twacowfca

The lazy man's way to riches! :)

The Public Option for Wealthcare Reform By Sir Wesley Mouch Let’s face it: our private system of wealthcare is broken and must be changed in the public interest. Greedy bankers and fund managers have caused the destruction of trillions of dollars of wealth in the last two years while raking in hundreds of billions of dollars in undeserved profits. In contrast, the Social Security System is an exemplary, low cost provider of financial security that shows how wealthcare could be transformed with a single payer plan. A Public Option Mutual Fund would insure investors against losses just as the FDIC insures bank deposits. This is the only way to fix a system that is fundamentally flawed. Surely, we can all agree that investors would be better off with a public option, a giant fund run by illuminati on the public payroll like those superior individuals who now manage the financial institutions taken over by Uncle Sam. A public option would cut out all the middlemen and their unnecessary fees. It would have access to low cost government financing, thus avoiding having to pay exorbitant margin interest charged by private providers. No one would be refused the opportunity to purchase shares in the fund, and every shareholder would have an absolute guarantee against suffering a loss! The private system will still be allowed to continue during the transition to a single payer plan, but higher net worth investors will pay a penalty on their tax returns if they don’t participate in the public option. The Public Option Mutual Fund will be a huge improvement over the sorry financial performance of the broken private system. It will be available at no cost to the public, paid for entirely by cost savings taken out of the inefficient private system and by a tax (sorry, my bad) actually, merely by a fee on the most successful fund managers and companies that took advantage of their less fortunate peers who, through no fault of their own, suffered large financial losses in recent years. Participation in the Public Option Mutual Fund by financial institutions will be entirely voluntary, but any financial advisor or fund manager who refuses to provide a similar guarantee against losses for the accounts they manage will in all fairness have to pay a fee of 20% of the value of each account into the Public Option Mutual Fund. However, those very large private funds that are first to get on board and support the public option will be exempt from this requirement. I hope that all public-spirited citizens will join me in putting self-interest aside to do the right thing and support the Public Option Mutual Fund. If we don't take this bold step to fix the broken system, we will have only ourselves to blame, and financial managers will lose the opportunity to be exempt from financial malpractice lawsuits as promised if they follow the government’s best practice guidelines for low risk investing.

Sullivcd & Bronco, you get gold stars. My question for other members of the board is this: Why would anyone think twice about buying a crappy net net when there are many fine Bermuda insurers that have outstanding records with excellent growth in FDBV/share and long term competitive advantages such as no Corp taxes and light regulation without rate caps-- that are available at or less than NAV?

I agree with your assessment, dealraker, of what Bruce actually said and your assessment of the deal. Currently, Web is mostly using BRK's cash, earning a negligible return, to buy a coupon that is now @ 6%, but is reasonably projected by BNSF to nearly double over the next 4 years. Interestingly, if we should move into a hyperinflationary environment during the years ahead, the coupon could well go to 20%+ with BNSF's extraordinary pricing power. The only downside is the % of the deal paid for in BRK stock, but this is a wash because BRK will still have cash on hand to do other good deals in the future.:)

I'm a 'net net'. My FDBV/share is @ $33, PPS @ $27. Est Q4 FDBV/share @$35/sh. Assets are almost entirely financial. Assets avg AA+ duration avg 2 yrs. Very strong FCF generator -- a very good business. Oh, by the way I'm buying back @ 9% of my shares, intending to complete most of the buyback in Q1 of 2010. Who am I?

17F in Gainesville. Low 30s in Miami. 42F in Key West. Brrrr! FYI Publix is hands down the best run supermarket chain in US. It's privately owned and likely the most profitable too. There are @ 300-500K Canadian snowbirds in Fla this time of year. You can run, but you can' t hide from Ol' Man Winter. :)

Oops! My bad. Will fix. Thanks.

BRK Price S & P 500 Plus Div % Change % Change 1975 -5.0% 37.2% 1976 147.4% 23.6% 1977 46.8% -7.4% 1996 6.2% 23.0% 1997 34.9% 33.4% 1998 52.2% 28.6% 1999 -19.9% 21.0% 2000 26.6% -9.1% 2001 6.5% -11.9% 2009 2.7% 26.5% 2010 ? ? 2011 ? ?

http://online.barrons.com/article/SB126300446730322759.html#printMode MONDAY, JANUARY 11, 2010 FEATURE The Buffett Paradox By ANDREW BARY Berkshire won't let Kraft dilute its shares to buy Cadbury. So why is Warren Buffett willing to issue new shares to buy Burlington Northern? WARREN BUFFETT THREW COLD WATER LAST week on Kraft Foods' bid for British candy maker Cadbury. But in doing so, he seems to be saying: "Do as I say, not as I do." Buffett's Berkshire Hathaway (ticker: BRKA), Kraft's largest shareholder, with a 9% stake, voted against a proposal that would let Kraft (KFT) sharply boost its share count to facilitate a higher bid for Cadbury (CBY) -- which has rejected Kraft's original offer. Buffett views Kraft stock as undervalued, and issuing more shares dilutes existing stockholders' stakes. Yet Berkshire is issuing $10 billion in shares of its own stock, which some investors view as quite undervalued, for its $34 billion cash-and-stock acquisition of Burlington Northern Sante Fe railroad (BNI), at $100 a share. This could be a factor keeping Berkshire stock trailing the market, despite a strong 2010 profit outlook, stemming in part from Buffett's smart high-yield investments in Goldman Sachs (GS), General Electric (GE) and other companies during the financial crisis. Berkshire made over $20 billion in such investments, and the $2 billion in resulting annual income could help lift its operating profits to a record $6,000 per Class A share this year, from an estimated $4,900 in 2009. Based on earnings and book value, Berkshire fans consider the Class A very attractive now, at around $100,000 a share. After rising just 3% in 2009, the stock, which is way below its late 2007 peak of $149,000, fetches a mere 1.2 times our estimate of the company's year-end 2009 book value of $84,500 a share -- compared with an average 1.65 times in the past decade. The stock rarely has been cheaper, relative to book value, in 15 years. Says one longtime Berkshire holder: "Buffett appears to be giving up a piece of a very cheap company to buy one that is fairly priced. He is not so happy when his investment companies do the same thing." Book value, moreover, understates what Buffett calls Berkshire's intrinsic value: the discounted value of its cash flow. Buffett won't estimate this, but has stated that it "significantly" exceeds book value, because auto insurer Geico and some other businesses are worth more than their carrying value on Berkshire's balance sheet. Berkshire's book value could hit $92,000 to $95,000 a share this year if the financial markets stay strong. Thus, Berkshire may be trading below its 1.1 times forward book value. Why, then, is Buffett willing to issue equity for Burlington? He declined to comment last week, but he likes the railroad business, having accumulated a 22% stake in Burlington prior to the deal. In the past, he's called the transaction "an all-in wager on the economic future of the United States." And he's said that, while he's not enthusiastic about issuing more shares, the deal is too large to be all-cash and that he wants to give Burlington shareholders a tax-free option. Some think the 79-year-old investor wants to trim Berkshire's $24 billion in cash to cut the pressure on his successor to make investments. Still, Berkshire is paying a full price for Burlington -- 18 times projected 2010 profits for a capital-intensive business. Other major rail companies are valued at about 15 times estimated 2010 earnings. One saving grace: Berkshire is using cash on its balance sheet and an estimated $8 billion in cheap financing for the deal, which uses a 60/40 mix of cash and stock. The last time Berkshire did a major all-stock deal -- the $22 billion purchase of reinsurer Gen Re in 1998 -- its shares were at a lofty three times book value, a far cry from the currently low price/book ratio. If Berkshire's intrinsic value is $125,000, as some bulls assert, Burlington holders will get about $110 a share in value for their stock, which was trading near 99 late last week. Berkshire watchers say the stock may be depressed from arbitrage activity ahead of the deal's closing, expected in the current quarter. The stock may get a lift subsequently, because arbitrage pressure will end and because Berkshire's Class B shares, now trading around $3,320, will become more accessible to individuals after a 50-for-1 split that will drop the price to about $66. The Bottom Line Berkshire Hathaway looks undervalued, while Burlington Northern seems fully valued. The railroad's holders are getting a surprisingly better deal than many realize. It's possible that Berkshire could be added to the S&P 500 when Burlington is removed, assuming that the deal clears antitrust hurdles. S&P has kept Berkshire out of the index due to concern about the stock's liquidity. But the Burlington exit may give S&P an opportunity to reconsider. Joining the S&P 500 probably would boost Berkshire's share price, as index funds, whose holdings mirror the index, buy the stock. The Burlington deal doesn't dent the investment case for Berkshire, which has a stock-market value of $155 billion. But it's surprising to see Buffett parting with a stock that is at its lowest valuation in a decade to buy an asset that seems fairly valued, at best. Maybe the railroad business has better prospects than most people think.

Ditto, for WalMart. When they built their new HQ a few years ago, they deliberately furnished all their buyers' offices with church-on-a-tight-budget fold up tables to send the right message to the reps that call on them.

Please comment on my observations after a brief look at their filings and financials. Their CFO left in Sept, generally not a good sign. Their Chairman sold half his holdings of trust units in Dec., again not a good sign. However this may be a very small % of his total interest in the REIT through the holding Co. Is this correct? They apparently did something very smart in 08, selling most of their best hotels for a nice gain. But they used about all of these funds that remained after their large special distribution and buybacks to buy units in other hospitality REITs that promptly tanked. Is this a fair description of what happened? It looks like this could be a multibagger if they survive, but this may be a BIG IFF. Did they take advantage of the option to extend the maturity of their mortgages due in Oct 09 for 6more months? What then, also with their debt due this year? Have the other REITs they hold rebounded? How much if any are they still under water? Any clarification would be most helpful. :)

Thank you Packer61

Ericopoly, Actually, the lower qualified dividend rate (in the U.S.) expires at the end of 2010--so next year your dividends will be taxed at your ordinary income tax rate unless the tax code changes. GaliPart Then I will be back in the "no dividends please" camp. That is really BS -- getting taxed 35% after already having paid tax on the corporate income? I am in Sydney right now for a month, just enjoying the beach, seeing the extended family, and being away from the wet Seattle climate. I love their tax code here. Australia has a dividend franking system. Australian residents aren't taxed on their dividends so long as it's an Australian company paying the dividend and the company has already paid tax on that money. Additionally, their corporate tax rate is 30%. Then they have no gift taxes, no inheritance taxes, and much less in the way of property taxes (they have a land tax in some areas but it's only applicable to the land assessed value). It seems the only people who really pay the high taxes are the wage earners (not only are income taxes high, but there are high regressive "GST" sales taxes). For somebody living off of dividends though, this is a much better situation than the US. Plus, I'm a dual citizen... the only thing holding me back is my wife's family (in Seattle). Kirribilli on the bay. Rainbow lorikeets on the balcony. The Sidney Yacht Club below. Jump on the ferry. Jump off. Fireworks on the bridge at midnight of the new year. Wish I were there. :)

WOW! Thank you, Value-is-what-you-get, for refreshing my memory of the salient features of the plan. All things considered, it really is a great plan for other shareholders: Using a scientific concept, the "half life" of the foundation's holding is 13 years. Compare this to the half life of the average mutual fund's holding: about a year or less. Our shares really are in good hands with Bill and Melinda. :) The execution of the plan, however, could be improved by using a commonsense rule of thumb. For example, if BRK's PR/BV is< 1.3 and also< the PR/BV of the S&P 500 during the first 9 mos. of the calendar year, simply suspend sales of BRK until the ratio rises above 1.3 or through the end of Sept. Then, make up the required sales under the plan during the remainder of the year, regardless of what the ratio is then. :)

Excellent point, Bargainman.

Many thanks, Myth465.

Those are the types of companies that tend to do well no matter what. Would you be so kind as to share them with us? (FFH & BRK excepted) Also a brief synopsis would be most helpful if possible. :)

May I recommend reading The Omega 3 Connection by Dr Andrew Stoll. He did groundbreaking work at Harvard, showing that long chain N-3 fatty acids from fish oil help modulate the synaptic transmission through the brain's neuronal membrane. This helps to prevent attacks of mania with confusing flights of ideas and to clarify thinking in general. Omega 3"s are generally deficient in the diet, and We can all benefit from taking it, as I know that my own thinking is at times not entirely clear.

Dear Bill, We are blessed to have you as BRK's soon to be largest shareholder, and we are aware of the requirement that foundations distribute 5% or more of their assets yearly. We also know that it is Warren's wish that you should sell the BRK shares he generously has and will contribute in an orderly manner in the years going forward and use the funds received for worthwhile purposes. There is an intelligent way to do this and a know nothing way. The know nothing way is to continue selling a fixed percentage of shares based on the average daily volume regardless of the price of the shares. The intelligent way is to briefly suspend sales whenever BRK trades substantially below a conservative calculation of it's intrinsic value and resume sales when BRK rises and sells at a price that is higher than what a "cigar butt" would bring. BRK is currently trading within a whisker or two of what its year end book value likely will be while the less desirable average company in the S&P 500 sells at nearly double BV. The know nothing approach makes no sense. It also devalues the many long term Berkshire shareholders, some of whom must sell a certain percentage of their shares each year at far less than their intrinsic value or much less than what shares of lower quality companies would bring. On behalf of the many loyal long term shareholders, we appeal to you to rationalize your sales plan for Berkshire shares.

According to the NYT, GS could also be given the gold medal for its Mortgage Call: http://www.nytimes.com/2009/12/24/business/24trading.html?_r=1 BTW, anyone know of any GS-FFH relations? (simliar to GS-Paulson mentioned therein) Actually, GS was far from omniscient, but they deserve a gold medal for allowing diversity in their organization. While one arm was guaranteeing toxic mortgages and covering these with CDS issued by AIG that could have proved worthless without friends in high places, another arm started buying CDS from a variety of guarantors on cos most exposed to the looming mortgage crunch.

Like i suspect, there is no sound reasoning for these capital allocation desicion, otherwise i would hear explanation, other than just empty rhetoric. There is thousands companies where they will allocate capital like i want and i understand. I'm not going to waste my modest research resources for companies where most vital decisions are without sound reasoning, just to lure some yield pigs for owners and to keep them happy. And like you may know, this way to allocate capital is what the short seller giants (Chanos etc) like most. Maguire Properties (MPG), Allied Capital (ALD) (you name it...). Companies which are issuing fresh equity and paying huge dividends. Cheers Value^2, you have a good point. There are cos that pay otherwise unsustainable dividends and repair their balance sheets by issuing new common shares. Then there are other cos with CEO's that are willing to inject their own money into their cos to help them through a very rough patch to enable them to continue paying a dividend that they are well able to pay in normal business conditions. Some of the most astute analysts on this board have concluded that Seaspan is in the latter category and not the former.

Oh shucks! You found us out. When did you realize what our board's real purpose was?

Here's a log chart (showing % change) of BRK A (darker line) vs S&P 500 for 2009. Is there any correlation of increased sales of BRK by the Bill and Melinda Gates Foundation and the divergence between the graphs beginning in April, 2009? If not, this may augur relatively well for BRK in 2010 because BRK tends to underperform when the S&P makes a strong upward move (as in 2009) and substantially outperform in other years.

You have me confused with someone else. ValueCarl, please accept my sincere apologies. No offense intended. Ben Hacker Ben, I am in awe! Your patience has no bounds. You have my deepest admiration. :)

Good advice, but this would be an academic exercise for those not interested in that type of business. It's tricky. A number of sharp operators got burned buying policies from people who had AIDS several years ago and then lost their shirts when protease inhibitors were developed that greatly extended the lifespan of those with the illness. Mortality statistics show generally increasing life expectancies with occasional catastrophes such as the flu epidemic of 1917.