twacowfca

Surprise surprise, the counterparties are our old friends at Citibank Canada and Deutsche Bank! I guess these guys learned nothing from the whole CDS thing. Maybe it's not such a good idea to sell instruments where you can lose a boat load and stand to gain a very small and capped amount. What the hell do I know though, I'm not a CFA and the highest math I got to was Calculus 2. ::) Q. What's the second derivative of stupidity?

Your example is a poor one. Japan was slow to increase their money supply when their crisis and market meltdown occurred about 20 years ago. They didn't increase their money supply substantially until they had bottomed into a deep liquidity trap. Even then they didn't put the pedal to the metal. They flooded their system with government debt rather than money and kept zombie companies alive. The zombies had no interest in investment or job creation; they were entirely focused on covering up their insolvency while pretending all was well. The saddest example that illustrates Watsa +'s point is what happened in the Weimar Rpublic. Their government started printing Marks and stuffing them into the financial system. At first, there was no inflation because they were in a deep postwar depression. So they kept stuffing more Marks into the economy . In several months the economy picked up, but instead of raising taxes or turning off the monetary taps, they kept the printing presses rolling. The rest is a very sad story.

Yeah, me too. Watsa + is correct. Imagine instantaneous inflation: The US decides to do a two for one split of the dollar. The next day everyone has twice as many dollars in the bank etc. But loan balances are the same. Ergo, Loan balances are much easier to pay off. But lenders are gypped because the dollars they get will quickly lose value.

Did you eat the "musical fruit" today? :)

Why only 12%? Size?

I agree. The current situation stinks, but TAF's Deleware lawsuit was dismissed for lack of jurisdiction. The banks have a similar lawsuit in NY. How is it progressing? The most important aspect of a case like this is the venue. It's possible the NY courts may favor the Insurance Commissioner's ruling because of the latitude given to him by NY law, despite the iniquity. Does TAF have legal options? Also, was not there a Federal Lawsuit filed about the same conveyance? How does it stand and what are it's merits?

Thanks for that link. It has useful content including the VIC presentation with the exact title of interest to me. Looks like, ultimately, mental make up decides the concentration. I have had to make many mental adjustments, including the one which lead me to post this thread. I have never felt more comfortable than now with concentration, despite uncertain markets and such. I sleep well now. Also my mental make up today is to not be a busybody in the name of "finding" values. My question "how many 15% ideas?" has this in background. Also that value investing is a loose term. Lynch was right, when you take your 15% to the bank it does not matter if it came from 1 or 3 or 100 ideas, it is just greenback. I (we) have been spoiled that for ten long years, FFH and BRK continue to be deep value ideas themselves, making me not work hard at all. I doubt very much that 5 years from now we will see this kind of opportunity, so I am making the proverbial hay now. It does not get better than this. Never-in-history times will be these....looking back from 2020 or later! I have even bought the mythical "$10000 invested in BRK in 1954...." in my kids accounts at these prices. Simply unbelievable! I think that the role of emotions in "rational" decision-making is deeply underrated. There are so many factors to consider in even small decisions that if we had to work through them all we would just sit at home considering nuances. Just like ants use pheromones to communicate short cuts, we use conviction, boredom, greed, etc. to guide our logic systems. That being said, diversification is a hedge when the nuances become a big deal, and our decision making framework skips over the difference because of years of success. I would point to Bill Miller with financials, Weitz with Countrywide, and Pabrai with DFC and CCRT and PNCL. It's easy to point fingers at their mistakes, but it's more productive to realize that all those men are very smart and very successful and they still screwed up. My guess is that their past successes produced emotional networks which caused them to feel too comfortable with some risks, and too certain in the face of new information. Very insightful!

Profound words of wisdom, Partner 24. Owning only BRK and FFH,for example, will almost certainly give better returns and lower volatility than owning a diversified portfolio. Not to mention, much lower risk of permanent loss of capital. ( Subject to review of course because of change )

Thanks, rick_v for a clear explanation of liquidity trap. This part of Keynesian theory is spot on.

Robert Miles wrote an article and posted it on gurufocus a few months ago. He outlined the methodology he used to separate out WEB's personal holdings from all the BRK holdings. Unfortunately, he was almost certainly wrong. Apparently, he misidentified BRK's pension plan holdings which WEB had personally signed off on as being WEB's personal holdings. However, the most interesting part, that no one commented on, was that Miles also identified a way to isolate Simpson's GEICO holdings, but he went no further and didn't list them. Everyone trashed him for not admitting his mistake about WEB's holdings, but I think he may have been on to something about how to track Simpson's transactions and holdings through GEICO. May I suggest reviewing his methodology to see if it matches the methodology you used. :) Thank you for taking the time to do this.

Fairholme, as good as Bruce is, has gotten way to big to assure extraordinary returns, especially with the fees and the constraints that mutual funds have. BRK has a great culture and so does FFH. Both organizations are obsessively focused on Rule # 1. Plus, there's almost no rakeoff that will be a big drag on compounding. :). The "founder's effect" says that if heirs inherit assets invested in aparticular way, they are likely not to make a change. You could keep most of your investable assets in BRK & FFH ( subject to change if there should be a drastic change in the culture of either, And ask your heirs to do the same, subject to the same condition. :)

Not to excited about any particular merger trades right now...those are all lower return trades. I've been short VXX since 28. (1) Vix is mean reverting, and it is not a matter of if it goes back to its historical average in teens, but it is a matter of WHEN. It will go to 15 again at some point. VIX of 30 is definitely much higher than historical average and unsustainable (2) VXX is long VIX futures. Typically futures curve for VIX is upward sloping, and therefore every month when VXX roles its futures the ETF loses money. Essentially, the ETF was designed to fail. 2nd trade I did on VXX involves just selling out-of-money calls each month. If VIX jumps again I'll just role forward until it falls back down. Thanks. Have been thinking for some time about the very same VXX trade for the same reasons. However, I would only want to do this if I could minimize the unpleasant aspects of shorting. Puts are the usual way we limit risk, but puts on VXX seem too pricey for us. Your idea of selling out of the money calls on the forward month looks good. Are they usually selling at about the same implied volatility as comparable puts? Or are they not usually nearly as pricey? There is always the possibility the trade could go against a short position, but here as an index that is mean reverting, it seems that the range is much more definite than with a stock that can often go up 10 times or more with a short squeeze or bubble. Could this risk be limited by sequestering the trade in a separate account that would limit the possible loss? Or do all margin agreements make the account holder liable beyond what's in a particular account if the value of that account is insufficient to meet a margin call? The other question is practical , the availability of shares in the VXX for shorting. It seems like this would be a popular trade and that it might be difficult to borrow shares at a reasonable price. Or is this no problem with this ETF? You said "we"/"us" above...are you referring to a company your with? Private fund? I have a Reg D Rule 506 exempt fund I set up for friends/family. About 1.5 million AUM right now. These are all of the trades currently in that fund. Because it is mean reverting, I am not worried about if it spikes and I'm short; it will go back down eventually. It does not constitute a large position, and the portfolio has plenty of excess liquidity / margin capacity. I'm selling $30 strike calls on VXX, which is equivalent to VXX 33. The trade has a lot of daily P&L volatility, but low real long term risk because of the mean-reverting nature of VIX, and the unlikelyhood of some paradigm shift from 15-20 being the range that VIX reverts to, to a new range greater than 33. The "we" means that there are sometimes fiduciary obligations, involving BOD's, in addition to personal and charitable funds as well as more than one individual involved in the investment process. Almost everything is family related. We don't have outside funds under management. A few friends ask for advice, but they make their own decisions. The investment community we deal with thinks we know what we're doing, and there is great flexibility to go just about anywhere and buy just about anything from anybody. We can also be very concentrated, without having to follow conventional rules of diversification which drags down returns under a false cloak of security. However, this is just a small, family related organization. Our flexibility means that a type of investment that might be unsuitable in one account may be perfectly fine in another.

Not to excited about any particular merger trades right now...those are all lower return trades. I've been short VXX since 28. (1) Vix is mean reverting, and it is not a matter of if it goes back to its historical average in teens, but it is a matter of WHEN. It will go to 15 again at some point. VIX of 30 is definitely much higher than historical average and unsustainable (2) VXX is long VIX futures. Typically futures curve for VIX is upward sloping, and therefore every month when VXX roles its futures the ETF loses money. Essentially, the ETF was designed to fail. 2nd trade I did on VXX involves just selling out-of-money calls each month. If VIX jumps again I'll just role forward until it falls back down. Thanks. Have been thinking for some time about the very same VXX trade for the same reasons. However, I would only want to do this if I could minimize the unpleasant aspects of shorting. Puts are the usual way we limit risk, but puts on VXX seem too pricey for us. Your idea of selling out of the money calls on the forward month looks good. Are they usually selling at about the same implied volatility as comparable puts? Or are they not usually nearly as pricey? There is always the possibility the trade could go against a short position, but here as an index that is mean reverting, it seems that the range is much more definite than with a stock that can often go up 10 times or more with a short squeeze or bubble. Could this risk be limited by sequestering the trade in a separate account that would limit the possible loss? Or do all margin agreements make the account holder liable beyond what's in a particular account if the value of that account is insufficient to meet a margin call? The other question is practical , the availability of shares in the VXX for shorting. It seems like this would be a popular trade and that it might be difficult to borrow shares at a reasonable price. Or is this no problem with this ETF?

Which one or two of the merger arb trades do you like best? Please explain your VXX trade.

Their financials are kept in dollars. The great majority of their assets are in dollars. Most of their policies are written in dollars. But their stock trades in pence. Their board doesn't like Sarbox, so they chose to list on the LSE.

Your treasure is where your heart is. Check out the final scenes in the Richie Rich movie. :)

KMART and SEARS have been in runoff since ESL bought them. Every day that passes, WMT takes another bite out of them. They are almost zombies. Nothing can save them other than the value of their brands and real estate. I'm not an expert, but it wouldn't surprise me to hear that their real-estate and brands are worth half as much as some thought they were worth before the real estate crash.

Omagh, thanks for your clarification on private market values. Current takeouts can often succeed at conservative offers. The Apollo takeout of BRE appears to be heading for a takeout price of about forward BV, a steal for one of the better Lloyds insurers with significant reserve redundancies. Re future inflation, I hope you are right. However, when the economy eventually gets out of the doldrums, I don't see an alternative to serious inflation other than major tightening. Checking the WSbase weekly has given us an edge in recent months in predicting turns in the market related to monetary tightening.

GOOG may not be invincible. I like BING or WOLFRAM ALPHA much better for serious or scientific searches because the results are often more relevant without all the social garbage.

From BPL letters and the Snowball is clear that Warren distributed to himself shares of BRK, DRC and Blue Chip Stamps. So he was completely invested even if he closed his partnership. Regards I think it's a little bit of each. I think WEB took some of his rake off from the partnership profits out of the partnership right before or just as it was dissolved. Then, he put most of that back into BRK and DRC within a few months.

omagh, you just mentioned something simple, objective, yet profound! Private market values are higher than stock market values for many companies that have conservative valuations. That's a reality check on valuations. However, we should be mindful that market prices could change if US taxes do increase next year as expected. And inflation and associated tightening is a future risk when the economy eventually moves out of the doldrums. I'm curious. Would you be so kind as to share the names of the companies you held that were takeouts in the last 18 months, and also share your reasons for buying them?

The operant word is try rather than tend (to match etc.). The higher the rate of increase in inflation , the more difficult it is to do this.

And, how much do you see about how the market tanked again in the late 1930's when taxes went up as money got tighter.

What a nice guy. I'm sure his friends miss him.

Whenever inflation takes off, banks get squeezed.