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Simple answer, we were not comfortable. And we placed our bets accordingly. My initial bets on ffh leaps were quite small. It was only after the stock began to rally that it quickly became 80% of my portfolio and I stuggled with it the whole time, as did many I know. I lost more sleep when my Leap positions had become 10 baggers than when I bought them. I cannot say that I am ever comfortable with a new value investment. It often takes a couple of years, like Seaspan. The problem is that once an investment gets comfortable it no longer is a value investment. The only way to mitigate this is to not back up the truck on any one thing and try to have a margin of safety. There is MOS with BAC at this price. Maybe not so at $18/ share. Almost the same take on FFH in all respects. What surprised me the most about FFH was how long it took to earn the company out of the hole. What gave me the most encouragement was Prem himself giving me two hours of his time early one AM as we pitched in to help his staff set up for a meeting with analysts and investors at the depth of their problems, the loyalty of his staff. (no rats trying to escape a sinking ship there) :) and the depth of support from long term fans like Cundill , Hawkins, and everyone at Markel. :) BAC is a little different. They are one of the few big money center banks. That is a big moat in itself in normal circumstances. They are in a heck of a lot better shape now than they were in March 09 when we first took a very large position for the expected bounce and then exited a few months later for a large gain. Expected because the US Treasury and the Fed had determined that the big banks and the financial system would not fail. Last year, Uncle Warren demonstrated that he thought they were a good value with a margin of safety when he invested and got warrants at a strike price 50% more than the stock price was when we bought their Tarp warrants several weeks later. That's a great predictor of success. We've have made the biggest of all returns on stocks in a relatively short period when Warren, or major long term value investors or the US government have put their support behind a company that has tanked, but still has competitive advantages. There was all the positive EOY technical dynamics, described in my earlier posts. Finally, there was all the well justified negative sentiment among bank analysts and hedge funds that led to their stock price tanking. When a company is very likely to be a survivor, extreme disgust is a powerful predictor of extreme mispricing. :)

Tell me the earliest thing in your life that you enjoyed doing that you did very well. Tell me some other things you enjoyed doing at later stages in your life that you did very well. How do you make money? How do you determine that a potentialy attractive investment at a particular price may or may not be a value trap? What do you think about______? ( a company in the news that may be interesting )

Yes! Whack - A - Mole! But it won't be any fun when it's all over. 8). Boring

Glad he wasn't TIME's Man of the Year. That's the kiss of death!

The publisher had major tragedy two years ago with both his wife and mother in law passing away within a short time.

Yeah. And then they can insure their own bad paper. :o

I believe they got the heads up from regulators that you'd better raise capital quick or you'll fail our new stress test. So in a few months time they raise $5b from Buffett, sell 400m into the market, and accelerate their asset sales. This is why they went all crazy all of a sudden after assuring us in July that they could continue on their path without dilution. Just speculation, but I believe the Fed tipped off the banks a few months ahead of time. After all, the point of the stress tests is to restore market confidence in the banks, not make the banks fail and scare everyone. Yup. :)

That's interesting. Another reason we bought BAC B warrants when we did was that the day after BAC closed below $5.00/SH, it got major price support from a major institution that put an ascending floor on the price. Almost all the spiky price movement for a few days afterward was on the upside with plateaus in between and almost no spiky minute by minute downward price movement.

They stated today that they have asked for neither a dividend nor a buyback. There is even talk of issuing $1b worth of shares to employees (in lieu of cash compensation) in order to build capital. That's good. They still have some serious issues to work through. We bought their B warrants when the stock was selling for about $5.17/ sh back in Dec on the theory that it would be the type of situation that would bounce after all the pessimism, tax loss selling and portfolio cleansing ran its course, typically as it does in mid Dec. when a company is hated and down a lot nearing EOY. :)

Well, let's say there are good businesses that are very forgiving of management mistakes. And then there are . . . Uh . . . let us say, not so good businesses.

Thanks for the info. Long Treasuries are exhibiting a classic bubble pattern, but the bubble appears to be about a year or two from popping. We'll know more as the pattern develops. :)

I was pretty sure that a bubble existed in US housing by the end of 2006 the home builders were in a tail spin which I surmised was a pretty reliable tell. I felt the best way to play it was to purchase puts on the companies selling the worst mortgages hence I purchased puts on Country wide in June of 2007. Shorting country wide did not start to work until almost a year later. I would like to be able to relate how I made a bundle on my country wide bet but the options I purchased actually cost me some money as I got in too soon. The lesson learned is that it is ALWAYS difficult to see which side is winning the war in the thick of the battle. There are clear financial bubbles that are easy to spot, and sometimes it's possible to predict probabilistically within a narrow window when they will pop, according to the research of Didier Sornette. The Nasdaq bubble that popped in 2000 is a good example. The most recent housing and stock market unpleasantness that reached a max in 2006 - 2007 didn't display the dramatic upward acceleration in prices that is characteristic of a bubble about to pop. Instead, these series looked more like markets that were about to roll over more gently. However, this at first mild rolling over uncovered the instability in the system. This instability led to a phenomenon like the downward LMX Spiral in the 1980's. The extent of the potential for a death spiral was not evident merely from looking at charts in search of a bubble pattern. Only a few gifted people were able to forsee the extent of the potential downward spiral, excluding permabears. This was quite a contrast to the 2000 Nasdaq bubble that anyone not self deluded could have identified.

What's the best way to buy a put on long dated, 20 to 30 year, US Treasury Bonds? The put would be for more than a month, ideally for a few months or for a year or longer. The put could perhaps be on a long dated US Treasury Bond fund or something related to the prices of long dated USTs, or their yields as a call.

LOL, I hope not. Hey! Even the most degraded of sinners may be capable of repentance. Just look at Tilson! Open the church doors wide. :)

Al, one generally has to have an established relationship with a big institution to purchase illiquid derivatives. These can bite both ways, and the institution will want to know the customer very well and know that the customer is sophisticated enough to fully understand all risks. It's almost always better to trade in established markets that provide liquidity when needed. :)

Well, that is a hell of information. Thanks! Can you please talk about your common stock holdings? Can you also talk more about your strategy trading options? I would really like to learn from you. It took me 10 years to catch on with value investing, so I totally understand your feelings. Keep going! I think your strategy is excellent. It's a barbell shape with asymmetric long payoff potential from leaps at one end, counterbalanced with a long position in FFH at the other end of the barbell which should be negatively correlated with market risk. This strategy should help you live to fight another day if the market and the value of the leaps turns against you. :) It's similar to what we do: we have BRK and FFH at one end of our barbell and long dated. non recourse. total return derivatives on LRE. plus shorter term speculative situations on the other end of the barbell.

Val, I think you will do well. The ability to sit back and objectively assess an investment as new information or better understanding developes is key to avoiding confirmation bias after a stock you picked goes up. :)

I've never thought of going to a site like Linkedin to research stocks. Nice idea. Yes, great detective work. Thanks for sharing. :)

Most retail store closings happen after the EOY holiday sales surge as the big sales decline begins in January.

Up over 40% overall, thanks to our huge overweight in LRE, including long term, nonrecourse, total return derrivatives. The remainder of the portfolio is down about 7%. :( Outperformance eventually regresses, often with great force. :(

Please tell us more about why these are great picks. :)

"When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." --WEB

Au contraire. There would be massive unemployment and deflation if the minimum wage were set at a level higher than current average wages. Where would the extra money needed by private employers to more than double the average payroll come from? When the minimum wage is set at a level only slightly above the previous rate, there is only a very slight effect on current employment. The main effect is a drag on future employment, especially on the young and unskilled entering the workforce and those with rusty skills trying to reenter the jobs market These young job seekers who lack the minimal skills needed to earn the minimum wage then drift into the underclass to gain by other means than employment. It's a sad story of unintended consequences.

What would the consequences be if the minimum wage were raised to $50.00/hour? $40.00/hour? $20.00/hour? $10.00/hour? If a minimum wage is a good thing at $10.00/hour, wouldn't it be an even better thing at $20.00/hour or higher? If a minimum wage of $10.00/hour is a good thing in San Francisco, wouldn't it be an even better thing in a small town in the Midwest where the wages and cost of living are only half as much?

Merry Christmas, Sanjeev. May The Lord bless you in the year to come.