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The selling rule is to let the thesis play out and do not sell unless you can say at a lower price the stock is fairly valued. Also it does not preclude the purchase of a cheaper stock. As to Posco, he could have purchased some local shares and sold some ADRs. I am not certain of this but we will need to wait until the Korean YE disclosures come out. A similar thing happened with Fiat. He has held Fiat for quite awhile but the US shares are the result of (at least in part) a recent IPO not a recent large purchase. Packer

The question is can you identify today a group of these stocks that can out perform a tax managed index? I was surprised when I looked historically at portfolios of these compounding firms chosen by smart asset managers in advance did not beat the averages by a appreciable amount. Tom Russo is an example along with the book values of Markel and Berkshire and the Morningstar Moat Index. These are all talented managers but the amount of performance vs. the index has not been that impressive over the past 5 to 10 years. Packer

The question I have for the compounders is there evidence that these can outperform a Tax Managed S&P 500 or world index fund? These companies have a tendency to be well researched and thus a higher probability of being priced correctly. I have yet to find an example. Packer

I think they key is apply low expectations on what you do not control but high expectations on what you do control. Pessimism happens when low expectations is applied to both. Packer

This is the S. European game of chicken. S. Marchionne has done this to a tee at Fiat and the Greeks are doing it to the troika. Packer

The one addition is the change in valuation from one period to another. John Bogle has a nice simple return estimation as dividend yield + earnings growth + change in earnings yield. One key for index funds is the CMH (costs matter hypothesis). It is very hard for diversified portfolios to outperform an index after costs. Packer

Using median and means of markets I think is the issue. If these metrics were used, you would miss out on material appreciation from mispriced securities. Also, I do not think there is a strategy using these metrics to get in and out of stocks that can out perform an stock index. Packer

I agree that the large averages may be at modestly high levels but typical CoBF folks do not buy the averages. There are a number of areas of modestly priced/distressed areas of the market to chose from today including: autos and related components, oil and gas, gaming, leasing and telcos. From my view we are not at nosebleed levels like 1999 or 2007 yet. Packer

I don't think Buffet is sticking his head in the sand about the macro or gold as an alternative investment issue. He clearly lays out his case for gold as a commodity whose quantity is constantly increasing and provides no return other than what others are willing to pay and compares gold to the other productive assets (real estate and stocks) could buy with it value at current prices. BTW Klarman is also of this opinion. Also if you look at stock prices in the Great Depression many firms increased in value in real terms by the end of 1933. These include consumer products companies (like Coca Cola and Firestone Rubber), chemical companies (duPont and Monsanto), can companies, tobacco companies and some mining companies (gold and nickle). I would rather hold a mix of good businesses then a commodity whose quantity is only increasing or cash in debased currency. I don't see how stagflation is even going to start. The last time this happened was when there was wage inflation in the 1970's. That is not close to happening today and increased productivity every year is keeping wage inflation in check. Historically, wage inflation has been caused by worker shortages caused by war, famine or disease. None of these three has been present on a mass scale since the mid 1900's. Deflation tools are numerous beyond zero interest rates. For example, the treasury could send everyone in the US a check in the mail refunding their taxes and use printed Fed money to pay its bills until inflation arrives. Which asset do you think will retain its value under this scenario? Real productive assets like stocks will. Gold may have a spike but over time its has declined in real terms. Packer

If you look at the Great Depression where there was a series of devaluations, each successive market that went off the gold standard (the "rock") rallied. UK first, then the US then Europe. You are seeing that now with Japan now Europe. At some point the US will do its own QE4 to reduce the $ strength. The key in each of these situations is to hold real assets (stocks and real estate) as they will not decline in value as the currencies are depreciated to monetize the debts. Leverage also helps as it is denominated in depreciated currency. Packer

It depends upon your objective. If it is capital preservation (from gains obtained elsewhere) then wide diversification (via index funds) is probably the best route. If it is growth then concentration in what you know subject to limits such as the Kelly formula is probably the way to go. Packer

If they think some techs will make oil price much lower, they should diversity away from oil completely. They are doing that also in the large technology universities and cities they are funding. I think diversifying to downstream makes the most sense as the end products (chemicals and plastics, etc.) will still have demand independent of the input price it is just that the input price will go down. Also refining allows SA to provide end products (more value added) versus raw crude. Packer

Because it diversifies them away from upstream and provides an offset to crude's volatility much the same that integrateds have versus pure E&P companies. Packer

I think the question is did they cut them because they were anticipating more financing and will they need to keep producing to cover existing interest payments? If these are true then the current production level will be maintained to pay the interest but production will not increase. I think another underappreciated issue is that the worlds low cost producers are running against the clock. If technology advancement continues, the reserves may be worth considerably less as alternatives become economically viable. This may the reason SA decided to keep production the same despite lower prices. Not a good trend for future price appreciation. Packer

I think a fundamental difference between now and 2009 is the lack of a string demand rebound and the larger supply now the result of the investment between 2009 and now. At some point the price may go up but it will be because supply is going down. Are there any factors that would drive supply down from here? The only ones I have heard are that drilling will decline but that will not effect price for quite awhile, meanwhile, the levered players will continue to drill to stay alive. Historically, this has not played out too well. The only event I can see that could curtail are large scale bankruptcies or a major Middle East supplier being pulled off the market. At this point I would only feel comfortable owing an integrated as they can make money is all types of markets. BTW I was not immune from O&G/mining related holdings as I have lost alot on Emeco to date. Packer

The difference between 2009 and now are that demand is already high (no rebound) and supply is much higher with the shale revolution and all so these traders may end up holding these inventories for along time if they expect a rebound. Packer

By real deflation I mean the unit prices for a product or service declining (goods/service deflation) in number of hours worked to obtain it. This includes both declines in prices (nominal deflation) and increases in productivity. If we were on a gold standard or there was fixed or slowly growing amount of currency, we would be in deflation however the increase in money supply (financial repression) has to this point prevented price deflation but resulted in real deflation (output/money supply). My strategy would be different for real vs. nominal deflation. For nominal deflation, long T-bonds are the best strategy. For real deflation, something like LBOs may be the best as you can borrow at low rates to finance an asset that can take advantage of productivity gains but has a locked-in customer base. Packer Packer

Do you mean real or nominal deflation? I definitely see real deflation, nominal not much so with QE and all. Packer

The reason rates are low and will stay low is the coverage ratio (value of Japanese asset/Japanese liabilities) is low and its decline from 2000 to 2014. The Japanese assets are denominated in yen and represent the cumulative surpluses of the past plus return on that surplus. So Japan has 2.3 quadrillion of net worth and 780 trillion of debt. Its net worth has grown by 20% over the past 15 years so how is Japan going to default and the yen collapse? I agree the current situation in isolation appears bad but the cumulative savings of the past is what is keeping the yen stable. If the net worth declines by a large amount then there may be issues. This appears to be the case with Russia. See previous post on details of NW calculations. Packer

I think you guys who think Japan is going to collapse are looking at data that is not being presented in context. As long as Japanese wealth continues to increase as has been the case since 2000 (up almost 20%) you are not going to see a collapse. With over Yen2.3 quadrillon in net worth and growing, the deficit and debt load are quite manageable. All of this net worth is in yen thus a continued demand for yen and is second largest net worth next to the US. Packer

I think they way to think about it is national wealth displayed here: http://en.wikipedia.org/wiki/National_wealth Japan on aggregate basis has stalled out but due to population shrinkage may actually have increased on a per capital basis. When debt is compared to wealth and deficits to wealth that is slowly growing the picture is much more real IMO. The issue is when debt approaches net worth or interest payments eat into net worth too quickly. This is similar to Buffet's range analogy, debt is selling off pieces of the ranch to eat. Japan has the 2nd biggest ranch in the world and the size has stayed about the same (not grown like others) over the past 5 years. Packer

Nothing fundamentally other than finding the S. Korean preferreds which had better upside and I was already exposed to the GSEs via holding Fairholme. Packer

Back to earth. +8.5% for 2014. In Aug was up 20% but lost a good amount on Lukoil, Emeco and Intralot since then. Both AIQ and S. Korean preferreds who were positive nicely at mid-year but have retreated to losses for the year. Positives were selling out of the Freddie/Fannie preferreds, Cinedigm, Oi, Telecom Italia and Awilco earlier in the year and Fiat, GM and GNCMA. Part of the price of holding a volatile portfolio. Packer

I saw a few currency hedging misses. Is there an easy way to hedge currency with smaller positions of lets say in the $100,000s versus millions? TIA. Packer

My three are underestimating the duration and extent of the mining downturn, the Greek brinksmanship and the decline in oil prices. These three manifested themselves in my largest declines this year namely in Emeco, Lukoil and Intralot. The most permanent miss is the mining downturn and the need for equipment so Emeco is the one I am questioning the most in term of hold vs. sell. Lukoil at this point is discounted major oil company who is really cheap and I will hold unless I see Putin starting to nationalize assets, which to this point he has not except for assets owned by his political opponents. Intralot I think is a mislabeled company who has lesser comps (Codere) selling at large premiums to Intralot's valuation and now with an activist shareholder and a new CEO who knows what could happen. Packer