Jurgis

This is interesting. :) Think about it: Buffett makes tons of money on PetroChina. I guess he thinks "I can do it in oil". Then he buys COP - does not do well, sells. Buys XOM, does not do well, sells. Does he now think "Nah, I can't do it in oil"? :) Note: all errors and omissions mine. I went from memory and was too lazy to check facts. :)

Morningstar - I completely agree.

I wonder how much BNSF is (will be?) impacted by oil drop and possibly lower shale oil production. Not a reason to sell BRK, but might be a reason for BRK stock to underperform for a while.

Good post theasiareport 8)

Does this mean that we should make Bear's and Lehman's and WaMu shareholders whole too? ;)

It is possible that Dalio will be successful. But then you have to invest with him. :) Since I doubt that people on this board can successfully replicate Dalio in toto. They might hang onto one of his ideas, but that's not necessarily what makes his results good. Compare this to someone who listens to Buffett talk about inflation all the time and then invests as if inflation will happen. They would likely underperform both market and Buffett.

I don't agree (but I am not a lawyer :)). One way is to partially nationalize which would dilute the common to the hilt. It's impossible to dilute preferreds. To make prefs worth less than par, you have to go through formal recap in which case they come before common, but might be worth little and common might be worth nothing. In general though, I think most arguments in this case are emotional or mind-screwing variety from people with ownership agenda (i.e. people holding securities that are possibly worthless will argue anything to prove they are right and other side is wrong). Personally, I am on the government (and Munger/Buffett) side on this: if government would not have backstopped Fannie/Freddie, they'd be BK and worthless now. So IMHO from common sense, government should have nearly 100% ownership in remaining entity. Legal case might have completely different result though - common sense is not what the law is about. ;)

This is the usual macro bear argument that people have been repeating from 1980s and possibly before (I have not been around before that). There are couple issues with that: - By being in cash/etc. you are horrendously underperforming for couple years now. So it might not matter that your portfolio will drop only 30% in a crash compared to 50% of someone who is 100% in equities. Your long term result will be worse. - You are assuming that Dalio will perform better in a crash. So far a lot of algorithmic shops collapsed during the crashes because their models were not crash proof. Pretty much no value investor every collapsed during a crash. Or they recovered. - You have a mental model of what will happen. This is very dangerous. I can almost guarantee that you don't know what will happen and pretty much nobody else does. Hey, Buffett has been wrong about inflation for 20+ years. That being said, I am fine with people holding Graham-like portfolio of having 20-50% money in bonds as long as this is not a market call, not a macro call, but forever philosophy independent of the market/macro etc. Just don't expect the 100% equity returns.

Assuming current price on common ($2.75 for FNMA), it has to get to ~$25 to outperform pref return (assuming ~$6 to $50 return for prefs). Looking at pre-collapse prices of $40-60, $25+ on common is possible only with minimal dilution and no capital injection required. I'd say it's possible for common to outperform prefs, but not very likely. This is back of envelope calculation, possibly with big holes. :)

KCLarkin - yes, I don't own any airline stocks and don't plan to own any. I am doubtful about "this time is different", but I don't have a very strong conviction one way or the other.

Yes. This is part of the argument why "this time is different" for airlines. Oligopoly in US. It is unclear how much Alaska, Southwest, Virgin, Spirit can screw up the big 3... Also will international carriers try to get intra-US routes.

I think most people - or at least most active managers - say what you have said. However, there are two issues with your thoughts. First, there is no guarantee that active managers will outperform in the bear market. In fact a lot of them got caught in the financial positions in 2007 and got creamed on the downside compared to SP500. Second, even if they will outperform in the bear, there is no guarantee that they will outperform for the whole cycle if they are underperforming now. I think that people should be careful when repeating the "SP500 is overowned" mantra. If someone exited SP500 in 2013 or 2014 based on this "insight", they'd already have one/two years of underperformance.

I don't think KO produced 10% return with bad CEOs. I think pretty much any business can be killed by bad CEO. Of course, if Buffett owns a large chunk of such business, he's likely to can the CEO faster than the business loses 50% of its value. I will agree that there are some businesses that are likely to be resilient to some "unknowns". So your idea to buy businesses resilient to most "unknowns" might be good one. I just don't believe that any businesses are resilient to bad CEO. And in "bad" I don't necessarily mean corrupt or stupid. They might be just not fit the business and the context the business finds itself in. Edit: if you want another example, take JNJ. I don't know if we can blame CEO on this one, but this is an example where Buffett business was hit hard by "unknowns". Of course, it recovered - after CEO change and Buffett selling... :)

Nice soundbyte, but I don't think that I was ever killed in investments by "what you know for sure that ain't true".

Sorry, but this is not true. Please read "Snowball". Buffett has fired multiple CEOs because they underperformed. Including 2 CEOs of KO via backroom deals. So CEOs "having and affair or worse" do impact performance of even KO. And KO is not an exception, this has happened with multiple businesses Buffett invested in. I also think that Buffett is deluding himself if he thinks that he knows where IBM will be in 10 years. But that's perhaps different discussion. :)

I'll +1 on oddballstocks post. :)

+1 on Uccmal's post too.

I think Tim's suggestion is good one. Find your personal Charlie if you can. BTW, this is true for a lot of other endeavors: find a friend/colleague who is good to brainstorm/discuss/get feedback from. Someone who matches what you're looking for when discussing things and yet can give a good valid criticism. It's not trivial to find such person. If you find them, they are worth the weight in gold. :) Another note though: investment like writing novels is not physics: there's a lot of subjectivity and thesis that works for one person might not work for someone else. It's easy to destroy any thesis in general or at least imagine outcomes that would destroy the returns. Since humans are not good in guessing/assigning probabilities, these outcomes may or may not really hurt estimated returns. Most discussion even on this board does not go into "Outcome X has Y% chance, outcome Z has W% chance, so your return will be approximately U%". People will rather say "Oil will go down, Google will enter the market, Bank of Japan will devalue the yen and so your investment will lose". I am exaggerating a bit, but ultimately very few discussions go really deep even the ones with 100+ pages of comments. And this is partially understandable, since, as I said, assigning probabilities is very hard if not impossible. That's another part of difficulty.

Depressing topic. ;) Every time I look at any investment I hold or don't hold, I think that I don't know enough. Even more depressing is that I think I won't know enough even if I spent more time on studying that particular company/business/business area/etc. Your quote of Walter Schloss might be right - it's tough to understand a business you invest in without owning a business outright. Buffett/Munger make the same point.

I think your question in unanswerable as posed. Some people can - possibly by accident though. E.g. they could buy FB or Whole Foods and demolish the index. If we are talking about asset-manager compounders, someone might buy FRMO and demolish the index. Or not. :) Most people won't. But most people won't demolish the index whatever they do. I don't think it's easy to say that micro-cap net-net trading or financial stock leap investment will outperform compounder portfolios in general. For some people it might. For some it won't. Personally, I have underperformed indexes last 3 years, so my current strategy is to get into compounders and let smart people (Watsa, Malone, etc.) manage my money. I hold FFH, Malone, FRMO, some ideas from this board: GDWN.L, TESB.BE. I also have oil co chunk of portfolio. So it's definitely not a pure experiment you are asking about. And even if I outperform, this won't provide you any actionable insights I think. Aside: Should I switch to index funds instead? Possibly. :) But hope springs eternal and all that. 8)

I don't understand your question. There is a survivorship bias of course, but BRK, FFH, Malone, MSFT for most of its history, KO for a very long parts of its history, WMT, COST for long parts outperformed S&P. So had AAPL, GOOGL, MA, V. Can you rephrase what you are asking about?

Good post KinAlberta. +1

Nobody said that Berkshire is going to grow 20% or 15% going forward. The reference was to early Buffett/Munger years when they did trade more and generated 15-20% returns.

OK, I like Tim Cook. But this is facepalm worthy. "made up law"? WTH? This is stupid. Of course there are limits to which companies can grow. You cannot have more than 100% of market share. And even assuming you create new products, there's still a limit. Thinking that there isn't is pure stupidity.

Yes. But very few people generate 5% annual alpha spread by acting vs sitting. Are you one of them? ;)