Cigarbutt

^This is all speculation of course but the wording and the overall philosophy of the firm would tend to confirm that they would, like the Oracle, tend to build positions in the US-based too-big-to-fail banks. I have a media article from 2012 (not in Danish or English) that features a member of the Giverny team (who came from the banking sector) who described his line of thought on the topic. He underlined the long-term orientation and the capacity for strong banks to eventually benefit from more difficult environments. As you likely know, the Giverny group still had (as of Q4 2018) a large position in the Bank of the Ozarks and that bank was not mentioned in the 2012 article. What was discussed then was a position in Wells Fargo and M&T banks and it was explained that both could reasonably be expected to double in the next five years, which is a typical benchmark for them. For M&T, they have historically described respect for Bob Wilmers, the previous leader of the bank and the stock has basically doubled. For WFC, a double would have been within reach absent a temporary lapse in governance but that was hard to predict. Hope this helps. BTW Charlie, thank you. The Giverny letter usually comes out contemporary to Mr. Chou's letter who has been a big fan of large US banks through warrants.

I recently completed an annual "review" with my two older children (22 and 21) and part of the discussion concerned the interest-free loan that an individual or a couple could auto-contribute to a home purchase by borrowing (tax-free if rules followed) from previous RRSP contributions. I showed them real-life scenarios going back in time starting in 1996 (home purchase) and assuming the interest-free loan was reimbursed in the RRSP over 15 years, comparing returns and outcomes: 1-house bought near Montreal, RRSP Home Buyers' Plan used 2-house bought near Toronto, RRSP Home Buyers' Plan used 3-funds kept inside RRSP and invested in CDN index funds 4-funds kept inside RRSP and self-managed It will be eventually up to them to decide and the future may not look like the past but this was a useful and instructive exercise.

Yields are getting horizontal and who knows what that means? Bias: in another life a flatline meant efforts for resuscitation and it seems that the FED may be getting ready to do just that as they recently surveyed primary dealers on how to fine-tune the management of rates. A lingering thought is that successful resuscitation is generally unlikely and is inversely related to the length of time spent attempting resuscitation. At least, that's what Wikipedia says.

^Agreed that the underlying issue is affordability. Interesting to note that the US Congress legislated their own version of a First-Time Homebuyer Credit in 2008 with the intent of stabilizing a falling market and in order to stem the waves of foreclosures. It's always hard to evaluate one policy action among others but it appears that the application of the bill was fraught with IRS-related administrative difficulties and fraud and, apart from possible limited postponement, did not really influence the built-in trajectory of prices. That was in 2008 and the GSE thread is still a very active one. The new rules where the CMHC invests alongside the new owner is a reminder of how dominant the real estate has become in Canada and the government will only become more involved with support (and moral hazard) in the event of significant declines in home values. Also, there ave been unusual demand factors (well described by some posters in this thread) but encouraging young households to put a significant part of their registered savings in a home "investment" when the affordability is so low is IMO borderline irresponsibility.

This opening post has been deliberately put in the general discussion section. He was an academic economist who was able to build a bridge to effective and practical policy-making. He produced the kind of work that caused cognitive dissonance and often contradicted my own conclusions and laid out principles helping to determine if correlation was causation. For those interested, he shared his work on many levels: -Value of education Relevant to the recent elite school admissions scandal, he produced work showing that elite people going to elite schools will not influence their earning power; the phenomenon is likely more related to social labeling. Using a well-designed twin study and other credible constructs, he showed some of the drivers behind the return on education. -Inequality He is the person behind the concept of the Great Gatsby curve and explained how effective policy should focus on the related impact on the equality of opportunity, framing the issue in a way that may rally different political flavors -Minimum wage, music industry etc Mr. Krueger elevated the level of discussions by focusing on real issues, using an open mind and building on pillars of evidence-based analysis. He represented the kind of governance that we sorely need. RIP

^Lately, it has become clear that it will be very hard to take the monetary punchbowl away. https://business.financialpost.com/news/economy/why-central-banks-like-canadas-are-finding-it-hard-to-navigate-home The mortgage stress test that has been introduced by the OSFI regulator has hurt the market quite a lot, especially for first-time buyers (a stress test implies being stressed now in order to have less stress later) and today's fiscal announcement appears simply to be a temporary measure to appease the short-term political stress. Hoping for sunny ways may not do the trick.

This is a follow-up and update from previous work that had sparked interesting debates a while back including here: http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffets-alpha/msg83746/#msg83746 IMO, there are significant flaws (both conceptual (volatility, risk measures etc) and common sense) but some parts are helpful ie a) concerning the cost of float earlier on when interest rates were higher and when stocks, in general perhaps, were a better deal and b) how the long-term performance is truly outstanding. In the last 20 years at least, Mr. Buffett has not used (apart from limited opportunity time periods and only to a limited degree) float as leverage. Some of the larger and growing cash balance has been related to a growing relative dislike of bonds with cash and fixed income remaining in overall balance with the float liabilities. Interesting to note though that BRK's returns have also gravitated to the market in the last 20 years and, in this respect and forgetting size, the authors may have a point concerning leverage. I get that the underlying motivation of the authors is to come up with some kind of model or a statistical factors equation that would reproduce past results and that would prospectively continue to outperform. For those interested in a career in basketball, people who studied Micheal Jordan have come up with 21 steps on how to become like him: https://www.incomediary.com/how-to-be-like-mike-20-life-lessons-from-michael-jordan The mathematical model is coming soon.

... If you have an interest in the Lloyd's insurance platform ... One thought that came to mind on the 1st vidi was unrelated to insurance. Coffee shops seem to be pretty durable. - Pricing risk must have been extremely difficult back in the day. Did they have usable data or were they just winging it? Seems like a very complicated business with significant barriers to entry. The early underwriting practices look quite primitive according to our modern standards but Edward Lloyd's coffee house was a major advance because the meeting place (market) output became of higher quality as decisions were based on a diverse range of well-informed participants and a data set based on a network of global correspondents reporting to Mr. Lloyd. I understand too that, at some point, groups of retired captains (isn't this related to what you did in your previous life?) eventually began associating at Lloyd's in order to share their expertise with brokers and underwriters specializing in marine insurance. What the Planck company is providing is both automatization of basic cognitive skills and trying to introduce data insights. Dealing with underwriters (personal or professional) more and more seems to involve answering a few questions that tend to capture the essence of risk for a particular situation. An interesting example for this process (insight from data) is when (I can't find the exact reference and the details may not be exact) an air force (UK?) was recruiting pilots during one of the major wars of the early part of the 20th century. For obvious reasons, many pilots did not come back from their missions and there were restraints on time to select and screen candidates. A screener had found that an answer to two simple questions increased significantly the chance that a pilot would come back alive with the plane after a "successful" mission. The first question: Did you ever ride a motorcycle? The second question: Do you still own one? The best results were obtained when the answers were yes for #1 and no for #2. I can't explain this but maybe AI can. The potential low-hanging fruit may lie in the expense ratio and the data insight impact on the loss ratio may be more challenging.

And I guess we're not even at the end of the beginning. If you have an interest in the Lloyd's insurance platform and if you have a few minutes to spare: Lloyd's has made progress but has been incredibly slow in integrating new technology. Before dismissing the value of the first video, helpful to remember that the 2019 video already looks and sounds out-dated when AI enters the picture. Resistance to change at Lloyd's may be related to resilience as they sort of defined the risk shedder-taker relationship a while back and would risk affirming that they will continue to be around for the foreseeable future.

AI algorithms actually are just an application of technical analysis, but in a diiferent context. 'History can predict future events'; in tech speak, make the machine calculate all possible correlations in a data set - & it WILL find some that are 'somewhat' predictive (middling R-square values). As it applies these correlations, we call it 'learning'. Of course, the 'machine' is only as 'smart' as the R-square of the correlation, and it's stability in an out-of-sample application; introduce it to a market-discontinuity, and it goes beserk :) One of the theoretical arguments around HFT is that if your holding period is very small (nano-seconds), almost all your price gain will be attributable to market drift; and we can calculate the amount of that drift, using the Brownian Motion equations. Applied to AI, the more you can apply the Brownian Motion equations to an AI algorithm, the more accurate and stable it becomes. All things coming out of the 'investment' silo, and making the jump into other places. SD ??? I find the above comments quite interesting. I've been using voice recognition software for quite some time and the technology relies on deep learning and machine learning, both subsets of artificial intelligence. Through recognition of voice patterns, the software reproduces written text and, over time, gets better at it. But the technology remains quite poor concerning certain aspects that require basic common sense (when I use a new word, a word in a different language, someone else speaks) and the "machine" does not recognize an obvious mistake with very potentially consequential impact on the substance of the underlying message. Proofreading has become markedly different as the software (even if amazingly efficient at certain tasks) can produce very stupid results. neil9327's point, I think, was that we would hope to integrate and or understand the underlying "behavior" that led to the subsequent price action in order to improve prediction capabilities. The best short-term predictive ability of where a stock will go is what it did in the short-term past and this has been captured by simple linear regression models assuming markets function linearly most of the times (with some predictable variation) and this is where correlation coefficients and R-squared values come into play. The idea (and the hope at this point) of machine learning and higher artificial neural networks for better prediction capabilities relies on improved pattern classification and ability to recognize patterns on its own in order to determine non-linear extrapolations. In a way, this is nothing new as Thomas Bayes described the foundation of machine learning in 1763. Pattern recognition can be improved but the underlying principles that rest on past behavior can lead one astray (such as when using the VaR concepts) especially when transitions occur between calm and chaos or vice-versa. Artificial intelligence will need to integrate behavioral aspects and IMHO we're not quite there yet on many levels. One of the biggest risks may be missing the forest for the trees (bigger picture, perspective etc) because the complexity of the model and the huge amount of data used may result in an illusory sense of precision. I would say pattern recognition has value but is only a starting Brownian point for deep and independent thinking. Potential bias: "Investment is most intelligent when it is most businesslike."

Thanks for the idea. Twin studies are fascinating. Scandinavians have produced a lot of excellent work in this area. Thoughts: 1-It seems that investment behavior and biases are, in a large part, directly related to genes (which eventually could be "scored" for potential ability...). Also, there is an indirect effect: the fact that you are drawn to read Ben Graham or Warren Buffett may explain more about future investment decisions than the act of understanding the concepts described by the mentors. That may explain why people say that value investing comes "naturally". 2-Genetic testing and eventual "scoring" raise very interesting (and controversial) issues for insurance underwriting (life vs sickness and mortality, auto vs driving behavior, etc). It's about trying to avoid adverse selection vs genetic discrimination. 3-Also, do you want to know that you will develop a non-preventable disease for which there is no satisfactory treatment? There are still grey areas. When my kids do well, I tell them it's genes. Otherwise, it's because of their environment. :) One can alter the course and some may achieve large deviations but genes are dominating, in a Darwinian sense. A devil, a born devil, on whose nature Nurture can never stick; on whom my pains, Humanely taken, all, all lost, quite lost ... The Tempest, Shakespeare (1611)

Applied Underwriters is actually quite an interesting business. Before coming under BH's umbrella, it seems that they were noticed by Mr. Jain when completing a reinsurance deal. My take on the company is that they are very efficient in closing claims, have high retention ratios, are very good at offering innovative products in neglected segments of their workers comp market, including profit-sharing instruments that may confuse some clients, brokers and regulators. There may be something more to them but I don't see it. Insurance is very much about reputation and, perhaps, head office has had enough of the noise and decided to sell because it was no longer a "core" asset and was effectively competing against other BH subs in the WC market (BH's business has grown quite a bit in that segment). Another aspect is that alternative capital providers and private equity have had a large appetite for this type of operator in that kind of market. FWIW, Applied Underwriters recently won a battle but it's not over until it's over. https://www.natlawreview.com/article/applied-underwriters-defeats-class-certification-long-running-worker-s-compensation

I agree with the potential for human ingenuity but -"progress" is not linear -"today's" progress is based on a depletion mode -transitions are basically unknown territories of the same kind that led Columbus to leave the European Continent (many failed) I don't agree with everything Mr. Sachs proposes but like the invitation for tough discussions in the following article: https://www.scientificamerican.com/article/are-malthus-predicted-1798-food-shortages/

Would say that the "new" book does not add very much if you've followed Mr. Marks. Maybe helpful in consolidating some concepts. "One of my most persistent observations and – in a related way – one of the questions I’m most often asked is whether people can learn to be unemotional. My answer is “yes and no.” I think it’s possible for people to be on the lookout for potential emotional influences and to try to restrain their effect. But I also think people who are inherently unemotional will have it much easier. A lack of emotionality is a gift (in investing, that is, but perhaps not in other areas, like marriage). It’s not my point that emotional people can’t be good investors, but it will require a great deal of self-awareness and self-restraint." The more it changes...

1+ The eco-anxiety movement tends to lose focus and incontrovertible evidence sometimes implies no room for discussion or appropriate questions. So, I thought the presentation was useful for perspective. Usually, the crowd gets it approximately right but, as individuals and as a "group", we sometimes widely miss the mark on long-term issues that involve sustainability issues (Versailles Treaty, post-2001 real estate bubble in the US, fiscal debt? etc) It's basically an NPV decision and may explain why some want to lower the frequency of financial reporting. The difficulty may also reside in the difficulty to switch from the thinking fast to thinking slow for issues that are not imminent. It is also easier to see what others can do when the burden needs to be shared (from today): https://finance.yahoo.com/news/us-debt-unsustainable-path-192804468.html Dogma and ideology can stand in the way. I am reviewing the potential of Vail Resorts (ski stations) and it is obvious that climate change has and will alter the industry dynamics over the longer term and firms like Vail would decrease their likelihood of survival if they don't take financial decisions now in order to adapt their product. I have also spent time on PC&G (utility in BK due to wildfires). This is retrospective work so there are various analytical risks (data mining etc) but a review of government reports and good research done in the 90's and after described well the growing risks and trends about forest fire risks in the wild-urban interface. Despite all this data and analysis in plain sight, the policy makers (through land zoning rules, infrastructure decisions and subsidized insurance) encouraged extensive building and development in exactly the wrong area!? How do we best tie short-term decision-making in democracies in order to mitigate potentially adverse outcomes?

https://www.the-american-interest.com/2019/02/25/bigger-fewer-riskier-the-evolution-of-u-s-banking-since-1950/ Reference suggested by someone who knows nothing and who also feels that the biggest financial innovation is the ATM because i don't mind the heat.

Investor-owned utilities will tend to "behave" as a bond-proxy in the short term but will tend to "behave" like equity in the long term. Also, in 2018, in some circles, there was an appetite for "defensive" stocks and securities potentially having uncorrelated returns. In the last few years, despite risk-free rates going (and staying) down, the regulators have tended to adjust their CAPM models and there has been stickiness with the historical 10% ROE number while the cost of debt has remained low in the context of high leverage and thin (and thinner) spreads. In december 2015, WEC energy issued 30-yr bonds (yield 4.3%) when the 10-yr RF rate was at 2.19%. Last October, WEC issued another round of 30-yr bonds (yield 4.3%) when the 10-yr RF rate was 3.15%. The utilities model now rests on low debt costs, high valuations, "adjusted" rates of return and high expectations. Reversing some of those variables may increase the degree of correlation with other asset classes. In 2018, an analyst described WEC and others as too big to fail. If you compare the share price "charts" of WEC and AWR, you will find that the curves tend to superimpose. Does that mean anything?

Follow-up to replies #351-3. I like wabuffo's example but the buyback does not explain all for AutoZone. Potentially interesting to look at the math behind the decision and the compounding effect. (1+%TR) = (1+%ΔREV)*(1+%ΔNPM)*(1+%Δ of multiple)*(1+%reinv. div. impact)*(1+%buyback impact as a function of a lower share count) The compounding impact is related to the size (continuous or opportunistic) of the buyback and to the discount to IV. One can play with numbers (backward and forward looking). For BRK, there are a few reasonable assumptions and perhaps a major conceptual flaw. For instance, looking back, if BH had used 20B of "excess" cash per year for the last four years in order to complete a buyback: instead of BRK.B at 204 and cash/equiv./ST at 112B, one gets BRK.B at around 260 and cash/equiv./ST at 32B What do you prefer? If you think the old man has lost it and that his deviation from the fully invested mentality is no longer appropriate, you may prefer the second hypothetical scenario. If you think that the Capital Allocator in chief has been considering all opportunities in a rational way, you may prefer the real scenario and see how getting towards the 150B mark with the present BRK valuation has made the job more difficult. Last time I saw an interview with him, he still showed the same charm and folksy nature but I still deeply respect the man and his focus, to the same degree I would respect a man carrying a fully loaded gun. I still don't think he will let go of the cartridges so easily.

Long-term wise, the US potential for growth (and related government revenue) will very likely result in far better returns on stocks than holding gold. For perspective: https://www.thestreet.com/story/10582079/1/warren-buffett-delivers-warning-on-us-debt.html It’s hard to see how this will play out (and Japan and others seem to be able to play with the odds, Italy's 10-yr gov. bond yield=2.84%, Japan=-.05%) but it seems to me that a reasonable way to follow the sustainability issue is to look at the evolution of the debt (public and total) to GDP or how the growth of debt has been outstripping GDP growth (in the US, the developed world and, more recently, China). While it is true that servicing of the debt (despite a growing debt-asset mismatch) has actually gone lower (because of low interest rates), we see the same phenomenon (diverging curves) with Canadian real estate and one has to wonder about potential outcomes. Another way to look at the debt issue is to look at the long-term trend of the marginal impact of debt and GDP (ie how marginal increase in GDP has been “matched” by marginal increase in debt, yoy). Going back over the last 70 years, the curve is noisy but there is a clear downward and convincing trend heading from above one to zero. Why? Admitting that I have a general anti-debt bias and realizing that I may spend way too much time in distressed securities, it seems that, as a general rule, firms that grow a certain level of debt tend to be tempered by increasing yields by the market (although that has not been so preeminent lately given the general easing conditions) and firms that make it through typically have a liquidity problem and not a solvency issue. An interesting aspect with government debt in developed and democratic states is that it tends (under any circumstances) to be very hard to raise taxes and reduce services and the essential liquidity-driven moves made by the central banks during the GFC have been maintained and the persistent easing has resulted in the liquidity issue slowly morphing into a solvency issue for government-issued debt. We’ll all be fine but it may not be a straight line. The best way to escape quicksand is to avoid it. “Remember, earlier in this letter, how I described retained earnings as having been the key to Berkshire’s prosperity? So it has been with America. In the nation’s accounting, the comparable item is labeled “savings.” And save we have. If our forefathers had instead consumed all they produced, there would have been no investment, no productivity gains and no leap in living standards.” (my bold) Mr. Buffett appears to be in a saving mode and he reported 111.87B in cash, equivalents and short-term liquid investments at the end of Q4.

“Elizabeth sees herself as the victim”... In 2015 when facing reasonable questions:"First they think you're crazy, then they fight you, then you change the world." Kudos to John Carreyrou because it must have been, at the time, very hard to question the conventional and rhetorical wisdom.

You were implying that me saying I didn't have enough specific interest in the topic to provide what the other poster demanded was akin to not caring about environmental sustainability and giving up on the future, did you not? It didn't feel like much of a bridge to me. I'm saying that pointing out a common flaw in these debt discussions is the opposite of not caring, it's caring about having a more rational discussion about the issue, but that it also doesn't make me an expert and I won't pretend to be one. It also doesn't mean that I'm in favor of a big debt or that I like the current debt, as I keep repeating. Being against something doesn't mean you should turn a blind eye to bad arguments against it. In general, I've found it difficult to build constructive discussions with you and I take responsibility for it.

^I submit that you're missing my point also: I'm trying to build a bridge and you're not helping.

My point was that the population is growing over time, and the economy is growing too. And thanks to globalization, US businesses now make a lot more money internationally than before. Interest rates are also much lower than before. This is all context. You might interpret this as being a defense of the current fiscal situation or of the level of debt or whatever, but that's not what this is. I don't know enough about the situation to have an opinion on it, because it's not a field I particularly am interested in. I guess it has to do with sharing interests about sustainability. Think about environmental sustainability. Why do people (even smart people) ignore the issue? -other things to worry about -tendency to focus on immediate concerns -interest or knowledge deficit -individual sense of "why bother?" -it's a hoax... Opinion: the fiscal gap trajectory is unsustainable, will have a material impact (eventually) and I will continue to look for disconfirming evidence, here or elsewhere.

I'm in favor of selling California to Mexico. An excellent deal was the 1803 purchase of Louisiana (a nice example of the importance of holding on to valuable assets). What are the assets is a good question: https://en.wikipedia.org/wiki/Financial_position_of_the_United_States Using the four Cs of credit analysis, within the Capacity lie asset-based and cashflow-based (ie GDP) ratios but the most important one remains Character. At least, that's what JP Morgan said at a congressional hearing.

The fiscal gap, like intrinsic value, is hard to figure out exactly because there are so many assumptions. It doesn’t mean we shouldn’t try to put a range on it. :) So, there is some kind of gap that has been growing, call it inter-generational, inter-temporal, “new era” or whatever. The parallel with GE is poor but the idea is that future events will eventually end up on your doorstep. What did GE leaders do when they realized (somehow) that imbalances were growing? Don’t you think it will become increasingly difficult to deal with the fiscal gap issue (whatever strategy or vision) as both ends are becoming more polarized, as leading factions from both sides need to feed their evermore-distanced bases and as raising taxes and/or decreasing benefits will become more and more unpalatable to the general population who don’t spend their days calculating the infinite-horizon present day values of future circumstances? FWIW, The Merchant of Venice is one of my Shakespeare’s favorites, maybe because it deals with the tension that exists between personal contract liens and public policy and because it shows how debt can be dangerous. In those days, debt could mean to be a poison. Now, with our macro-prudential policies, I wonder if debt has not become a slow-acting anaesthetic? Why keep waiting when we know that the ultimate price tag will keep getting larger (absolute and relative basis)? Human nature I guess. Have you read Dow 36,000: The New Strategy for Profiting from the Coming Rise… and Bubbleology by Kevin A. Hassett. If not, here is a short summary: who cares about tomorrow where there is a long line of greater fools? What is fascinating is that Mr. Hassett is now the Presidential Chairman of the Council of Economic Advisers of the United States of America. And then: https://news.gallup.com/poll/246800/record-high-name-government-important-problem.aspx?utm_source=alert&utm_medium=email&utm_content=morelink&utm_campaign=syndication …