StevieV

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.

Probably a thread on the board that would make this obvious, but what company? The only South African company I recall being discussed in depth is Bidvest. Thanks.

On just the facts written, this question is easy. Scenario 3. I don't see how there can be any other answer. In scenario 3 you are paying less for the same piece of property. The lower interest rates of the other two help even things out, but only help. A few reasons it is practically better. In scenario 3, if you wanted to pay off the mortgage, it would be cheaper. In scenario 3, you have higher tax deductions in the US. In scenario 3, if you sell the house at say $500K in the future, it is a big profit. In scenario 3, there is more opportunity to save on a refinance.

"Am I missing something here?" Yes, I think so. A daily resetting short product isn't equivalent to shorting the underlying. The daily reset makes the positions different. This may not be the best Let's say you are short $1K of VXX and it goes up 10%. Now you are short $1.1K. You have greater short exposure (same number of shares, greater dollar number). If you are long SVXY, the 10% move means you have $900, so lower exposure to the short. If VXX goes back to even, the VXX short will go back to even. The SVXY long won't. Looking at actuals, VXX and SVXY are both down over 30% in the last year. SVXY can be wiped out in a 100% daily move. VXX short won't be (though would be very painful). SVXY loss can only be 100%. VXX short is not so limited. SVXY can have a lollapalooza effect. Up close to 400% since inception. In at least some instances, SVXY may be a better position. Other times worse. Either way, they are different.

Lance, what view are you trying to express with this bet? You betting that vol is going to rise faster than 12-14% in the coming month? Something else? Seems like an unusual position to me as well. The VIX is relatively low, but huge contango now. Full disclosure - I have a very small short position in VXX

I am not familiar with Exor. Care to point me to any particular background or write-up? It doesn't look like there is a thread.

I think you can do a lot of analysis and not do much better than - buy at 1.3x or lower and you'll probably do alright. You can pick a higher or lower number depending on how picky you want to be, how long you want to hold, and how much you want to make sure that you get the shares. It's not like buying at 1.35 or 1.4 book is going to kill you, especially over a longer time frame. Trading at about 1.35x book value now.

(1) Because 8-9% is too low for the effort; OR (2) 8-9% is too low to compensate for mistakes? That is, the 9% bull case can't compensate for a mistake elsewhere so you'll end up lower? What's the effort? I don't know what StevieV means regarding effort, (he could mean the effort of actively managing money), but the point is that 8-9% is a mediocre rate of return to target for an investment. Yes, I meant the effort. I think it requires some effort to get up to speed on Berkshire. I certainly would not invest in Berkshire or any other company without investing some time. Jokes aside, I would imagine that Longinvestor and others have spent some significant time on the company. I actually own BRK and wanted to address some of the things said here. (1) I don't think the bull case is 8-9%. I would say that is the base case. Bull case may be 9-11%. (2) The entry price matters a good bit when talking about returns. A 10% 10-yr return was a lot more likely at the sub-$130 prices offered a month ago. (3) What I like about BRK, and why I own it, is I think that the compounding of value of the company is easy to see and understand. BRK is worth more than it was a few years ago if not for any other reason than they now own a significant stake in Kraft-Heinz and they own PCP. Those were bought out of profits, not stock issuances or debt (for the most part). On the negative side: (1) I think there is some 1-stock risk even with Berkshire. I think BRK is treated as though it does not have such risk. (2) I am not necessarily enamored with some of the main business lines - e.g., rails, utilities, maybe car insurance. (3) Warren's stock picking has not been awe inspiring as of late. Sorry if this post is too BRK-centric for this thread. I just wanted to respond to the posts here.

(1) Because 8-9% is too low for the effort; OR (2) 8-9% is too low to compensate for mistakes? That is, the 9% bull case can't compensate for a mistake elsewhere so you'll end up lower?

"Here is the latest to make oil plunge: http://finance.yahoo.com/news/crude-oil-tumbling-132214670.html The SPR selling part of its oil reserves starting in 2018!" Maybe it is making oil move, but I don't see why it would. If I am reading it right, they are talking about 5-10 million barrels/year. That makes it about 14-27 thousand barrels/day and that is in a couple years yet. Doesn't seem particularly material to me.

"Big Brothers & Big Sisters or Habitat for Humanity" I've volunteered for both of these organizations. Unfortunately, I am not sure I was particularly successful at either. However, I would be much more inclined to volunteer for BBBS again instead of Habitat unless, perhaps, you are a particularly skilled tradesman. I am not convinced that Habitat is a good way to build houses. When I volunteered, there weren't enough tools; people with skills; plan for building; etc. I also had a friend in low cost housing work and people had a lot of problems with Habitat houses after they were built and the people had moved in. I am sure it varies from city to city, but that was my experience. BBBS seemed ok. The reason I said it did not seem particularly successful was that I mentored a kid once a week for 4 years and I am not sure I made a positive difference. They warn you at the beginning that some people get frustrated with that, but I was still a little disappointed with our progress. At the end of the day, it was only an hour a week versus the rest of the time at home and at school. FWIW, I think the school did a nice job and tried to help the kid as well, but his problems at home were pretty bad and overwhelmed everything else.