tooskinneejs

Here is the actual letter... http://www.sec.gov/Archives/edgar/data/1067983/000119312511024368/filename1.htm

Here are some notes from Warren's latest meeting with college students. Enjoy! http://blogs.rhsmith.umd.edu/davidkass/uncategorized/warren-buffetts-qa-with-university-of-maryland-mba-students-march-11-2011/

Sear's equity is priced at almost $10 billion. Plus it has about $3 billion of net debt. The total price to own the company free and clear is about $13 billion. If all of the real estate is worth about $8.7 billion (per the linked article) and the value of the company comes from selling all the real estate, then why is there "hidden value" when the enterprise price exceeds the asset value? If the answer is that the company can sell the properties and lease them back to continue to operate the stores, then I'd argue that you are left with the most unattractive component of the business (a dying retailer), whose operating income would be severely dimished (if not completely evaporated) by the new, incremental costs to lease all of it's formerly-owned properties.

I assume you are referring to the US Federal government's thrift savings plan. If so, the G fund is essential a cash fund with a guaranteed rate of return of about 3 or 4 percent (it varies each year). There is no credit risk with the G fund. https://www.tsp.gov/investmentfunds/fundsheets/fundPerformance_G.shtml

Bronco - My wife and I drove the road to Hana on our honeymoon. When we left Hana in the late afternoon to go back to Wailea, we thought it would be faster to get back to the west side of the island by taking the road along the southern side of the island instead of going back on the north side's official road to Hana that we had already driven on. We knew that rental cars weren't allowed on the southern road, but the route looked shorter and we thought "how bad could it be?" Let me tell you, that was one of the damn scariest drives of my entire life. On our drive, the sun quickly set and it became completely dark. There is nothing on the south side of that part of the island, so there is no light anywhere. The road was very crooked and was only wide enough for one car for much of the way. Much of the road isn't paved and there were tons of potholes. Add to that the fact that the road has no shoulder and drops off a cliff to the ocean on one side and has a rock wall on the other and let me tell you, that is something I'll never do again. Taking the "short way home" from Hana that evening ended up taking us twice as long as going back on the official road to Hana would have. Here are a couple of pictures of that road, which where I'm from is more the size of a bike path (and again, imagine driving this in the pitch black): http://maps.google.com/maps?q=maui&oe=UTF-8&ie=UTF8&hq=&hnear=Maui&gl=us&safe=on&ll=20.64917,-156.081541&spn=0,0.019205&t=h&z=16&layer=c&cbll=20.649191,-156.081507&panoid=rmnzuDAtd6ZrYF2D5ju-6Q&cbp=12,210.25,,0,15.96 http://maps.google.com/maps?q=maui&oe=UTF-8&ie=UTF8&hq=&hnear=Maui&gl=us&t=h&layer=c&cbll=20.644991,-156.08714&panoid=1VHu6IH81LqLqFI1Hbg2Og&cbp=12,220.12,,0,1.38&safe=on&ll=20.644933,-156.087227&spn=0,0.019205&z=16

Here is a Washington Post article on the news of his departure from the board. He says he is quiting the board "because of other travel commitments linked to Berkshire Hathaway acquisitions abroad." He also says he isn't planning to sell a share of their stock... http://www.washingtonpost.com/wp-dyn/content/article/2011/01/20/AR2011012002972.html?hpid=topnews

Another good book is "Sugar Busters!" It teaches you that with a proper diet, you don't need to diet (i.e., it isn't about limiting food intake, it's about eating the right kinds of food). It basically explains why it is best to avoid simple sugars and their equivalents. http://www.borders.com/online/store/TitleDetail?sku=0307567958

Much of that cash and investments is the result of collecting premiums on active insurance policies. Therefore, the calculation of enterprise value (really enterprise price) may be missing the provision for claims and unearned premiums.

DCG - I agree with you. When price is the #1 determinant of whether customers pick your products over someone else's, it is almost always a tough business to operate in.

If I were to pick an online retailer to watch out for, it would be csnstores.com. I believe it is privately held. I recently built a new house and ended up making many online purchases for the house (fireplace, ceiling fans, plumbing fixtures, porch swing, etc.). I had never heard of CSN before, but stumbled upon their website as I searched for things. They have a very broad selection of products and their prices were consistently lower than most other retailers (traditional or online only, including overstock). I also found that they had excellent customer service.

Munger - What is your basis for asserting that people are "piling into the stock market to protect against inflation"?

munger said: "Prechter's fundamental analysis is not based on technicals AT ALL. And the vast majority of his book is a fundamental analysis. And this wave he talks of has nothing to do with technicals or charts. What a blowhard." To keep things honest, here is a link to a recent interview with Prechter himself: http://www.nytimes.com/2010/07/04/your-money/04stra.html "Mr. Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years. In a series of phone conversations and e-mail exchanges last week, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory — a technical approach to market analysis that he embraces with evangelical fervor." To summarize, Prechter's "reasoning...is based on...the Elliot Wave theory - a technical approach to market analysis." Munger, given the above came right from the horse's mouth, I find it extremely ironic that you are criticizing others for not having read Prechter's book or understanding how he comes up with his wacky theories.

munger said: "a lot of rhetoric disagreeing but NO ONE can refute the analysis" If I were to summarize in layman's terms the position argued by the author of the article, it would be as follows: We (as a nation) are in for a whole lot of trouble because we are bettering our financial position by paying down debt. Apply that same logic to a individual person: Sally is in for a world of pain because she is improving her financial position. To me, that doesn't make any sense. Now let's say that Sally wasn't paying down her debt/consuming less, but rather was doing what America did 5 to 10 years ago and was overconsuming/leveraging up. In that situation, I would say that Sally is in for a world of pain. And I would be correct in worrying about Sally's future. And I probably wouldn't want to invest in the near-term future of Sally given the direction she is heading. I work with a couple of folks who follow Prechter's views. They are as bearish on our economy as anyone could possibly be. They literally think that the worst economic collapse is just around the corner. And there is no convincing them that there is even a remote chance that things might not turn out so bad. Ironically enough, these are the same folks that were care free back in 2005 when I was very concerned about the US housing market and what appeared to be serious overconsumption by consumers (I couldn't figure out how everyone seemed to be able to afford the Land Rovers, BMWs, huge flat screen TVs, etc.). At that time, they saw what appeared to be prosperity and, therefore, saw only a bright future ahead. It was "different this time." When I was selling my house to become a renter, they were buying at the peak. Now the situation is the complete opposite. These Prechter followers see the recent difficult times as neverending. They think things will get much worse before they ever get better and that, even though stock prices are low, that they will surely get lower. They look at the recent pain and see only pain ahead. Meanwhile, I look at the fact that overconsumption has eased and consumer debts are being paid down as a positive sign. I look at the fact that most people are gloomy on the economy as a sign that, once again, the masses have got it all wrong. As always, people are using the current weather conditions outside their window to predict the weather next week, whether that makes any sense or not. Back to Sally. To say that we should worry more about Sally's future now that she is improving her financial position than when she was running up her bills seems completely illogical to me.

Munger, may I ask you a question? Do you follow Robert Prechter and/or the Elliot Wave Theory?

I can attest to this. All my life I was an ardent Coke drinker. About 10 years ago at a music festival I saw the Pepsi Challange booth and said to my friends, "I can definitely tell the difference between Coke and Pepsi and Coke is much better!" I tasted both sodas, exclaimed which one was better, and too my shock found that i had picked Pepsi. Oops! But for whatever reason, I still am a "Coke drinker."

Some used to be convinced of the never ending dominance of Palm and their Palm Pilot. Then things changed.

There was a time back in the 80's where you didn't dare buy anything other than a Sony Walkman.

Tires are usually installed by someone other than the car owner. Don't car repair shops prefer to supply their own tires rather than deal with the customer buying them separately (hassle to the shop, lost margin on materials, issues with respect to liability)? If so, doesn't this limit the market for direct to consumer sales?

My most boneheaded move was not selling securities that were priced at 50 or 60% of FV to purchase others available at 20 or 30% of FV. At the time, I didn't want to sell what I owned because I thought it to be worth so much more than its price at the time. Meanwhile, if I had sold and purchased lower price/IV securities, I would have had significantly greater returns when the market came back. My eye was not watching the right ball. Lesson learned.

I doubt anyone here will see much in this article as insightful (except from a contrarian perspective), but for what it's worth: http://www.businessweek.com/investor/content/jan2010/pi2010017_084662.htm "Where is this renowned value investor going to find bargains after stock prices have advanced 67% in nine months? Why is Buffett making the biggest acquisition of his career, railroad Burlington Northern (BNI), at a price even he admits isn't cheap? And, perhaps most important, what will Berkshire look like after Buffett?" "The questions might not vex investors so much if Berkshire Hathaway hadn't lost some stock market respect in recent years. For 15 of the last 22 years, Berkshire stock has beaten the broad Standard & Poor's 500-stock index. But in 2008, shares tumbled 32%. They failed to rise more than 2.7% in 2009—20 percentage points behind the S&P 500 last year." When I read this, I got the feeling the author was suggesting that this was a negative from an investment standpoint. I couldn't help but think that these facts instead made the case for why the stock should be purchased. "He has a celebrity and marquee [name] that opens doors for him," says Wisdom, who owns Berkshire shares. Whenever Buffett steps down, Berkshire loses that public face. Some worry there is a big "Warren Buffett premium" built into Berkshire's stock price, which could be deflated when he leaves." I don't know about you, but I feel like there is actually a Warren discount in the current stock price as a result of his age.

"A better looking atmosphere will increase employee attitudes" I don't know. If I was an employee and the management told me and the other employees, "We've got $12.1 million laying around that we don't know what to do with it, so we're trying to decide whether to pay our hard working employees some performance-based cash bonuses or to buy some old maps. Which one of those two options will increase your attitudes the most?", I think I'd have to go with the cash bonuses. And in fact, I'd imagine some employees are probably fairly peeved to read that the money was spent as it was rather than on them. This expenditure may have turned out to be a de-motivator. And applying the "there is seldom just one cockroach in the kitchen" theory, it would make me wonder what else management is spending it's (oops, I mean the sharholders') money on.

Disclaimer: The following is an intentional understatement. It almost sounds like management doesn't realize that it is the shareholders' money, not theirs, that they are spending.

Price to income measures affordability, not valuation. Just because I can afford to buy something for a price of X doesn't mean it is properly valued. For valuation of real property, the price to rent ratio is appropriate. Obviously, price to rent ratios rose dramatically to the point where it made no sense (in many places) to own. As I heard one observer put it, "why pay 6% of the cost of the house in interest when you can pay 3% of the cost of the house in rent." And to answer the question, "If the Fed Missed This Bubble, Will it See a New One?", the answer is clearly NO.

Bingo!! Their menu presents the double burger as the "regular" burger and the single burger as the "little burger". I don't know if they did this intentionally or not, but the result is that most people end up buying the double burger rather than the single burger. Such a simple and passive way of up-selling and I'm guessing that most customers don't even realize it. What self-respecting man is going to walk into a Five Guys with his buddies and say, "I'd like the little burger please"? http://www.fiveguys.com/menu.aspx Another thing that is interesting about Five Guys is that, in my experience, it doesn't matter what size fries you order - you get the same amount either way. They basically drop a cup into a paper bag and then scoop a huge pile of fresh-cut fries and drop them into the bag (usually, there are way more fries out of the cup than in it). Keep that in mind Sanjeev, when go for your first burger there.

Five Guys originated here in the Washington, D.C. area. Back in the 90's there were only a couple of locations. Now, according to their website, there are over 450 locations. I always get that feeling of hometown pride when I see a Five Guys in a far off place that I am visiting. Having eaten many a Five Guys burger, I can tell you (i) that they are great and (ii) that the cost to build-out their stores is very low on a relative basis compared to other restaurants. The low start-up cost is due to the bare bones style of the stores, the counter-only service, and the limited menu (thus, a limited amount of kitchen equipment). And Five Guys employs one of the best (possibly inadvertent) sales techniques that I have ever seen. It is extremely simple, most customers are not consciously aware of it, and it is so good that it should be studied by business schools and competitors alike. Can anyone tell me what it is?