hey lets only do high return investments!". In my experience it only takes 5% of your time to answer the question "is this project worth doing?" and 95% of your time is spent figuring out "how do we make this project come to life?". Capital allocation is also worthless if the underlying business is deteriorating.
  4. Yep, hard to predict the timing of when the fed hits major problems but no doubt it will happen very suddenly and the sentiment will flip on a dime!
  5. Theres an argument that since the US Dollar is the reserve/strongest currency that we should be able to go higher than anyone else and not blowup. 100% didn't kill Japan, so could the US go to 150 or 200%? If so the Fed still has lots of "ammo" and we might have 5+ years or until the next recession in 2030 before we have to push the envelope again. Theres also an argument that because we are perceived as the reserve/safest/risk free currency we don't have as much leash before people start questioning our reserve status. In that case we are going to run into problems in the next 15 months at current Fed runrates as the fed balance sheet will approach 100% by that time.
  6. Potential blowup in the crude market (again) with the June but more likely July contract due to USO. Could be a mess.
  7. But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing. I guess if you were thinking this would be a 25 year depression than yes Buffetts comments were optimistic. But if you were thinking this would be a V Shape recovery or some small speed bump in the economy than his comments comparing us to the Great Depression are very bearish.
  8. If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know. I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.
  9. It's possible, but remember that back in 2004, when Morningstar named him Fund Manager of the Decade, he had a nice 27-year track record of 11.5% annually. That's a long time. So, I guess the most likely things that could explain the discrepancy are: [*]He got lucky for 27 years, and unlucky afterward [*]He got brain damaged and nobody said anything [*]He changed what he does [*]His value investing style is really out of favour, leading to bad returns [*]The world has changed and what worked for 27 years no longer works My best guess is it's mostly #4 with a spattering of #1. The world has changed and what worked 27 years ago no longer works. I see many value funds who used to crush it 10-20 years ago who have lagged the market big time over the last 10 years ago. The markets are dynamic, they are always changing and you need to stay close enough to it in order to recognize when that has happened. You have to keep evolving as old things die and new opportunities present themselves.
  10. I don't understand peoples love for Thinking in Bets. Maybe its because I come from a poker background myself but I found it very elementary and basic even as applied to investing.
  11. Does anyone know a good resource to track Net Debt:EBITDA over time for the SP500? Some googling gives me charts over time but they are always old (2016, 2017) and don't provide anyway to continue monitoring up to today. Anyone have a good source they like for this stuff? https://www.zerohedge.com/news/2016-08-04/debt-ebitda-ratios-are-now-highest-history https://www.topdowncharts.com/single-post/2018/03/18/Weekly-SP500-ChartStorm---18-Mar-2018
  12. How about zero interest rates driving the out performance of growth vs. value? When interest rates are zero, the terminal values of DCFs become much more valuable. When interest rates are high, the terminal values are worth much less. Growth company typically implies low current earnings but high hopes for big future earnings far in the distance. Zero interest rates keep those future high hopes alive and well in investor's minds. Thoughts?
  13. The strategy to get into microcapclub is pretty simple imo. Bring some unique research to demonstrate that you have put more effort than just summarizing publicly available information. The most obvious example would be insights, stories, or other tidbits learned from discussions with the CEO/CFO that give glimpses into what is going on at the company that might not be obvious from just reading the filings. Add a personal touch to the write up, it seems to be received well. Macro and industry projections/forecasts and TAM arguments are normally not received that well. I've never applied to VIC as I don't see the point/benefit of being a member there, way too much junk. Its also more focused on large cap names which don't interest me when I play mostly in Nanocap/Microcap names.
  14. Some people (not in this thread but elsewhere) saying Munger is being ignorant in his comments on bitcoin. Reminds me of when everyone thought he was misguided in calling VRX a "sewer" or that "Valeant is like ITT and Harold Geneen come back to life, only the guy is worse this time." He was saying this when everyone was drinking the VRX cool-aid. Now everyone is drinking the bitcoin cool-aid and here we are.
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