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Another option is to partially convert your regular IRA over a number of years so you can manage your income that you will pay the additional tax on. This may be the best option if lower tax rates are exchanged for fewer deductions in the new tax law. Packer

Pabrai was also invested in large amount of resource companies along with a sub-prime lender. I don't expect a repeat performace given what he has learned. Asset allocation for these large funds is a function of large $ amount of ideas out there. FFH also needs to be hedging for the insurance business they are in. You are correct there are not that many large $ ideas out there but if each of these guys had smaller $ they probably could find plenty of places to invest. Just look at the 1960's and the Buffett Partnership as an example. Graham had stated in 1959 and again in 1964 that the market valuation level was high. However, Buffett was able to outperform throughout this period in part becasue of the small size of the partnership at the time and the ability to invest in smaller situations that others could not. Packer

Why not find high cash flow generating companies for low prices and let the market take care of itself? No one knows what the future will bring. Shiller has brought some good historical observations to the table but going out and predicting future returns is pretty speculative. The growth rate of only 1.3% per year assumes a valuation change of 4% down per year (assuming a historical E growth rate of 5.5% per year) (or 33% lower PE over 9-years with 15 forward right now or a P/E of 10). I think Bogel has better approach and his returns are on the order of 6 to 7% per year. The only thing we can do is but cheap cash flow generating assets. I would rather own these cheap assets than investing in cash waiting for the downturn - a market timing game I know I will lose. Packer

But should a company trade a cheap multiple because it is a microcap? This is where I am finding most of the "cheap" stocks (market caps less than $200 million). You just need to make sure that being small is not an economic disadvantage. As Graham has stated you can at most times find cheap secondary stocks and primary stocks only become cheap at the bottom of a bear market. As to issues, you just need to understand those issues and whether or not you are willing to take the risks. In this case for FLL, LACO and MGAM, the primary risks are marketabilty, Indian casino development (for LACO) and competitive Ohio gaming market (for FLL) versus the other gaming firms. Given the pricing deltas between these other firms who have similar risks and the cheap prices overall, I feel most comfortable with MGAM then FLL then LACO. I have no idea where the S&P 500 or the market is going to go. I am just invest investing in "cheap" stocks. Packer

If you want to look at 2 interesting call option opportunties look at SVU (Supervalu) LEAPs and Excelon LEAPs. Remember however (based upon loss experience in the past) these opportunties look a lot easlier going in than they actually turn out to be. Packer

You have to do what you are comfortable with. I have a reasonable diverse portfolio but have not outperformed as much as a could had I had higher weighting on high conviction ideas. However, my style is more shooting for 15 to 20% per year over a longer period of time versus 20%+. Some folks are comfortable with the high concentration (Davis/Buffett) and some are not (Graham), I think it has to do with your personal risk tolerence. Packer

There are 3 with little or no debt and at those multiples, namely MGAM, FLL and LACO. Packer

But drastically being overweighted is how you outperform the market. There is nothing wrong with that if you know what you are doing. Packer

My real acid test is how many bargain stokcs are you finding? I continue to find insurance, media, gaming and healthcare bargains (cos selling for less than 7x FCF many below 5x). Some areas may be ahead of themselves (natural resources) but overall in my ponds things are still cheap. Packer

What are boards thoughts on purchasing Florida residential RE for a vacation spot or a long term investment. Clearly there is cheap financing and the market is depressed. Packer

Y'all, Has anyone purchase insurance cos as bond/FI substitutes in portfolios? If so, what has been your return vs. risk experience vis a via bonds? TIA Packer

In looking at some mutual funds, it appears the best funds beat the averages by 5% per year but Graham advised this as the minimum amount to waste your time on in the Intelligent Investor. With the trend of more $ going into institutional hands, it would make sense that there would be a group of stock to small for these investors to invest in to move the needle in terms of performance and fees. Have folks on this board noticed this also? I have noticed most of my stocks are below the $100 to $150 m level except insurance companies. Packer

I corrected my English above but the idea is a call option is the equivalent of buying the stock on margin with no downside beyond the premium. The premium can also be looked at as the price of interest for borrowing the strike price plus a downside guarentee. Packer

I have read that book and it explains the strategies but from my experience the simple strategies work the best. If you want upside leverage buy calls or downside protection buy puts. The large bid/ask spreads and commisions on most options for me have made only these basic strategies worth my time. I look a calls as buying the strike price's amount of debt and the interest rate is the option price less intrinsic value divided by the strike price. My best buys were on underpriced call on Farifax when the shorts were driving down the permiums. There are others on this board who use options more and they may be able to provide you some other insight. Packer

I don't think the problem is as much as the immigrants coming in but the lack of incentives in general to remove oneself from the dole. This equally if not more applicable to existing citizens as it is to the immigrants. The immigrants are by nature risk takers and self motivated. Ask yourself who amongst us would move from our family and friends to another country if provided the opportunity? Most likely not the slackers. The folks who would move are those who want better for thier families and are motivated to do so. Once the immigrants are here, we could provide more incentives for work/school versus dole but we can do the same for our own citizens too. I actually think the requirements to come to the US are to high. What gives a person the right just becasue he/she is born in the land of the US/Canada additional opportunity and rights? Packer Packer

You are correct about the pension but what is best way to develop a pension equivalent with a lump sum? Invest for growth and income outside a pension plan and save the transaction fees of annuities. If enough folks do this they wont need a pension. Packer

I have start looking at small gaming cos as a few of them are trading at significant discounts to larger firms, have decent margins, small amounts of debt and are selling a relatively inexpensive multiples of FCF. Two in particular that fall into this category are Full House (FLL) and Lakes Entertainment (LACO). FLL is selling at 2.7x FCF and 3.1x EBITDA (assuming pending GV acquisition occurs) and LACO is selling under the value of its receivables (some of these receviables may non be collected for awhile - from Indian casino construction) and has $12 million in FCF. Another small gaming name I hold is machine maker Mutlimedia Games (MGAM) which sells for 4.3x FCF and 2.9x EBITDA. The other interesting larger lottery company is Lottomatica which sells for 5.7x EBITDA and 5.8x EBITDA versus SGMS which trades a 11.0x FCF. Has anyone looked at these names or is familiar with the management teams? TIA. Packer

In some/most cases the maintenance cap-ex is significantly less than the depreciation for buildings and other real estate assets. You can argue removing it completly is not correct but the subtraction would be definately lower than the depreciation number and in most cases would be less than 50% of the depreciation depending upon the asset. The depreciable lives are determined by accountants not what the economic life truly is. Packer

The two key metrics you may to check out are yield and P/FFO. As these firms do not have to pay taxes they should have a value advantage over tax paying firms. On whole they are in my opinion fully valued. One exception is FUR who has bough properies via defaulted debt. Packer

Interesting topic. My biggest position flops and hist can from the same industries. Hits SGA and ACME up 93% and 124%, respectively and flops LNET -27% and SALM -43%, respectively. I averaged down on the flops so am above cost basis on both. On a % basis, 100% loss on a small position in Takefuji (when will I ever learn about leverage financials at least it was a small position) and 124% gain in ACME and 117% in a small position in Contact Exploration. Top 2011 pick don't know but cheapeast stocks in order include LNET, SSW, SURW, NRG, SALM, MGAM and SGA. All under 4.5x FCF. Packer

You don't need to work in the business to successfully pick stocks. As a matter of fact, the constraints on many in the business (investment committees, large size and benchmarking) make it a much more difficult task than for an unconstrained individual. Although I don't work directly in the investment business (I perform business valuations), I am exposed to the same concepts and use the same tools everyday. I initially was interested in becoming an asset manager but had a hard time breaking in with an MBA from UCLA in the mid 1990s. The business appraisal field provided me with enough money to support my family in expensive LA but I was not doing direct asset management. However over time with my personal portfolio I have invested in ways an asset manager would probably never allow (small cap stocks, high concentration, buying LEAPs) and am now helping the rest of my family with the same. These areas are where I think the inefficiencies are today. If you have an entrepreneurial bent, some on this board have started funds which may be the best way to test your skill and interest. If your family has some money and you have compiled a track record with your own portfolio maybe you can convince them to let you manage a portion of their portfolio. What I am saying is there are other ways to engage your investment interest outside of working in the industry.

I just completed a look at investment rerturns on funds over the past 10 to 15 years for myself and my Dad. The top funds are Fairholme, Yacktman and Chou. The one disadvantage of Fairholme is size ($17 billion). Some other value funds have really been hurt when they became large (Dodge & Cox is an example). Yacktman had a bad stretch of relative performance in the late 90s that dragged performance down to other value funds such as Third Ave and Mutual Series. Does anyone know the story behind this underperformance? Another alternative to funds are investment holding companies that hold securities or whole business. Some of these have outperformed all the funds and include Fairfax, WR Berkley, HCC, Loews and Leucadia. All of these are trading at either below or slightly above book value (HCC and Leucadia). Leucadia sounds like they are cranking up Berkcadia so its value may appreciate nicely. Packer

Does anyone attend any other annual meetings in addition to Fairfax and Berkshire? Packer

What I meant was to rufute the idea that there is some genius or special sause to get returns in excess of the index by 5% and that it is only available to the select few. The Intelligent Investor and others on this board have proven this. I agree the ability to concentrate your positions is very important but not required to get the 5% advantage. If you don't have the temperment to pick stocks, then pick a fund that follows these principles but realize that your ceiling is going to be about Index + 5%. Packer

I disagree that 99% of the folks cannot beat the market by 5% or more by using the right strategy. There is a number of folks that cannot beat the market due their constraints (they are mutual funds so they are benchmarked constrained or they are temperment constrainted - buy high sell low). This has been true for many years. In the Intelligent Investor, Ben Graham states a 5% outperformance benchmark fort hose who follow the value strategy. Ben Graham breaks out the areas pretty well where you can outperform: "cheap stocks" (including secondary issues most of the time and primary issues occasionally in bear markets) at at-least 2/3rd of fair value, net working capital and special situation or workouts. Another key aspect mentioned above is position concentration. Using these approaches, I have been able to obtain returns in the upper teens over the past 10yrs and the low 20s over the past five. I have been more focused over the last 5 yrs. What I find incredible is that record include many wipe-outs and 100% losses including a few cos going into bankruptcy. The approach is laid out in the Intelligent Investor but the temperment issue is what make it harder than it appears. You just have to be able to deal with an occasional loss and try to minimize these as much as possible. Packer