twacowfca

I agree if one 's skill level is not much better than what the market averages will do. Then, it 's a guessing game about when the market averages will go south, and a lot of skill is needed to play that game well. If ones skill level is greater than that, be aware that The Fed is still goosing the WSBASE, momentum is still a levitating force and tax increases have bitten less than the amount that capital gains have produced. Even so, realize that not everyone is able to find a safe seat when the music stops in the game of Musical Chairs. :)

One thing he takes for granted is that today's profit margins are due to government and private sector deficits. So I have a two-part question: Are government deficits going to shrink in the decades to come? How high are private sector deficits today? I read his paper, and I am left with the impression that he is saying the rising deficits led to the rising profit margins. So what if the government deficit keeps getting bigger? The operating profits of nonfinancial domestic corporations as a percentage of GDP are about average historically. :) So the distortion comes from non-domestic corporations and/or financials. Why can't Hussmann invest in domestic nonfinancials? That would be too easy , like buying DaVita, mostly because Buffett and Weschler continue to load up on it.

He has a huge deferred tax liability on his DaVita holding. An acquisition of DaVita by BRK would allow him to roll his DaVita holding into BRK without having to pay taxes on the appreciation of those shares if the deal is structured like the BNSF deal. Time will tell if it works out that way. To repeat: as a member of a group that has signed a standstill agreement that allows them to buy more shares, the members are not front running if they continue to buy shares. It is common knowledge that standstill agreements are often precursors to an acquisition. Therefore, rather than front running, what Buffett and Weschler are doing is the opposite. They are strongly suggesting that they would be open to acquiring DaVita if they could come to agreement with DaVita's management .

One thing he takes for granted is that today's profit margins are due to government and private sector deficits. So I have a two-part question: Are government deficits going to shrink in the decades to come? How high are private sector deficits today? I read his paper, and I am left with the impression that he is saying the rising deficits led to the rising profit margins. So what if the government deficit keeps getting bigger? The operating profits of nonfinancial domestic corporations or subsidiaries as a percentage of GDP are about average historically. :)

Look at the relative headwind coming from the US Treasury this year. They were injecting $1.3 trillion into the economy in 2011, and this year roughly 1/2 that much. On absolute terms, it's still a deficit. But I look at the relative change -- it has to be growing from year to year in order to be boosting the economy relative to the prior year, no? Instead, it's drastically shrinking which (relative to prior year) is a big punch in the gut. http://www.usgovernmentspending.com/federal_deficit_chart.html FY 2013: $680 billion FY 2012: $1,087 billion FY 2011: $1,300 billion FY 2010: $1,294 billion Eric, I believe you will find that reducing the deficit within reasonable bounds especially by restraining spending rather than tax increases and reaping increased capital gains tax collections as asset prices rise is not necessarily a bad thing for stock market prices. Look at what happened during the Clinton years. Then, we had a president who was popular (especially with young female interns) as the country benefitted from adult supervision when the Republicans controlled the purse strings.

I am pretty sure that you can show that Buffett's returns are almost impossible to generate by chance. But not Miller's. I think one could almost replicate Miller's performance in the years he outperformed by using a simple algorithm, perhaps something like: Put 85% of your portfolio into value stocks using a screen like a Ben Graham value screen. Put the remainder into outstanding growth stocks. Rebalance between growth and value when the growth stocks reach 25% of portfolio value. When growth stocks lose momentum and value stocks begin to outperform growth, get rid of the growth stocks and stick with the basic value style.

My opinion on every point raised is exactly the opposite. There's nothing wrong with Ted's owning the stock if his position is well established and disclosed in advance of making purchases for BRK. Weschler is a long term holder of DaVita. Sokol reportedly talked to Lubrizol to see if they would be interested in an acquisition by BRK and then first bought Lubrizol for his own account just before pitching the deal to Warren. That's the essence of front running. Weschler and related accounts of family members that Weschler controls or has joint control over are now treated as a group with Berkshire for reporting, apparently having gained an SEC exemption from quick reporting because they have waived their right to vote any additional shares purchased in favor of a change of control that management does not approve. The ethics and dynamics now is like two partners who both like owning a stock and both keep buying it as BRK and the Weschler family have done recently. Later, if one partner wants to buy the whole company,including the interest of the other, that's OK. Actually, it's better than OK. That would be great because Weschler might then be able to roll his large DaVita holding into BRK if the deal is like the BNSF deal. Then, there would be good alignment of his interest with BRK as a substantial shareholder of BRK, without the perception that his interests are different. That's one more incentive to get a deal done. :)

We lucked out on this development. Put our spare cash into it a couple of weeks ago, adding to our large position, after Weschler bought a significant amount for his children, and we actually went into margin in anticipation of receiving the LRE dividend next month, something we almost never do. It's now our second largest holding. I've got mixed feelings about the bump up in price, though. The lower the price, the more likely a BRK take out. In a way, I'm a little disappointed because DaVita will likely now keep pace with the market leaders, making a takeout increasingly unlikely as the gap between IV and MV narrows. Yeah, I think they would offer north of $75/SH, perhaps north of $80/SH , allowing for this not entirely unexpected development, but their offer has to be significantly more than the market price or shareholders will squawk about getting a bum deal. That's the downside of a rising price. There could be worse problems, however. :)

I'm not a fan, but he's got a point. A ten year look back at average inflation adjusted operating earnings doesn't 't look so alarming: a PE 10 of a little over 20, I think.

I gave a quick look at "Everything is Obvious", in particular the section where he talks about Bill Miller, and I think the analysis there is quite wrong...he seems to say that everything is very noisy and subject to chance and therefore we will never know what depends on luck and what on skill. He recommends studying how people do things everyday and not trusting quantitative measurements. That's the anti-"Moneyball" approach: if the player moves right, walks right, has the right face, etc. hire him and damn the statistics. That does not work in practice. Humans are too gullible without quantitative measures. To fight randomness you have to devise measurements which are robust with respect to the noise, that's what scientists do all day long when planning observations or experiments (and what value investors do when trying to estimate intrinsic value). For instance in the case of Bill Miller the relevant statistics should not whether he beats the market 18 years straight (the odds of doing that by chance are 2^-18, about 1/262144; if you multiply that by the number of managers in the US, which is certainly at least 10,000, there is a 4% chance somebody will do it, which is not such a rare event), but something like e.g. his accumulated over-performance over that same 18 year period (which I seem to remember was not so outstanding). Yup. He managed to keep just a little ahead of the market averages by being a basic , but not outstanding value investor while adding a few idiosyncratic positions with inflated present values that captured what the market was doing at the time. As value investing tailed off in popularity in the late 90's his small number of tech favorites like AOL and Dell caught the wave and kept him above the S&P average while other value investors trailed the averages. Then, with a little rebalancing reducing his tech exposure, the majority of value stocks in his portfolio caught the value surge post Y2K. It was easy to see the writing on the wall predicting his demise as his idiosyncratic positions became crappy value traps like Kodak and Financials or cyclicals ready to go bust as the credit cycle ran out of gas and turned south.

We lucked out on this development. Put our spare cash into it a couple of weeks ago, adding to our large position, after Weschler bought a significant amount for his children, and we actually went into margin in anticipation of receiving the LRE dividend next month, something we almost never do. It's now our second largest holding. I've got mixed feelings about the bump up in price, though. The lower the price, the more likely a BRK take out. In a way, I'm a little disappointed because DaVita will likely now keep pace with the market leaders, making a takeout increasingly unlikely as the gap between IV and MV narrows.

Your motivated abilities will become evident if you will journal how they became manifest over time. Think back to the earliest strong memory you have about what you liked to do and did very well. Write that short narrative down and describe how you did the next enjoyable accomplishment when you were a little older. Keep doing that through the present time. Then , the pattern of your giftedness will emerge.

You are over analyzing the situation and should reconsider your priorities. In twenty five years in the business, I have seen hundreds of bright young people, often from great schools, get nowhere in the finance field because they choose to "strategize" their career path instead of responding to opportunities. I remember laughing at 25-year old Ivy League MBAs who didn't want to run financial models because they feared being pigeonholed as a "numbers guy". They wanted focus on the "big picture". In two years these empty suits were gone. They go it backwards by thinking that the firm was there to serve them. This new fund is a critical test for you. Ignore the assurances from your superiors that this is your choice. It isn't. If you say no, you have put yourself ahead of your firm and for that there will be consequences. Maybe not tangible way, maybe not immediately, but people will take note and it will happen. The bottom line is this: you should take the job and work your tail off with a positive attitude to make it a success, or leave the firm. The best way to advance in your career is to gain a reputation as a "can-do" individual who will do whatever it takes for the benefit of your current boss and your firm. Once you succeed here (and it will take many years of effort), opportunities will follow. Lots of them. When bosses start to fight over you and you start to get job offers outside the firm, then you are making good progress! Phaceliacapital, Onyx' advice is spot on. That's the best way to get ahead in an existing organization. Robert W. Woodruff had little interest in academics in high school, but he managed seven different programs to help those faculty and staff who were responsible be more successful, grunt work like being the "manager" of the football team to volunteering to help the headmaster save the school in a financial crisis, a mission he accomplished in a surprising way. He was tapped to become the manager of a company in a new field, Coca Cola, when he was in his 30's, and he had a distinguished career as their chairman for many decades. His favorite saying was, "There is no limit to what a person can accomplish if he doesn't care who gets the credit" However, the fact that you approached the opportunity presented by your boss with less than enthusiasm suggests that your motivated abilities give you strength in a different area than management. What's your sweet spot?

And the annual average temperature there is well below zero centigrade, about the same as atop Mount Washington, Maine, the windiest place in the world, and one of the coldest. Does the tenant pay the utilities? This could be a good investment if they bought property near a bottom. Did they? But there may be agency risk, political risk etc. Mt Washington is in New Hampshire. Oops! My bad. Got confused with Mt. Katahdin Maine, the end of the Appalachian Trail. I'm not a through hiker, but a fan of someone who was.

He has owned it for a few years. He bought some after he became disenchanted with Conoco Phillips.

And the annual average temperature there is well below zero centigrade, about the same as atop Mount Washington, Maine, the windiest place in the world, and one of the coldest. Does the tenant pay the utilities? This could be a good investment if they bought property near a bottom. Did they? But there may be agency risk, political risk etc.

I think their incentives are in alignment with the health interests of their customers. They talked in their recent call about how they slowly have brought down the mortality rate of their patients, lowering the death rate about 30% in the last few years to the current annual death rate of about 13+%. That's like the virtuous alignment a traditional life insurance company has with its customers, longer life : more profit. :) I had the privilege a few years ago of consulting with the late Dr. Cade, the retired U of FL outstanding professor who developed Gatorade in the 1960's. He was a kidney specialist, one of the first physicians to treat patients with dialysis. He literally had to make decisions about which of his patients were going to live or die because the limited availability of dialysis had to be rationed in the early days. Now, thanks to for profit companies like DaVita, those decisions are mostly history in the US, but not elsewhere, including countries with socialized medicine where medical care is "free".

twacowfca, this is the reason why we all on the board not only respect you deeply, but also have a feeling of genuine love for you! At least, it is so for me. Your profound knowledge in all that is human is no less important and admired than your investment acumen. :) Parsad, please, make sure twacowfca never leaves the board! You’d risk losing one of your greatest assets! ;D Cheers! Gio You are very kind, but the ones who know me best think I'm a smart ass etc. ::)

twacowfca, your wisdom is a blessing to all the board members in so many fields! :) Actually, I have already followed your advice: yesterday morning we played tennis and afterwards we had lunch together… I also showed her my office… Do you remember the pictures of my office I posted some time ago? … Maybe that was not so shrewd a move… ;D ;D ;D Gio Not a shrewd move, but the best move certainly with a long term perspective. The saddest thing in a relationship is when people get hot and then find out later that their lover has some characteristic they can't stand. My wife and I are very different. She's a librarian and a teacher of teachers. My chief motivation is to seek and find and understand new things or ideas that have great value and then share them with others. When we met, I introduced myself in a strange but memorable way that she thought was goofy. Not a good first impression, but that's who I am. I still do things that embarrass her. We came to like and love each other with our eyes wide open knowing there were a few things about each other that weren't perfect. That's much better than having an unpleasant surprise after getting physical. Read the short book of Ruth in the Bible if you are interested in understanding perhaps the best pattern ever for finding the one who is right for you. :)

Thank you, Parsad! And great story! :) Cheers! Gio Gio, if you're SSSS, seriously seeking someone special : invert! No, not your girl friend, but the whole dating game. Ask her, informally at lunch perhaps, what things she has enjoyed doing that she does well. Get her talking about herself, not about dating game questions, but about what she really enjoys doing on and off the job in the past, present and future. Let her understand that the object of your questions is not looking for anything in particular, but to understand who she really is. Then, if you like who she really is, ask her out on a non date without typical dating expectations which often revolve around what your glands are telling you. Then go do something probably in the daylight that involves an activity that's not what people expect to do on a typical date and get to know who both of you really are.

Yes, congratulations Prem and all. Thank you for your integrity.

I find myself unhappily in the same position. I thought this was a stock I would never sell, but over the last month I couldn't find a good justification for holding on. For better or for worse, past experience has taught me that a market decline (which would be great for FFH) will provide the chance the buy the stock a lot cheaper. I certainly don't question their investment acumen and their long term record speaks for itself, but I find myself scratching my head at their investments more and more these days. I own a lot of CHK, but have never understood why someone would want to own XCO or SD. As far as I can tell, Tom Ward was a really bad businessman and a pretty bad guy . . . what the heck went on there? Fairfax seems to have put a lot of money into the worst segments of the energy sector and technology sectors (other than DELL). Are they really experts here? Sam Mitchell said at the last dinner that Sandridge has "great rock", but I have heard from more than one person that Tom Ward privately said it was "crappy rock" while he was still running the company. I still don't understand RFP, but that is much more likely to be a deficiency on my end. I don't understand the big banks (or bank of Ireland) so I can't really comment there either. I certainly hope all of these investments work out. I have basically had a bad gut feeling since the SFK/Fibrek fiasco. I understand why they did what they did, but it just didn't seem to pass the smell test. I believe I defended their actions on this board at the time, but can you really see Buffett forcing shareholders to accept a lower offer from a party he essentially controlled? Between the uber-bearish mentality (I would rather hold more cash than have FFH hold more hedges), the lionization of Tom Ward, The Fibrek mess, and this new Blackberry mess (a mess that it is getting harder and harder to believe was about making money rather than some sort of nationalism), I have to admit I no longer look at this management team as someone I'm willing to partner with at almost any price. As a few others have mentioned, the "everything is going great" public face doesn't give me more confidence. Buffett would have started each quarterly report by saying "We lost you a bunch of money this quarter because I screwed up and was too bearish and our own investments underperformed at the same time. We are going to do something about it, like possibly hold cash and lower exposure until we are comfortable investing . . ." I guess you can't expect anyone to be Buffett/Berkshire, but I must confess that with this management and company, I did. I feel like I've been told there is no Santa Claus and I no longer feel like I understand what they are doing or why they are doing it. Am I alone in this feeling? Does it bother anyone else that they have never given a straight answer as to why their "hedges" and bond portfolio are basically huge bets on the apocalypse? These positions go far beyond hedging and have cost us a lot of money as shareholders. I don't have a problem with them making macro bets, but I'd like to be treated like an adult an hear them say "we are making a huge macro bet because of such and such and here is why and here is what happens if it works out or doesn't". I don't really feel like a partner anymore when they instead say "we are cautious here" with no further explanation for loading up on derivatives that are unlikely to pay out and going massively long short while making tech and energy bets (two areas where they do not seem to have a good track record). /end of rant. Please tell me why I am wrong. I don't think the company is all that expensive here, but I think if the market rises it will be more expensive, and if they market falls I can buy it cheaper. I think the world of Prem and his team. But we have held merely a token number of shares for the last three years because we hold a different macro view. Hoisington et al and followers like FFH see the unraveling of a credit super cycle being bearish. The FED, sees this too. That's why they have goosed the money supply in a way that has never been done before. However what they are doing now is no different, except in degree, than what they did when the market rolled over in 2000. Eventually this inflation will work its way through the economy and we will get out of the hole by paying off debts with dollars that are worth perhaps half as much as before the crisis. Now, the inflation shows up mainly on the FED's balance sheet. We think our stocks are worth more than they were not long ago, but looking at the increase in dollars in the system, this is an illusion with a long term prospective. The inflation will continue until it stops. Then there will be the piper to pay. The problem with appraising FFH is that being early looks a lot like being wrong.

FWIW WSBASE is up a out 88% since QE I was announced, and the S&P 500 is up about 64% as would be expected when inflation has been confined to financial assets. However, M2 is up 30% during the same period. That 's not inconsequential for the broader economy. If anyone can tell me when the tap will be turned off, I'll tell him how to get a free ride down the shaft to the bottom of the pit. What if it won't be turned off in the foreseeable future? Autocorrelation in financial series is generally the best predictor. However, it's important to pay close attention to statements from the FED about when that direction will change. When they turn off the tap, the underpinning of the market will be on quicksand. Meanwhile, we're still about 130% long. Will we be agile enough to beat the crowd to the exit? Maybe not, but our major holdings are a good value now and will be an even better value if Mr. Market says they are worth less than the current price . :)

FWIW WSBASE is up a out 88% since QE I was announced, and the S&P 500 is up about 64% as would be expected when inflation has been confined to financial assets. However, M2 is up 30% during the same period. That 's not inconsequential for the broader economy. If anyone can tell me when the tap will be turned off, I'll tell him how to get a free ride down the shaft to the bottom of the pit.

Lets put Warren's remarks in context. The remark about making 50% annual returns was an ad lib to a hypothetical question about the possibility of making such a return. I interpreted the ad lib that such a return was not only possible but that Warren was confident that he could make that return if he were only managing $10M to the fact that he was actually making a 50% annual return on a sub segment of his personal funds that he was investing then. He most emphatically did not say that he could make that return always under all conditions. Sometime there is an unusual confluence of highly probable events that makes extraordinary returns possible in small accounts. In late 2012 and early 2013, I was able to run a small account of a close relative from 60 to 460 merely by concentrating in F&F Prefs and short term calls on BRK when the stock price was equal to or less than the "strike price" of the "free put". :) We had nice returns in larger accounts from gains in F&F and BRK, but nothing close to that.