twacowfca

The borderline ( is it fraud or isn't it fraud ) practices of this company include having someone express an opinion on the life expectancy of a policyholder that is not grounded in sound actuarial science, and showing this to their suck, oops, I mean investors, who then buy that policy and agree to make premium payments until that person dies. Investigators charge that the projected life expectancies are unrealistically short.

Many thanks, Christopher1, for sharing. Always a pleasure to read. A straight shooter like Buffett. :)

The truth is that practically all human progress happens when people have idle time on their hands, supported by accumulated wealth or the labor of others, when they don't have to spend all their time scraping out a meager subsistence. An aborigine with a full belly and time on his hands sits around a quiet campfire and makes an improvement in his bow. A high functioning autistic like Cavendish inherits enough wealth to fund his own scientific experiments. A nerdy kid like Gates gets an early withdrawal on his inheritance and is able to "waste" thousands of hours playing with computer programming before shortsightedly giving up his chance of getting a great, high paying job with a Harvard degree.

Abel is able.

As the poet said: "There is a tide in the affairs of men, which taken at the crest, leads to fortune.". :)

Harry, you can sometimes be a royal pain in the posterior, but there is method to your madness. Sometimes, when you stir the pot, a nice piece of meat, like above, floats to the top!

The Q ratio is normally calculated for nonfinancial companies. The bubble that peaked in 1977 was greatly influenced by inflated prices for financial companies. Also, the calculation uses a geometric mean rather than an arithmetic mean. :) The Q ratio is at an historic high except for the tech bubble that peaked in 2000, but price/book is not at a very high historical level. This implies that aggregate book value overstates replacement cost by a considerable amount and that expectations for returns on tangible capital are unsupportable.

Alice was right about Sokol. She's hot right now and can be more selective. ;)

Get rid of a cash cow like DQ!? Watsamattawitcha? Becomming a vegetarian? 8)

I am not so sure. Citigroup presented Lubrizol to Sokol last Autumn as being on the block. Sokol used this information, that was not public knowledge, to acquire stock. That seems pretty open and shut to me. I do agree, that Sokol's position in the company was untenable and if he hadn't left by choice, he would have been pushed. Some questions that this throws up. 1. Sokol still owns 6.2% of Mid-American energy. Will Buffet buy him out, or will he cut the cord to Berkshire himself? 2. Middleburg financial have just served notice for their AGM. Sokol's name isn't currently on any of the proxy documents. If he is going it alone with Middleburg, he would want to be throwing his name into the hat fairly soon. I agree. If one has material information about a publically traded company from a private source that is not potentially available to the public, one is an insider. However, trading on speculation about what might happen is not a clear violation of insider trading rules, especially as Warren was skeptical about the deal immediately after Sokol's purchases. :)

Not a complete surprise. BRK added Burlington Northern's CEO to it's short list of succession candidates several days ago. The writing on the wall. Now we know why. "And then, there were three" :)

Meaty food for thought. We generally sell if we realize we've made a mistake as new information appears. We also sell when there is the prospect of a material drag or impairment of a company or industry or when there is a bubble about to pop. We will sell in generally good conditions when something better comes along, but not if it's a close call. That would create unnecessary frictional costs, exacerbated by biases such as thinking that the grass is always greener on the other side of the fence. We're always ready to sell quickly in special situations that are not candidates for becoming long term holdings. These trades are often made in accounts that are not subject to significant capital gains taxes. Great businesses with long term capital gains would be the last to be sold, especially for a price less than IV. We would not expect to do this unless funds were needed for a compelling reason, such as picking up extradinory bargains as happened in March, 2009.

Sorry, BG referred to the Validea Benjamin Graham screen that Harry used as an example. :)

Remember, Harry, when you say that "20 stocks perform better than 10" in Graham's system, you're saying that the 20 stocks in the 20 stock model portfolio performed better than the 10 stock model portfolio. I know it seems obvious that you're saying this, but you have to think about the assumptions you've made: (1) That the ordering of the stocks is based somehow on the ordering of the stocks in between the two portfolios. For instance, best ideas #1-#10 are in both portfolios whereas best ideas #11-20 are only in the 20 stock portfolio. This may be true from a quantitative standpoint (there's some arguments against that as well), but you're neglecting any qualitative assessment of the stocks in either portfolio. In other words, what if the "best" idea was actually in the 20 stock model portfolio but not in the 10 stock model portfolio? (2) I might be making an assumption here, but I think that in using the 10 and 20 stock model portfolios in your discussion, you're assuming that if 10 stocks are good and 20 stocks are better, then your 100+ stocks are even better. Of course, taken along its logical trajectory, one would assume 1000+ stocks would be the best, though that would fly in the face of common sense because the more stocks in your portfolio past some point, be it 100, 500, 1,000 or 3,000, the more likely you are to be modeling an index. Oddly enough, despite what I just said, I don't disagree with the argument that a portfolio with 100+ names can outperform. I just think it's much harder to outperform with 100+ stocks than with <10 stocks. I wouldn't make too much about the outperformance of the 20 stock portfolio. Both sample sizes are small. Was the outperformance statistically significant? At what confidence level? In general, the smaller the sample size, the higher the probability that a given sample will "outperform" the distribution of the larger sample, while the volatility of the larger sample generally will tend to be be lower. However, this cuts both ways. In general, the smaller sample will also have a tendency to underperform as well! There is also the problem that extremely small sample sizes may select a higher percentage of companies where the data that passes the screen may not precisely reflect the true state of the business. For example, using a screen to find the stock that has the lowest P/E in the universe may vomit up a fraud or a company in deep trouble. Harry's argument is right from this point of view. But Sanjeev's argument has great merit if the analyst is very good and very careful. The BG screen is among the very best. Yet WEB's performance has been far better, especially before he was limited to megacaps and when he sold companies as their stock prices approached IV. By the way, the Validea Buffett screen is a shallow reflection of what Warren really does, based on the superficial understanding of the site manager's interpretation of Mary Buffett and David Clark's book. What Warren really does in picking stocks, other than special situations, is more related to extension of criteria similar to the BG screen, usually through a longer time frame than 10 years, with additional inclusive and exclusive criteria.

I think the question was more about Warren's lack of culinary sophistication than India's tastes. The responses are revealing for the perceptions of changes in India in recent years.

I agree. Buying a company merely because it sells below BV or has hidden assets on the BS may have a certain amount of safety, but is apt to be a poor way to make money unless the margin of safety is great and the portfolio diversified. However, in general, having extra assets on the BS is a plus.

Not necessarily. The hypothetical co may not optimalize the extra value hidden in their BS, but the fact that the extra assets are there gives them options or may attract interest from activists. The biggest value trap that snares many investors is the common situation of a company's having to reinvest most of their profits (including that type of reinvestment that is expensed as R&D) merely to keep from falling behind competitors, losing share to a disruptive change in the market or being swept out to sea by the tide of an ebbing market.

One. After a couple of false starts, we went largely to cash because of our heavy concentration in the P/C sector. We'll wait till after the hurricane season before reassessing opportunities in P&C, especially as rates may harden. The basis for our concern is the potential for loss estimates related to reinsurance in Japan to snowball as there are generally no caps on commercial policies there. We do have an interesting workout that we may be able to share in the not too distant future. :)

Did you trade a related security such as an option on the same stock? If not, this could be a screwup related to the new FIFO default setting by your broker related to the new IRS regulations for determining S/T, L/T losses or gains.

Rudy Guliani is the one to blame for Madoff's not being exposed in the early to mid 1980's. Seriously. :o

to I think those behind the Parmalat fraud actually set up or acquired a real shell bank on some Mediterranian island that was approved to execute bank transfers etc. That bank was staffed with a Madoff type accountant. The bank was not subject to audits by reputable firms. It pretended to produce the statements with the phony balances. Parmalat's big time auditors simply accepted the bank's statements as true. They weren't employed to audit the bank, which was outside their jurisdiction. It was similar to Deloite's recent situation when they signed off on a fraudulent Chinese company's financials.

Bloomberg News, HSBC Was Told About Madoff ‘Fraud Risks’ in KPMG Reports March 18 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest lender, was warned twice by auditors that entrusting as much as $8 billion in client funds to Bernard Madoff opened it up to “fraud and operational risks.” KPMG LLP told the London-based bank about the risks in 2006 and 2008 reports. The firm was hired to review how Madoff invested and accounted for the funds, for which HSBC served as custodian. KPMG reported 25 such risks in 2006, and in 2008 found 28, according to copies of the reports obtained by Bloomberg News, which was allowed access to them on the condition they not be published. Twenty-five “fraud and related operational risks were identified throughout the process whereby Madoff LLC receive, check and account for client funds,” KPMG said in the 56-page report dated Feb. 16, 2006. The limited controls in place “may not prevent fraud or error occurring on client accounts if management or staff at Madoff LLC either override controls or undertake activities where appropriate controls are not in place,” according to the report. A 66-page KPMG report dated Sept. 8, 2008, cited 28 risks and described them in the same words as the 2006 document. Irving H. Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, sued HSBC and a dozen feeder funds for $9 billion in December in U.S. Bankruptcy Court in Manhattan. The suit was partly based on the KPMG reports and alleges the bank knew of concerns Madoff’s business was a fraud and didn’t protect investors. KPMG’s reports haven’t been made public. Picard has filed more than $50 billion in so-called clawback suits to compensate victims. Reviews ‘Foiled’ In the reports, KPMG didn’t present evidence the risks it identified had materialized or that it found signs of actual fraud, and said HSBC had told the firm “no allegations of fraud or misconduct have been raised.” HSBC confirmed hiring KPMG in 2005 and 2008 to review Madoff’s firm, adding it now believed Madoff had tricked the auditors. “It appears from U.S. government filings that Madoff and his employees foiled these reviews by, among other things, providing forged documentation to KPMG,” the bank said in an e- mailed statement. “KPMG did not conclude in either of its reports that a fraud was being committed by Madoff,” HSBC said. “HSBC did not know that a fraud was being committed and lost $1 billion of its own assets as a victim.” HSBC Spokesman Patrick Humphris, KPMG spokesman Mark Hamilton and Amanda Remus, a spokeswoman for Picard’s lawyers Baker & Hostetler LLP, all declined to confirm the authenticity of the reports obtained by Bloomberg. Custodian At the time of the first report, HSBC was custodian for eight funds that had invested $2 billion with Madoff, KPMG said. By 2008, the bank was custodian for 12 funds with as much as $8 billion invested. “We continue to believe that we have strong defenses to the claims made against us and we will defend ourselves,” the London-based bank added. Madoff, 72, pleaded guilty to using money from new investors to pay old ones and is serving a 150-year sentence in federal prison. Investors lost about $20 billion in principal. In the list of risks in KPMG’s report, number 2 was that “BLM embezzles client funds,” using the initials as shorthand for Bernard L. Madoff. To prevent it, KPMG recommended in both 2006 and 2008 that HSBC “establish a process to monitor monthly statements” and reconcile them with contributions from clients. KPMG didn’t perform tests to check that risk. ‘A Sham’ The 2006 report listed fraud risk number 5 as “client cash is diverted for personal gain” and risk number 18 as “trade is a sham in order to divert client cash.” It went on to say there were concerns “Madoff LLC falsely reports buy/sell trades without actually executing in order to earn commissions” and “BLM falsifies accounting records which are provided to HSBC.” KPMG reviewed samples of trades and account statements for both its 2006 and 2008 reports to test the risks and detected no discrepancies, the reports said. Even so, the firm suggested HSBC “consider undertaking a periodic review which includes tracing a sample of client trades back to the bulk order.” HSBC declined to comment on individual risks cited in the reports, citing the pending lawsuit. In prefaces to the reports, KPMG said it wasn’t hired to audit Madoff LLC and based its reports on information Madoff and his staff provided, which wasn’t independently verified. HSBC units in Bermuda, Luxembourg and Dublin acted as custodian for 12 funds including: Pioneer Investment’s Primeo Select, Bank Medici’s Herald (Lux) and Thema International, as well as Herald USA, Alpha Prime, Lagoon Investment, Senator, Kingate Global, Defender and Global Investments. The bank was also sued in Ireland and Luxembourg by investors over Madoff investments. In its 2010 annual report, HSBC said that by Nov. 30, 2008, the aggregate value of those funds was $8.4 billion, including fictitious profits Madoff reported. HSBC said that it was impossible to estimate the range of potential liabilities that could arise from lawsuits including Picard’s, adding that “they could be significant.” To contact the reporter on this story: Boris Groendahl in Vienna [email protected] To contact the editor responsible for this story: Angela Cullen at [email protected] and; Anthony Aarons at [email protected] .

Must have been a "flash crash" trade. :o

And that's the "abridged" edition, as Warren calls it. :)

"love endures forever". :)