zarley

From what I've seen, SHLD has redacted some counter-party information in a filing regarding new letters of credit with Wells Fargo. Filing here: http://www.rocketfinancial.com/FetchDoc.aspx?id=12212206&fid=3076289 I can't say I know the details, but Rule 24b-2 is related to investment mangers 13F filings. I'm guessing the counter-party wanted confidentiality until they filed their own 13F. At some point, I guess we'll know who it is. Perhaps Fairholme or ESL.

Great update. Thanks for the link.

Greenwald's Value Investing book lays out the basic framework for various types of companies and provides several good examples of how it should be applied. http://www.amazon.com/Value-Investing-Graham-Buffett-Beyond/dp/0471381985

I'm not sure why you draw a hard line between the two. It's not really a straight binary choice. I think the question is really just a matter of at what price to consider selling. The so-called jockey stocks may get more leeway here because there is such faith in management. I'd rather hold a fairly priced Fairfax than a fairly priced (or even a slightly cheap) generic small cap. Choosing to hold an over priced Fairfax instead of a cheap generic small cap would be something like irrational, but I don't think that's what we're talking about here.

I've been thinking along those same lines lately. BRK and Fairfax are my two biggest holdings, and they'll likely stay that way for a little while. I'm comfortable enough with management and the long-term outlook for them, and think both are mildly undervalued for the time being. When the valuation story changes, I'll reconsider their weightings relative to my other positions. I intend to hold these indefinitely, but if valuation gets out of whack, I'm prepared to sell them outright. It would be a nice problem to test my resolve on that issue in the next year or two. We'll see. I have about 10% cash at the moment, and a general lack of screaming buys, so I wait.

I agree about every investment having a price. As for the Apple and BRK hypotheticals . . . I can't imagine ever buying into something like Apple. The resurgence of the company and the stock was the result of good execution and some great product ideas that really hit the market at the perfect time (imac, then ipod, then iphone). I would never have had the foresight to recognize that Apple was on the verge of that kind of transformative product development. Early BRK with a greedy incentive package for Buffett is probably a harder question. I don't think BRK would be the BRK we know today with a shareholder-unfriendly compensation package for Buffett. As a small investor, I have to feel like I understand what is motivating management. I try to buy into businesses where I feel like my interests are aligned with managements. I'm comfortable with BRK and Fairfax in that regard because I've followed them for a while, and I think I have a decent understanding of management's motivations and decision making framework. In something like SHLD, I don't necessarily know what Lampert's long-term plans are (going private I'd guess), but since he owns so much of the common, our interests are aligned with respect to the benefits of long-term share price appreciation. Most (certainly not all) of my positions have significant ownership by individuals or families that actively run the business. I just don't think Biglari's interests are aligned with the small shareholder. That doesn't mean BH won't do well going forward, but Biglari will be better rewarded at the expense of the other shareholders. The price better be compelling if I'm going to play with the deck stacked against me.

. . . and perfectly happy to get rich at the expense of the other shareholders. This is the fundamental problem I see with Biglari: his motivations and incentives are potentially at odds with other shareholders. And, as Parsad notes, the Board does not appear willing or able to stand up to him or check his get rich desires (i.e., do their jobs). So, if BH got sufficiently cheap, it could be a decent investment. But, for me, if I know the CEO is out for himself and his incentives are not aligned with my interests, then that puts up a pretty high hurdle to get me to invest. Why would I want to if the CEO is working against me?

Always a great read. Thanks for posting.

I tend not to read 10k's just for the sake of reading 10k's. I dig into them to find information about the company that isn't generally available in other places -- I go in looking for something specific (usually more detail about assets, investments, debts, compensation, etc). Yes, I will also read things like the mgmt discussion and more general business descriptions but you can often find that sort of thing in presentations and press releases. The goal is to understand the business/industry. So, the 10k is useful for filling some gaps, but it's just one piece of the puzzle. For me, the other pieces include 10Q's, other SEC filings, conference call transcripts, company/industry presentations, general business articles, industry-specific articles, executive profiles, opinions of respectable professional investors, etc. I only go this far if the financials look good from a quick review (cash flow & balance sheet mostly).

Exactly. McConnell and Boehner have made it pretty clear that their legislative agenda revolves around making Obama a one term president. Expect them to stonewall any proactive attempt to fix anything that might give Obama something positive to campaign on in 2012. Mid 90's redux is what I'm expecting. Only economically, we're not in nearly as good a position as we were in the mid-90's so the stonewalling will likely be detrimental overall.

This is an important point to remember, and one that keeps me lukewarm to MSFT generally. Yes, they look attractively valued, and that $40 billion in cash is nice. But, you need to be able to do something smart with it over time that produces a worthwhile return. The last 10+ years don't provide much evidence that MSFT can put that money to good use, and the Yahoo deal is a reminder that they may very well do something incredibly stupid with the money.

Fantastic. Thanks for making that available.

On the netbook, I'm just running Mint. It came with XP, which may have been fine, but a more modern OS makes some things (like wireless networking) easier to configure. The netbook is just for surfing and playing media, so there's no need for me to dual-boot; Mint does everything I need. I dual-boot win7/ubuntu on my desktop.

If you don't have a linux distro in mind, I'd suggest Linux Mint. It's based on Ubuntu, but has all the multimedia drivers and whatnot already installed. I've got it on my netbook and it works reasonably well. I prefer it to the Ubuntu netbook remix actually. Also, consider a chromium browser; firefox is a little resource hungry for a netbook.

That's reassuring Bronco; thank you for that. :)

Can we infer then, that Buffett is 1 for 3 in his recent efforts to recruit capable investment managers? While I would love to think there are 2 or 3 seasoned and capable managers waiting in the wings who will be perfectly happy to join Berkshire in the near future, I have some reservations about this given the Combs appointment and the Lu / "mystery manager" news. As yudeng points out, Buffett is hoping for quite a lot from an established pro to come into Berkshire. Perhaps finding the proper motivation and ego to fit the situation is harder than Buffett may have thought three years ago. I have to admit, I'm feeling more uncertain about this process now than I have in the past 3 years.

I think this is an overly simplistic assessment of Buffett's 2008 article. Reread what Buffett wrote. Here's link to the 2008 NYT article: http://www.nytimes.com/2008/10/17/opinion/17buffett.html So, Buffett is wasn't arguing that stocks were cheap, or that a bull market would be coming soon. He argued that stocks in high quality US companies were a better risk/reward proposition than cash. I see no substantial inconsistency, while I agree that the potential for poor stock returns is real due to the likelihood of rising interest rates. I think the writer (Mr. Collum) was stretching his interpretation to make for a better story. ********* edited to fix Buffett quote. Moved my comment out of quote box and into final paragraph.

This poll made me go double check my results -- I was surprised by the answer. I knew that I had outperformed the market over the last three years, but I was a little surprised by the level of outperformance (a cumulative gain of approximately 35%). Given the relative performance of Berkshire and Fairfax over the time period in question, it shouldn't be surprising that a ton of people on this board have outperformed. Both holdings have certainly helped my own performance. Although, neither company was the most profitable investment I've made over the past three years.

Doc, I haven't followed up on Polaris since my earlier post, but I can't say I really disagree with your assessment. Given the assets they own and their business relationships (shamrock and cemex) Polaris really does look cheap. But, absent a buyout offer, the catalyst for improvement in their position really is heavy construction on the west coast. That will certainly happen eventually, but when? I guess if you look at potential downside vs. potential upside, even if it takes 5 years for the WC construction market to turn up, Polaris may be worth the risk at current prices (~$1). It's going into my "keep looking at it file" for the time being.

Just on a pure asset basis, Polaris certainly looks cheap. But, there are a couple things that make me wonder about current mgmt. First, the share dilution has been crazy (from 30 million to 53 million since 2006). When will that end? Second, the Long Beach expansion "strategy" seems a bit muddled. First they bought a location for $15 million, then changed their minds to lease a property and sell out the land they just bought. Even with the lease they need to put $5 million into capital improvements at the new location. It just seems like they didn't really know what they were doing there. I guess I'm not sure their expansion plans outside of the S.F. Bay area will come off as smooth as they're portraying it. In a take-over scenario, that may not matter as a new owner would hopefully have a plan for that. As a speculation on the assets and a turn in the West Coast construction market, it looks a little appealing. A take-over would probably be a best case scenario.

Amen. Excellent post coc. I've made more money in SHLD over the past 2 years than any other position I've owned. I've bought under $30 and sold over $100 and bought again at $60. It's still a large holding because I see it as an opportunity to do reasonably well over the long term. As for Fairfax, it's 17% of my portfolio, my second largest holding. It didn't start as my second biggest holding, but I got a good price, and continue to hold it as it is a very good company which remains reasonably priced. As an individual, perhaps I just don't have the time to find micro-cap cigar butts. Maybe I just wouldn't know one if I saw one. Anyway, I don't see them, but I do see reasonably priced stocks like FFH, SHLD, and BRK with decent upside. I'll hold on to them and wait for them to get overpriced and go from there. It may not be alpha-maximizing, but it fits my limitations, and IMO, offers a very good chance at adequate returns.

You seem to have little understanding of how taxes work, or what net worth represents. Not to mention that your fictional person's $50,000 savings alone is well above the median household income in the US. IMO, $250,000 per year in taxable income is a reasonable starting point for "rich." It's more than 5 times the median household income and puts one in the top 2% of all incomes.

For the record, I am not, in fact, the one and only Zarley Zalapski. I apologize for any confusion. Carry on.

Some sort of AZO/SHLD merger is certainly possible. ESL/Lampert owns something like 30% of AZO and nearly 60% of SHLD. From that perspective, a merger wouldn't be surprising in any way. How well they might fit together geographically or organizationally is hard to say. I really have no idea.

I agree with your whole post premfan, but the above point is the one I've been thinking of lately, seeing as Lampert/ESL own nearly 60% already. Excepting situations where Lampert is forced to sell his SHLD holdings or goes to jail, I think most scenarios for SHLD are pretty good. One bad scenario, as a small SHLD holder, is that Lampert takes his ownership up to some crazy % like 80+% and then stops retiring shares and starts paying out cashflow as a dividend. That way, ESL/Lampert can redirect the cash however they want in other areas. This is only bad from my perspective because I will lose out on the potential benefit from having Lampert allocating the cash for me. Yes, I'll get a nice dividend (presumably), but I'll lose Lampert's investing skill. I think this is probably unlikely because of the extra taxes on dividends, but it is possible. Nearly as bad would be Lampert opportunistically taking SHLD private a some depressed price that doesn't reflect the true value of the company. Minority shareholders get squeezed out and lose the opportunity to have Lampert investing for them. This option is potentially worse than the dividend option, depending on the take-out price. My preferred scenario involves Lampert closing ESL and turning SHLD into his investment vehicle. Yes, it's the BRK/Buffett scenario, but I think that would be the best outcome for the minority shareholder.