twacowfca

Awesome! The result of hanging tough in a deep value situation. Congratulations.

Just ran some year end values and estimates through my head. I think EOY BV/SH is up about 1 1/2 % over Q3 BV/SH. Interestingly, BRK's gains on their BAC warrants may just about offset their losses from Hurricane Sandy. :) Interestingly, BRK's share buybacks appeared to kick in in the low $89 range untill the S&P dropped somewhat during the last few days. Repurchases may have beem made slightly lower in the mid $88 range yesterday and today until the market bounced this afternoon. I estimate that 120% of BRK's book value per share may have dropped less than one percent below the Q3 value until the final bounce in the S&P 500 brought 120% of BRK's BV/SH back above the Q3 value. Why is this important? 120% of the EOY BV/SH should be the new quasi strike price on the so called Buffett Put. :)

Who's afraid of the fiscal cliff, fiscal cliff, fiscal cliff ? Who's afraid of the fiscal cliff ? La la la la la. -- to the tune of , Who's Afraid of the Big Bad Wolf :)

The reason, why I hold twacowfca is such a high esteem, is that he has the rare gift of making you see things under a light you have never seen them before. I guess it is the trait of a true teacher, the one only a few people, like Mr. Buffett, Mr. Munger, Mr. Kahneman, Mr. Taleb, Mr. Herbert Simon, Mr. Michael Lewis, Mr. Malcolm Gladwell, Mr. Dan Ariely, and few other authors, can truly claim to posses. :) giofranchi You are too kind in your remarks. The truth is more like the scene of the appearance of the Old Guy waxing his car with circular motions in the movie, The Karate Kid, when the student is ready: "Karate is really simple. Wax on. (clockwise motions) Wax off." (counterclockwise motions) , demonstrates The Old Guy. When wisdom is ready to be received, it will appear. "Seek,and you will find." Knock, and the door will be opened. Ask, and it will be given." :)

I want to make clear that I don’t think Sir John Templeton’s “Yale Plan” is a timing system. Sir John Templeton followed the “Yale Plan”, BECAUSE he did not believe in timing systems! In fact, Sir John Templeton was among the first investors to look at stock markets all over the world. Even if he truly was a global investor, there were many times when he preferred to hold a lot of cash and bonds. I just don’t see the European markets shoot up, while the S&P Composite sinks… My best guess for 2013 (but who cares!!! ;D ): S&P Composite will go up, maybe not as much as in 2012, and European markets will outperform. And I will hold protections and I will underperform again!! >:( giofranchi Think of the market as a zero sum game like a coin flipping contest. Your portfolio is $200, half in cash and half in market index fund. Frictional costs and interest income are small and disregarded. Mister Market flips heads and the stock portion of your portfolio doubles. You now have a portfolio value of $100 cash +$200 index fund = $300, and you rebalance to 50:50 by selling some of your index investment. You now have $150 in cash and $150 in index fund. Mr Market's next coin flip is tails. The index fund and your $150 investment in the index loses half its value. The value of your index fund investment is now $75. The value of your $150 in cash is unchanged. The value of the market index is now back to exactly where it was before the coin flipping game began, but the value of your portfolio is now greater, $75 + $150 = $225 , compared to the $200 portfolio value when the game began. You rebalance to $112.50 cash and $112.50 in the index fund and wait for the next coin flip. This is a very pleasant game to play. :)

Is your probabilistic prediction entirely based on your observtion that there is an overabundance of expensive junk in the market now, or other factors too? What factor(s) influence the timing? Thank you for your interesting comments.

Odd lot tender offers should be something I should consider given my limited bankroll. Does anyone have any experience or useful information on them? JAKKS had a tender at $20/sh earlier this year with guaranteed cash for odd lots, no matter if overscribed. The market thought the repurchase offer would be overscribed, so the shares traded up to only about $18 or so. We bought 99 shares in 17 different accounts we manage for a guaranteed profit of about 8% on the investment over a few weeks. :)

It was better than "The Master"...Hooper with his camera work created an intimate atmosphere for his characters that musicals don't normally provide. Cheers! I did not merely cry. I wept. The camerawork brings intimacy that can't be experienced with distant figures on a stage. The passion of the vocalists opens the door to their souls. Go see it and realize who we are.

The theory is simple. Buyback at 1.2xBV on a stock that has a daily volume of about 300 Millions $/day. The company has about 20 Billions of extra money in the bank and generates about 10B a year. If it ever goes under 1.2xBV BRK can therefore buy substantial amount of it's own stock and sustain it's price. BeerBaron That's a great short explanation. The term, "The Buffett Put", that I have used loosely is merely that Warren said that he will buy back BRK's stock aggressively when it goes below 120% of book value per share. That Q3 value is about $89.27/SH by most calculations. Today, the stock has been less than 1% below that value. It's not a sure thing, but when BRK has dropped below the repurchase price limit, it hasn't gone more than a little below the limit and then popped back up above the limit fairly soon. With EOY selling, there may be more opportunity to pick up BRK below the limit than in the past. BRK appears to me to have far less downside than the market itself with the intention to repurchase at the current level. Time will tell if this proves to be true. :)

Merry Christmas to all. May The Lord bless you in the coming new year. :) :) :)

You usually want to buy options when volatility is low and to sell options when volatility is high. That would be the "value" approach to options... buy cheap and sell assets when they get more expensive. 2- Remember, you can generally turn call options into puts or vice versa due to put/call parity. A call - a put + risk-free investments = common stock (*There are certain scenarios where put/call parity for stocks can break down, but usually that doesn't happen.) Due to put/call parity holding true most of the time, it doesn't matter too much whether you buy calls or you buy puts. You can turn calls into puts and puts into call. 3- So really, you can break the pricing of options down into implied volatility according to the Black-Scholes model. There is some value of implied volatility which is the "right"/appropriate value for an option. When the options trade at less than that value, it is cheap. When options trade at a higher implied volatility than the "right" value, it is expensive. The Black-Scholes model has well-known flaws. Many experienced traders will fudge the implied volatility aspect of the BS model to take those flaws into account. (So then it starts getting advanced... there is the volatility smile, skew, etc.) Realize that the idea of put/call parity is more robust for European options than American. Thus one can use put/call parity not exactly to create a synthetic long, but more exactingly to create a synthetic future contract with a term equal to the same terms of the put and the call. I think buying an American call is a better deal because of the optionality during the term, not just at expiration. According to Warren's statements, the scenario when the quasi put given free to BRK shareholders could become a little iffy would be during a market meltdown. Then, the American call could be exercised if still above the strike price and the stock sold. On the other hand, the call part of the European synthetic long/future could go no bid while the put part of the synthetic long/future could see a big spike in implied vol and be more expensive to buy back.

Good point. Practically, large repurchases should be rare. BRK's share turnover is very low. The big recent buyback was about half a percent of all shares outstanding. Typically other purchases have been more like rounding errors in calculation of BV/SH. :)

Thank you, Wayne for pointing this out. :)

Thanks for sharing. The poem sounds a lot like one of my favorite poems <a href="http://www.poemhunter.com/poem/if/">If by Rudyard Kipling</a> If If you can keep your head when all about you Are losing theirs and blaming it on you; If you can trust yourself when all men doubt you, But make allowance for their doubting too: If you can wait and not be tired by waiting, Or, being lied about, don't deal in lies, Or being hated don't give way to hating, And yet don't look too good, nor talk too wise; If you can dream---and not make dreams your master; If you can think---and not make thoughts your aim, If you can meet with Triumph and Disaster And treat those two impostors just the same:. If you can bear to hear the truth you've spoken Twisted by knaves to make a trap for fools, Or watch the things you gave your life to, broken, And stoop and build'em up with worn-out tools; If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss, And lose, and start again at your beginnings, And never breathe a word about your loss: If you can force your heart and nerve and sinew To serve your turn long after they are gone, And so hold on when there is nothing in you Except the Will which says to them: "Hold on!" If you can talk with crowds and keep your virtue, Or walk with Kings---nor lose the common touch, If neither foes nor loving friends can hurt you, If all men count with you, but none too much: If you can fill the unforgiving minute With sixty seconds' worth of distance run, Yours is the Earth and everything that's in it, And---which is more---you'll be a Man, my son! Thank you for posting one of my favorite recitations from adolescence. :)

Charlie. Please accept my apology for not answering your question about buying USG in the last year. I think I understand USG as well as anyone does after spending a couple of thousands of hours studying it over the last decade and understanding the dynamics of their reorganization with a ringside seat. It's a great business, but cyclical. They would have had a Chapter 33 during the real estate meltdown had not Warren and Prem rescued them. That's good, but it's not so good that most of their shareholders equity has gone poof during the depres Oops, I'm sorry, during the recession. I've been in and out of the stock a couple of times since they bottomed out in 2008, but missed the latest run up because of other opportunities and because I have doubts that the real estate recovery will be robust for some time. Clarification: I own a permanent, small number of USG shares and always will with the fondest memories for the company and all their supporters. :)

Yes, we not only bought it, but jumped in with both feet after I finally understood why Warren loaded up on a stock that was obviously sliding doHwn a slippery slope to bankruptcy. I didn't understand it at first as other value investors were bailing out of a sinking ship while Warren was loading up his truck with 15% of USG's stock. What's wrong with this picture, I asked. Has Warren suddenly become senile? No, the evidence showed he was still as smart as ever. He also knew more about asbestos liability than anyone else on the planet. Therefore, I bought some USG stock and averaged down to $11/share on the falling knife. I thought USG would lose 95% of its value as Dow Corning and WRGrace had done, and that's what happened. I stopped buying and a week later the stock bottomed at less than four dollars per share, and I'm sitting with a loss of about two thirds of my average purchase price, and USG is in Cpt 11 bankruptcy. This got my attention, and I started to spend some serious time (translation: become obsessed) studying USG and their situation. Two weeks later I finally understood the key insight Warren had from his first purchase, and I backed up my truck and started throwing in the moneybags, but still with a little nagging thought: could these possibly be counterfeit? WOW! That is very much “brain damage”! I mean, wonderful stuff, but so time consuming and difficult! … Sometime I think I must be a little dumb … I keep asking myself, why everybody try harder and harder to succeed in doing what’s so complicated?! Isn’t it much easier to extract all the cash possible from anyone’s business, job, or profession, and just buy some BRK, some FFH, and some LRE? And do it again and again, at least until you become financially independent? Why do people enjoy so much outsmarting everybody else in the trading game? Isn’t it rewarding enough to run a honest and useful business every day as effectively as possible, to save as much cash as possible, to be able to identify a few great businesses, and to use all your saving to become part-owner of those great businesses? Maybe, it is just an issue of lack of ambition on my part… but, twacowfca, on average how do your “trading experiences” fare, if compared with your investments in BRK, FFH, and LRE? Thank you very much, giofranchi We made a lot more on USG as a percentage of our portfolio value than with Lancashire, but owning BRK and LRE has been a joy compared to owning USG and even FFH during the short attack that finally worked out in our favor. I never lost any sleep loading up on LRE, and continuing to own an increasingly large amount of LRE as we have reinvested our dividends is mostly within my comfort zone, perhaps because of the contrast with the anxiety I had about the uncertainty during the time we had the very large interest in USG. Perhaps there is some psychological anchoring involved in this attitude because of the satisfaction of the large compounded gain we have in LRE. If LRE's stock price by some strange circumstance should contract back to its BV, I don't think I would lose any sleep, assuming that the value of the business was mostly unimpaired. Giofranchi, I completely agree with you, and Warren shares this opinion. It is much more satisfying to buy shares in a great company with excellent management that has lots of skin in the game and focuses on increasing shareholder value than making a big score and flipping the stock of a not so good company. The great majority of our home runs have been with this type of company and management even when the situation was hairy as with USG. Bill Foote and his management team at USG during their five years in Chapter 11 exemplified the very best integrity, an absolutely essential quality to be able to persevere to a successful resolution. Without that quality, Warren would have passed on them, and I as well. Same with Prem and his team at FFH during their difficulties. Therefore, it was well worth it to be a small part of their supporting cast in those great dramas. :)

Yes, we not only bought it, but jumped in with both feet after I finally understood why Warren loaded up on a stock that was obviously sliding down a slippery slope to bankruptcy. I didn't understand it at first as other value investors were bailing out of a sinking ship while Warren was loading up his truck with 15% of USG's stock. What's wrong with this picture, I asked. Has Warren suddenly become senile? No, the evidence showed he was still as smart as ever. He also knew more about asbestos liability than anyone else on the planet. Therefore, I bought some USG stock and averaged down to $11/share on the falling knife. I thought USG would lose 95% of its value as Dow Corning and WRGrace had done, and that's what happened. I stopped buying and a week later the stock bottomed at less than four dollars per share, and I'm sitting with a loss of about two thirds of my average purchase price, and USG is in Cpt 11 bankruptcy. This got my attention, and I started to spend some serious time (translation: become obsessed) studying USG and their situation. Two weeks later I finally understood the key insight Warren had from his first purchase, and I backed up my truck and started throwing in the moneybags, but still with a little nagging thought: could these possibly be counterfeit?

Over the past 5 years: WFC, BNI, JNJ, USG, KFT, WMT, arguably even BAC at its lows. :) Vinod Yup, the surest way to have made money has been to have bought a company when Warren first bought a lot of their stock. :) For learning purposes, a few questions. What did he see that most didn't? What clues/signs? Or was he just willing to pull the trigger when most were afraid to but they saw the same thing he did? Did you see it but it wasn't in your comfort zone, or did you buy some of these at this same time? I really respect your investing philosophy so just curious. It seems you mainly stick to certain really certain picks (BRK,etc). Even though you know historically by buying when Buffett does you do good. We have been in and out of a few of these, and also Munich Re And Cologne Re, always buying at least a few months after Warren first bought. This has worked especially well when one of his big purchases continued to decline or even tanked as with USG in 2001 . In these cases the value of the business was still about as good as it was when Warren made his first purchase. This has worked out much better thatrot would have if we had latched onto Warren's coattails immediately after one of his big purchases was disclosed. This follow the leader strategy has worked much better following Warren than following other value investors because of the extreme standards Warren has used especially in recent years when making a major purchase. The depth of Warren's reasoning is not always obvious. For example, I did not fully understand his key insight into USG until I had spent many long hours studying it. :) I was quite tempted to anticipate Combs and Weschler's recent purchases before they joined Warren because I was almost certain that they would buy for BRK what they liked best when they ran their hedge funds. They are truly cut out of the same cloth as Warren. The reason I didn't is because I became enamored with the Buffett "Put". I cut my teeth studying option pricing way back when. I can assure the board that the value of a perpetual put with an increasing strike price on a great business selling at a enormous discount to it's benchmark is enormous. (It's not a real put of course, and this is why Mr Market has assigned no value to it --YET.). Thus presents the opportunity to invest with great, but not absolute safety, and use hedge fund techniques to goose the returns if desired. I think Warren's put is more valuable than a real put because of the rising quasi strike price.

and how is it a "sticky" point? could you not say the same thing about John Malone? yet his stock falls way below prices he paid to buy back stock. review history of LINTA. the market is going to do what it will do. there is no stickiness. if the market has a panic, do really think anyone is going to stop and think about not selling because Buffett bought .5% of the stock back? I am not predicting this trade won't work out. It may work. It probably will work. because I don't see the market going down much in the next few months. but I really think it's being sold as something it's not. I didn't say it was sticky point. You would need to analyze the situation and determine that for yourself. One thing I think the people who think it is a resistance level look at is the fact it was trading below 1.2 BV previous to the announcement and not really after the announcement. Well, Duh. Resistance. Schmugrinstance. Is there any other company in the universe that could offer to buy back its stock immediately on the open market at a 10% premium to the market price and only be able to buy back less than 1/10 of 1% of the shares, even after raising the buyback price repeatedly over the increasingly higher market price of the stock over the next year?

Over the past 5 years: WFC, BNI, JNJ, USG, KFT, WMT, arguably even BAC at its lows. :) Vinod Yup, the surest way to have made money has been to have bought a company when Warren first bought a lot of their stock. :)

ok. good. at least there are 2 of us. :) You are correct. This is not an absolute put or one that is legally binding. But, with a low turnover stock, a loyal shareholder base and and perhaps nearly $20B in available cash, with Warren's strong intent, this is about as good a low risk trade as it gets. :)

He has been a buyer in recent months at various levels a hair above the then repurchase prices. :)

That means organizations are selling existing t bills to have cash to buy or pay for something like EOY bonuses. I don't think this is bearish for stocks.

There are serious thugs in the bad parts of town only a couple miles from me. Put two or more of them in a group intending me harm, and I am in real trouble. Firearms are equalizers in the right hands. A surprisingly high number of prehistoric skeletons have marks of homicidal violence upon them. Murder is a close number 2 cause of death after infections among Amazonian tribes that have been studied extensively by medical anthropologists. Malcolm Gladwell recounts the off the charts murder rates in Appalachia a little over 100 years ago. The knife and club or stoning or fire will suffice when firearms aren't available.

This is a specious argument. The fact is that gasoline is more readily available than guns, yet lunatics don't throw Molotov cocktails into crowded rooms. It just doesn't happen. There is something different about guns. The perpetrator is confronting his targets directly and can be the superman. (I'm just guessing that some type of power-play is the basic reason why guns are the weapon of choice. I'm sure someone has looked into this carefully so if anyone knows more I'd love to hear.) The thought of involuntary custodial care for people who are diagnosed as psychotic but have yet to act violently or break the law is absolutely terrifying to me. You cannot prove someone is psychotic or "potentially" violent. I would completely agree with you if there was some way of actually making that call, but I don't believe there is. Yeah you can to the extent of getting guardianship of an older child, even an adult child who is psychotic or non compos mentos. There are established court procedures for doing this without violating civil rights, One Flew Over The Cuckoo's Nest notwithstanding. The problem is that a guardian can't get permanent custodial care in a secure place for a crazy family member.