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I fall in the I don't have a clue category as the stock market has predicted the last 10 out of 5 recessions. Packer

For context, the Agressive Conservative Investor was written before his shareholder letters or Value Investing - A Balanced Approach book so with time he was able to express his ideas more clearly, like most writers. Packer

I found "Value Investing - A Balanced Approach" a condensed version of his philosophy with examples. The Distressed Debt book also provides some good examples of bankruptcy restructuting/investing. Packer

MSFT doing what it does best copy and make better. Packer

This is a good start but as with all lists you are not going to find very many if any investments that meet all the criteria and you can experiment to find the areas where compromise will hurt you and where it will not. As you go along, it can be useful to examine where most of your mistakes have been (for me it was highly levered cos) and pay special attention to those areas. You may also want to look at Tim McElvaine's ABBA framework to get a timeline framework for a value investing idea. In addition, I have noticed that interesting situations occur in industry groups. Packer

Up 5% after being up 15% at the beginning of the month and earlier this year. I suppose SSW, SURW and SGA have kept me above break-even. My 401(k) is going to include Fariholme starting next month, so I will get an opportunity to invest in financials. I plan on investing cash in the large cap tech names we have been talking about MSFT, CSCO and DELL. Packer.

You are correct on the storage acquisition (HPQ did overpay and DELL backed away) but when you look at the relative sizes of the "good" DELL businesses (storage and services - 16%) versus the more commodity businesses, the rest, it may take awhile for the DELL to grow the good businesses to have an impact on profitability. As for HPQ, they have had bad acquisitions but there core business has been strong enough for them to overcome these mistakes. So in a sense despite bad management, they still made out (one definition of a moat). However, if DELL had made a similar set of mistakes they would most likely be toast. I think DELL has a great management team with a large number of OK business and a few good businesses. Even though I do have to admid M. Dell has done a great feat for the cards he has been dealt and when DELL was trading at a discount to CSCO and MSFT, I would have invested also. For my taste today, I would rather stick with MSFT and CSCO where you have both effective management and good businesses and prices comparable to DELL. Packer

From a business perspective, I put DELL's business alot closer to RIMM's than either MSFT or CSCO. When you look at DELL's operating margins they have gone down from the 9% to the 7%s and FCF per share has declined by 12% over the past 5 years. If this continues in the future, DELL is expensive. I think M. Dell is smart manager but the businesses that he has to compete in are mediocre versus HPQ, MSFT, IBM or CSCO. As a matter of fact if he was not such a good manager Dell may have gone the way Gateway. HPQ's management my be in dis-array but it has a better collection of businesses to that genrate in the aggregate about 5% more in operting margin per year. This is why you are seeing DELL pay-up for acquistions like Perot and the storage co they bought last year. Dell may have a more skilled player but they we dealt one-pair while HPQ was dealt 3 of kind and CSCO and MSFT where dealt full houses. I am not saying Dell is not cheap but you do have to ackowledge that their sets of business are of lessor quality than HPQ, CSCO, MSFT or IBM. And with MSFT and CSCO selling at the same multiples as DELL, they appear to be cheaper. As for Longleaf, I agree they are smart guys but so far DELL and LVLT have been LT losers (aka "value traps") for them and have hurt performace significantly. Does anyone know of Longleaf has ever said they made a mistake in a large purchase and subsequently sold? I know Francis Chou said as much about a few large positions of his and I respect that in a manager very much. Packer

I agree that HPQ is cheaper than DELL and probably better also but less so when compared to CSCO or MSFT. My FCF numbers do include interest expense so the effect debt is removed from them. For both CSCO and MSFT the required WC capital is close to zero once cash is set eqult to 5% of sales and the debt is removed from the current liabilities. These companies are making incredible returns on assets and the market does not believe they will continue. I think they will continue and margin of safety comes in that they would have to fall apart to meet the market expectations. Packer

I think IBM's example provides a good road map. IBM has been around since the 1920s and has always been able to re-invent itself when required. As a matter of fact, Graham mentions them as 1 of 18 industrial companies whose bonds were tested in the Depression and passed (see page 81 of 1934 edition of Security Analysis). In addition, it generated 10 -20% returns on equity during 1930 - 1933 period. Packer

I think you have to look at IBM as the model of a huge tech company with moats who via buybacks and execution has provided 12% per share FCF growth over the past 5 years. The buybacks have been on the order of 4% per year so there organic FCF growth has been about 8%. Another aspects of moats is FCF return on working capital and fixed assets. For IBM this number is about 71%. For this level of perfromance, IBM trades at 13x FCF. If you compare this to MSFT you get per share FCF growth of about 9% with about 4% repurchases so you have about 5% organic growth. MSFT's FCF return on working capital plus fixed assets is 276% (as MSFT has about $47 billion of excess cash). MSFT trades at about 6.5x FCF. As for DELL, average FCF has declined over the past 5 years (as with many tech cos) as well as there margins. The moat clearly is not as good as MSFTs or IBMs. DELL's FCF return on wokring capital plus fixed assets is 184% (as DELL has about $11 billion of excess cash). This is reflected in a share price of 6x FCF. As for CSCO, average FCF has increased over the past 5 years about 13% with about 2% repurchases so you have about 11% organic growth. CSCO's FCF return on wokring capital plus fixed assets is 227% (as CSCO has about $38 billion of excess cash). CSCO trades at about 6.0x FCF. From these metrics, it appears that MSFT and CSCO are better buys than DELL but all of these stocks are cheap based upon the Graham growth formula which would imply P/FCFs in the low 30s for IBM and CSCO and P/FCF of the mid 20s for MSFT. Packer

This may be in part due there large number of shares outstanding. Another way to examine is short interest as % of float. If you look at is the highest percentage is RIMM @ 5% (no too high compared to other stocks). Packer

I have wathced him a few times and his comments need to be taken with a grain of salt. When he describing the data on housing and its history (in particular the historical overshoots) it is useful but when he tries to predict the future you need to take that with a grain of salt. I would instead look at what value investors like Einhorn, Berkowitz and Brookfield are doing. They are buying lots and raw land in areas where there is supply constraint. Schiller is at times also too academic with his home price hedging instruments which never gain traction (like Case-Schiler futuers and his Macroshares). Packer

The strike price remains the same you just have an option on the package of new securities in the proportion existing shareholders receive new shares. For example if you had a $100 per share stock price that spins-out a $50 per share newco and existing shareholders get 1 share of newco for each share of oldco, the oldco price will decline to $50 and new co will be $50. The option will be on this package of securities (1 share of newco and 1 share of oldco) for the original strike price. If the parent splits its shares the option strike and number of shares are adjusted. Packer

There is Alico in Florida but the corp govenrance is questionable. Packer

I agree that newspapers are declining due to internet by radio and broadcast TV are not. These 2 media continue to increase in size but at a slower rate than previosly and I think they can co-opt the internet much the same way Incumbant Telcos have been able to co-opt cell phones. I know this is not a concensus view but that is why these firms are cheap. As to return on capital calcs, SGA as an example has had EBITDA of $35.5 million in 2010 with Fixed Assets of $65.6 and Net Working Capital of $18.1 million which results in $35.5/($65.5 + $18.1) = 42%. Packer

One of the key metrics that I look for as an indication of a moat is a high return on tangible assets over a few business cycle (last 10 -15 years). If a firm can do this over a 10 to 15 year period, they have an advantage others cannot obtain. For example look at SGA (Saga Communications), its EBITDA pre-tax return on tangible assets (fixed assets + NWC) is 42% or SALM 37% or TVL 75%. The reason for these moats are the duopoly licenses they are granted from the FCC. For distributors DIT and CRVP the numbers are 35% and 62%, respectively. The reason for the moats in these distrbutors is the cost to re-create all the relatioships is greater than economic benefit obtained from them but the incremental costs are small so existing players have an advantage. You may want to read Dorsey's book "The Little Book That Builds Wealth" to give you a framework to examine moats with. I agree with most of what he says but I do disagree with there definition of a large moat as also having the ability to invest capital at high incremental returns. Packer

One of their main competitors is an interesting Asian casino play - Entertainment Asia Gaming - which also places machines in casinos in Asia and get a % of the take and is planning in opening a casino in Cambodia. The company is also majority owned by Melco Crown. Packer

An important point is that the ability to effectively teach and manage money are two different skills. Very few have both (Buffett and Watsa) but many effective teachers have middle of the road performance (think Tilson). Therefore, it is important to listen and evaluate the logic of the statements almost indepedent of investment performance. He may also be under the constraints Sanjeev mentioned earlier. I was listening to Berkowitz speaking at the Morningstar conference and he said he preferred AIG, GS and BAC to all other financials but was forced to include others in his fund due to diversification rules. Packer

I think the later is the case becuase high interest rates reduce the P/Es and prices will go down unless you can raise prices faster than P/Es are falling. Before the Volker squeeze, there were high nomial rates but low or negative real rates. Volker provided high real rates which drove money from stocks to FI investments. I think the only way will see single digit PEs for the market (there are numerous single digit PE stocks today in certain sectors - MSFT, CSCO, DELL, HPQ, LXK, WDC) is if inflation increases. I personally do not think this will happen due to the large amout of debt that needs to be worked through. Packer

Durable advantage many times has to do with the structure if the industry. Small companies typically have a niche where the cost is too great for a competitor to retunr a decent rate of return. Three areas/industries come to mind software, radio, lodging and distribution. As to firms in those spaces ITEX, CSGS (Software), SGA, SALM (radio), WOLF (lodging) and DIT, CRVP (distribution). There are probably many other examples others can provide from these sectors plus others. Packer

I think the analogy is the stress on the economy and companies is where the analogy comes in. In the 19070s it was from inflation now it is from too much debt. If you look at what Neff invested in the 1970s (under another stressful scenario), you can see what did well versus not and the booms and cheap stocks of the time. As Sanjeev said history does not repeat but it does rhyme. Looking at the past has helped me to see todays world in better light. Packer

I agree about the general timeframe but think it is closer to 1978 - 79. With the gold run-up and the declining dollar. It is also interesting about the political parallels - the Carter and Obama campaigns were about hope, change and blue skies and both presidents could not live up to these expectations. They had foreign political successes but economic issues that neither could deal with effectively. In fairness, however, I think both were dealt pretty bad hands but IMO there play made the hands worse. The best historical context of this time in the market can be found in Neff's book (stock market) and American Experience - Presidents Carter video. Packer

I think the selling is via automatic selling/diversification moves for Gates/Ballmer. The reason for little buying is that MSFT is not the new thing in tech. Tech investors would rather sell MSFT, CSCO and buy Linked-in, CRM and other crazy IPO stocks. Once these IPOs wash up, I think MSFT will recover. Packer

I think Snajeev's article points out that incremental changes and better extraction techniques will solve this problem while alternatives are economically developed. I think spending money on a Manhattan-type project would be a waste of money that the US cannot afford. Money and economic incentive are present so any incremental $ spent has a smaller and smaller effect. This was treid in the 1970s by Carter and it turned out to be waste also. Give the science time as the incremental cost can be very lerge for very little gain (look at all the biofeuls prjects today funded by the gov't). The real question is do we want to give up Medicare for a Manhattan-type project (sounds like the old Soviet Union to me)? The idea of raising tax $ through oil and gas taxes as an additional way to balance the budget sounds better. Packer