Viking

Scott, I have been purchasing both, but much more BAC than JPM. My concern with BAC is if we get a few more skeletons coming out of the closet this year slowing earnings and BV growth. BAC is selling at more of a discount to TBV than JPM so if we get somewhat clean earnings this year then the stock should have more upside looking out 12 to 18 months. One of the concerns with JPM currently is meeting the new capital rules will use up a chunk of earnings the next few years and limit how much the company can return to shareholders (via div and share repurchases).

Which is the better stock to purchase today: BAC or JPM? (assuming 24 to 36 month holding period) Both stocks are 'cheap'. JPM looks cheaper and to be the 'safer' purchase. JPM has already turned the corner. Earnings are growing. Cash return is happening (dividend and stock buybacks). TBV has been growing nicely for a couple of years. Management is strong. Their business the next few years (revenue, earnings and growth in TBV) looks fairly predictable. BAC looks like it may just now be turning the corner with earnings mostly flowing to the bottom line (and not getting eaten up by settlements or write downs). Dividend should increase and perhaps we will see stock buybacks. TBV should start to grow nicely. Management is OK. However, it is not as easy to predict revenue, earnings and growth in TBV over the next few years (are more large one time charges coming?). JPM 2014 2013. BAC. 2014. 2013 ROE. 10% 9%. 1.7%. 4.62% ROA .89 .75 .23. .53 TBV. $44.69 $40.81 $14.43 $13.79 Div. $1.60. $1.52 $0.20 $0.05 NI. $21.7 $17.9 $4.8. $11.4 E/sh. $5.29 $4.35 $0.36. $0.90 Expected earnings in 2015: JPM $5.75. BAC $1.40 Share price $55.50 $15.50 PE. 9.65 11.1 Price to TBV. 1.25. 1.08 Expected earnings in 2016: JPM $6.44 (13% growth) BAC $1.66 (18% growth) Which one do you like more and why?

From Calculated Risk: Dallas Fed: Texas Manufacturing Activity Stalls and Outlook Worsens http://www.calculatedriskblog.com/2015/01/dallas-fed-texas-manufacturing-activity.html

How are people on the board thinking about recent currency movements? Before last year I had never really thought about currency when making an investment decision. The last year the U.S.$ has been on a tear and it looks set to continue. Over the past 24 months there have been massive moves in the currency markets as countries attempt to generate growth: 1.) Japan massively weakens the Yen; exports increase significantly 2.) ECB, partly in response to Japan, needs growth and is weakening the Euro; we may see parity this year to the US$ 3.) Russian ruble has depreciated massively 4.) commodity currencies (Can$, Aus $, Kiwi) have depreciated 25% in last 24 months vs US$ 5.) Swiss franc is the outlier; by removing the peg to the Euro the currency is appreciating 6.) the big 'winner' is the US$, which is appreciating massively. How long can this continue before the U.S. says enough is enough? 7.) China's currency is pegged to the US$; as the US$ shoots to the moon China exports become less competitive. Many developing countries hold their national debt in US$. Their 'earnings' are falling as economic growth slows and the home currency falls; debt payments in US$ become harder to make. This is what caused all currency crises in developing nations in the '90's. Looks like the same movie is playing again! Global growth is slowing. China is slowing. Euro region is slowing. Commodity exporting countries are slowing. The U.S. is the one area where the domestic economy looks to finally be growing (at a slow pace). However, if the U.S.$ continue to appreciate against world currencies at what point does the US$ economy get hit and US politicians react? And if the U.S. economy starts to slow then we likely enter a new phase in the current game. If the global economy enters a recession later this year what will the central bankers do to stimulate growth? Drop interest rates the usual 2 or 3 % to get the economy moving? Nope; bank rates are already under 1% so they is not much room to go lower. How about talking the currency down to drive exports? Nope; already tried that too. Bottom line is if we enter a global recession in the next 12 months we are in uncharted territory. The appreciation of the US$ is already hitting large US multinationals; during current earnings season as many are missing earnings and providing weak guidance due to crazy strong US$. I have done my best the past 2 years to not think about macro when investing. However, I am getting increasingly nervous about how all of this is going to play out. Looks to me like there is more uncertainty right now than usual. This tells me that volatility will likely rule. Expect the unexpected. From an investing standpoint, I am going to be more conservative than usual. Hold more cash (US$). Be patient. If volatility returns, we should get some great opportunities once again to buy great businesses at cheap prices. I think I might do a little reading and dust off some of the books I bought back in 2008 and 2009 on what has happened in past debt/deflationary periods (focussing on round 2 shocks that hit 4-5 years after the initial crisis). http://www.bloombergview.com/articles/2015-01-23/europe-just-started-waging-currency-war-on-the-u-s-

Eli, I agree $0.80 looks to be a more sustainable level. Unfortunately, the dollar was at or above parity for long enough for many manufacturing companies to decide to leave Canada. With the currency dropping back down those jobs will not be coming back any time soon. And 24 months from now things will likely look totally different again. The question now is how low will the CAN$ go? I will not be in a hurry to sell my US$. I do love the volatility as it creates many great buying opportunities as markets often overreact in the short term.

Canada's economy rode the commodity wave the past 10 years. Manufacturing sector shrank and resource sector grew. Western Provinces lead the country in growth. These industry changes happened slowly and over many years. The key for the Canadian economy moving forward will be what happens to commodities. If prices bounce back up then all is OK. If commodity prices stay low or go lower then the Canadian economy is only going to get worse. The bank of Canada is telegraphing what they think is likely going to happen. Crazy to see the CAN$ go from parity to the US$ to below $0.82 in less than 2 years; and should the U.S. economy strengthen and Can economy weaken further in the near term (likely) the CAN$ will likely drift lower still. Being Canadian, glad I decided to visit Hawaii with my family when we were at parity! I also am not a currency trader; however, leaving 80% of my assets in US$ the past 2 years has resulted in currency driving some pretty significant portfolio gains. Strange times.

Net/net, you have hit on exactly what I have started to think about; how what is happening in the oil market could morph into the larger economy. Lots of things swirling around at the same time; harder than normal to make sense of it all. Perhaps time to focus on 'return of capital' and not just 'return on capital'.

Wellmont, I enjoyed reading your thoughts on what is (or is not) 'priced in'. I still have a bad habit of assuming that just because something is pretty obvious to me that it is also obvious to everyone else (and therefore must be already reflected in the stock price). as a result, things tend to play out much more slowly than what I expect. As a result I am often early to the party and early to leave. Not a bad thing. I am trying to be a little more patient when I buy and sell an investment.

My guess is interest rates are the key. As long as rates stay low the machine will continue to roll. Once mortgage rates move up a couple of percent things will get interesting.

We certainly are in interesting times. From the little bit I have read today it looks like OPEC is not going to cut production any time soon (they meet again in 6 months). It looks like we could see cheap oil for an extended period of time (sub $70). What are some of the likely economic outcomes if we see cheap oil for an extended period? More interesting to me is where are the great investment opportunities? Given the news today from OPEC, I was just wondering how people are looking at the current environment and the opportunities it presents. The obvious place to look is oil and gas companies. However, to invest in this sector you need to have an opinion on what is going to happen to oil prices (how low do they go and for how long). Do you buy the majors or go for the home run and buy one of the smaller players. Petro currencies: living in Canada, low oil prices will hurt our economy and this should lead to a weaker currency. Low oil prices can't be good for Russia and the Ruble. One the other side of the ledger gas prices are coming down significantly. This is an immediate and very large tax cut to consumers and businesses. In the near term do we see consumer spending in the US increase? My guess is lower oil prices are a net benefit to the U.S. economy? Does this also lead to marginally higher interest rates in the US? Looks like US bank stocks could be in a good position to benefit. Much lower oil prices are having a ripple effect on many industries and companies. The question is where are the no brainer investment opportunities.

I like companies/sectors that are out of favour. Most oil stocks are in a bear market. When I look at supply/demand dynamics it looks like supply definitely has the upper hand (market is oversupplied), world demand is weak and the oil price is falling. What I am trying to understand is if we are in a multi year bear market for oil with the shale/oversupply driving prices low for a multi year period. Or is this current sell off short term in nature and giving people a wonderful buying opportunity?

Five Sigma, by 'stabilized', I mean the crisis no longer looks to be escalating further out of control. I am not suggesting anyone is happy with where everything is at or that it is not a brutal situation for those involved. When I read that the EU is meeting to review whether they will begin removing some sanctions placed on Russia this suggests to me that things are at least not 'escalating'.

Russia RSX ETF is once again trading near 52 week lows. It looks like things have 'stabilized' in the Ukraine (ie not getting worse). Interesting.

As the article states at the end, the key is what happens to interest rates. The five year rate currently sits at a generational low of 3%; if it normalizes to 5% (as the author expects) then, yes, we likely will see a decline in prices. The higher interest rates go the bigger the price decline.

Three books really got me started and pointed in the right direction: 1.) The intelligent Investor - Graham 2.) one Up On Wall Street - Lynch 3.) The Warren Buffett Way - Hagstrom In terms of an enjoyable read (I love history) I have read Reminiscences of a Stock Operator by Lefevre multiple times. In terms of building wealth I have read Rich Dad Poor Dad by Kiyosaki multiple times and it will be on my kids must read list as they get older.

Yes, over the years many people have got lots of great help. What I find interesting is the value I get from the board has changed over the years. It is very multifaceted and evolving. Great job everyone.

Tricky question. A couple of very good rules of thumb are 1. Incentive pay should only be tied to what they have control over. This is critical as it can be very demoralizing to have incentive pay tied to factors outside of ones control (like total company results). 2. Percent of total compensation should be tied to type of business; a company like Kraft foods may have 15% of total compensation as incentive pay as sales function is more maintenance driven. One of the challenges is a salesperson can do a lot of unethical things and look like a star for a year or even two. However, the truth inevitably comes out. The key is to have an incentive system (perhaps staggered, multiyear awards) that addresses these issues if they are widespread. Perhaps the salesperson gets a certain amount at sign up, another amount after 12 months and a final payout after 24 months. Could be a bitch to track. Good luck.

Lance, I do not agree with the comparison between Putin and Hitler. To me Russia of 2014 does not look like Germany of 1936. Russia is weak and must be very careful. Having said that, it would not surprise me to see Putin carve off parts of Eastern Ukraine should he be given the opportunity. Should Ukraine enter a bloody civil war then perhaps the Russians will be given their opportunity. My read is Putin has acted very rationally (from the Russian perspective). However, if they want more of the Ukraine the 'costs' will increase dramatically and I think he is too pragmatic to take that risk on; the Russian economy is too linked to the rest of the work for Putin to get too greedy. Yes, there are significant risks that the situation could devolve. However, I now think the better odds are that the situation muddles along with Russian stocks moving up 15 or 20% over the next few months. Reading the tea leaves today, I like the risk / reward.

Looks like we may have seen the lows for Russian stocks for this crisis. Looks like Putin is happy to take Crimea and call it a day; big strategic win for Russia. As others have mentioned previously, RSX is a pretty easy way to get exposure (thanks for doing most of the leg work) and it is still very cheap. Future looks pretty bleak for Ukraine. Perhaps things go sideways until presidential elections are held and we see who gets in and what their plan is. Russia likely is happy with an economically messed up Ukraine as it makes them very dependent on Russia. Putin must really like capitalism; very easy to game the system and make some serious money. (Sell high and then buy low.)

This is the thread each year where I give thanks to Sanjeev and the many great posters from years past. I moved to Toronto for business reasons about 12 years ago and discovered this board and Fairfax as an investment. Good advice from many others on this board, good decisions, dumb luck and time all combined over many years to put me in a good enough position financially that I was able to quit my day job and spend quality time with my young family (7 years now and counting). I have since moved back to Vancouver and in hindsight one of the greatest gifts of taking the job in Toronto was that I discovered this board and Fairfax; an example of unintended positive consequences. Thank you to Sanjeev, bsilly, cardboard and ericopoly to name just a very few; many more have helped me. I will always be very thankful. Thank you and have a great holiday and a prosperous new year!

I am amazed at how fast smartphone companies have blown up: Palm, Mororola, Nokia, RIMM... soon HTC? They have not been able to stay popular with consumers. RIM was not able to make the transition from enterprise to consumer. I am sure the decisions made in the boardroom were backed up with great analysis and made perfect sense at the time. Who in their right mind would have been able to predict how fast the company has lost sales. Apple has been able to stay very popular with consumers. Samsung has as well; what's interesting is Samsung made their business by basically copying Apple's phone (very smart). Perhaps RIM's fatal decision, made years ago, was to dismiss Apple's iphone as a strong competitor and not offer a similar product. Samsung's 'dog with fleas' launch of Galaxy Gear shows how few companies are able to launch great consumer products in new categories. Microsoft's Surface is another good example of how challenging it is. Perhaps Apple is grossly underappreciated for how well it develops and manufactures products for the consumer market. Perhaps Apple has the culture and talent to keep innovating; and perhaps their competitors simply do not. Time will tell.

Imagine if you purchased a Kindle and got as part of the purchase from Amazon a free on-line subscription to the Washington Post. I realize that this was not an Amazon purchase. I wonder if we will reach a point where the major tablet/smartphone ecosystems (Amazon, Apple and Google/Android) decide to get into the content business in a major way. However today it currently looks to be a catch 22 (for the hardware manufacturers) as they may get the benefit of the content they purchase but run the risk of having other content providers (competitors) cutting them off.

I would like to say thanks to Sanjeev and the individuals who chose to post on this board. In the past 10 years my financial position has improved dramatically; as a result, my quality of life had improved dramatically. Without this board I would be in a much different place today. And I look forward to the next 10 years with great anticipation. :)

About 20 hours per week: sports (NFL, NHL; movies (recorded on DVR); news. Definitely more in winter months and less in summer months.

So BV = about $75; BRK now says they will buy back stock below 120% = $90 (where it is trading today). BRK has the cash to buy back lots of shares; they also now appear more willing to actually buy back shares in a meaningful way (buyback today is a good start). BRK's businesses are heavily weighted to insurance and US housing... both of which look very promising moving forward - insurance entering a hard market and housing is improving. BRK should be able to grow BV the next few years by 10% per year quite easily. Putting it all together... BRK stock today looks to me to be a great substitute to holding bonds... limited downside and solid upside of 8% to 12% over the next few years.