StevieV

I think that’s a fallacy. Having a huge fleet of cars is going to be expensive to set and expensive to mantain - It’s today and it will always be. Having a real and huge network of cars/drivers on demand an the digital ecosystem supporting that network is the most valuable thing here. As mentioned in my post, I think car companies themselves and rental car companies are natural competitors. Car manufacturers should have some advantage by making the cars and rental car companies do maintain a large fleet of cars. Uber/Lyft don't maintain any fleet of cars today. Just as anybody can replicate the ITunes’ model (but in reality is not just that easy!), anybody would be able to replicate Uber’s model but it’s not going to be that easy! I don't think Uber's current model is easy to replicate, but I think the AV one will be easier. At least because the two-sided network mentioned above, will become one sided. ------------------------------- In any event, I don't think the margins will be there. As I understand it, right now, Uber loses a ton of money, and that is without a very good deal for drivers. I think the question/proposition above was that the company or investors or someone says that they can make money with a shift to AV. So, AV has to be not be better than the human driver model. It may be better from a customer standpoint, but I think it will be easier to replicate and, so, a tougher business for Uber. Could be wrong for a lot of reasons. Uber could be under-earning during its growth phase and it could be profitable today. Perhaps they will have a subscription model that will reach such scale that it will be difficult to compete. Perhaps other competitors won't enter the market. Lots of other things I could be missing. But, if I had to guess, I'll stick with my original answer.

The "let's use our drivers as guinea pigs to prove the platform can work then undercut them with our own fleet of AVs" model has always struck me as funny. Good point. I don't see the driver network as a defensible moat for them ,.... Where I see Uber and Lyft currently having a moat relative to taxi companies is in the platform used to hail drivers. I am not sure we understand each other here. IMO, the reason why you or I would have difficulty starting a ride-sharing company today, among others, is scale. People use Uber and Lyft because they are well-known and available. I can go to many cities and be confident it has Uber and there are a reasonable number of Uber drivers around, so that I can get a ride. Drivers want to be with Uber or Lyft because they have the customers. I called that the driver network, but perhaps network effects or scale would be more appropriate.

Yes, I think they do have a defective business model. They don't make money now. I don't know when AVs will come, but when they do, I agree that they won't have a competitive advantage there. The current MOAT is the driver network. When there are AVs, why won't the car companies directly win that business. Or rental car companies. Or folks signal their own car to pick them up. I think that will be a tough business and I don't see that Uber will have a big advantage.

I mentioned upthread that I believe Tilson was stating 6% IV growth without counting the cash build, which he put at 10,000/A share. He also later used a 6-8% IV number. So, that implies a higher IV number. I am not sure I am correct here, but I believe that is how Tilson is putting things. I think it is a little confusing, as the IV growth should include the value of any cash build. I think 8-10% IV growth/year over the next 10 years is a good estimate. If you buy at a good price, I think that you can boost the 10-yr CAGR you'll get as an investor a percentage point or so.

I joined you jokers by initiating a small position this morning. Looking forward to some good returns, and continued interesting posts on this board.

Tilson calculates the intrinsic value growth and the cash pile growth separately? Slide 13 shows 6% IV growth + $10,000 in cash build/A-share. It seems to me as though the cash build would normally be included in the growth of IV. Putting in the growth in cash, the IV growth projection bumps up a few percent. That makes more sense to me. Even if BRK is very safe, 6% growth in a stock isn't something to get excited about. On slide 22 it states an IV growth of 6-8%. If that is ex-cash, and cash adds a few percent, then that makes more sense. High single to low double digit growth in IV in a safe stock is a different story.

I am also in the camp of buying back shares. However, at least for now, it seems as though Buffett isn't interested in a buyback. But what about the buyback threshold? Well, the buyback threshold hasn't resulted in much of an actual buyback. It is more of a stock price support plan than a buyback plan. I doubt changing the threshold to 1.25 or 1.27 will do much to change that. I am sure Mr. Buffett knows that as well. If he wanted to spend significant cash buying back shares, he would have done so. So, I have to assume, he doesn't want to. I don't see BRK avoiding a significant capital return plan at some point. If you buy-back 3% of your shares and pay a 3% dividend, you don't need huge outside opportunities. If you retain all the cash, you do need huge acquisitions.

DIS. Somewhere just under $200B. How large of a bond offering could BRK pull off? Largest ever is Verizon at $49B.

I've mentioned elsewhere that I own Peyto and Pony. They are relatively recent positions. The risk is that the Canadian natural gas sector is just a bad place to invest. That risk is not insubstantial. On the other hand, I think both Peyto and Pony could double from where I bought them in relatively short order, certainly within a year or two.

On GNW, my relatively uninformed guess is that the takeover is not going to go through. Obviously, given the spread, the market doesn't believe it will go through. I am not sure about management. Two big questions: (1) Will they handle the buyout well? To gurpaul88's question, would they accept a lower price from China Oceanwide? There has been some chatter, but I don't particularly see that happening. I think the bigger risk to the buyout is from not getting approvals rather than selling to China Oceanwide at a lower price. (2) Is management preparing in case the buyout doesn't go through? As alluded to by Patmo, operations seem to be going better, but management's comments have been all-in on the buyout. Not sure if they are properly preparing for the possibility it is not approved.

In general I agree with your post, StevieV, What I was trying to express, was that it has has been hard for me to suppress my mental propensity to buy the techs. It is that propensity, that I personally find hard to cope with. I like them all [the techs], and what they do for us all, it's just too much GARP investing for me. Makes sense. I tend to think BRK shouldn't be part of a great individual investor's portfolio. It is not the type of company Mr. Buffett himself would buy at low capital levels. It is not something I would expect Packer to buy, or that I would probably want him to buy if I was investing with him. Owning stocks like BRK over a longer term and without leverage is a drag on the 25%+ CAGR returns that someone like Packer is achieving (or Pabrai aspires to). Given my current allocation and strategy, it would be very tough to have those type lalapalooza type returns. I have not proven that I am a great investor and, for various reasons, want some more conservative companies. I am generally fine with that. I do however, sometimes wonder whether I should follow a strategy where sustained higher returns of the lalapalooza type are at least possible.

"The real problem" here is, what's going on in ones brain with regard to "opportunity cost" - the techs have been smoking BRK dearly for quite some time. It's just so increadibly hard to cope with, mentally. Surprised that you would say that. BRK doesn't seem like a particularly hard hold to me. It does not face any clear existential threats. The intrinsic value marches steadily upwards and the stock price has moved up reasonably as well. If you hold a retailer in today's environment, you may have real concerns about the business model. Restaurants are hard to hold - something like KONA mentioned here. A high flyer like Tesla. As I understand it, Tesla loses money on every car. Will that turn around at some point? Will government incentives be reduced and hit adoption? Will Tesla be the winner? If you are looking for 20% CAGR returns over the longer term, you don't hold BRK. There will most certainly be stocks that outperform BRK over the next 2, 5 and 10 years. Some stocks will double over the next 2 years. I hold some that I think have that potential. BRK stock will not double. On the other hand, BRK is reasonably predictable. It will not only likely survive, but would likely become more valuable if the economy hits the skids (through deals, stock purchases and acquisitions). Very likely to trade materially higher than today in 5 and 10 years.

How can one be sure that Mr. Buffett is not suggesting that 1.2 book is a 50 cent dollar? Below is what he had to say in the 2014 letter (published in early 2015). This cheery prediction comes, however, with an important caution: If an investor’s entry point into Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares have occasionally reached – it may well be many years before the investor can realize a profit. In other words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire is not exempt from this truth. That at least certainly implies that 2.4x book value would not be fair value and, thus, that 1.2 book would not be a 50 cent dollar. IV may have moved more away from book value in the last 2 years, but not significantly enough to change that. Also, IMHO, all valuation methods point to 1.2 book not being a 50 cent dollar. For example, SlowAppreciation's solid write-up does not arrive at a conclusion that BRK is worth anything near 2.4x book. Anyway, I think that BRK is a solid company and may be a good investment here. However, when I say a good investment, I am talking about 8-11% growth in IV/year plus, perhaps, a little multiple expansion depending upon when you sell.

My guess would be, with the market at such heights, most people estimate they can pick up these quality stocks cheaper in the upcoming years. These are good stocks for people investing OPM in a low/medium risk fund or are living off their investments and cannot handle a lot of risk. But like flesh said, as a value investor you want a substantial discount and I don't think these stocks are offering that at the moment. I've held most on that list, currently only have BRK left. Ontopic: sold KONA and added some extra DEST on Friday. Have been adding PWE on occasions when it dropped below 1.5$, currently my third largest position. I am a little wary of buying a basket of stocks you think will achieve 10%. A reasonable chance of falling short. Of those on the list above, I am most familiar with Berkshire. I don't know that BRK is an solid 10% return. At the annual meeting, Warren said he thought they could do 10% if interest rates rise. I think that if you want 10% CAGR over the next 10 years for BRK, you should look to buy at 1.3 book or better. That should give you some multiple expansion tailwind. Apple is a juggernaut, but I think it is really difficult to figure where they'll be at over the medium-longer term. Will the iPhone still be the vital device? I think the margin of safety with Apple really has gone away with the recent price rise. Glad to see Paarslaars in PWE. I have added a few shares in the past month. I have also started a position in CPG recently. I continue to think oil will settle into a little bit of a higher range and that there will not be a BAT or other unfavorable tax on Canadian oil and gas companies. That being said, it is taking longer than I thought. I think PWE and other Canadian oil and gas names could have a nice summer. I wouldn't be surprised to see PWE back at $2 USD in a couple months. We'll see if that is the case or if I continue to be overly optimistic.

Hi Eric, I wanted to mention that your post prompted me to listen to your podcast. Even if you didn't get any responses for guests, perhaps you picked up a few listeners. Looking forward to future episodes. SteveV

Curious about SSD. What makes it so attractive in your mind? I know almost nothing about the company. However, at first glance, it looks like they have been on a long round trip back to their peak earnings of 10 years ago. I guess it is not that surprising that earnings peaked in the housing bubble, but it has taken a long time to get back to that point. I do think the construction sector has some room to run. Unlike say, auto sales, new homes sales don't appear to be near any type of peak to me. I think the more gradual rebound in housing starts is a good thing for the industry. As I said, I don't know anything about the company and have no opinion on its prospects. Curious about it given your strong statement and large investment.

I was not making individual stock picks at the time. However, I think this was part of the difficulty for investors during the crisis. It was a triple threat of problems - (1) the stock market was down; (2) the job market was terrible; and (3) the housing market was also terrible. So, you couldn't get a job if you needed one, couldn't sell your house if you wanted to move and were watching the value of your investments slip away. On the job front, some people ended up being out of work for a pretty long time 12-18 months. Also, in some fields, there simply weren't jobs no matter your qualifications. There were certainly compelling investing possibilities at the time. I am sure there are people who took advantage of them. I don't have any personal track record to point to from the time. However, I agree with others that it was not as easy as it is sometimes made out to be in retrospect. Uccmal's story is something. Being on margin at the time must have been something else.

I would like to own Nestle at the right price. Even if less than Heinz, it is too expensive for my tastes.

I think the idea that you can avoid companies that present the risk of permanent loss of capital merely by selecting stocks carefully is wrong. Some quick examples: (1) Volkswagen. There was no way for an outside investor to know about the emissions issue. (2) Lumber Liquidators. 60 Minutes? (3) VRX. I know there was a lot of skepticism about the stock before it fell, but a lot of intelligent investors were shareholders. (4) Theranos. Not public, but again a lot of smart investors drawn in. There is a long list. Some of these are simply unknowable events for individual companies. Don't think they are avoidable. Some are investor error or have an element of investor error. Perhaps avoidable, but I don't know that someone can count on never making such an error.

As racemize says, I think this is generally discussed with reference to an average portfolio. I have seen mutual funds say things like: we think financials will outperform, so we have overweighted our exposure to financials to 8% versus a 6% weighting in the index. That's simply not going to move the needle. A concentrated portfolio has positions that will move the needle. The 2 stock portfolio mentioned to start the portfolio is definitely super-concentrated. Certainly too concentrated for my personal taste. If someone has 50% of the portfolio in 5 names, that is something where: (1) those performance of those individual stocks makes a difference to the portfolio; and (2) the portfolio can significantly diverge from the index.

I think a privatization of infrastructure should benefit BAM. More opportunities should generally help them even if there are competitors in the space. Not everyone has the scale of BAM and if the market grows then BAM should be able to continue to grow. I would be very interested if you would provide a brief valuation of BAM. What CAGR do you believe BAM could achieve over the next 10-20-30 years? Why? Thanks.

IMHO, pension assumptions are terrible. In the late 90s, at the tail end of a huge stock market bubble, return assumptions were generally increased. Hey, if the stock market has been returning 20%, why would you assume a 8% return, let's mark that baby up. Much better than contributing more. Anyway, they are totally backwards looking and take no account of the present market values of stocks or bonds. That is the case even when you have a lot of supposedly learned professionals running things. I think mostly everyone on this board and elsewhere in the value investors universe thinks the market return is going to be somewhat challenged over the next 10 years or so. Equity markets are slightly to significantly overvalued, depending upon your metrics and analysis. The generational bond bull market simply has nowhere to go. As you say, 20/30/50 is going to have a heck of a time returning 7.5%. If 20% is cash, you need almost 10% on the 50/30 stocks/bonds. I don't think you'll get 10% in the S&P at today's prices and can't see how you'll possibly get that in the types of bonds this pension is likely to own. FWIW, without looking it up, I think 7.5% is probably one of the more conservative projections out there. I think 8% is probably more common. Not sure how that effects the company.

Thanks! Some more questions. (1) Who do you send the copy to? A big part of DRM would appear to be having the correct mailing list (now email list). People who are at least somewhat interested in the type of product you are selling. Are your employers providing the list? How is it developed? (2) The style of DRM copy doesn't appear very natural to me. TMF is a great example. Very promotional. Not particularly real. I have never been tempted to buy one of their products. I assume, however, that their copy is effective. Is that style somewhat natural to the copy writers you know or is it a matter of learning an effective style? (3) I don't follow you on Twitter, but I get the idea from this board that you want to live somewhat outside the mainstream. I also know you don't spend a lot. How would you advise someone who wanted to live outside the mainstream (i.e., location independent; not a traditional job; etc.) to start on making a living if they thought they would have more significant financial obligations? Not for me specifically - I have a relatively comfortable mainstream job.

I like Berkshire generally, and have no strong feelings about the other two. DRM copywriters write great, big ads trying to sell you stuff you've never heard about and never knew you wanted. It's direct response marketing (DRM) as opposed to traditional copywriting (brand). I didn't say anything about investing directly making you money... there are ways to make money from your "skills" without actually needing them to be cash generative in and of themselves. Nothing is stopping me from writing DRM copy; I do so now, casually, but my skill level isn't as high as it would be if I'd focused on that instead. No. I don't use screeners. Yes, I have. :) How did you get started in DRM? Where do you get something to sell? Who do you sell it to? How do you do it casually?

Most CEOs are likely overpaid and there is something obscene about a company laying off thousands of workers and the CEO making a huge bonus. I also think boards are complicit. So, I don't think it necessarily operates as an efficient market. That being said: (1) I don't know of a simple solution; (2) I don't think it is one of the bigger problems facing the country; and (3) I generally think the government screws things up when it gets involved. If CEO pay was rationalized somewhat, who would benefit? I doubt the laid-off workers. If they are uneconomic, they are uneconomic. Perhaps the shareholders and consumer, but I doubt there would be a huge effect. More about perceptions of fairness than anything else. If there was a simple, coherent, not particularly coercive proposal on the table for encouraging CEO pay to be restrained more, I would be for it. I have not looked into it, but I am not aware of any such proposal. It is not something I would be particularly keen to focus my time and energy on if I were in charge.