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Blodget says: "Well, that's a load of bunk, Grant Thornton says, in an even more extraordinary SEC filing." The fact that Grant Thornton filed a letter to respond to Overstock's disclosure of the change in accountants is not extraordinary. In fact, audit firms are required to respond to companies' disclosures regarding the reasons for changes in certifying accountants to indicate whether or not they agree with the disclosed reasons. Blodget says: "Now, aside from the fact that this disagreement will turn the SEC heat on Overstock up several notches, there's a very important detail in the letter above, which we've highlighted in red. It concerns Overstock's filings for THIS YEAR. And it suggests Overstock may have overstated its performance in the first quarter." This is written as if to indicate that the Grant Thornton response letter has some new revelation about 2009's reported results. In fact, nothing could be further from the truth. It was clear from Overstock's initial disclosure of the matter that (1) they didn't recognize amounts in 2008 that they discovered in 2009 (but before issuance of the 2008 financial statements) because there was uncertainty as to realization and (2) the amounts were instead recognized "this year" because "this year" (2009) was when they were realized. It appears Blodget is finally grasping the notion that if the amounts should have been recognized in 2008 (as Grant Thornton now contends) that they wouldn't be recognized in 2009, which would have the effect of reducing earnings in the current period. Well duh!! They can only be recognized in one period or the other. If the amounts are moved to 2008 and increase 2008's reported results, then 2009's reported results would have to decrease by a corresponding amount. Blodget says: "Overstock's CEO Patrick Byrne described this disagreement in his letter explaining the Grant Thornton firing last week, but he did not say clearly that Overstock's accounting treatment had boosted the company's bottom line. Instead, he just vaguely discussed "recognizing" the payment." I think it was clear to everyone but Blodget. The term "recognize" is a standard accounting term that means to record. Overstock's filing says, "Thus, we recognized $785,000 in our 2009 Q1 Form 10-Q financials..." If that isn't clear enough that the amount was included in the results for Q1 2009, then I don't know what would be. I do agree that these problems appear to indicate a problem with internal controls. However, I do think some context is needed with respect to the main issue of these vendor over and under payments. The issue is really one of timing of recognition (recording) not one of whether the amounts should or should not have been recognized. And the timing issue appears to span the length of about one quarter. And most importantly, the criticizism of Overstock for this issue is very ironic considering that they are essentially being criticized for being too conservative in their accounting (i.e., waiting until amounts are sure to be received before putting them in income). How often do you see companies being conservative in keeping their books?

I realize this is getting off topic, but: (1) Sounds like your "problem" is a nice one to have, and (2) Sounds like you should just pay cash and be done with it.

I have online US accounts with Scottrade. I just spoke with a broker at Scottrade who said Canadian-listed stocks can be held in regular or IRA accounts. He said that after the December 10th delisting, I will need to call and place transaction orders by telephone (cannot currently trade Canadian-listed stocks online), but that Scottrade is working to get about 95% of Canadian-listed stocks available for transactions online sometime in the next few months. Bottom line for me, my holdings in Fairfax will remain unaffected but I'll have to pay $27 per transaction by phone until online trades are available for Canadian stocks early next year (presumably at $7).

This brings back memories of this board's discussions of Sears Holdings from a few years back. Some argued that the property Sear's owned (or controlled through long-term leases) was a valuable hidden asset on top of the cash flows from Sear's retail business. Others argued, and I believe rightfully so, that valuing Sear's property in addition to the value provided by the cash flows of the retail business was double counting, as the property value couldn't be realized without discontinuing (or reducing the cash flows) of the retail business. So, does the replacement value of the property a railroad owns really matter if the company doesn't plan to do anything other than to continue to hold and use the property for rail operations?

It's very bizzarre (and sadly comical) when a company such as Overstock gets criticized for being conservative rather than aggressive with their accounting. Based on my read of Patrick's letter, the company became aware of a contingent gain in early 2009. Because the gain was contingent, the company properly waited to recognize it until it was realized. SFAS 5, Accounting for Contingencies, says "contingencies that might result in gains are not reflected in [one's] accounts since to do so might be to recognize revenue prior to its realization." In other words, don't recognize contingent gains until they are realized (until you've got the money in hand). This is exactly what Overstock did - they waited until the gain was realized. It's quite possible that we don't have all the facts, but I find it odd that Grant Thornton would object to Overstock's conservative (and GAAP compliant) accounting after the fact. Normally, audit firms cherish the rare client that isn't continually aggressive in their accounting. I can't recall the specific restatement Overstock had a few years back, but I do recall that it was also a case of Overstock being conservative (rather than aggressive) in their accounting.

UCP - I encourage you look into the effect that very long useful lives have on reported amounts of depreciation expense (e.g., current depreciation expense on an asset class with a 35 year useful life is comprised of 1/35 depreciation on a capital expenditure from 35 years ago [when things cost a lot less], 1/35 depreciation on an expenditure from 34 years ago, etc.), how that may affect the comparison of current cap ex and depreciation expense, and whether one should really ever expect one amount to "merge" with the other.

Here is BNI's annual % return on assets for the last 10 years (2008 is presented first): 6.0, 5.6, 6.1, 5.2, 2.8, 2.9, 3.0, 3.0, 4.1, 4.9. Given that a moat should be a means to an end (the "end" being a high return on invested capital), does it matter much that BNI's network may be impossible to replicate if the network doesn't generate significant % returns on invested capital? Shouldn't the hard numbers be the proof of a moat's worth?

Morningstar's take on reinsurers... http://news.morningstar.com/articlenet/article.aspx?id=306126

Is the meaningful question whether the final price will be $60 vs. $65 or is the meaningful question whether (if we assume $65 is the magic number) it makes sense to continue to own a security selling at 95 percent or more of IV when other securities offer greater discounts to IV?

kawikaho said: "I've seen this happen before during 2000's stock market crash, and I'm sure people who have lived and invested through Oct. 87 have seen similar bargains. BRK-B went through the same declines in 2000 as it did in 2009, and subsequently rebounded in similar fashion. Definitely not once in a lifetime; I've already seen it twice since I started investing!" Doesn't this go against her theory that significant mispricings of securities "just don't happen anymore?"

I find it odd that she says large margins of safety and significant mispricings of securities "just don't happen anymore" (or something to that effect), given the pricing of securities that we all just witnessed a couple of months ago.

On a related note (not sure if this has been posted before), here is a short video/transcript of an interview with Wally Weitz, Tom Marsico, and Fairholme's Bruce Berkowitz discussing things they wish they would have done--but didn't--during the market crisis. http://www.morningstar.com/Cover/videoCenter.aspx?id=302362

I've got three kids, ages 6, 4, and 2. They are way too young to understand the concepts of common stock, but I do talk to them very generally about "owning businesses." For example, if we go to a Dairy Queen, I explain to them that Dairy Queen isn't just a restaurant, it's a business that is trying to make money by selling ice cream for more than what it cost them. I also explain that we own a very small part of Dairy Queen. At some point down the road when they ask how we own it, that's when I'll try to explain the notion of stocks. I also encourage them to be aware of all of the businesses around them. We were standing outside a pizza shop one day and I asked them, "How many businesses do you see?" They pointed out the obvious ones quite easily - the pizza shop, a gas station, etc. Then I pointed to the apartment building across the street and explained how somebody owned that and used it to make money. I also pointed to the pizza shop itself and said that maybe somebody owns the building and rents it to the pizza guy. In doing this, I'm trying to have them develop a sense that business is all around them. When they get a little older, I'll slowly start emphasizing the benefits of being a business owner (in any of the many forms). And then eventually, if their interest holds, I'll start to explain why some businesses are better than others and how much one should pay for them. By the way, I'm very proud to say that my two oldest kids know who Warren Buffett is and can spot him on a magazine cover.

Very funny and not at all surprising. In case anyone missed it, here is a great article about Dykstra's financial affairs from a few months back... http://sports.espn.go.com/mlb/news/story?id=4084962

Mark said: "In theory, theory and practice are the same. In practice...they aren't." First, I don't know anyone who believes that theory and practice are the same. Second, I believe you are confusing business ownership with business management.

Investing in stocks is business ownership, only on a fractional basis.

I personally enjoyed Buffettology for it's clear and articulate examination of the way Buffett thinks about businesses he is evaluating. Note that Buffettology and The New Buffettology are two completely different books. The new Buffettology is not simply a revised version of the original - they cover different subject matter. I'd recommend Buffettology for sure (especially as a CD to listen to).

Here's another one that's been around for a long time. Let's you adjust inputs, similar to valuecruncher: http://www.valuepro.net/index.shtml But like Scorpion said, nothing can replace thinking for yourself, because sometimes these calculators are way off the mark (besides the fact that they don't evaluate the quality/durability of the business).

While I think the tone of a few of those questions could be written in a less rhetorical way, for the most part (excluding Q10) I think they are interesting questions. More importantly, they are much better questions than those typically asked at the annual shareholders' meeting. And it should be noted that this Jeff Matthews fellow didn't come up with the questions himself, they were submitted and voted on by others.

I am able to open the page. Could it be a lack of www's? This doesn't work... http://berkshirehathaway.com/ While this does... http://www.berkshirehathaway.com/

In addition to purchasing a textbook on the fundamentals of accounting (i.e., an accounting 101 text), I would highly recommend purchasing a textbook on "cost accounting." Cost accounting is different than "financial accounting" (GAAP stuff) in that it deals with things such as break even points, fixed vs. variable costs, direct vs. indirect costs, overhead, financial ratios, etc. This is the kind of stuff that is helpful in understanding the quality of the economics of various businesses after you read a fundamentals of accounting book.

Jackriver, maybe it's just a matter of us having different thresholds for concluding when current price far exceeds any potential intrinsic value (thus triggering a decision to do something beside "never sell"). For example, maybe you wouldn't sell Berkshire unless offered $400,000 today, whereas I might sell if offered $200,000.

Jackriver, I said that I would buy the right to the cash flow stream. When i buy the right, I own it. The fact that the payment for such right is delayed doesn't change that fact that you've sold it. Anway, I think this discussion has gotten off track. I was simply making the point that, in theory, one should not "never sell" and "excellent investment" in cases where one can realize more value by selling than by holding. If you really wanted to boil it down to the most extremely simplified case, imagine you paid $0.01 for a business that will provide a cash flow of $1000.00 one year from now and nothing ever again. That would be an excellent investment right? And according to your theory, one should never sell that excellent investment because it is so excellent. Now what if i offered to buy it from you today for $1,100. Would you sell? Again, please lets not get caught up in the specific facts of the example (for example, that it is only one cash flow, etc.). I'm trying to simplify the point on purpose to show the obviousness of the argument I'm making. Now you might rightfully counter that a real business with excellent long term economics has - unlike the example above - an unknowable value and therefore, how can one be certain that a sales price today that appears to be in excess of intrinsic value really is? And I agree to an extent. My point is only to challenge the absoluteness of your "never sell" theory for the cases in which one CAN clearly tell that current price far exceeds any potential intrinsic value. And I think that happens quite often. Hope this helps clarify my views.

"The counter point you offer has very little, if anything, to do with the point I was trying to make....It's not relevant I suspect because you are merely offering a series of discreet swap transactions." I was working within the confines of the example you posed. And I believe it is entirely relevant because it differs from a stock valuation only with respect to a NPV calculation (or lack thereof). "If I may summarize/further clarify my point again, for a good or excellent business, it is really hard to tell whether you are selling out at a premium price, by contrast, it is really easy to tell if you are purchasing at a cheap price." Well said.

oec2000, I agree with much of what you said in your last post and I apologize for the tone of mine (not intended). I do not consider myself a "buy and trade" investor nor do I consider myself a "buy and hold forever" investor. You said, rightfully so, that the latter is really a "hold until there is a very very good reason to sell." I'm simply saying that a good reason to sell is when value can be fully or more than fully realized through a sale at current market prices. Obviously, if you've found the homerun investment of the century (say a Coca-Cola in the 1930's) and you know it for sure, you probably don't want to sell at the market's deterimination of intrinsic value because that IV is probably way too low. But I think this is more the exceptional case than the rule. Thanks for the discussion.