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But public REITs also pay quarterly distributions and shelter income with depreciation. For this REIT part of your distribution is tax-free to you as an individual. My understanding is distributions you get from REITs you have to pay taxes on. Packer

The interest has quarterly liquidity and passes through depreciation expenses thorough to holders to shelter part of the distribution from income taxes. Packer

I saw on out ad bar a company whose CIO and founder I know personally. In looking at their offering it looks like a great income alternative having higher income than public alternatives, along with quarterly liquidity and tax advantages not available from the public alternatives. They offer both a triple net and residential real estate rental products. Here is link for those who are interested: http://www.broadstone.com/investment-opportunities/ Packer

Looking at my portfolio, that is basically what I do. BRK, LUK, LMCA, DC-A.to, BAM, FFH.to, I own mostly just holding companies in place of ETFs. I think if you can buy them at low discounts to book based on historic figures, on average their holdings should return average results (if EMT is correct) but eventually they will trade at higher premiums to book. So if nothing else you get average results + a kicker if you sell at a book multiple which is higher than that which you purchased it at. Even with EMT they should revert to historic book value multipliers at some point. Best case they are superior capital allocators so you get superior investment results + kicker from selling out at a higher multiple. I have always wondered about the performance of this type of a portfolio vs. the S&P 500. What types of 5 and 10-year returns have you been able to achieve buying holding cos vs. lets say the S&P 500? TIA. Packer

Autism and science in general is very different than the markets. Science can have a right answer and the reality (prices in markets) is not constantly changing. The "physics" envy I think is one of the biggest problem with academic finance. Packer

How do you know he is not data mining? Based upon the performance of his funds, this may part of the issue with his historical data. Folks have been trying to this for years but the underlying parameters of valuation change over time so this strategy rarely works with out of sample data. Packer

I like Intangible Valuation but as you said this historical articles require a fee :( Packer

Thank you Packer! And this I understand better, even if I don’t like it much, because it assumes too much buying and selling on my part. The more I buy and sell, the greater the chances I am making stupid decisions! ;) Anyway, I strongly believe that all 4 investments of mine are trading below fair value right now! Imo they are not even at fair value! That’s why I am grateful I have some cash to take advantage of good opportunities. Gio As you say to prevent stupid mistakes I only buy when my replacement has double the upside of the security I am selling. This leads to only a few trades every few years in each security. Also, the uncertainty of my value estimates can be pretty wide also and forces me to show that grass is indeed greener elsewhere. Packer

FIRST: --2012AL Besides, look at the numbers at 2013 year end: $48 billion of cash, or 21% of equity; $29 billion in bonds, or another 13% of equity; they also have businesses that bring in almost $24 billion of new cash each year, or 11% of equity. Have you ever tried to put together a portfolio that yields 11% in cash and still can grow in value over time? I have! And have come to the conclusion that without leverage it is almost impossible! When people say “I am in Buffett’s camp”… My first reaction is to think: “No! You most definitely are not!” ::) SECOND: In business I experience quite often that it is much better to do nothing, rather than to embark in any venture that presents itself at any time. In business there is certainly no such thing as “a constant flow of good opportunities”… I have just an extremely hard time to believe that the stock market, which is a market of businesses, works so much differently from business itself, and always has to offer some good opportunities. ??? THIRD: Presently I run a very concentrated portfolio: FFH, LRE, ALS, and BH. They have all come down and I think they all are cheap. Yet, VRX and ENDP, which I like, have come down much harder and are approaching my target price for buying more and do so aggressively. If you were in my shoes, would you prefer to have some cash on the sidelines to purchase VRX and ENDP, or be forced to sell some of my 4 investments, even though they also have come down and I think they are cheap? ;) Gio Gio, Have you developed upside values for these companies? If so then you can buy/sell each when you think one cheap and the other expensive. This way you are always exposed to good businesses and just shift the allocation when you find a definately cheaper one. Cash only becomes an option when all your stocks are at fair value. Packer

If you expect US High Quality to return only 2.1%, the opportunity cost is very low. https://www.gmo.com/America/CMSAttachmentDownload.aspx?target=JUBRxi51IIDZrv0FZiZbpIB3l3m%2fhybvfBpUIeImpq8f72rdLvXx7f3CjhzC9Q%2bpmRQspgkX63FM7bVF3Dp6phYxicYC3kOpmUyxo6d05eU%3d I am very skeptical of GMO expected return projections except for relative performance of asset classes. What I find interesting is GMO has smart folks comes up with the predictions and the performance of there mutual funds are average at best. What that tells me is they are good story tellers but the stories don't always come true and they have not found a way to turn there stories into real profit in the market or maybe the they get the upside via fees versus thier investors. Packer

In terms of brokers the only US based broker I know is Fidelity. I heard but have not verified that e-trade Korea allows online trades but I don't know if you can set up an account if you are not a resident. As to disclosure, most of the firms I have looked have had English annual reports and presentations. One caution however in Korea the concept of minority shareholders is different in many case than in the US, UK, Australia, Canada, South Africa and the Netherlands. These firms for the most part are run by families as privately held businesses. These families have control of the situation so shareholders have little to no say and are along for the ride. Therefore management integrity is of more importance than in the Anglophile and Dutch world were shareholders can take over an underperforming asset and bring in new management. This situation typically makes the top level holding the one to own as the controlling family will have most of their wealth there. Packer

My take from Joel's analysis is the on average there is an opportunity cost for holding cash. In other words market timing doesn't work. Right now I think it happens to be very high versus before the financial crisis. Before 2008 10-yr treasury rates were seldom below 4% and was typically above 5% late in market rallies. Now we are at 2.6% for the 10-yr treasury or 2.2% for BND (a diversified mix of bonds). So in previous times you went from stocks to something that would retain purchasing power or grow slightly. Now you have a situation where cash is a decaying asset where it is being debased every year. Over short periods of time this is fine but if you hold cash for multiple years you are going backwards. Packer

Joel, I don’t know which studies you have performed… But it seems very unlikely that in every situation possible the best percentage of cash to hold, by a strictly mathematical point of view, is always zero! How is this possible? Zero, always?! In 1929 as in 1933?! In 1937 as in 1950? In 1950 as in 1968?! In 1982 as in 2000?! In 2003 as in 2007?! In 2009 as in… today?! I am no mathematician, but as an engineer I know some of math and statistics… and your conclusion seems at least unexpected to me! Let alone the fact that in investing math and logic count only up to a certain point. It is psychology that counts the most. All the great capital allocators of the past knew this very well. And they all managed to always keep strong with a substantial cash reserve. Because that gives you calmness, and calmness gives you clear thinking, and clear thinking leads you to better decisions. Either we like it or not, we are all dealing with the future… math imo cannot get you very far. ;) Personally, I try to manage my cash reserve, and let it grow when I see frothy behavior around me, while shrinking it when some great opportunities come along. Gio I think what Joel has shown which I think makes sense is the opportunity cost of cash on average is negative. Look at cash/bonds today. Cash yields 0% so you are losing about 2.2% to inflation (based upon the 5 year TIPs treasury spread) per year just being in cash. Now for a short period that is OK but over time it accumulates (just like the hedge losses for Fairfax). There just has not been periods of time when the cash anchor has been able to overcome this headwind. This does not mean you should be a 100% in stocks all the time. You have to determine your volatility tolerance then develop an asset allocation based upon that. WRT to the 7% investment return, I think it will be very hard to obtain going forward unless interest rate spike soon. Just look at the current bond yield for BND at 2.2% and lets assume the FFH can outperform the bond market by 2.8% per year that is 5% yield going forward. These types of instrument are about 80% of FFH's portfolio. So the implies a 15% return on hedged equities and even more if FFH cannot outperform the bond market by 2.8% per year. Packer

One issue I don't think that addressed is Fairfax's sweet spot for investing (value and in many cases distressed securities) compatible with insurance? In my mind Fairfax's type of investing yields nice results long-term but takes more risk than lets say BRK or MRK's approach maybe more akin to LUK's pre-Handler days. I think where the issue comes in is used that type of investing with an insurance company whose policyholders by regulation and demand want stability. A interesting question is should maybe Fairfax get out of the insurance business and become an distressed investor/manager akin to LUK? I think in the long term this may be a better strategy that aligns FFH's strengths with a structure to take advantage of that strength. Maybe they can spin off the insurance business retain an equity stake and become an investment holding company akin to LUK. Packer

Another point brought out about the hedges was that they could continue to write insurance if a hard market was coincident with a decline in equity values when others may not be able to write insurance. I got a better appreciation of the hedges this year. If they think they can achieve alpha in the market, then the best course of action is to keep them on for regulatory protection and to have the ability write insurance into a hard market without raising equity. There highly leveraged position they are in is what is causing this. If they had the leverage of BRK or MRK, I think the hedges would not be there. Packer

This may be a mistake as I have observed value stocks have lower volume when they are at there low points and if the price rises then the volume increases also. I would argue if you are concerned about liquidity (for a purchase lets say) maybe this money should not be invested in stocks but something with a more stable value. Packer

I agree 100% with Onyx. I think it is important to have a funny as it sounds is a servant/steward attitude towards the folks you work for. That does not mean doing everything they say and think but if you don't think the action is correct having a rationale for your disagreement and being able to express that in a positive way. It also helps if you a doing something you are passionate about so you can bring some insights you have developed outside of the data you were given for your task. Your attitude is something you can control versus what you cannot (other folks contacts). I have seen similar stories to Onyx in our business. We had one guy stop by our place looking for a summer job and we hired him as an intern then as a research analyst and was one of our best. The combination of attitude and intelligence is what it takes. BTW he had an English degree. Packer

Does anyone use/recommend a broker who deals in local Russian stocks? TIA. Packer

Has any US citizen done this with a broker? Fidelity told me this cannot be done with a reg S security on the LSE. Packer

This is probably the reason IB trading desks can make profits most days. How else do you explain that all these banks all of sudden are profitable most days trading? Did they all of sudden become trading wizards? Packer

I think the one mentioned that has the biggest impact is the giving perspective. This is where I see most of the tangible benefits of what are doing going to take place. Being a "larger" consumer can help but in my mind that can also be a waste of resources. The most direct way investments help is providing the time and money to make a difference in someone elses life. You don't have to have money to this, you can invest your time (which is also important). It allows you more time to serve others with your time and money in the way you feel led. I think the "guilt" feeling some mention is there for reason. Our minds are telling us we have to do something productive with the assets we have been given stewardship over and not store them in a barn or bury them in the ground (in my mind spending them on goods and services we don't need or want to satisfy some need to be accepted). Just my 2 cents. Packer

Their are two sources of competitive advantage I see in leasing companies. First, there is the situation in fragmented industries where the leasing company is providing financing (similar to banks) with long-term contracts. The moat can be dig deeper if you provide consulting services around the lease so you are providing a true outsourcing service similar to BPO. This is what AIQ is providing. The second is providing peak demand leasing. The what Emeco and ATSG are providing. This type of advantage is not as great as in the first case but can provide excess return. The contracts are shorter term versus the AIQ type leasing. There also may be some economies of scale in equipment purchasing leasing availability by location. In each case since you have a spread business, so access to cheap financing can also provide an advantage. In AIQ's case there ownership by Oaktree helps in this regard. Packer

I remember that he talked about selling part of the farm to someone else via debt but I think a better analogy is the farm is growing faster than other farms (which are smaller) so the effect is a decline in the growth in wealth. If you look at the growth on personal net worth it is still increasing even though we have debt. As of 2011, US personal net worth was $60t with debt of $13t on asset of $73t. Here is a good site for some perspective: http://en.wikipedia.org/wiki/Financial_position_of_the_United_States Packer

I would not sell because the market has such and such valuation unless you are holding the market. If you hold individual stocks I would look at what alternatives are available and as frommi has said at this point I have been able to find individual securities which have higher expected returns in comparison to bonds or money markets. I think part of how much you want to put in stocks is how comfortable are you with volatility. If you are risk averse keeping money in cash or bonds is not a bad idea to sleep well. I find the biggest downside of large equity allocations is volatility. There still is alot of cash reserves held at the Fed. These are a source of further liquidity in the market. When I see these reserves decline and/or an increase in short-term rates then I will see where the stocks I own are valued. As to debt, I think if you put debt into perspective it is not to bad. The US has $17t GDP (income) vs. $13t personal debt and $19t corporate debt and $24t corporate and $60t personal net worth. Packer

Last time he was able to identify a specific segment that was ground zero and make a non-recourse bet on this. The contagion led to the stock market decline. I don't see that this time as playing out this time unless you think deflation will happen. Packer