twacowfca

Does he still own Fannie and Freddie? He was buying more of them as 'bargains' as they tanked in the months before The US seized them, and he continued to tout them til the bitter end. That reminds me of the story Nassim Taleb tells about the turkey that is happy every day when the farmer comes out to feed him. The turkey is also happy on the final day when the farmer comes out with an axe in his hand.

Will this trend change soon? It seems that political policy has the unintended consequence of suppressing potential employment in young age groups, exacerbated by Baby Boomers hanging on to jobs in older age groups. Subsidized loans for 'higher' education take young people out of the potential workforce, but do not always increase practical employment skills. Age descrimination laws make it difficult for young people to get jobs or move up in hierarchies. Occupational licensure requires often unnecessary extended education. Etc.

Good idea. It's like the 'think' system that worked so well in the musical, The Music Man, for learning how to play a band instrument. :) Seriously, here's my input: All the liquidity in the system ( the sources are too numerous to cite ) will eventually result in large nominal gains. If your statement that all sources are negative is representative of general opinion, that in itself is a powerful positive indicator.

Thanks, this is a great description. I've also heard that he pays a lot of attention to ROE. How does ROE figure into all this? For eg, for KO, ROE is in the 25%-30% range but FCF growth is in the around 6%-7%and it has a high P/B. What makes KO attractive to Buffet? Well over 100 years of high returns on capital and the opportunity to reinvest some of their profits at high rates of return in developing countries. Management that returns earnings that aren't used for profitable reinvestment to shareholders as dividends or share repurchases. Perhaps the strongest brand name in the world. Habit forming products. The low cost distributor in that industry. Not impacted much by technological change. A business that isn't very cyclical and isn't dependent on financial markets. In short, a better business than 999 out of 1000 other businesses. Plus, Warren likes to drink Cherry Coke.

He came to value investing late, but with an inquisitive mind. Warren wasn't pleased when he was passed Ben Graham's mantle at Columbia, but Warren has come to appreciate Bruce as he has matured into a Ben Graham purist : look at the balance sheet first, etc. I'm not sure he has a public track record. I've learned a lot from reading his stuff, things like how fleeting high ROC is in most businesses. Regression to the mean takes only about four years on average.

Indeed. Sometimes that's because it's an unpredictable or bad business/industry/management/etc, and sometimes he just doesn't have the specific technical knowledge to really understand the products and competitive dynamics deeply enough to be comfortable. I think a lot of the time he does understand that the permanence of the edge a company may have is inherently unknowable. Charlie used to invest in tech companies before he hooked up with Warren. He said that as soon as one of those companies developed something superior, someone else would come up with a new technology that leapfrogged them. Bill Gates and Paul Allen had no idea how important owning a superior disc operating system would become for their business. They planned to set IBM up with another company to provide it, but when there was a problem, they decided to take on that job under their ownership.

One of their problems is that there is basis risk in their supposed hedges. The hedges don't cushion the decline in the worst of their stock holdings. They will only pay off well in an extreme market event. Even then, inflation could trump their CPI bets.

You get a gold star. :) And I wasn't being facetious. :) That's actually what too many people miss about Buffett and other super-investors. They are so good not because they have special tricks to crunch the numbers, they are so good because they make sure to really understand the business not only on a quantitative, but also on a qualitative level, and to stay away as much as possible from things they don't understand. When Warren says that he doesn't understand a business, what he means is that he doesn't understand how that business is almost guaranteed to make good money for many years, even decades, that will be available for the shareholders or wisely reinvested with high returns on capital employed.

This is the most important thread that has been discussed on the board. Recall that Warren has said that if he ever taught another course on investing there would be only two topics: 1) How to value a business. 2) How to understand markets. Let's take the first topic. Warren said that Aesop gave the secret to valuing a business more than 2000 years ago. "A bird in the hand is worth two in the bush." This sounds too simple, but this metaphor is profound and worthy of meditation. How much is the bird in the hand worth to you? How much to others? Is it healthy? Does it lay eggs? How many? Over what period of time? Do you have to feed it? How much to get an egg? 20 eggs? Does it have to be tended by a skilled bird keeper? How much does he cost? Does he eat some of the eggs in the bird coop in addition to his pay? Does he want to build a fancy, bigger coop? Acquire more birds? More coops? What's the price of eggs now? Over time? Over a very long time? (this is one of the most important questions Warren asks, unlike most fund managers). Could your bird and the whole flock be wiped out by a bad case of bird flu? Is eating eggs a fad? If not will people continue to eat lots of eggs? Go vegetarian? Will the government ban eggs as a health hazard? Will trial lawyers file a class action lawsuit against egg producers with the government as their ally? Do you have an edge in raising fowl? A reliable, low cost source of chicken feed? Some other reason other chicken producers will be at a disadvantage competing with you? (The answer to this question is so important that Warren will gererally end the speculation here if the answer is no.) Can you get paid in advance for the eggs you will produce? (Warren likes businesses like insurance where your customers pay you first). If not, can you still get a nice profit on your sales and return on your investment if customers pay you later? Is there.technological change on the horizon that could destroy the industry? Perhaps a way for consumers to download chicken DNA from an IPhone and grow a fresh egg in a bread maker at a cheaper price? Yada, yada yada. And this is only some of the info needed to value the bird in the hand, not to mention the birds in the bush. How many are in there? Can you see clearly through the leaves? When will they come out? How sure are you that you can catch any of them?

You get a gold star. :)

Lets rephrase that. What doesn't Buffett use? That's the secret. :)

The market really is more efficient now than it was in Graham's time -- except when it isn't. Therefore, great outperformance is very difficult unless investors are patient to wait for those rare opportunities to invest in absolute bargains that can return value to shareholders in sideways or down markets, not relative bargains.

He's got a great team who get deep into certain industries and companies.

...and just continue to use up that virtue Charlie Munger was talking about. Then one day, there isn't enough virtue left. Virtue? Like a woman who is almost a virgin . . . compared to someone who is a little more active . . . Compared to . . . ???

You're right. He seems to be very good at assessing the value of a company and the psychological state of investors, especially when a company is a good sell or in an activist situation on the short or long side. He may be more of the Jim Chanos type than the Warren Buffett type, but I could be wrong. Thanks for the book reference. I hope to learn more about him from the book. :)

The market sees the horrible value traps they have bought recently in businesses or industries eclipsed by technological change and ignores their outstanding, long term investing record, especially in bonds.

That's correct, which is why I said I'm glad I don't see things like him :) Cuban is the ultimate value investing mirror image of Warren Buffett. Warren knows how to identify long term value in a company and buy it at a bargain price. Warren prefers to hold his companies forever, even when they may sell for a price far above intrinsic value. Cuban knows how to identify and own a company that has little or no intrinsic value, but lots of curb appeal -- And then sell it at the most inflated price possible.

Bob predicted the mortgage meltdown and consequent financial panic with great forcefulness in 2007, going to 50%+ cash in his equity funds more than a year before everything blew up. Unfortunately, after the market tanked in Oct, 2008, he took his cash and bought energy stocks, not realizing that these would soon follow the market down despite seeming to be great bargains.

Yeah, a call in a dynamic situation is probabilistic, not determinative.

You are right, Sanjeev. It was all about confidence in the system. TARP for those who didn't think they needed it was very important for removing the stigma from the weak banks that would have been tagged as shaky and become lightning rods for bank runs.

I remember that you said that Apple would top out at $500-$600B market cap in January. They're now at $542B market cap. I bet you $5000 that they will surpass $750B in the next two years. Wanna take me on? So exactly how was Uccmal wrong...at least to this point? Don't get too carried away. I went through the whole presentation after you linked it, and I wasn't particularly impressed with what they were doing. There was nothing really significant, other than getting the Macbooks up to speed with the iPad3 and iPhone. Integration with Facebook and pushing their navigation over Google Maps? You don't think Google is already working on this...that they've got far more smartphones already using Android and they won't fight back? The one thing that always happens with regularity, is that parity comes easier than the retention of supposed moats. With proper curing concrete becomes stronger and impermeable to moisture...but if you get any cracks...even the smallest amount of moisture can start to tear it apart over time. Those cracks appear more frequently within technology companies. Cheers! before the ipod-iphone there was the ? ? ? Oh yeah. The indominatable Sony Walkman :) The key step in the development of the ipod-iphone wasn't even technical. It was getting the recording studios to sign off on the Apple secure royalty scheme.

Got it! The first page I read was worth many times the cost of the subscription and the wait. :)

How much is the loan to borrow on OSTK?

:)

Major trade credit insurers are pulling trade credit insurance for shipments to Greece in advance of the Greece elections vote, limiting shipments of supplies and components to Greece. Trade credit insurers are also starting to restrict coverage for shipments to Italy and Spain, as reported by a major trade publisher.