innerscorecard
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Posts posted by innerscorecard
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I have seen people use operating income - maintenance cap ex as a proxy for what the company earns. How do you guys think about taxes as it accounts to Intrinsic value?
It is inappropriate for most people to use such measures like op income - maintenance capex or Enterprise value. Op income does not include interest expense, which is a real expense. It is an expense which is here to stay unless you can change the capital structure of the company. It is not easily done, and it is only appropriate to look at if you're actually planning to alter the capital structure via a buyout or influencing the board of directors.
Taxes are a real expense too. Companies have in the past been able to re-incorporate themselves in countries in lower tax rates, or have international operations which they can use to leverage the dilution of taxes.
For everyday investors like the most of us, who do not have the power to enact such changes, it's best not use measures which leave out specific expenses. If you do, then you're making a bet that someone in the near future will attempt such restructuring for you, and that they are also successful. If this does not work out as planned, then the margin of safety would be reduced by using a more aggressive valuation. Attempting to predict such events is beyond the scope of how I invest, but it would indeed be appropriate analysis for a firm intending to acquire / influence a target in such a manner.
Thanks for your points. They make sense, and are directly contradictory to what people like Tobias Carlisle say about using those metrics on purpose to identify companies that would be attractive to activists and acquirers, in books like Deep Value.
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Scott, I just realized I intended to harass you with more questions last time I posted here and for whatever reason didn't get to it.
I am intrigued by your new quality approach and would like to learn more about it if you wouldn't mind delving into it. First of all, how long have you used this strategy and how have you fared with it, both absolutely and relative to the market? Secondly, would you mind providing some examples of past investments or maybe even current holdings? I imagine these are mostly large caps so you wouldn't have to worry too much about moving the market mentioning them here (I know you mentioned google on twitter).
And if there is anything else you'd like to discuss with regards to investing investing, I'd like to hear about it. TIA
Sure.
To answer your question: I've used it for about two years. So far, it has worked out favorably: investments in Amazon, Markel and Valeant have thumped the market, while Facebook has performed roughly in-line and Google is too new of a position to really say yet, but has outperformed so far. Kraft and Lions Gate are two very recent (and small) positions, and have yet to prove themselves.
I also have Optimal Payments, which has murdered the market, but I can't tell you by exactly how much as my account has yet to receive proceeds from a rights offering I was not allowed to participate in as a foreign investor. But substantial outperformance, regardless.
All other holdings either predate my move to quality - Pardee Resources stock (which I would actually count as quality), which has underperformed, and Wells Fargo warrants and BAC stock, which have outperformed - or were 1 share work-related purchases and are immaterial (SODA, PRLB, MIDD, and CTSH).
Note that many of my high quality names are also some of the companies with higher volatility, so it's no shock they've done well so far. The real test will be over a full cycle, including how well they hold up on the way down. Despite early success, the jury is definitely still out.
W/R/T investing generally: one thing that I see way too often with value investors is that they focus far too much on a company's financial statements without giving real thought to underlying business economics. For many companies, I'd rather they generate no free cash flow, not an abundance of it.
How much would you say this move to quality was influenced by your peers and environment at the Motley Fool, which is best known for its quality/moat/compounder approach (obviously it is a big tent and has other types of analysis as well)? Not saying that's a good or bad thing, just interesting to think about.
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I also think you are being deliberately obtuse/trolling, of course.
That didn't take long... :'(
I'll repeat my suggestion:
Perhaps the thread charter should be: no comments on the previous love/hates. 8)
I sincerely apologize for my inappropriate commentary.
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Love: Alibaba/Taobao/Alipay
Hate: IRS
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Love: Blackberry 10 operating sysem and phones
Hate: The love for the overpriced iOS devices when equivalents (Android) can be had for much less.
People will groan so.
This post is NSFL (Not Safe for Liberty).
I also think you are being deliberately obtuse/trolling, of course.
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I certainly had a huge adjustment of expectations in the last decade. Some upwards, but more downwards. I learned that it wasn't a no-brainer to get to where my parents were when I was growing up. It takes a lot of sweat and thinking things through. Took me a few decades to start to stop comparing myself with others, too, and thus having false expectations that I could not fulfill for myself based on my own meager abilities.
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I would suggest Vanguard, Fidelity or Schwab.
But beware handling your girlfriend's money. I don't know anything about you or her, but mixing control of money without marriage (and sometimes even with marriage!) often ends badly. Remember the story of Buffett almost losing money when he bought stock for his sister.
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The variance in AUM in here probably isn't so high that we don't all share the same investment universe, so I guess the question is in the end not super relevant. Finer gradations than that are too sensitive and could lead to bad consequences, as with all over-sharing.
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The Chinese attitude towards race is very different from the Western attitude. It is explicitly hierarchical and transactional. I wouldn't conclusively say that it says one thing or the other about the Chinese real estate bubble in particular. If it weren't real estate, it would be scamming people by having "Western engineers" at factories, or "Western experts" at drug plants, and on and on.
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I don't intend to be able to predict cycles. I'm simply curious as to what the terminology and assumptions are based on in the first place!
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Except in the extremes (2000, 2009, etc) you really don't know until it's over and can look back. Cycles look nice and pretty on historical charts but it's not that easy in the moment. I like Buffett's recent comment which was basically we're in the zone of reasonableness, beyond that he doesn't know. Of course we're in an up cycle, but it could keep going up for 5 years or today could be the peak--no one knows until it's over with (and the next cycle begins...).
That probably doesn't answer your question, just some thoughts that came to mind reading your post.
It's interesting that the thread on the shape of Buffet's nose got a lot more comments than this thread.
Yeah, I know it's hard, and might even be so difficult to call where we are in a cycle that it's not worth it. It's just interesting because the discussion of cycles seems to rest on principles that are implied - but what are those actual principles based on?
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It makes sense that there shouldn't be so many discount brokers for global stocks. I would recommend Interactive Brokers. I am a late convert, but am convinced it is the best tool for power users (and we on this board are all power users).
It is funny how ignorant the representatives you spoke to were. I suppose it's extremely rare for customers to want to trade anything other than megacaps, internationally.
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Investors often write about cycles - we are in "X part of the Y" cycle. But I feel like I lack a rigorous definition of market, industry and business cycles generally.
Anyone have any resources that have helped them with this? I have read, for example, what Howard Marks has written on cycles, but it is just a discussion from first principles, and does not have any real data or history.
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I would never use the MBTI other than just for personal fun.
If you want to take more useful tests, you should take good ones related with Holland typology, some good personality tests that are more related with job satisfaction and job performance or general cognitive aptitudes tests...but not the MBTI.
The online test is also less rigorous than the "official" test which my wife was administered at her company. She got a significantly different result with that than online.
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I use a sliding scale--the better the business, the less MOS required, using a hurdle rate of 10% per annum expected return. So BRK at book value or maybe up to 1.2 or 1.3 will meet it, at the higher end. But if it is something that is a terrible business or one I'm less interesting in owning for a very long time, I want more like a 50% MOS.
Isn't that double counting, both for the good businesses and the bad businesses, since that quality should already be incorporated into your rough valuation of the company?
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I use a sliding scale--the better the business, the less MOS required, using a hurdle rate of 10% per annum expected return. So BRK at book value or maybe up to 1.2 or 1.3 will meet it, at the higher end. But if it is something that is a terrible business or one I'm less interesting in owning for a very long time, I want more like a 50% MOS.
Isn't that double counting, both for the good businesses and the bad businesses, since that q
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The idea of getting comfortable with larger sums brings up a good point that it is extremely difficult to handle nearly any AUM. It is extremely difficult to "skip steps" since the comfort with larger net wealth generally comes from experience and time spent at certain net wealth levels. You could see why even responsible lottery winners generally don't fair well.
Fantastic and very subtle point. I wonder if this means that people investing OPM (since they will pretty much by definition feel differently) will on average be better (less emotional baggage) or worse (no care for the hard-earned money) than those investing their own money?
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I just voted, and am somehow not surprised that I am literally the only INFP on this board.
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Liberty, very happy to hear of your possible decision! You are a great living example to me.
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Something he understands where the money comes from. Like Pabrai said, maybe Apple. Or Coke or Disney or Activision Blizzard. Something like that.
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1. What was your investment thesis for rapidly acquiring stakes of Air-T and Insignia for Biglari Capital Corp?
2. How do you view:
a. Book value;
b. Change in book value;
c. Any other pertinent metric;
as a rough proxy for shareholders to assess the intrinsic value of Biglari Holdings?
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I only feel 100% if I get 9 hours of sleep, but I usually get 7-8. I put 8 hours in this survey.
It is one reason I am not exceptionally professionally successful, but it is the way I am. I'm no Tim Cook who goes to sleep by 10 pm and wakes up at 3:30 am every morning.
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I have not read the book. I might though.
I found innerscorecard's review to be too abstract. innerscorecard talks about tradeoffs but does not get into details: which tradeoffs were mentioned and whether they seemed real, worth taking, etc. I guess loneliness was the one mentioned, but even that I found abstract: why is it unavoidable? At which wealth levels? I believe that you can have stealth wealth for quite high wealth (up to $100M at least?) and very few of us will be more wealthy than that.
Anyway, not a critique of innerscorecard. It's hard to write good reviews especially for people who have not read the book. :)
Peace.
A friend sent me the book a year or two ago, it's a great read. I'd highly recommend it, very easy and quick to read.
Dennis is great, in many ways he says what other wealthy people might not. The trade-off in a sense is that going after wealth means you end up giving up something else. Maybe it's family, or friends, or something. He had a few hundred million I believe. He notes at one point he wishes he would have stopped at $10m or $20m and enjoyed life.
I found some wisdom in the book in the sense that he gets to the top and has the introspection to realize it isn't as great as everyone thinks it is. That the ideal we think of isn't true. I don't know if this is something a lot of other wealthy people realize and keep inside, or if some never realize it. I don't know.
The perspective is refreshing. There are a lot of tips on how to run a business or negotiate.
Dennis had a period where he was heavily into drinking and drugs. He spoke of it some and I'm not sure what his view on it was. My sense was that money gives you access to things that might not necessarily be good for you. If you're making $100k a year you don't have to worry about supporting a half dozen mistresses and blowing millions on drugs.
To innerscorecard. After reading your post I'd say maybe it's worth introspecting for a weekend or two on your life goals. If your goal is to be wealthy you'll never reach it and never be satisfied. Wealth is a moving target. You'll always be just a bit shy of what you want and where you want to be. Like something in your field of vision but just out of reach.
A good friend point out to me years ago that contentment is a secret to life. If you are content with a little you can be content with a lot. But if you're never content and always want something different no matter what you have will never be enough.
Maybe a different way to phrase the goal (if this is truly your goal) is to not have to work for someone else. Or have enough saved you can pay yourself for a few years. Or have a flexible schedule.
For myself I found that all thoughts of financial freedom or being rich went away when two things happened.
1) I learned to be content
2) I was able to get a flexible schedule.
The flexible schedule is key. When in a cube farm I'd yearn to be outside. Now I can just take a walk anytime. I don't have to be rich to do that, and I enjoy my work more. While I walk I think about work sometimes. Flexibility and contentment solve a lot. Would I love a few hundred million...sure, but I'm not sure my life would be different. I'd probably have more stuff, but stuff is just that, stuff. More money couldn't cure the stomach bug my boys had last night etc.
The Dennis book hits on some of this in a roundabout way. I believe he had a realization about contentment much later in life and wishes he would have had it earlier.
I thought about what you said a little, randomly, and I really do think it's the daily grind of work that motivates my thoughts of financial freedom so much. Obviously it's a chicken-and-the-egg issue, as to not thinking about financial freedom so much I would have to actually be financially free.
I currently couldn't quit if I wanted to because I won't receive my yearly bonus, which is significant in relation to my total yearly salary, if I were on my notice period. That feeling of being tied down due to what is in the end not that much money, is the opposite of feeling financially free or rich.
How do you internalize what you read?
in General Discussion
Posted
I like to highlight and take notes in the iBooks app, and then for some books, write a few high-level thoughts on lessons I learned or thoughts I had on the book, on my blog.