zarley

Living in Southern California, the earthquake/tsunami component of recent events has me re-evaluating my worst case scenarios.

This has been the most frustrating thing for me. Trying to understand what's happening, what the likely scenarios are moving forward, and how bad is bad has been very difficult. The problems at the nuclear plant have been rated a 6 out of 7 (3 mile island=5, Chernoble=7) so, this is very very serious. And, it doesn't seem like they have a full handle on the situation. I've read that a Chernoble type event is not possible because of the design of the reactors and how it's operated, but two days ago the party line was that things were under control and the situation was not likely to be worse than 3 mile island. Personally, I think it's too early to start getting excited about market prices. Seems like there's still a lot of potential downside to the situation in Japan. It's horrifying and depressing to watch. Contemplating investment opportunities under the circumstances just seems . . . wrong (for lack of a better word).

I've been looking at the numbers for WDC and Hitachi GST and I'm starting to think the combined entity should be worth $45 per share (probably more because I think WDC was worth close to $40 on its own). There isn't a lot of data on GST's financials, but the little comparative graphic that WDC put out with their announcement points to GST being around 60% in volume/revenue of WDC. So, the combined entity probably had revenues of around $16 billion last year. At the time of the announcement, WDC was trading at $30 per share which works out to about .7 x sales. And, the $4.3 billion price tag for GST is probably around the same multiple of sales ($4.3 billion / $6 billion). So, combined revenue of $16 billion at .7 x sales = $11.2 billion or $43.92 per share. If the combination canibalizes 10% of sales, you're still north of $40 per share. Alternately, if WDC and Hitachi think GST (which is around 60% of the size of WDC in units and revenues) is worth 4.3 billion, a comparable valuation for WDC would be $7.1 billion (4.3/.6). The combined valuation would be $11.4 billion, or $44.70 per share. I really think WDC management has managed to turn a couple billion dollars of excess capital into a dominant position in the hard drive market (with a little help from borrowing and share issuance). http://www.wdc.com/wdproducts/library/company/investor/InvestorSummary.pdf I had started buying WDC just before the announcement at around $30. The immediate price jump on the announcement gave me a little pause, but I'm coming around to the idea that I can buy more at current prices and still get a decent deal. Anyone take profits Monday/Tuesday?

I'm pretty sure Babu was Pakistani, not Indian.

as of right now . . . Link here: http://www.fairfax.ca/Assets/Downloads/AR2009.pdf same as: http://www.fairfax.ca/Assets/Downloads/100305ceo.pdf Somehow, I think they just miss-linked the report.

The linked letter looks more like a 2009 letter than 2010. Am I crazy, or does all the data end with 2009?

Thanks Myth. It's fair to say I basically see it the way you do. And storage redundancy/backups is a great point I hadn't noted directly. But, again from my own experience, I have a primary need for more personal storage for videos and pictures an whatnot. But, I also have need of extra storage for backups. That redundancy will probably have me doubling my personal storage in the next few months. It's the same thing for businesses generally and for guys like netflix and google.

Hey Myth, I stumbled upon WDC and have been taking a good look at it. It is still cheap @~$30. But, I'm trying to figure out why it's cheap. What's your take on why WDC is unloved given its operating results are very good and balance sheet is strong? In no particular order, I'm thinking: --rise of mobile computing (smartphones and tablets) which use flash memory instead of hard drives. --the related rise of cloud computing and online media streaming which allows for thin-client type PCs which may need less local storage. Servers will need more storage, but those will be sold at lower margins. --HDDs are very much like a commodity business, with modest barriers to entry and a history of technical disruption. The flip side to those issues is the ability for individuals to create personal content that needs to be stored locally (home or office). I know my personal need for storage has exploded recently as I take more pictures/and videos, store my MP3s, and set up a personal home media server. I've gone from having maybe 100GB of storage in my home to having over TB of storage and looking to get more. It seems like the demand for storage will continue to grow along with overall computing power. Thoughts?

Great section on net income (emphasis mine):

First impression is he spent more time laying out the valuation than in previous letters. He didn't do all the math, but he basically laid it out there: $17 billion in normalized earnings cash investments of $90 billion . . . do the math.

Thanks Myth.

I just started looking at Loews and it does seem undervalued. Both the insurance sub or the nat gas pieces look a little cheap, and a sum of parts using current market prices for the traded pieces probably puts you in the mid $50's. Haven't looked closely at CNA, but it's trading around .7 x BV. Good or bad Impressions of their operation overall? Is there a thread in the ideas forum for L?

I agree about the current price. Around $90 it isn't obviously cheap, or obviously expensive. In the low 60's a few months ago it was obviously cheap. I think the sum of parts run-off valuation and the ongoing buy backs put a reasonable floor under the price somewhere in the low 60's. I also agree about the short term use of cash flow. Obviously, Eddie is retiring shares and doing a little restructuring with the debt. Mostly, he's securing his hold and putting cash to use where it makes sense to him. Watching SHLD these days is like watching a python eat a pig. The pig is only half way in the snake's mouth, but there's no doubt how the process will end up. A good entry price and patience will be rewarded.

Yep, that's pretty much the standard long opinion -- which I share. One issue with the real estate, which became clearer and more important over the past two years is the timing of the monetization of those assets. Real estate that is hypothetically worth several billion might take many years to actually turn into cash. So, the value is tied to how quickly you can make those transactions. In 2007 that real estate was valued at one price given prevailing rates and an expectation that the assets could be flipped quickly, giving Eddie a pile of cash to invest. These days, the real estate still has value, but it's harder to see how those assets get turned into cash in a timely manner. I think patient investors will be rewarded, particularly given the ongoing cash flow and share buybacks. But, it will take time. As Berkowitz has said, if they do figure out the retail piece, that's gravy.

Honestly, for basic web access and email/facebook/twitter/etc. any of the big three (iOS, Android, WP7) will probably work for you. I have a moto Droid and am perfectly happy with it. If you already use Google services (gmail, calendar, finance, etc.) then an Android phone will probably be the easiest to get started with. If not, then it may not matter that much. Verizon's network is better in terms of access and stability, but AT&T is better in overall network speed. I wouldn't switch networks for a phone, but would choose the phone you like best on your current network. My Droid contract is up in October and I'll give serious consideration to the iphone, but the competition is catching up fast.

This is the root problem. R's and D's are equally at fault here, they just want different things and want different people to pay for them. All the partisan handwaving is just bullshit -- Tocqueville saw it coming a couple hundred years ago.

Thanks guys. Thinking about this a bit more, I was really getting at portfolio composition, position sizing, scaling in and out of positions, simple hedging, etc. The timberland sale this morning was just the trigger for thinking about this stuff a bit more. I had hoped to hear how members of this board work that stuff in to the general framework of buying dollars for 50 cents and selling them for $1.50. As Parsad notes, as an individual, I don't have many outside considerations to worry about when making these decisions, so I have a little more flexibility to avoid trading if I want to. And, with a goal of minimizing costs and taxes, I intend to minimize trading as a general rule. With all that said, the individual decisions are all quite situational and may not be suitable for a more formal or rigid approach. Other than scaling in and out of positions and maybe using defensive options or stop-loss orders, what tactics are members here using to deal with the question of when and how to sell out of a position that has become fully valued or overvalued? With that, I'm off to read Klarman's thoughts.

I'll need to find the .pdf I have of MoS and take a look at that. Thanks for the suggestion. My thinking has generally been in line with your excerpt. At the end of the day the future appreciation for a richly valued stock is potentially quite poor or mediocre even if the business does well (see MSFT over the last 10 years). So, I'm comfortable with the notion that even if I like the business, if I can't justify the price (would you buy it today?), then selling needs to be strongly considered. I'm curious about how strategy-wise or tactically, how people approach the problem.

Yeah, that's the idea. But, the portfolio management/trading part of the sell decision is not something I've thought very hard about. My approach has really been about as simple as it can be, so I'm hoping to broaden my thinking about that.

This morning I sold the last half of a position I had in Timberland (TBL) at $36.44. I bought a year and a half ago at ~$13, thought it was worth about $20, sold half not long ago at $30. I'm ambivalent about it because I like the company and would have liked to hold it longer. But, It is near an all-time high and I've been planning on getting more defensive by raising cash, plus I wanted to add a little to some other positions that look reasonably cheap (cutting the flowers and watering the weeds perhaps). Obvious alternatives to selling would probably be buying a put, maybe a couple bucks below the current price, or just putting in a stop-loss order. How do you guys approach sell prices and taking profits?

Is that the one where he got hurt running into a guy because he wasn't watching where he was going? Framing that as a headshot is not quite accurate, IMO. If you watch the CBC feed of it, it's clear he just didn't see the guy, and both announcers agree it was an unfortunate accident, and not something malicious from the opposing player. Crosby is a tremendous hockey player. He is also a giant douche and crybaby. I don't like him, but I do hope he gets and stays healthy. The NHL is in desperate need of stars and he is the best in the league right now.

#1 is a good point. The goalie came out. It seemed more like they were just yapping, but leaving his crease is a no no. #2 goalie on goalie crimes don't count. As Buffett says, a horse that can count to three is an amazing horse, not an amazing mathematician. A goalie who beats up a goalie is a tough goalie, not a tough-guy. ;D

Believe me, I hate Cindy Crosby as much as anyone and I've seen plenty of youtubes showing his worst moments, so I don't disagree with you on that score. A third liner leaving the bench to defend his goalie is, IMO, defensible (not what you want to happen, but I can understand it). But, he better do it with full knowledge that he's gonna get suspended and fined. I think back to Steve Yzerman getting a 3rd man in penalty and a game misconduct jumping into a "fight" to defend a young Sergei Fedorov. Sometimes you need to get your team mates back, even if it means a penalty or suspension.

I agree with Mario that what the Islanders did friday was disgraceful. But, I disagree that the NHL didn't do enough to penalize them. Plus, it was a Penguin that left his bench -- defensible in context, but obviously begging for a suspension. Mario's always been sensitive to incidents of thuggery in the NHL. I think his wrist still pains him from a thousand cheap-shot slashes during the 90s.

I think my gut reaction to reading that letter was something along the lines of "how quaint." It seems to be equivalent to leaving a note on your big screen T.V. asking nicely that would-be robbers not steal it, as you are quite attached to it and would prefer not to have to replace it. If the author thinks Biglari cares one whit about small investors and their desire to be voting partners in BH, he's delusional.