DooDiligence

They charge all 2-3 years in advance? Or annually? The drawback of the SAAS companies is that they are investing heavily in Customer Acquisition Costs. So the float dynamics are burdened by the customer acquisition costs. Assume you spend $1500 to acquire a 3 year contract at $500 per, billed annually in advance. Technically, the float would be $500. But in reality, net cash is -$1000. Could this be gauged similar to an underwriting profit? Probably. The dynamics are very similar to when Buffett bought Geico. The cost to acquire an auto insurance customer is much higher than the income generated in the first year. But the Lifetime Value of each new customer is much higher than the acquisition cost. So Buffett ramped up advertising, even though it hurt short-term net income and FCF. He could do this, because it was now a private company. Interestingly, Mr. Market let's a few tech companies act as if they were private (try to maximize long-term value at the expense of short-term profits). Long term value putting a squelch on short term noise (sounds like my kind of business manager...)

They charge all 2-3 years in advance? Or annually? The drawback of the SAAS companies is that they are investing heavily in Customer Acquisition Costs. So the float dynamics are burdened by the customer acquisition costs. Assume you spend $1500 to acquire a 3 year contract at $500 per, billed annually in advance. Technically, the float would be $500. But in reality, net cash is -$1000. Could this be gauged similar to an underwriting profit?

Would these items be specific to insurers? I don't see how liability risks have a big affect on software (other than litigation for interuption of business due to inoperability) & I can't see it affecting payroll processors at all (insurance could mitigate these...) Inflation is a given & predicting it is difficult. As long as the float gets deployed effectively (or returned to owners) what other risks could you outline?

Nice! I hadn't thought about software. I'm wanting to develop some investment ideas & possibly another entrepreneurial endeavor & your comments are extremely helpful...

Does the revenue have to be collected or can the float come in the form of an asset which generates returns, like inventory as in the case of jewelers? I don't think that most jewelers have "float". Most of the jewelers that I deal with are "cash on the barrel head"...of course I am dealing with 1 man or family operations and not regional or national retailers. Even so, I don't think that the big jewelers turn their inventory faster than 30 days....or whatever terms they acquire their inventory on. Further, the cost of gold & silver & platinum is a pretty small percent of the cost of the item sold...especially at places like Kay Jewelers. I've made some incredible "investments" buying women's jewelry before it got melted down. I pay a small premium to it's melt value and get to pick out what I like. One time, I got a bunch of necklaces & bracelets, a lot of which had their Kay Jewelers box. For example I bought some gold bracelets for $70-$100...Kay was selling them for $500 to $800 in their retail stores. It is mind boggling what the markup is on low end jewelry! I think an ITR of 1 +/- is about average (higher with larger stores/chains accepting lower margin.) I quit offshore in 2000 & tried my hand at wholesale (miserable failure but I learned a lot...) Thanks for your comments...

Does the revenue have to be collected or can the float come in the form of an asset which generates returns, like inventory as in the case of jewelers?

I'm interested in identifying businesses which accumulate float & industries which are conducive to attracting float (other than insurers...) For instance, I think that jewelers may be able to do this through vendors. Many vendors offer memo programs (AKA consignment) & stock balancing (buy $100K & they'll memo & issue more merchandise as you sell.) ----- Would asset managers AUM be considered float? Are T. Rowe Prices AUM floaty? ----- Are bank deposits floaty? ----- Are PBM's floaty?

Semantics I think most of us here are timing, just not in a broad sense. Waiting on individual issues to be priced right & in my case, holding until the time is right... (timing is everything & patience is a virtue!)

I'm gonna go with these 2 guys http://www.businessinsider.com/howard-marks-warren-buffett-quote-on-media-fake-news-economists-2017-1 and keep searching for fair deals on quality...

Aha (I need to learn more about taxation after I learn more about balance sheet analysis after I learn more about...)

On Amazon today! https://www.amazon.com/Business-Adventures-Twelve-Classic-Street-ebook/dp/B00L1TPCKW/ref=lp_6165845011_1_5?s=digital-text&ie=UTF8&qid=1482755885&sr=1-5

Brilliant post! I should know the answer to this since I read all the BRK letters to shareholders but... I'm curious as to whether the Pareto principal applied to the 80 securities / 20 opcos with regards to cash generated (I'm pretty sure that's a yes...) If so, that would seem to be the reason for the reversal to 20/80 (and if it did, is the opco portion still generating 80% of cash?) The nearly irrelevant follow up would be; has WEB beaten Vilfredo Pareto here or by the act of giving away the majority of his wealth to the B & M Gates Foundation? (or both, or neither...)

Merry Christmas & thanks for being so gracious when responding (or not responding) to my fledgling attempts at participation here... I still can't believe there's no annual fee. I'll start clicking on an ad every now & then!

Agreed on macro (I read an interesting observation recently where this guy said if you go on vacation & mostly take photos of yourself then you're a tourist & if you mostly take pictures of the places you're visiting then you're a traveller...) On being a VP (partially done in sectors, never done because they have too many hidden moves I can't copy, done or at least my amateur version...) I'm not quantitatively sophisticated enough for deep dive, sum of the parts, stuff but I do believe that I can spot quality (whatever that means) & have a reasonable amount of restraint so that I don't buy when CNBC, Morningstar, Value Line or whoever, whips an issue into a frenzy. Here's to scratching where we all itch!

Tony Robbins will produce a Festivus miracle. He & the president elect get trapped togeather in an elevator & Robbins hypnotizes Trump. Trump emerges from the elevator a chubby chaser. Weight watchers gets shorted into oblivion & Chinese buffets in North America see significant increases in volume (my NVO investment pays off!) Thank you Tony Robbins!!!

Heyyyyyy wait just a minute; you said Dow 30,000!?! He's trying to build-in plausible deniability. If it reaches 30K, he was right, but if it doesn't then the "3" was clearly a typo. Nah. I really don't care much if i am right or wrong on this call. i have no ego, here is proof: i gambled on zinc and semi and lost some money in 2015. It was speculation and i was very wrong. Sometimes you are wrong. Life goes on. My ego keeps my id in check...

Heyyyyyy wait just a minute; you said Dow 30,000!?! He's trying to build-in plausible deniability. If it reaches 30K, he was right, but if it doesn't then the "3" was clearly a typo. Right twice a day & all that...

According to Euromonitor, per capita beer consumption in Brazil was 68.6 litres last year which was well behind the 85.5 litres per year of Venezuela (who knew that having a crappy economy would lead to more partying?) I don't know what the connection between beer & rockets is but it's there somewhere (I'm sure of it!)

The stock market can up without any change in other assets. Let’s call the cash in all other assets cash on the sidelines. If I take some of my cash from the sidelines and buy a stock from you, I now have the stock and you have cash on the sidelines. The cash on the sidelines has not changed even if the price of the stock has increased. Absolutely spot on! A lot of people have trouble comprehending circular money flows. I keep hearing things like people are moving into stocks. No. Unless they're buying public offerings then if someone is moving into stocks then someone is moving out of stocks. The guvmint should come up with a form for sellers to disclose what they spend the money on (reinvested or bought some stuff!!!)

Icahn's post will be the newly created SecTweet (I tawt I taw a Democrat) will be his firtht Tweet. Heyyyyyy wait just a minute; you said Dow 30,000!?! I don't forecast very well & my odds don't improve with frequency (maybe I should try using an extremely high pitched voice...) (nahhhh doesn't work on CNBC, won't work for me either...)

Switch to Stella or Becks!!! own BUD now ;) I used to support AmBev a bit when I worked in Brasil (Antarctica, Bohemia & Skol - depending on which was the coldest...) I will immediately switch to Stella in honor of you (I drank it when working in Egypt around the end of the last millenium...) Stranger drinking strange beer!

Any reconciliation with the taxing authority yet?

That...

I don't think that you're necessarily a bad capital allocator. Maybe somewhat inefficient. But so what? Strip malls and parking lots exist because they are efficient (read cheap) but they're ugly as balls and make your life worse so in the end not such a good thing despite efficiency. Yes maybe you can leverage your house and use the extra funds to make some smart investments and in the end you'll end up a bit richer. But then you'll have to monitor and balance your leverage, etc, basically more headaches. Alternatively one can be less capital efficient, have peace of mind, enjoy life and have no worries regarding having to put one's home back to the bank or not. What if you get rich enough and don't need the extra funds? Wasn't that a waste of time? I know it wan't your intention, but you may have actually convinced me to get a mortgage (balancing leverage & having an even bigger cash pile to invest would be fun!) I wanted to be debt free after having dug myself a very deep hole from 2000 to 2006 (about 2/3 was idiotic non collateralized debt resulting from a failed business attempt.) I paid it all off (no bancruptcy baby!) & now, after a year & a half of being debt free, I have a small vehicle loan. I believe that 10 years from now, interest rates will be much higher (macro genius, I'm not but...) Whether I lever my home kinda hinges on: 1) Can I achieve returns higher than cost of capital + inflation? 2) Will I maintain income sufficient to service the mortgage + cost of living? 3) Will Peter Griffin move in next door? All unknowns...

What an elegant solution!