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What other casino operators does he admire? Packer

Buying overpriced shares does not indicate very good capital allocation skills. The intent is to use share repurchased as an indicator of good capital allocation skills. Packer

By smart repurchase I mean increasing IV per share. For example, JRN has had 5% declines in FCF per year and reduced them to less than 1% per year and with their stock so cheap they can keep on doing this. If you buy overvalued stock, then you dilute FCF/share. I guess the key metric has the repurchases helped or hurt FCF/share. Packer

I agree with your statements however history has shown when the firm size approaches BRK it is very hard to grow because the above market return opportunities have a tendency to be relatively small. BRK may be able to do it with Buffett at the helm but after he is gone, the situation may be different. I think you have a key man issue. In valuations, this can reduce the value up to 35% to 40% from FMV. He will be able to outperform the S&P 500 but I do not see any of us buying the S&P 500 today so the comparison may be not applicable. The way I see it is BRK is a unique conglomerate because Buffett is at the helm. He can source good deals and provide the last person standng capital for many businesses. Normally, these conglomerates are not run the way BRK is run. I just don't see after Buffett and Munger are gone that the firm will be run in the same way. Buffett has had many years to put a succession into place but I do not see how it will work without a strong man/men, Buffett and Munger, running the ship and performing the capital allocation. So far they have succession plans for the operations and to some extent for investments but not the secret sauce of the top position of capital allocation. How will this work when you have the operations and investment guys calmoring for more capital when there is no guy to broker the conflict like there is today? Who is going to take responsiblity for the captial allocation decision? No one will have the vested interest Buffet has as his foundation will be selling his stock after he passes. I just don't see this working without Buffett providing the direction. In addition, given BRK's size, large share count and inclusion in the major indicies, I don's see it as under researched as in the past. Just some contrary thoughts. Packer

If the markets are going to have limited growth for awhile, one way managers can add value is to repurchase stock (if it is under IV). From my observation, this is good in theory but many times in practice managment's overpay for shares when the stock is high and when the stock price declines they do not re-purchase. A few that I have seen that perform smart re-purchase are AM, JRN and WPO. Do you know of any others? TIA. Packer

I think part of the reason for BV growth was the financial crisis and BRK's ability to buy cheap. Without this event, the BV growth would have been less. If we have another crisis and BRK can deploy its capital, then we may be able to repeat but if none occurs then continued growth will be a challenge given BRK's size as it will be dependent upon its businesses to grwo that much which is the aggregate is probably not in the cards. Packer

Yes it did. I think the key to buybacks is the leverage effect. Teledyne focused on profitabilty and sold or shutdown underperforming businesses and buying back shares with cash flow and proceeds. As you say in theory, it is great but there are number of firms that have used them to keep FCF/share steady in a declining FCF situation. Buybacks work in areas where the re-investment opportunities are low or the returns in those investments low. Look at Journal Communications, a newspaper and radio/TV firm. JRN has had declining FCF of $89 million in 2003 to $62 million in 2010 about a 5% decline per year. However, from share buybacks the FCF/share has declined from $1.19 to $1.13/share less than a 1% decline per year. However, the share price collapsed from $18/share to about $4/share today. Also, given that the underlying mix of profitability is not 70% radio/TV and 30% newspaper, it looks like the decline may slow down (as the decline is due to the newspaper with radio/TV holding steady) and it can re-invest at FCF multiples of 3.5x or about 29% return on cash. WPO has done the same thing with recent buybacks. Packer

I think it is never cheaper becasue it is ever harder to compound BV. I think the 8 to 10% is very aggresive given that they have only grown BV at little more than 50% over the past 5 years. Just compare this to Berkley which has been able to double its BV. Look a the BoA deal. It represents maybe 3% of assets so if it is a home run 2x or 3x it will have a small impact on value. I see this as a nice collection of assets that may someday be broken up for its parts. Packer

The reason buybacks below IV are great is they are cheap low risk ways to reinvest capital and porvide leverage. There is a great Forbes article on the board somewhere that describe how Henry Singleton used expensive stock to purchase companies (when times were good - 1960s) and when times were bad (1970s) he created value via buybacks. If the market is going to go sideways for awhile buybacks may be one of the best places to compound value. Packer

One item that would be useful but not presented is how much each entitlement benefit costs. If you want x benefit then here is what it will cost in your taxes (not someone elses - as everybody wants someone else to pay for thier benefit). So for example, if you want the gov't to pay unlimited Medicare (without a cap - dollar amount) this is how much your taxes will have to increase to make this happen. You can make the scale slide with income but everybody should put money in the pot and have to pay a deductable. This can also be applied to student grants and other entitlements so the electorate can make eductated decisions on what they pay taxes for. Packer

I think Rodriquez and the guys at Sequioa (you should read if you haven't already) have a great point about debt and stimulus. If this is a long-term structural problem (due to excess debt induced demand), then gov't stimulus has just provided the addict more high and not dealt with the withdrawl. It appears no one except those who want to cut spending want to deal with the core problem (to much artifical demand - including gov't spending). Increasing taxes does not fix the artifical demand problem it only makes it worse (by providing more drugs for the addict). It only becomes political when one side thinks this point is not true and tries to convince folks that there is no artifical demand. Packer

There are many folks buying distressed real estate right now from banks who want to get rid of it and have made laons they should not have in the boom. I believe KW is the bset investor with incentives aligned that I can find. Packer

I have had similar thoughts about this. One way to do this is to buy puts. You can get SPY puts at a price of about 10% per year. Frank Martin has done this. I like this because it is an action you can take to protect and make money. The other thought pattern which I think is also true with this uncertainty has come some great bargains. Today, like the 1970s we are in a crisis that has no clear solution. It is going to require some pain to get out of like in the early 1980s with Volker's high interest rates. However, the late 1970s were a great time to buy stocks because the demand was somewhere else (oil, gold, etc). Today it is in bonds and commodities. As a aside, what space are your private investments in? I look at my small media plays and real estate workout names as private illiquid investments. Packer

I agree that it is going to be a bumby ride but a good number of the firms I own are under 5x FCF and most are under 10x. Unless these firms fall apart (literally), I feel comfortable. I base my view on the bottoms-up availabilty of "cheap" stocks along with looking at sentiment and prevoius narratives. If I could not find cheap stocks, I would agree with you. Packer

An interesting article on cognitive impairment for us all. Note the crystallized intelligence (which is what are training ourselves to do) and the fluid intelligence (which is what our competition - other potential value investors have) over time. An interesting reason why, due to demographics, value investing will be practiced by a smaller and smaller group. Packer aging-and-investing-the-risk-of-cognitive-impairment.pdf

I think purity would manner if you were running against a reasonably consistent opponent but in this case I don't think it matters as much. Packer

Another interesting announcement was Pawlenty's became Romney's co-chair. Pawlenty was my first choice but now it is up to Romney or Mr. Texas - leaning towards Romney Packer

As far as I know Romney does not have any of the extreme views so he could be your man. Packer

What about Romney or Huntsman? I think there is a pretty large spectrum of folks to choose from. Packer

As I remember Reagan said the same thing about the DoE. But I think the appeal is the overreach of the current EPA and trying to impose rules by Presidential fiat without Congressional approval. As for the origin of speices, we can save that for another day. Packer

I think evolution as desribed is matter of degree. It is one thing to observe adaptation (such as your bacteria example) which is science. It is another to extrapolate to development of new species for which there is no observable evidence. We have not observed a new species develop from another and the rationale for that is we have not had enough time to see it, kind of a circular unprovable concept (not science in my book and requires just as much faith as the alterntive of a creation so why not present it that way?) . Packer

I am suprised that how many of you buy the seperation of science and faith hook line and sinker. Do you not know anyone who combines their faith and reason/science? If you study history most sceintists did this (Pascal, Newton) and many of great men/women of culutral movements (abolution, women' sufferage, etc.) had devote faith that they were not afraid to show to others. Were these men crazy and we are more enlightened today? We may be more vain and self-centered but not more wise and intelligent. When you look at each of these issues how crazy are they? Evolution is called a thoery because it is not a fact and it has many large assumptions in it that cannot be proven. You need to ask the question are you equating evolution to science if you are it is stretch. In my mind, science is can be proven by repeatable experiment. Evolution is not in that league. Therefore, what is wrong with exploring other plausable alternatives and letting each person make up their mind based upon the facts rather than labeling one side as extremists. As to the EPA, I do not see anyone say lets abolish the EPA. The enforcement just needs to be more balanced. Again I think some of the science that EPA relies upon is based upon extrapolation (global warming) and falls somewhere closer to evolutionary thoery than real sceince. Therefore, spending real money that effects real people today is not appropriate. In addition, most of the fixes for global warming have high costs and uncertain benefits (read Cool It for a good details). In addition, the admin has added a political dimention to this by stating they use the EPA to enforce thier views indepdent of Congress. Medicare and Medicaid need to be changed. I think everybody realizes this and it is a question of degree. As to men/women of faith being leaders in the Republican party, what exactly most freightens you about them? What I have heard is the spouse of one the candidates practices counseling of gays to deal with some of thier issues in a way they mutually want to and one candidate prays for rain in draughted region where most of the folks believe in Jesus. Are these crazy positions or is proclaimer of these as crazy positions just as or more carzy? Just a contrary view. Packer

I think the main issue is that what you are asking Greeks, Spanish and Portugese citizens to do is to change thier culture and attitudes about $ or give up thier economic soverignty to Germany. Some of the cliams of the article appear extreme on the surface. I am not sure how much I believe the costs to leave the Euro 50% to 60% of GDP. How is that calculated and what are key assumptions. Is the 50% to 60% in euro terms or local currency terms? Also the assumption about having to negotiate to leave and getting EU approval is silly. If Greece wanted to leave tommorow, they could and would not have to ask premission (they have political soveignty already). Packer

Bargainman, I think you bring up good points about Obama's effectiveness but I have hard time believing that there are not a majority of Republicans that would be with Obama on this issue (raising taxes on the rich) and they are being held hostage by extremists. There would have to be incredable discipline in the Republican ranks (which I don't think there is) and all the moderates would have to say it is OK (which I do not think they would). I believe this is an excuse to explain the behavior that admin did not want or expect. Given that no relationships were built to these folks or even moderate Republicans for that matter (or even an attempt to validate some of their grievances), the admin has little objectivity in my mind when it comes to assessing who is being held hostage as they see these folks as the enemy not just the opposition. I personally agree with the filibuster. If you can't get 60% of the senators behind a bill/idea, you should not pass it. That way only the ideas that everone can agree on will get passed. As to including Republican principles, the President needs to make the Republicans feel that they were the ones responsible for these changes and given the corresponding credit. If the preception is that it is your plan and not thiers also, it does no good (the goal is not to develop a proposal with Republican principles but to get the Republicans on board). Clinton did this with Gingrich in the 1990s and he eventually got credit for the whole thing. The climate may be different but people are just people and will react positively if approach in a respectful manner and not as enemies. There are some changes that can be made but I think they will be the result of an attitude that your opposition is not your enemy but folks that have different views. I do hold the President to the standard of setting the example with this if not who should do this? From my persepctive, Boehner is acting more Presidential than the President. He has never declared Obama or the Democrats his enemies. I think the 10-1 and 12-1 question was structured as gotcha question. I think you need to put the question into context to get a better answer. Huntsman said as much after the debate about his response. Would you want accept 10-1 ratio if the spending were on something you thought was wasteful in the first place? At this point I see the most promising contender as Romney even though my views are probably closer to Perry's. What Perry has to do is show he can work with moderate Dems then he will be a contender also. Packer

I agree with you Myth (what does Greece and the South get out of this)? I think once Greece defaults and devalues or goes out of the Euro the temptation for others in the South (Spain, Portugal and possibly Italy) to do the same will just be too tempting. Why put your country through all the pain to support some German and French banks/exporters? The losers here will be Germany as their exports to the other Euro countries will collapse. I do not think the export levels were real as the banks were financing export purchases with money that was too cheap. Sort of like the dot com/telecom buuble. Packer