twacowfca

LOL. You are always so optimistic. Let us ballpark this. I think publicly traded stocks total profits are something like $1200 billion very roughly. This is at a profit margin of about 10%. Say profit margins drop by 2.5% that is about $300 billion or before tax about $400 billion. This amount would go to either consumers via lower prices or to employees via higher compensation or higher costs of raw materials. Let us assume all this goes to either higher compensation or to raw materials for simplicity. I would think of this about 25% would easily go to foreign exporters/subsidiaries as either compensation or raw materials. So at most we have $300 billion in additional money in the hands of consumers. Does this give enough of a boost to bank's profits, given that non-financial businesses that are major customers of banks have lost about $400 billion in pretax earning power? Vinod Hire 6 million people and pay them $50k each. That's $300 billion. Nice dent in the unemployment rate. What drives bank consumer losses BTW? Hire them? For something productive? Don't bet on the government doing something productive. On the other hand, a $300B cut in the most regressive tax of all, the employment security tax, paid by both individuals and employers would stimulate hiring in 1001 productive (translation profitable) ways. The unemployment rate would soon come down to normal as increased profits by the forgotten engine of the economy, the small businessperson,would bring into the workforce less desirable workers that big businesses won't hire. Then, GDP would increase sharply as it has not with handouts.

Not for the most part. The forced ultra low interest rates explain about two thirds of the recent high profits, ironically in a super cycle slowdown.

Good idea. However, it seems like some of the better VIC posters drop off that forum. Please post your short list of the better VIC posters. Thanks

Many of our greatest successes are a result of not following a great investor when he takes a major position in a company, but waiting to see if there is a much lower entry point and then jumping in with both feet if the investor's thesis still is valid and we understand the company and their strengths. Then, the upside is much greater than if we had slavishly followed a guru immediately after their stock purchase became public. :)

Thank you for posting. What's the total market in dollars for fast acting insulin in the US and worldwide?

No, I don't own LMCA. Was going to read the letter later this week, always a great read! There are so many things investing-related that are worth reading that it tends to pile up at times. I should mention that you won't get much value from me. I just started investing in late 2010 (I'm really nowhere yet) and am actually still a student. Hope to graduate in a month tho. ;) The hunt for the bargain and thirst for knowledge make my clock tick! Yes! But . . . "Never smile at a crocodile!" ------ Captain Hook

Let's just say that because of my professional experience, I could write a little book about the perils of overfitting and data mining. That's why I combine value investing with statistics. If you don't have a guiding framework you will find all kind of fake correlations in the data. That's probably what caused the quant implosion in 2008-2009. I've done many backtests, as realistic as possible, with different investing strategies, and I find myself time and again just reproducing Warren Buffet and Ben Graham insights in mathematical form. For instance, if you invest in small caps, almost any strategy similar to Ben Graham screens (cheap + financially sound companies) works beautifully. And that's basically how Graham, the early Buffett and Walter Schloss invested. You just go to the region of the stock space where it is easier to find unwarranted pessimism, sit there for a while and make out like a bandit. However, the simulations also show that once you have a large pot of money to invest, it is very difficult to outperform just based on ratios. Every company is scrutinized to death by the market, and investing becomes an art, with very few high level practitioners. That's where you have to start worrying about moats, quality, etc. It is amazing to see how Buffett chose at every moment the optimal investing strategy for the amount of money he was managing. The simulations show that when you can invest in small caps, hedging and going to cash significantly damage the long term performance. You reduce the volatility, but also the returns. Warren Buffett of course knew that in his 20's, without having to do any simulations, and he was always fully invested at the beginning of his partnership period, even when he was managing OPM. I also try to be fully invested at all times, but in the markets which offer me the best odds. Europe is much better than the US or Canada at this time. In any case, I understand you, Giofranchi. If your passion lies in analyzing business, go for it. After all, I spend most of my time trying to figure out what the heck Dark Energy is, a fascinating but not very profitable endeavor. And by the way, I too gave a hard look to LUK the other day. Extremely tempting, but I bought FFH instead. My models say that it is very likely that there will be better times to buy LUK during the next year. I like your posts very much tixtxo. As you spend much of your time trying to understand what dark energy is, I spend considerable time trying to comprehend what gray matter is and related subjects. :) Warren hasn't permanently changed his style. His shift to buying and holding large caps that are great businesses (think Coke) coincided not only with the growth in assets managed, but also with a change in the US tax code in the 1980's that made it inefficient for corporations to buy and then flip stocks two or three years later after they went up. Warren, has continued to use the go anywhere buy a basket of apparent bargain stocks strategy that you describe. In 2000 and 2001 he put most of his personal portfolio into Us REITS that were yielding about 10% after 1999 when the large cap great businesses in BRK's portfolio had earnings yields of about 3%. Then, in 2002 - 2003, he rotated much of his personal holdings into a market basket of beaten down Korean value stocks. Just before the financial bubble popped in 2008, Warren put most of his non BRK holdings into short term US Treasuries. :)

Yes. :)

Because it is nothing at all more than... buy low / sell high. Implicitly you must be doing a valuation appraisal to understand "high" vs "low", therefore... value investing. So the father of value investing stumbled upon something that had been known for a very long time... "Make no investments without a full acquaintance with their nature and condition, and select such investments as have intrinsic value." -- Benjamin ________. Test: fill in the blank without conducting a search. :)

It is a numeric indicator, but I'd rather not give the exact details. My research shows that once the fraction of expensive crap reaches 3% of your stock universe, the returns for a value investing strategy are ~-1% on average, with a large scatter. It is basically a coin toss. It is not worth being invested in that situation. The indicator is getting close to 6% now, that only happened before in 1999 and 2007. In Europe the indicator is still below 3%. I got my inspiration from James Montier's "Joining the Dark side: Pirates, Spies and short sellers", so people with access to a reasonably good stock screener could reproduce his screen. Good insights txitxo. How does the expensive crap indicator now compare to 1999 (the mother of all bubbles)?

My thoughts exactly -- it's been in large part a matter of recovery from a state of undervaluation. I put little faith in the buyback plan preventing a return to undervaluation. Many companies have buyback plans -- are they safe havens too? This buyback plan is unique. A pledge by the world's most respected investor to buy BRK "aggressively" whenever it drops below an objective price, 110% of BV. That's not all. BRK is lightly traded, perhaps about 10% to 15% of the proportional daily weighted volume/market cap of BAC, for example, plus a lot of cash on the BS to make good on that pledge. Plus the self interest of the Gates Foundation to continue to make good on the pledge when Warren is no longer at the helm to ensure that they won't have to make their mandated, regular sales of BRK at a price that greatly undervalues the stock.

The ideal conservative investment is ( superficially ) one that will increase intrinsic value and market value more than the general stock market for many years and hold almost all of its market value in a market decline. By this standard, BRK is now a better conservative investment than just about anything else. In a stock market crash, BRK, with the Buffett put, should hold most of it's value, giving optionality to continue holding BRK or to rotate out of it to extraordinary bargains that might become available. FFH should hold or increase its value in a bear market while its hedges are in place, but underperform in a flat or bullish market. All things considered, BRK appears to be more attractive than FFH.

Lancashire's reserve development has been very consistent and positive since their 2005 IPO. Their actuaries reserved conservatively based on industrywide loss development even though their loss development was much less with their better underwriting. As a result, their positive reserve development has given them an extra cushion for cat losses. Montpelier Re has been the most admirable of all the Bermuda and London P&C insurers. They more than fully reserved for all their huge IBNR 2011 cat exposure even though that put them in the red for last year and on watch for a possible downgrade. Since then, they have experienced zero loss creep, the only insurer that has that honor. :) Yes. FFH's annual reports, for example are a good case study for analyzing the quality of an insurance company's reported earnings. Their accident year loss triangles a decade ago for recent acquisitions mostly showed alarming adverse reserve development. Then, reserve development started to become generally positive half a dozen years ago as they exercised better control over their acquired businesses. That change in trend was a strong indicator of greatly improved underwriting discipline and a harbinger of increasing profits instead of losses.

Microcaps are often problematical because there isn't enough value for both shareholders and the CEO.

That's the optimistic projection. The pessimistic projection is that Basel III type requirements will constrain a lot of their holdings to Sovereign debt with low yield that will limit profits if the economy is stagnant without robust margins on loans. This includes the potential loss of principal if interest rates increase a lot. Cheers. :) A few weeks ago your pessimistic projection was that they still need to raise more equity, so it feels to me like you are actually getting more bullish. Actually, I'm a optimist. I do think, however, that BAC and many other TBTF banks could take a lot longer to work out than many assume because the world is in a super credit cycle crunch. There is no way out other than stagnation, default, or inflation ( default by a thousand cuts ). For the US, my bet is stagnation followed by stagflation. That's more optimistic than what Europe may experience. :)

That's the optimistic projection. The pessimistic projection is that Basel III type requirements will constrain a lot of their holdings to Sovereign debt with low yield that will limit profits if the economy is stagnant without robust margins on loans. This includes the potential loss of principal if interest rates increase a lot. Cheers. :)

JPM is currently approved to return roughly a 10% yield on tangible equity -- before they cancelled their own buyback over the Whale tempest/teapot thingy. BAC returns 10% of tangible equity under a similar approval and that translates to nearly a 20% yield on the current market price. This effect may be subtle. For example, Basel III type requirements may force banks to load up on low yielding government debt ( highest quality ) thus pinching dividend paying ability.

There is a flaw in the idea that TBTF banks will return large amounts of capital to shareholders. This is likely to be against public policy with the government running a huge deficit.

What other seeds? And how does their streaming venture have synergy with their vending machines?

No details, but it's a major investment of about $40,000 for a big truck to be able to burn natural gas. There are a few major long distance routes where there is development of nat gas fueling stations to make this economical for big trucking lines.

You are looking for those rare birds that could become 100 baggers. Any good ideas?

Welcome to the board, giofranchi. FFH is going through a dry spell now, but their long term creation of value for shareholders has few equals. I think that their defensive position is merely early, not wrong. Best wishes.

Prem has never drawn that comparison. His focus has been more on deep discount to balance sheet value a' la Ben Graham rather than better business a' la WEB. :)

He's right. We were doing some algorithmic trading then, and we noticed a disconnect in the market. Some times there were no bids and prices of trades executed gapped up or down by irrational amounts. Even BRK showed this irregularity. One time the market at close price for BRK gapped up 8% or so from the price before the close.

Or perhaps it's because you've read so much on the subject already (Buffett, etc) and because the basic ideas remain the same whoever says them... Maybe if you had come across this book before all of that it would have seemed more valuable. Personally, I quite liked the book. I find a lot of value in reinforcing key concepts periodically. It may be that extensive reading has colored my view of Marks' book. I am a compulsive reader and rereader of all the great books on investing. The book publisher in me has the sense that Marks' book could be improved by including stories and examples that are lacking. People learn more from vivid mental pictures than from didactic instruction, especially in a long work.