twacowfca

Bao, please note my additional comments added to my post while you were replying. :)

Thanks for the input. I was curious if you are suggesting Delti is cheaper or more expensive? TireRack is a private company and it is hard to get any numbers. If you do your homework, you will find that TireRack's business model is slightly different from Delti. As you said, TireRack has 10 distribution center around the country. Delti outsourced delivery totally to 3rd party although it does have very centralized warehouses in Europe. So what model I prefer? Obviously when a company is small, it is cheaper to have company's own staff handling deliver. However, when the quantity is huge, it makes more sense just let 3rd party do it. You do not have to worry about people, about scalability and so on. It will be cheaper on the per unit basis. And that is why I like the business process automation at Delti so much. You also mentioned another part of the attractiveness of the company. There is zero loyalty for the buyers, especially when tires are big ticket items for most households. If you want a game, 5 dollars will not matter to you. You want the fastest deliver so you can just play. For tires? Ultimately, the company with the lowest cost and cheapest price will prevail. It is as simple as that. I have a very very smart friend who read about this company and could not get it. Not many people can get it in the first read. As I said, the reason I was buying at 13,15,20 and 26 is that as time goes by, I know this company better and better. Amazon has 60k people and 24b revenue. So per revenue is 400K, while Delti is 3.5mm. Numbers speak for themselves. So what exactly I expect from Delti in the long run? First, I am expecting they will pay out 100% net earnings over the next few years. Second, I am expecting revenue growth at 10-13% and EPS 15%. At that, the total return will be 20% over the next decade. Finally, the franchise value was not reflected in the stock price at the moment. I have been thinking hard if I am a buyer, how much I would like to pay for this company considering all the stuff I mentioned? My conservative estimate is that Delti is worth 20-25x earnings. You may agree with that or not. It is just my personal opinion. A final word is to those people who make comments on this post. I spent many many hours on my research and I want informative input here. If you don't have any experience with the industry or at least have read the annual reports, please keep your opinion to yourself. BXD Bao, Thanks for your thoughtful posts on Delticom. A word to the wise. Be open to feedback from those who don't agree with you, even from those who may not be as informed about a company as you are. There is little value in overwhelmingly positive feedback. This leads to herding behavior. More improvement comes from criticism than from praise. Criticism may sometimes help uncover blind spots or give us new perspectives. Even criticism that misses the mark may be beneficial if it leads to reflection that stimulates a more rigorous analysis or a broader field of view. I generally agree with your analysis. It appears that their customers do indeed have 'stickiness. About one third of their sales last year were to repeat buyers with a higher sales amount than for new customers. Considering their high growth rate and the long time it takes tires to wear out, this indicates great loyalty for what appears to be a commodity product. Their profit margin is improving as they move away from drop shipping toward their own outsourced distribution. At the same time, their return on capital is dropping into the mid 20% from 50%+ in their early years. This is counterintuitively a good thing because they would have very little moat as a drop ship business. Their main investment is inventory which is giving them a very broad selection and helping avoid stock outs. Their biggest plus is their capital management, paying out almost all their profits beyond the small amount needed to support their current growth of about 20+% per year. This is the Achilles heel of most businesses -- using retained earnings to chase less profitable business. Nevertheless, the other posters have a very good point: The North American retail market is much more efficient than in Europe. How are they going to compete with Costco that has a 14% gross profit margin when their current margin is 26%? How are they going to compete with Walmart and all the other discounters that have GPM's that are only slightly higher than Costco's? Besides North America, do they have substantial opportunities for growth in new countries where they don't currently have significant sales?

Many thanks, again, valuecfa for your most helpful answers. Do I understand correctly from your latest post about the threshold for adjustment for special dividends being based on the actual contract, that an adjustment would normally be made for special dividends that are not particulaly large as a percentage of the market price of a share of the stock? Thanks in advance for your helpful insights.

That's interesting. Black Scholes option pricing models include the regular dividend rate as part of the formula, so in a sense the formula "adjusts" for the regular dividend rate. Are you saying that the exchange or the specialist or market maker makes a manual adjustment, as for example to the strike price, when a special dividend is paid? If so, that makes sense, and I stand corrected. Yeah, they just adjust the strike when a special dividend is paid. It used to be a 10% of market value divi was considered "special". The rules changed recently to being "special" if the divi/contract is at least $12.50 or greater. Tricky or iffy situations where the divi/contract is higher than $12.50, yet consistently pays the divi quarterly are voted on by a panel, as to whether or not they will be "special." Old options are still grandfathered in under the old 10% rule. Well, in that case, the special dividend case presented by jasonw1 wouldn't reach the threshold for adjustment to the strike price. What about rights offerings below the strike? How are they handled by the exchange or exchanges? Jason's hypothetical example would qualify for adjustment since it meets the $12.50 threshold (Assuming it is not an old option that was grandfathered under the old rule. If it is an old option than i would have to know the market cap of the company to determine if it were a special dividend). As for the rights offering, there usually isn't any adjustment other than the right to delivery of the rights that were issued. My bad. I was squinting at fine print on my i phone and misread Jason's price. Re. adjustment for rights offerings, in 06 USG had a rights offering that doubled their shares outstanding. The rights were for $45 per share when the stock was selling for more than twice that amount. The exchange implicitly lowered the strike prices of the outstanding options that expired after the record date for the rights offering, to about half the previous price by doubling the number of shares from 100 shares per contract to 200 shares upon settlement after the effective date. Is this type of adjustment, increasing the number of shares per contract, rare and only done in extreme circumstances? Thanks for your patience, valuecfa while answering all these questions. :)

Very, very special. Most memorable were Prem's remarks at the end of the interview about the influence John Templeton had on him, the spiritual influence. I often get focused on gaining wealth, forgetting the obligation to give back the blessing to others. Many, many thanks, FFHfan

That's interesting. Black Scholes option pricing models include the regular dividend rate as part of the formula, so in a sense the formula "adjusts" for the regular dividend rate. Are you saying that the exchange or the specialist or market maker makes a manual adjustment, as for example to the strike price, when a special dividend is paid? If so, that makes sense, and I stand corrected. Yeah, they just adjust the strike when a special dividend is paid. It used to be a 10% of market value divi was considered "special". The rules changed recently to being "special" if the divi/contract is at least $12.50 or greater. Tricky or iffy situations where the divi/contract is higher than $12.50, yet consistently pays the divi quarterly are voted on by a panel, as to whether or not they will be "special." Old options are still grandfathered in under the old 10% rule. Well, in that case, the special dividend case presented by jasonw1 wouldn't reach the threshold for adjustment to the strike price. What about rights offerings below the strike? How are they handled by the exchange or exchanges?

That's interesting. Black Scholes option pricing models include the regular dividend rate as part of the formula, so in a sense the formula "adjusts" for the regular dividend rate. Are you saying that the exchange or the specialist or market maker makes a manual adjustment, as for example to the strike price, when a special dividend is paid? If so, that makes sense, and I stand corrected.

What you're really asking is: "Would you buy a car?" A few weeks ago the WSJ ran an article with charts showing that reports of unexpected acceleration in Toyotas were no worse than for other car manufacturers until public awareness increased after the spectacular crash of the Lexus involving the upside down floormat. Upon thorough investigation, the great majority of reports turn out to be operator error, although a case can often be made that the car maker didn't idiot proof the design as with the Lexus floormats. A spectacular example was the avant guard design of the Audi accelerator that confused some drivers into thinking that they were depressing the brake. That problem set them back so far that they never fully recovered market share. Nevertheless, there are bona fide design flaws. I once had an old Ford that would slip out of park into drive unexpectedly. Now that's an interesting experience when you have just gotten out of the car with the motor running!

In the spirit of inversion, let's flip the prevailing wisdom and see how the worm has turned. Four years ago, the sell side was whistling in the dark and telling the public that housing was a local market and that there had never been a nationwide decline in housing prices ( conveniently ignoring the massive, nationwide US mortgage defaults of the 1930's). Now, the prevailing wisdom is that housing really is a nationwide market. The truth is that in normal market conditions, it's OK to think of it as a collection of local markets, granting that bubbles and crashes do occur. Objectively, the housing market is now in transition to a still depressed local market normality. We live in an upscale exurb of a major metro area. The overhang of houses here has been extinguished and prices are beginning to rise. Soon, the local construction of new homes will be picking up. Two counties away, there was massive overbuilding, houses there are much cheaper than anywhere in the metro area. Pricing there is attractive, they are not inconveniently located and they may continue to have an overhang for another year or two. What I'm describing is one of the better growth areas in the US. Aggregate housing in the US is a long way from another boom, but it is beginning to sort out into the normalized regional and local differences.

Here are two articles about the long-tail risk from catastrophic Workers Comp claims. One is about a small insurance company that failed. The other profiles a family with large medical bills after a horrible accident. The relevance for Fairfax: It’s good that Zenith has many decades of experience, reserving for long-tail Workers Comp claims. http://www.ajc.com/business/insolvent-insurer-is-focus-319843.html http://www.ajc.com/business/injured-workers-living-in-319824.html

Please help me understand Jones Soda and Reeds. As background, I know that there are small bottlers that have survived for many decades because they have niche brands and loyal customers. I am such a customer. The soda I like has enormous pricing power. It's a Gingerale that's made with real Ginger and real sugar. It has a nice bite that's lacking in the major brands. It comes in an old fashioned glass bottle with a screw off cap. Customers who like it gladly pay 50% to 100% more for it than they would pay for other brands. Does Jones Soda have latent pricing power?

Can you find a screwdriver that goes in reverse? :) BS and other option pricing models normally adjust for regular dividends, but not special dividends. However, it's possible that the invisible hand of the market has made some adjustment. Keep an eye on the price of the option and the implied volitility as it approaches and then goes ex div. Sudden change in the price of the option could be modulated somewhat by Mr. Market -- or maybe not. If it's a very short dated call that's at the money or out of the money, it could be toast once it goes ex div.

This could be interesting, but consider the lost opportunity cost of having less to invest in much better insurers that are also selling below BV. INDM has sizeable reinsurance recoverables that are already somewhat discounted. If allowance is made for how iffy these are it could (or perhaps not) turn out that their discount from BV is not so great. They've made very bad underwriting choices (taking the worst slices of cat coverage) and investing ( buying Fannie Preferred and Lehman common plus other crappy paper). Is all this behind them after their recent balance sheet strengthening through their rights offering? Maybe so. Maybe not. ?Quien sabe? Their Wind River and Penn businesses are also not great, to put it kindly. The best outcome might be for someone to acquire them, but their business looks subpar for the long haul.

Mr. Ross also is willing to sell insurance companies. In June 2006 he put@ $100M into Montpelier Re after they lost @80% of their BV after the KRW hurricanes of 05. Just last week, he sold his shares back to MRH for $19/sh, a gain of about 10%/annum including dividends above his $14.50/sh purchase price. This was a good deal for MRH, a buyback for about 90% of BV by a company That has made impressive improvements in their underwriting and risk management under their new CEO, Chris Harris. Ross launched a company to fill the void in municipal bond insurance after the demise of MBIA et al, but they haven't been as careful as WEB and Ajit, and have had to strengthen their reserves as the company looks shaky.

Myers Briggs is OK. The DISC test may be more useful. Some test for smarts -- Wechsler SAT etc. can help. But the best test of all is drawing out a narrative of what a person likes to do and does well -- the "tropisms"articulated by the late Arthur Miller (the HR guru, not the playwrite). Miller makes a persuasive case that our motivated abilities manifest at an early age and continue unchanged throughout our lives.

I believe that being treated as an unsecured creditor with the highest priority is still the case. If the insolvent bank is acquired by a stronger bank and there is favorable development of the loans or portfolio, remaining depositors with accounts above the limit of FDIC insurance will generally be paid off at that time. This is generally what happens because the FDIC absorbs the losses of the failed bank before facilitating acquisition of the remaining assets and liabilities by another institution. There is no statuatory guarantee that all depositors will be paid off, but after a delay of a few months or sometimes several months this is de facto what happens. If there were an actual guarantee, enormous amounts of "hot money" could be attracted by a failing institution simply by advertising a high interest rate for deposits.

Malcolm Gladwell's recent book, Outliers makes a good case that what's necessary for extraordinary success in almost any field is not only ability, interest and opportunity, but most importantly timing and about 10,000 hours of appropriate practice and study to become a "genius". This covers diverse fields and achievers: Buffett, Gates, Mozart, Michael Jordan, The Beatles, chess masters, -- You name it! Interestingly, most fund managers don't have much opportunity to practice value investing skills because their main concern is saving their jobs by not underperforming -- a short term focus that inhibits picking bargains from stocks that fall sharply or selling bubble stocks. Their domain for action is often restricted to stocks that are neither hot nor cold where position changes will have little impact on tracking errors. The main exception is a tendency to sell stocks that have tanked, when the value may not be impaired, because their peers are doing the same thing. The book's fascinating! Turn off your screen; get a copy and read it!

In 2010 thru March, 5, BRK has advanced @ 27% VS 2% for S&P500. :) Interestingly, since the split and announcement of S&P admission, BRK has outpaced the advance of the S&P500 by 3:1. Is there any reason to believe that the advance, relative to the S&P will not continue until BRK no longer sells at a discount to its new peers?

Perhaps this isn't quite luck, but what I've done is not terribly skillful either. I have a "what seems reasonable to me" mental filter that I consult when I listen to the various narratives out there. I don't really do much more than superficial analysis of the financials. The narratives I listen to (superinvestors who speak about their holdings, articles in the press, posters on this board) are weighted based upon what I know of the characters involved, and I apply them to the world as I understand it. This is different from some of you who try to predict future cashflows a lot. I've tried to do that kind of thing but I find it is too prone to narrative fallacy when I try it. So for example, rather than predicting what the IV of Fairfax is I'm just assuming that if they keep making 15+% a year then people will eventually catch on to the stock and bid up the P/B multiple really high. That's why I don't own many stocks and Fairfax is 50% of my holdings... it's because I don't have much faith in my own cashflow forecasting. I would probably wind up loading up on something like Lear a few years ago before it's decimation. I do have C, BAC calls, WFC, and FUR now to round out my holdings. I have some SFK that I got for 20 cents but even after the run it's still only 1.5% of my portfolio... see, could have done very well if I knew the business. So 12-18% compounding tax deferred from FFH is fine... anywhere in there will make me very happy vs striking out on my own too much. Some of you are staying away from C because you don't understand what is still in CitiHoldings. I'm looking at it much like the runoff situation at Fairfax a few years ago... the remaining operating businesses in CitiCorp is very good and that's the future as they are already far along the path of following the Volcker plan. It's 20% of my portfolio so if it goes to hell, there I will be with a big loss for investing based on my internal filter of reason vs strictly a more hardcore approach. With FUR I simply reasoned that they didn't have much more to lose (I invested at $9.10) based on the equity in most of their operating properties being marked down to zero. So if they can stay leased I can earn great returns if they also get their cash invested. It's not exactly rocket science level reasoning, but it may just work. Eric, years ago an imposter with no formal training passed himself off as a neurologist for more than a year. He didn't examine patients; he simply consulted by phone with doctors and made diagnoses based on tests descriptions etc. After he was exposed, a concerned physician followed up on the patients he had diagnosed to see how many poor outcomes there were. The results were shocking! His accuracy was better than most neurologists. In fact, it was better than even what would have been expected from the batting averages of the best neurologists in the US! The doctor interviewed the imposter in jail and asked him how he made such good diagnoses. His answer: he simply collected all the pertinent information about each patient and then called top neurologists to ask if they would help him because he was having difficulty on that case. He did this until the correct diagnosis became clear . Think about it. Isn't that what you and I and others are able to do, using our minds and the collective wisdom of this board!?

How true. How true # 9 is. The first time we bought FFH, we waited and waited until it dropped from over $300 cn to less than $50 us. Then, when we jumped in, we couldn't get complete fills. We chased it all the way to $85, and then said "the heck with it". Later we paid much higher prices in future years.

Nope! If the report is true, the policy would almost certainly have been issued to a city or a company-- not a bookie-- that would suffer an economic loss if France won. :)

Some hope that Internet only editions is the way to go, but a recent study of NYT subscribers revealed that readers of the online edition spent only 2% as much time there as readers of the ink on paper edition. Buggy whips, anyone?

Warren and his teenaged business partner reportedly stole a considerable amount of merchandise on a number of occasions, just for the heck of it, from a vulnerable area of the Sears store in Washington, DC during a time when he was apparently quite troubled emotionally, according to his account to Schroeder.

What do you mean, "cut me off"?

Almost certainly reduced liquidity/demand after delisting from NYSE. Contrast to BRK's increased liquidity/demand after B shares split and announcement of joining S&P 500.