rishig

Are you interested in learning about its corporate history prior Iger or its culture under Iger? Under Iger's reign, the culture has been really different from its historical culture.

There is an old Poorvu book that has case studies (that he used for his class at Harvard) - "The Real Estate Challenge: Capitalizing on Change". I found them very interesting. Also, you see from these cases how things can go south and one really needs to play in niche local markets to add value (and hence money) if one is going to be in the development business.

Colfax, through its subsidiary Howden Group, owns a majority stake in South African company, Howden Africa. Howden (HWN) is listed on the Johannesburg Stock Exchange. It has a rock solid balance sheet with R600M in cash on a market cap of R1500M. Profit for TTM was R245M. Ex-cash it is trading at 3.6x. The stock is down YTD by 45%. Similar to Colfax, the end markets are challenged. I learnt about it when I was looking at Colfax. I have not looked deeper, but at 3.6x, it may be worth looking into it further. Here is more info: http://www.howden.com/AboutUs/bu/HAHL/Pages/Investor-Relations.aspx

The SEC website has a 10-K from 1994 that has financial data for the years 1983-1993: http://www.sec.gov/Archives/edgar/data/17109/0000950130-94-000530.txt

Thanks for sharing. I am curious - what books he sent you to read to learn about the natural gas industry.

Fairholme's 2016 conference call live now: http://www.fairholmefunds.com/confcall2016

Bank of the Ozarks

buyside long-only, plain vanilla stock picking (1) start investing with real money (2) blogging about your investments (3) networking

An interesting case study is how Cornwall capital (profiled in The Big Short and Hedge Funds Market Wizard) used long term options to compound their capital from 100K to $30M in a short time (and to hundreds of millions thereafter thanks to the housing short). Their first investment was in Capital One, when it dropped in mid 2002 from $60 to $30 when it was under investigation by banking regulators and the CFO was forced to resign due to insider trading on nonpublic information. Once it dropped to $30, it traded in the $27 to $30 range for the next 6 months. The low volatility meant that out of money LEAPS became cheap because of the normal distribution assumption of Black Scholes. As per Black Scholes, the liklihood that the stock would jump to $40 is lower than it would jump to $35. This is a crazy assumption in this case. Either it is a fraud or it is not. If it isn't, the stock would probably go back to $60 in a matter of months once the investigators announce their findings. They did a lot of scuttlebutt research to feel comfortable that Capital One was indeed not a fraud. Not too different from Buffett during the American Express scandal. Cornwall purchased LEAPS (2.5 years out) for strike price of $40 at a premium of $3 for a total of $26K. The far out of money options were very cheap. Even if they were wrong, the odds were too crazy to not bet. In a few months, the stock jumped to $60 once the findings were out, and they made a killing of >$500K. What I learnt is that if you have an event driven situation where the outcome is binary with a fixed deadline and the stock has been trading in a range, one could get LEAPS at a cheap price. If were there LEAPS for ZINC for 2018 and they were cheap, it probably would fit the criteria. Either ZINC's plant is going to be up by 2018 (and the stock will sky rocket to $6-$8) or they will go bankrupt. May be with the leverage, the stock is now a stub and acts like an option (which will expire in 2018 when their debt is due and the plant is not up - causing them to restructure the company). Buffett has also spoken about the mispricing of long term options in his 2008 letter: http://www.berkshirehathaway.com/letters/2008ltr.pdf

Barron's has an article on threat to blockchain by Visa/MasterCard: http://www.barrons.com/articles/watch-out-visa-and-mastercard-here-comes-blockchain-1448691510 My take is that the large money center banks that control 80% of the credit / debit are getting a very good deal from Visa/MasterCard. They have no reason to abandon that for an alternative, at least not anywhere in the near term. In the longer term, no reason Visa/MasterCard could not be the VeriSign of payments.

Anecdotally it seems that MC pretty much lost most US. I always try to have at least one MC just in case (haha) some place does not take Visa. Through years, pretty much all big US banks switched to Visa usually without even telling me. I've got Barclays MC, but that's pretty much it. There might be smaller US banks still offering MC. Really? My citibank and capital one cards are both MC. And they are both recent (<5mo old). MasterCard signed a 10 year deal with Citi in Mar 2015: http://newsroom.mastercard.com/press-releases/citi-and-mastercard-sign-new-global-agreement-that-expands-relationship/

I was out on vacation and was avoiding looking at CoBF. Lots of comments on the thread on disruption of Visa/MasterCard. I am long (although I recently reduced my position size, but not because of the disruption risk): (1) Visa/MasterCard provide tremendous value for a very low cost. Cost is lower than 10 bps. Most of the value is passed to the banks issuing credit / debit cards. (2) For the larger banks, Visa/MasterCard make most of the money on the acquirer side. In fact, from my understanding talking to industry experts, on the issuer side Visa/MasterCard make probably 1-2 bps from the large money center banks. JP's ChasePay deal is structured for Visa to make a big fat 0. (3) On the debit side, Durbin Amendment caps the interchange fee to 12c. So, effectively they have killed any scope of meaningful competition in the debit space. (4) On the credit side, there could be new "innovative" issuers, but the large money center banks control 80% of the market share. And Visa/MasterCard are the low cost providers. So why would they want to invent new "rails" when the current one works well. Some of these new technologies will gain some traction over time, but they are niche at best. In my opinion, risk of being disrupted is far fetched. (SD will surely come back with a reply to this with some mumbo jumbo that I don't cannot rationally argue with). Now, in my mind the real risk is the following: (1) Visa/MasterCard/Amex have gotten into a price war recently. ChasePay, Costco, USAA deals are evidence of this. I am concerned that Visa/MasterCard will continue to see price compression on the issuer side and Amex will probably lose a bunch of deals. (2) Visa/MasterCard margins have been healthy despite this because they have continued to raise prices on the acquirer side. The debit interchange fee contraction has given a relief to the merchants, so the increase on acquirer side by Visa/MasterCard is not noticeable. But, it does not seem like a good strategy in the long term, and I think pricing will drop in the longer term. Visa seems the most aggressive among the three. Although I need to get more data on this.

Here's more on ChasePay. In the intermediate term, PayPal is the one that has most to worry. In the longer-term, if it is successful, they could process payments on their own "closed-loop" network instead of relying on Visa's. In my opinion, in the longer-term, American Express has more to worry than Visa/MasterCard as they could become a more successful closed-loop network than American Express given its reach. http://www.pymnts.com/news/2015/through-the-mobile-payments-looking-glass/ pymnts.com is a great website to follow developments in the Payments industry. Another one to follow is http://glenbrook.com/

I agree with this and I think the market is overly optimistic about V/MA's moat at the moment. It seems like investors are assuming V/MA have an impenetrable moat when they are actually competing for a market that has a trend of deflationary pressure for multiple decades. V/MA's current moat is due to their cost advantage [in general] of transferring money between accounts at different financial institutions and their accuracy rate of verifying these balances ("low enough" fraud-rate) in real-time. V/MA have a critical-mass of deposit-taking institutions and merchants, thus creating the largest subsets of eligible participants to transfer money. For that reason, I think it will be nearly impossible for others to compete using V/MA's business model. However, there is also the possibility that deflationary pressures outweigh growth/efficiency or V/MA become an unnecessary middle-man. A new model will likely be necessary for the latter, possibly a system that can escape the Fed Reserve-like model of balance confirmation. I don't see Apple Pay, Google Wallet, or Amazon Pay being competitors since they all run on top of V/MA's network to move balances between institutions (AMZN/AAPL probably do have accounts at multiple deposit institutions to lower fees) and PYPL has already set the market price [free] for p2p txns. PYPL attempts to avoid V/MA's network by having users deposit money directly to their PYPL account, making them debit txns. PYPL cannot avoid V/MA's network if you use your CC (PYPL uses their ATM access agreements to process debit transactions). Even PYPL can't avoid paying a toll to use V/MA's monopoly. Only AXP appears to be immune from V/MA, but they have their own risks. A crypto-currency network could have the necessary qualities to up-seat V/MA, but I think it will be impossible to do so with non-USD currency and while ignoring KYC/AML regulations. The biggest threat I see to V/MA is increased deposit density in the US (and Europe, but I don't know as much about payments/banking there). To see why, let's look at why V/MA exist in the first place. V/MA came around in the 50's/60's when each town/city had their own bank and folks did not travel between towns at anywhere near the same rate as today. Business's and banks were truly able to know their own customers. If people did not have cash, businesses were forced to make the decision of whether to accept a check from a stranger or to decline their business. It was common for individuals to have "credit" accounts at various merchants (e.g. local grocery store) and credit cards like Diner's Club provided the same functionality for the first time. The BankAmericard was an exciting innovation because it was the first "All-purpose" card in America (at least on a mass-scale). The BankAmericard created a network of merchants and financial institutions that shared data, which allowed merchants to confirm customer account balances and transfer money in real-time (real-time circa 1960). This is still V/MA's core service to this day (their advantage is the critical number of merchants and deposit-institutions they connect with the ability to accurately confirm and move account balances in real-time). However, with each passing year, bank regulations and technology improvements (pseudo-minimal requirements) have dramatically shifted American deposits from community banks and credit unions to national banks (such as the big-4; which have ~45% of US deposits). An example of my concern is Canada's Interac. Canada has such a high deposit density at 8 banks (nearly 100%) that merchants can assume customers will have an account at one of these banks (skipping V/MA network for many txns). Thus, the network node pain-point is gathering merchant as opposed to it being equally difficult gathering deposit institutions like in the US, Europe, or some of Asia. If the US banking industry continues to consolidate then it will eventually reach a critical density that will allow the US big-4 to partially, but materially, circumvent the V/MA network. AXP is much better insulated from this risk because it has a fully closed-network with a subset of in-demand users. big-4 US banks: http://www.forbes.com/sites/greatspeculations/2015/05/22/q1-2015-u-s-banking-review-total-deposits/ CAD Deposit info (~100% of CAD deposits are at 8 institutions): http://www.cba.ca/contents/files/statistics/stat_bankq_en.pdf Spot-on imo. Deposit density in the US is making this a real concern (merchants need less bank accounts to accomplish what you propose). The only thing preventing this is American's love-affair with "credit" txns as opposed to debit (not necessarily credit cards). This is definitely a major concern that could quickly sneak up on V/MA. Cool article that shows how complex systems can be up-turned with seemingly small changes: https://www.quantamagazine.org/20151117-natures-critical-warning-system/ I still think V/MA are fantastic businesses. Schwab711, this is a real risk that the large money center banks that control most of deposits start their own "closed-loop" networks. In fact, Chase is the way ahead in this game relative to other banks. They started ChasePay in partnership with MCX. At Money2020 conference held in Las Vegas on November 11, Gordon Smith from Chase talked about the success they have been having with the initial launch. IIUC, international transactions for a long time, will continue to occur on Visa's payment processing system.

I am very open to a rational discussion. In fact, I want to know about any disconfirming evidence for any company I am long in. However, SD's arguments have mostly being academic and has put forth very little empirical data to show why Visa/MasterCard are dying, as he suggests in all his threads. Sorry SD, but I am going to ignore your threads until we can engage in a meaningful discussion. Having said that, I reduced my position recently with the run up. I still have a reasonably sized position, but personally I think it is prudent risk management to take some profits off the table when valuations are in the fair value range for a business that is a "compounder".

SharperDingaan, you seem very convinced that V/MA, the backbone to payment systems (processing both electronic and plastic payments), are going to die - are shorting it to 0? If not, why not?

Well, in my opinion, if one really wants to learn to invest - one can't say I am going to pick some stocks and then forget about them for the next 10 years. He explicitly said the following: "Do you think these companies are worthy of holding for a decade or two? I don't want to switch/monitor them all the time." Unfortunately, buy and hold does not mean buy and forget. If you really want to buy and forget, then a low cost index fund is a reasonably good choice that is as good as (or better than) anything else. If I want to learn to invest, then that's a separate thread. I would not start by trying to pick winners I can hold for a decade and be unwilling to monitor them. Isn't it?

Everyone wants to beat the market. But unfortunately it isn't easy. If you want to be a "defensive investor" like one described by Ben Graham in Intelligent Investor, you are better off focusing on two things: (1) Live below your means and save (2) Dollar cost average into a low cost index fund. If you want to do better than the market over a long period of time, there is no easy way. You got to be "enterprising" investor and that requires work.

Not sure if Saurabh is on the forum, but I will convey the message to him. Yes, I applaud him for his efforts, it is not easy to get these wonderful speakers to come visit Google.

Interestingly, Thorndike came to Google just a few days before the big fall at Valeant started when it was around $150. He thought that Pearson was an outsider CEO despite all the controversy. I personally have no dog in this fight and find the Valeant situation too hard to act on. May be every such outsider CEO run business were too hard to act on in foresight. May be the framework is nice to have but too hard to act on in? Look at the two names he mentioned - Colfax, Valeant.

Attendance in person is only open to employees

Liberty, at 58:00, I ask Russo about his third largest position, Mastercard and how it compares to Visa.

berkshire101, can you explain how you think about CLB. In its best year in the last decade, it did $5.7 per share in fcf. Assume normalized fcf goes up to $6, apply a multiple of 20x (which is very generous given that revenue has grown at 10%), and you get a $120 stock. Apply higher multiple of 25x, you get $150. It it trading at ~$100. Even with these heroic assumptions, the upside seems rather limited. Why is this the attractive? What am I missing?

I have learnt more from what seemed like "good" writeups made by "great" investors, but turned out to be disasters. Here is an interesting exercise - download all writeups from VIC, sort them from highest to lowest rating and then from lowest to highest performance. You will see that high ratings are in many cases inversely related to performance.

There was an explicit question at the meeting about this and Mr. Pabrai's said they don't own any Hyundai prefs.