woodstove

Like most on this board, I am interesting in understanding why Mr. Buffett makes his (usually good) decisions. However, I think it is a hazard if we ask him too much about his reasons, and especially if we get hung up on inconsistencies between explanations and actions. He is essentially an artist, who has developed an understanding of business operations and valuations and their reflection via the markets, over many decades, to the point that he can usually make a yes/no/pass decision in maybe an hour when presented with an opportunity and the relevant data. He may not understand all of the process, from opportunity and data to decision, himself. My concern is that shareholder inquiries may cause him to anchor on his explanations, to do an expected action instead of the right one, or to pass on what seems right because it does not conform to previously stated standards (eg, famously, no airlines). A comparison -- on Gutenberg, there is a book by Rodin, entitled Art. It was written by a friend of his, who visited Rodin regularly and discussed how he worked, how he made choices. Most of the book is usual, though not uninteresting, but the last three chapters are outstanding. Rodin says to his friend, come next time and I will show you.... The next visit, Rodin takes a lump of clay, makes a figure in the classical greek style, then makes another figure in Michaelangelo's style, and discusses the planes in the figures, the methods of capturing balance and motion. Neither of which is Rodin's method, and the explanations he gives are not what Rodin or his colleagues exactly do, but it is interesting and instructive, even to a non-sculptor like me. I would not want Rodin, through an excess of accomodation to his friend's curiosity, to change his manner of working. A fascinating discussion of art, especially for me as I am a Rodin enthusiast. But back to Buffett... If one should figure out how Buffet makes investing decisions, it would be best, to benefit other shareholders, to keep it to oneself. In fairness to the majority of shareholders, Buffett should keep his decision process to himself, except for appropriate interaction with colleagues. We either trust him and the Berkshire team or we do not. Let the guy work.

If one owns a slab of the Rock of Gibraltar, there is little point complaining it makes a lousy surfboard. I like what is called a Barbell portfolio -- instead of same-as average/middle (S&P Index?), balance positions of extreme safety (BRK?) and volatile upside/downside (petro-energy?). If want excitement, surf on weekends, enjoy comfortable home/work life on weekdays. Nowadays there is extreme volatility in contexts, so it makes sense for BRK to be prepared for opportunities. Also to mention primary obligation, to preserve ability to pay out on insurance claims, and secondary obligations, to preserve capital of bondholders and shareholders.

The Occidental deal looks very nice to me. Long term value participation, or just take the money if not interested in a decade. I think these sorts of deals are way better than rebuying shares. To be hoped for: another nine such opportunities!

And perhaps c) Reminder that not all decisions/actions of Berkshire are made at Omaha office, now including capital allocation decisions.

I appreciate the excellent (non-rant) info provided in this thread. The original info about wind turbine upgrades. The paper link re wind turbine payback. The EROEI article, and also the energy storage ESOEI ratio. On the latter, very impressive return for compressed air, may solve problems of intermittency. Amazed at low paybacks for solar arrays, but I hope that improves, as I have done a tiny bit of work on some aspects of the technology. And Jeffmori7's info about Hydro Quebec was great. It's always seemed to me that trying to get others to agree is useless in public. Frank exchange of views is what diplomats call it. Understanding is the purpose.

Sneaky maths. FFH puts in 470m value of current holding, consortium partners put in 1000m, lenders put in 3000m, 200m discrepancy of buyout price of 4700m not discussed Based on news article.

My take ... sold BB on Monday,, bought more FFH, as expect the value to accrue there. Bought back BB after drop below 9, so now doubled up. Believe there is value above 9, as going concern.. FFH should end up with 30 pct of equity in the consortium, cash will cover the debt. Cash flow will produce nice net profit down the road. It is decent deal for FFH. Many good assets, QNX, talent, cust base (biz), etc. Appreciate the civility of this thread.

That's a relief Palantir! I thought it might have been my fault. I requested certificate registration of 1000 shares of a less-traded stock. Maybe they've had to shut down the exchange traffic for a while, to look under the rugs to find some shares. ::)

The Othmers did some good. That they chose a flawed steward for one project is too bad, but that hospital was not their only gift to society. Years ago I ran across an excellent many-volume encyclopedia of chemical technology, which was co-written by Don Othmer. It's now in its 4th edition. Useful reference. One must take a value investing approach to estate-leaving, as to investing while alive to keep an eye on things. Some diversity but not excessive. Choose as much by steward character as by nominal structure. The Othmers were good folks, and it is a pleasure to be reminded of them again.

I've got a Z10 (and also a second-hand Playbook, sigh). It's a good device. Some things I would like to see improved, but overall a good interface, very reliable, good communications punch-thru (most phones cannot work from within my basement office), way more apps than I have time for. What I like overall is the company's orientation to high-productivity people. The apps I wish for are along those lines. The QNX Momentics app development environment is very good quality, and the phone is full of sensors and other goodies, and power!, that make it a very nice device to develop for. My own developing is for personal use, not for the app store. But if one is developing for the app store, it is a good value-type opportunity. Think of it ... not a huge number of competitors, a high-income high-expectation group of potential purchasers, Blackberry looks after all your distribution, so you can concentrate on producing quality code and user interface. And most of the user interface design conventions are already defined, with numerous example codes that you can adapt to suit your app. I had hoped that the Playbook would be continued with support, or some sort of trade-in program to get a larger memory model, maybe. It is a device for reading science papers, in my case, and I find the tablet size preferrable to the Z10 screen size. However the Z10's screen is 1280x768 and the browser and Adobe are fully working, so that is good -- just my old eyes have to squint when a paper is in two-columns.

Thanks for that. Interesting article. Illustrates how many different flavours of "smart" there are.

PEG is one way of getting some company names to think further about. And if there is enough history for a company to get a handle on past growth, PEG-type thinking may be a guide to the future, to determine a reasonable buying price. Those are two diffferent uses, notice -- one is preliminary screen for names for investigation, other is trying to estimate value long term of a single company. For instance, a company that has been around for decades, earns about 10-15 pct of book annually, has been able to reinvest those earnings to grow the company, seems reasonably free of insider theft (aka misappropriation) of earnings/assets, does not make many stupid/egotistical mistakes (aka mismanagement), distributes 2 pct of book as dividends and hence grows at let's say 11 pct average/year. To get a probable 10-years hence value of that company, first decide what the company is probably like in 10 years -- still in same business or not, still same good management (honest, competent) or not, etc... Then, to the numbers. With 10-year horizon, assuming 13 pct earnings/year, 2 pct paid as dividends. Use a discount rate of 6 percent. (Lower is just deluding oneself -- there is risk in allocating capital, regardless of whether market recognizes it at the present. Within 10 years the risk will get recognized again.) So, if believe that can see 10 years ahead, use 5 years horizon in calc for margin of safety. If book is 100 today, expect it will be 100*1.11^10 in 10 years. That's 284. Discount at 6 pct for value of money. Leaves 158 present value of future book. Put in value of dividends, assuming no increase (margin of safety, not reinvested, increase only at discount rate) at 2/year, or add 20, to get 178 present value of future book + dividend stream. Margin of safety on purchase -- nothing above 70 pct, so pay 125, or 25 pct above book. If buying at 112, effectively using 5-year horizon for additional margin of safety. Lower the buy price, the greater the margin of safety = how much of the future is being anticipated. Wait until company falls into disfavour (it surely will) for buying opportunity. I like to buy small position, to establish personal interest, and maintain familiarity with company over the years. Then will get the rhythm and a feel for when to commit further. Sort of like merging into traffic on freeway from the entry ramp. Others with more discipline can watch without having any skin in game. I've got 100+ companies on the completed-analysis list, and hold meaningful positions in only 11 of them. So that implies a lot of concentration in my stockholdings. Cash is another 45 pct, but still it means 5-pct average position size if all were equal. The other 90-some companies are just watch -- someday perhaps invest. For one reason or another, they're not as well run, or otherwise appealing, as the others -- or price opportunity has never arisen. As you can see, PEG is just one component, one wrench in the toolkit. I'm no great shakes as an investor -- many (most) posters on this board have more skill, manage significant assets, etc. The most important thing, I believe, is to develop a list of names on which one has completed at least rudimentary analysis, obtained some idea of fair price (don't want to pay at fair, though!) and the personality / dynamics of the business. Best book to develop that sort of discipline, is Philip Fisher's. Best book to learn analysis is Ben Graham's. Best wishes, ws

This is a URL for the list fof posts, starting from the very first in May-2000, when the board was set up. Choose unthreaded view and you should be able to browse thru in increasing chronological order. http://boards.fool.com/security-analysis-the-book-113813.aspx?mid=12568177&sort=postdate&days=30 Generally, Motley Fool has a quite flexible URL scheme. The 113813 is the board id, and the 1256817 is the message id, in this case the greetings from the software when the board was established. You can use http://boards.fool.com/Message.aspx?mid=12568177&sort=postdate to get to a particular message. I thought that http://boards.fool.com/investing-books-10099.aspx?bid=113813 would get to the board itself, but instead it gets to a list of five boards -- some interesting titles. Happy reading!

I agree 5th is not worth one's time. Fourth a bit heavy on utilities. First was good. I've not read al of the other three edns -- but am inclined to agree with general sum of above comments -- best would be 2nd or 3rd. I was not aware 6th did not have complete content of 2nd. The primary merit of 6th, I think, it that it overshadows the 5th, on shelves. Unfortunately, when I bought, 5th was latest and I got it ... and wondered why it did not come up to 4th, which I had previously read thru library. To discover the 1st was amazing eye-opener. About that time, found fool.com and good discussion ensued, including read-thru of the 1st. They still have that board's content -- look for "Security Analysis -- the Book" in speaker's corner.

Very interesting -- thanks! The bit I liked most was right at the end, roughly this "... the idea of a debt ceiling ... If Berkshire had put in a debt ceiling in 1966, it would have been a million dollars ... now it would be 50 billion dollars."

Maybe a bit of both, of government and cowboy capitalists! Some time ago, looking into ethanol economics, I believe I noticed that the Bush family would be a beneficiary of corn-for-ethanol subsidies. Cannot recall details, and that was several years ago.

That sounds reasonable. Don't know, but it would be typical as an FFH move to exit a contrarian position when sentiment has shifted towards their stance.

First, to look on the positive side ... it is an incredible achievement to have been able to build a regional grid which can serve 300 million people, with way more than 99 percent reliability. This outage was corrected faster than the prior outage, I believe. So yes the politician's response is not completely inappropriate. Secound, the grid reliability issue ... from brief info, a news report, I believe the overdemand may have related to power-sharing arrangements. We have seen in North America difficulties related to the agreement structure getting ahead of the physical transmission facilities and it might be well to place some limits on leveraging power transportability. Perhaps 1-2 percent of capacity is adequate to smooth demand, perhaps 10 percent, but whatever is committed should be backed by reserves of spare capacity. Think of it as similar to bank capital. Third, education ... I heard a senior administrator from Indian university system speak, about 13 percent of 20-ish population in India is getting some post-secondary education of all types -- university, trade, etc. In North America much higher, and in Canada higher still. That is a major strategy in Ontario, and I see its benefits. There is a potential difficulty, in that people are educated beyond their work requirements, so society has to redefine self-esteem to include general conversability. An old idea which is coming back. Fourth, social structures ... The book of Hernando de Soto on property rights may have some useful ideas. I've only skimmed a bit of it, and surely there are others here who can discuss such matters knowledgably. From the MERS abuses, and recent collapse of custodians in the commodities, I think we may be going backwards in the matter of "property" registration / rights. All eggs in one basket makes it easier to steal the entire basket. Still, some ideas may arise via de Soto's book's discussion.

Very thoughtful. Thanks for posting that.

That perception is pretty accurate, I would guess, as a first approximation -- if one were to approach the scene as a forensic investigator. You spoke of fear vs greed among the retail investors, but there is also greed vs fear among promoters, and a great imbalance between the two. Stability / sustainability requires those to balance, ie to oscillate, not to swing the needle to one limit and hold it there. As a personal strategy, if planning to watch the general trend and then commit for long terms, instead of looking for particular situations, perhaps it is better to wait for a long trough. I expect 2-3 years of trough width at least. Not until the mutual funds and other trust structures have been further strip-mined, will the future pessimism bottom. Read Richard Koo! Think about Japan.

What I would like is to see 4 percent of book value returned annually to shareholders, as "rent" for the use of their capital. Does not matter what the stock price is; the price will adjust according to corporate profitability, market moods, whatever. Perhaps 2 percent paid out via dividend, and 2 percent towards share repurchases. Whatever, as long as it's consistent policy. The important principle is that Fairfax is no longer a startup. Long-term shareholders, buy-and-hold, deserve an appropriate "rent". Even with the best managements, some funds should be regularly removed from their span of control; it is a useful discipline to have to pay an annual dividend to shareholders. Keeps the mind focused on doing good business, which means over the average long term, making tangible profits. A good management, in a good business, can grow it more than 4 percent per year, hence still gets to run a larger company. And dividends also grow over time, as the retained earnings (profits less 4 pct of book) grow book value in future.

Thanks! Very thoughtful article.

Bmichaud ... just want to say thanks for the links to pragcap that you posted early in this thread. Some good discussion there.

Hi Biaggio ... I'm a fan of Richard Koo's ideas. Glad to see you're reading up on him. My best advice is to obtain and read his book, "The Holy Grail of Macroeconomics". Trying to work with the subset of ideas which fit into a one-hour video, or a newspaper article, is like trying to learn Ben Graham's ideas via message boards instead of reading Graham's books. I don't claim to understand everything that Koo (or Graham) writes, nor do I agree with every bit, but they're definitely more than 75 pct right, and exceptionally perceptive each of them. ws

That is super - thanks for posting it. One thing -- a breakup of the megabanks is not a negative for current shareholders, it is a positive. They end up with their proportionate interests in each of the spinout enterprises. Most of those will do better, being more focused, and produce higher earnings and P/E multiples. The breakup of Canadian Pacific several years ago is an example. As another example, consider Microsoft -- had they chosen to voluntarily go along with the govt pressure a decade ago, and be broken up into two firms, shareholders would have gained a lot. Who knows, perhaps even one of the MSFT spinoffs would have been in the innovative position of Apple today? A successful species crowds out its competitors, and then the successful will itself differentiate.