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zarley

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Posts posted by zarley

    The Language of Inflation

    in General Discussion

    Posted

    This is why I like the definition of inflation as the increase in the money supply.  That is something that can be measured, known, and agreed upon.  It is impossible to quantify the "rise in prices".  It just begs the question "the price of what?".  Prices of somethings will always be decreasing and prices of other things will be increasing.  The price of an item depends on so many other things other than the amount of money in circulation, that it is impossible to calculate the component of the price due to the money supply and not due to changes is supply, demand, quality, technology, availability of components needed for manufacture, weather, transportation, competing products, and a million other variables.  I'm not sure how valuable doing a "CPI" calculation is, because this calculation is dependent on which goods go into the basket and which goods are excluded. And once you do the calculation, it can't be known which variables are responsible for the change in price.  So when you have this number, what do you really know?

     

    This is the reason why there is so much confusion.  A small group of people have decided to replace the generally accepted definition of a term 'inflation - a general rise in prices in an economy' with their own meaning 'inflation - an increase in the money supply.' 

     

    Instead of just using a term like money expansion, they have co-opted a term with an accepted meaning and muddied the waters.  If I were less charitable, I'd propose that this confusion is intentional so as to sell things like gold and gold funds and to maintain a level of fear in segments of the population when actual economic outcomes aren't what you expected.

     

    Is a general rise in the price level hard to measure with precision?  Sure.  But, CPI and the billion price project do a reasonable job of determining if there is a prevailing, general increase in prices.  Sure, everyone's consumption patterns are different, so increases in one sector might effect me differently than anyone else, but that's immaterial to the notion of a high-level movement of prices over time. 

     

    Is there significant inflation in the US economy at the moment?  No, not really.  Has there been a broad-based decline in purchasing power over the last 3-5 years?  Not really.  I haven't seen it.  My cost of health care has gone up.  my cost of housing has gone down considerably.  Food costs are up in spots, but not egregiously so across the board. 

     

    An expanding money supply isn't inflation if the velocity of money is declining.

    For love OR money?

    in General Discussion

    Posted

    The whole notion of considering ROI on education spending is an interesting one.  I had a GF back in the day who decided she needed a PhD in Psychology.  She wound up going to a private college in Southern California where she was on track to rack up something like $150-200k in student loans while she got her degree.  While she conceptually understood what she was doing, she knew so many people who had gone that path that it seemed reasonable to her even though she could do the math on debt repayments and her likely salary range.  We "broke up" during her first year (not for financial reasons), so I don't know how that all worked out for her.  Would I have broken it off for financial reasons at some point?  I don't know.

     

    Things worked out fine for me, as a soon met the girl who would become my wife.  She was, and still is, a gainfully employed civil engineer with no school debt.

     

     

    For love OR money?

    in General Discussion

    Posted

    Am I understanding correctly that the market for attorneys is such that a reasonably intelligent graduate of a low to mid-level law school should not expect to make more than $25-30,000 per year starting out, and have limited expectations for that to improve?  And that one could rack up in excess of $200,000 in student debt on their way to an annual salary that is meaningfully less than my first job out of school as a project manager at a small nondescript market research company close to 20 years ago?  Am I getting that right?

     

    WTF would anyone go to law school under those circumstances?

    Actually, Warren Buffett Was WRONG About Derivatives: Richard Sandor

    in General Discussion

    Posted

    Also recall that the weapons of mass destruction comment was not long after the General Re purchase. Warren moved quickly to significantly reduce the derivatives book at General Re, incurring losses along the way. 

     

    From the 2008 Annual Report:

    When Berkshire purchased General Re in 1998, we knew we could not get our minds around its book of 23,218 derivatives contracts, made with 884 counterparties (many of which we had never heard of). So we decided to close up shop. Though we were under no pressure and were operating in benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the task. Upon leaving, our feelings about the business mirrored a line in a country song: “I liked you better before I got to know you so well.

     

    I think he saw what was happening inside General Re and started to realize how dangerous the derivatives practices at large financial institutions had become.  He may have seen the the potential to destroy Berkshire in those contracts and knew what needed to be done.  Booking $400 million in loses on those contracts may have been one of the best investments Buffett ever made -- consider how badly that might have gone if those contracts blew up during the crisis.

    401k fund selection

    in General Discussion

    Posted

    Your best option here is to minimize costs and choose a small collection of the Vanguard funds in an asset allocation that is reasonable for you.

     

    Also might want to clarify the distinction in your plan regarding the investor shares vs. Admiral shares vs. institutional shares.  For example, the VFINX and VINIX are both S&P 500 index funds with the difference, as far as I recall, being the amount of funds invested.  I'd think your plan would give you access to the institutional shares which has a significantly lower mgmt cost.  If so, the institutional shares of the VINIX and VBTIX should be the backbone of a cost-minimizing asset allocation strategy.

    Interview with Goodhaven Fund

    in General Discussion

    Posted

    There aren't a lot to collect. 

     

    The annuals and the recent (2013) semi-annual are available at their site:  http://www.goodhavenfunds.com/fund/shareholder_reports.html

     

    Here's a link to the 2012 semi-annual:  https://materials.proxyvote.com/default.aspx?docHostID=137176

    If that doesn't work I can email it or post it to a public dropbox.  I don't know if there was a 2011 semi-annual.  I'll poke around my email to see if I got any notices before 2012.

     

    A Secular View of Assets: Surfing the Wedge

    in General Discussion

    Posted

    Good read.  Thanks for the link.

     

    This reflects my general feeling at the moment, but it hasn't worked it's way into my overall asset allocation since I like the stocks I own . . .

     

    The first implication of our view that “almost everything is expensive” is that asset allocation portfolios should assume below-average risk today. While this is certainly not an obvious implication, it is perhaps the most important strategic asset allocation decision to be made at any given point in time. Investors face two difficult choices. The first is to increase risk and reach for return. The second is to reduce risk and wait for return.

     

    Given our view of gradually deteriorating economic fundamentals combined with rising market volatility, we believe the latter choice is more prudent at this juncture.

     

    And, just for fun you can see some pictures from the wedge on a reasonably big day (last week) here:  http://photography-on-the.net/forum/showthread.php?p=16010606#post16010606

    Measuring Risk

    in General Discussion

    Posted

    I'm pretty sure risk IS volatility.

     

    There aren't many people who don't like upside volatility. 

     

    I like Marty Whitman's idea that risk should always be qualified with an adjective.  The search for one unifying risk measure is likely futile and perhaps dangerous if it stops people thinking about the different risks they face.

     

    Amen. 

     

    There are many kinds of risk; most are not measurable in any real way.  Ex ante, you're lucky to understand them in a very general way.

    Western Digital Seems Extremely Cheap

    in General Discussion

    Posted

    Barrons highlights an analyst report that responds to Chanos:

    http://blogs.barrons.com/techtraderdaily/2013/05/09/stx-wdc-needham-blasts-weak-unclear-chanos-remarks/?mod=BOLBlog

     

    The drive industry has never been so disconnected from the PC industry. The firmness in pricing is driven by carefully managed supply and demand dynamics coupled with robust data storage demand that exceeds by 2-3x available data supply [...] Furthermore' data-ipsquote-timestamp=' one of the primary reasons for this increased data demand IS THE CLOUD, where data growth is by some estimates increasing 50-70% per year. Cloud providers consume nothing but the highest capacity drives in huge volumes. These higher priced, higher margin drives also support margins. How in the world he gets to 5-10% gross margins as a target for drives from where there are today is unclear [...']

     

    WDC is still my second largest holding . . . I tend to see things the same way as the analyst, not surprisingly.

     

    It's fair to say that I didn't hear exactly what Chanos said, but the reports about his presentation did seem like he made some pretty weak arguments (that have been around since at least the beginning of htis thread).  I don't know the details of the management stuff at STX, but I'm pretty comfortable continuing to hold WDC at this point. 

    Morningstar's detailed BRK valuation

    in Berkshire Hathaway

    Posted

    Thanks for sharing netnet. That's a nice collection of articles and a good variety of ways to look at BRK.

     

    Although I take issue with a bit of what they put together, they ultimately land on a fair value estimate of $187,500 per A share ($125 per B share).  This happens to be exactly where my slightly modified two-column spreadsheet winds up for current value.  It's also right in the neighborhood of the basic two-column approach they said they didn't like.  It is also almost right on the "More Conservative" scenario for the Intrinsivaluator (http://www.creativeacademics.com/finance/IV.html). So, quibbling aside, the end result is quite reasonable to me.

     

    Berkshire's shares remain slightly undervalued in a market that appears to be fairly valued*

    Our fair value estimate is equivalent to $187,500 per Class A share (or $125 per Class B share), reflective of a price to fair value multiple of around 0.85 times (inferring a more than 15% gain from today's trading prices). While not as large of a margin of safety as we would normally like to see in a firm with a medium uncertainty rating, we do note that Berkshire has effectively created a floor on the company's stock price by announcing that it would buy back both Class A and Class B shares at prices up to 120% of reported book value, which stood at $111,718 per Class A share (and $74 per Class B share) at the end of the third quarter of 2012. Furthermore, we anticipate that Berkshire's book value per share increased to at least $115,000 per Class A share (and $77 per Class B share) at the end of last year, meaning that Buffett would be willing to step in and buy the company's common stock at prices up to $138,000 per Class A share (and $92 per Class B share).

    I Worry About "The Shot Heard Around The World"

    in General Discussion

    Posted

    I have a question for the board regarding cash:

     

    Lets say one has 100% of their assets invested in BRK;

     

    BRK's market cap is ~ 270B and @50Bil of that (or ~ 20%) is held in cash by Warren.

     

    Would anyone look at this as "having" 20% in cash, with Mr. Buffett waiting to invest it for you?

     

    Can this act as a type of hedge?

     

    Thoughts?

     

    In short -- Nope.

     

    The experience of 2008/09 for BRK and FFH should be a good example of how strong companies like BRK and perfectly positioned companies like FFH still get taken to the woodshed in a significant market correction.  Perhaps they didn't get hit as badly as the rest of the market, but they weren't a hedge.  BRK held up a little better early on, but peak to trough still lost 50% during the correction.

     

    Having cash available in late 2008 and early 2009 to buy insanely cheap stocks did much better than BRK through 2010.  Buying SHLD under 30 and Timberland and Gentex under $10 and seeing them double and triple by the end of 2010 was much much better than holding BRK.

     

    Cash and puts can be good hedges for market risk, but even the best stocks are not.  That's my lesson from 2008/09 anyway. 

    DaVita Thesis?

    in Berkshire Hathaway

    Posted

    8K:

    http://www.sec.gov/Archives/edgar/data/927066/000119312513204531/d533361d8k.htm

     

     

    Standstill Agreement:

    http://www.sec.gov/Archives/edgar/data/927066/000119312513204531/d533361dex991.htm

     

    Section 1. Proposals.

    (a) For any period (the “Standstill Period”) during which Investor beneficially owns ... 15% or more of the then-outstanding Common Stock, Investor shall not, directly or indirectly, (i) call, or seek to call, a meeting of the stockholders of the Company, (ii) submit any stockholder proposal ... to seek representation on the Company’s Board of Directors, or any other proposal to be considered by the stockholders of the Company, nor publicly recommend that any other stockholder vote in favor of, or otherwise publicly comment favorably about, or solicit votes or proxies for, any such proposal submitted by another stockholder of the Company, (iii) otherwise seek to control or influence the management, Board or policies of the Company, or (iv) nominate any directors for election at any meeting of stockholders of the Company.

     

    (b) During the Standstill Period, Investor shall cause, for any meeting of stockholders of the Company, all shares of voting stock of the Company owned by Investor as of the record date, to be present for quorum purposes.

     

    © From and after the Investment Authority Date, Investor shall cause any Excess Shares to vote or consent on any matter in the same proportion as the votes or consents of shares of the voting stock of the Company voted or consented with respect to such matter (excluding shares with respect to which the votes were withheld, abstained or otherwise not cast) and not beneficially owned by Investor, whether at an annual or special meeting of stockholders of the Company, by written consent or otherwise. In furtherance of the foregoing, Investor shall deliver to the Company upon the Company’s written request, with respect to any Excess Shares, executed proxies naming the proxies appointed by the Company, so that the Company may vote such Excess Shares in the proportional manner described in this Section 1©.

     

    “Excess Shares” means any shares of voting stock of the Company beneficially owned by Investor in excess of 15% of the then-outstanding voting stock of the Company, and “Investment Authority Date” means the first date on which both (i) Warren E. Buffett is no longer Chief Executive Officer of Investor and (ii) R. Ted Weschler is no longer an investment manager of Investor.

    Western Digital Seems Extremely Cheap

    in General Discussion

    Posted

    Summary of a Gartner study on the HDD vs SSD choice for enterprise users:

     

    http://www.storagenewsletter.com/news/marketreport/gartner-ssd-hdd

     

    Analysis

    The benefits of SSDs are immediately visible to users as a means to improve application performance by reducing electromechanical HDD latencies. In addition, the ROI of SSD performance benefits is immediately apparent and measurable, especially when the applications using the SSDs are high-profile, revenue-generating services. Installing faster components, such as SSDs, into storage systems and servers helps IT departments avoid outlays for time-consuming projects that require specialist application software and infrastructure performance-tuning skills. However, the cost per GB of enterprise-grade SSDs, compared with enterprise-grade HDDs, will remain at prohibitively high levels for the foreseeable future (the cost per GB for enterprise server SSDs will remain at more than 25 times the cost per GB of enterprise business-critical HDDs). Therefore, it will not be economically feasible for IT departments to simply replace HDDs with SSDs within the next five to 10 years.

     

    There will continue to be enormous differences between the costs and efficiencies of petabyte - quantity production - for example, when looking at enterprise storage on the devices that were destined for use solely in servers and storage systems. In 2012, the HDD industry delivered 66,358PB in 63.4 million business-critical and mission-critical HDDs, whereas the NAND industry delivered only 1,781PB in 5.7 million enterprise-grade server and storage SSDs.

     

    It would cost the NAND industry hundreds of billions of dollars to construct enough new fabrication plants to displace even 20% of the forecast need for enterprise storage, which likely will exceed 500,000PB in 2017. Therefore, within the next five to 10 years, it will be physically impossible to manufacture a sufficient number of SSDs to replace the existing HDD installed base and produce enough to cater for the extra storage growth.

     

    Largely consistent with the themes laid out by WDC and Seagate, I think.  Key points include SSD speed benefits not needed in all storage uses, and thus not worth the cost.  Building the capacity for NAND development to replace existing HDD storage is infeasible due to cost for the foreseeable future.

     

    I expect that ASP and margins for HDD will compress over time, but overall demand for storage continues to grow exponentially and HDDs will have a huge share of that.

     

    Still long WDC, but a little sad about lightening up my position a few months back.  :(

    BRK's AIG Coup

    in Berkshire Hathaway

    Posted

    Here's a link to a short story about it. Not much more info than the OP though . . .

     

    http://www.businessinsurance.com/article/20130425/NEWS04/130429867?tags=%7C306%7C76%7C78

     

    Four senior executives from American International Group Inc., including Peter Eastwood, president and CEO of AIG Property/Casualty—The Americas, resigned Thursday to join rival insurer Berkshire Hathaway Inc.

     

    In addition to Mr. Eastwood, David J. Bresnahan, president of Lexington Insurance Co., David Fields, chief reinsurance officer of AIG, and Sanjay Godhwani, president of AIG's property/casualty group—Latin America and the Caribbean all resigned from the insurer.

     

    Messrs. Eastwood, Bresnahan and Godhwani had all spent significant portions of their career at Lexington, AIG's Boston-based excess and surplus lines unit. Mr. Eastwood took over the leadership of Lexington, after its long-time CEO Kevin Kelley resigned in 2008 to join rival Ironshore Inc.

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