Cigarbutt

Recent article from the Canadian Underwriter: https://www.canadianunderwriter.ca/insurance/traumatized-witnesses-van-attack-make-case-accident-benefits-1004131225/ Interesting example of a legal precedent that is having a significant impact on the definition of the threshold necessary to determine a link between an "accident", a mental condition such as PTSD and the compensation related to mental "injuries". Tough topic with scientific and social overtones. I would say that this evolving issue hasn't been accounted for by the underwriters up to this point.

Everything is possible as the CDS are based on private OTC contracts but the ISDA has been trying to standardize the process and improve definitions. However, it seems that they have been slow and have difficulty catching up with human ingenuity. With the Big Bang protocol, they have been trying to streamline the procedures. "Physical" delivery of the bond is no longer an option and cash settlement occurs after an auction (potential for biases here, but seems to work reasonably well most of the times). Probably useless thought about financial sophistication: Today, one can immediately transfer significant funds at the touch of a finger. The CDS market is potentially a great idea to hedge (risk management) but parties can transform a relatively simple concept into an endless legal quagmire. I read this AM that, after the 1906 San Francisco earthquake, insurers (mostly British) had to load gold onto ships in London to make port on the Eastern Coast and then transfer the gold to a train that would set out on a multi-day trip to San Francisco. There is one thing that financial innovation has difficulty catching up with: human nature risk.

The above comments are all interesting and relevant. Would like to add: In the 1965-75 period, Mr. Buffett was entering a transition characterized by: -size getting larger -not finding value -moving from cigar butt plays to opportunistically paying reasonably for quality growth -concerned that his results would disappoint The following link contains some relevant info that helps to understand why Mr. Buffett put money in Berkshire Hathaway first as a temporary play and then decided to use it as a runoff vehicle that eventually formed the basis of his investment structure while overseeing different operating entities. In the early 1970's the corporate structure was quite complex but eventually the structure was simplified. http://static1.squarespace.com/static/56e34fd9e707eb512223f372/56e89b00fd211959539d959d/56e89b02fd211959539d964d/1458084610570/Prologue-Why-did-Warren-Buffett-buy-Berkshire-Hathaway-in-1965.pdf?format=original It seems that the priority was not setting a fee structure. Mr. Buffett's goal was to put in place the most efficient structure to grow, with him at the helm and with "permanent" capital.

Thanks for the reply. I don't use the same prisms and your perspective is helpful in terms of mind preparation. Just to add a quote from a 2015 report I read from Morningstar reviewing the evolution of "costs" and "fees" from the previous 10 years: "...industry fee revenue is at an all-time high, reaching $88 billion, up from $50 billion 10 years ago. During that period, industry assets under management have increased 143% while the asset weighted expense ratio has declined 27%, and industry fee revenue has grown by approximately 78%. Thus, a much larger share of the benefits of the increase in assets under management has stayed with the industry rather than being returned to fund shareholders." To conclude, another quote (modified) from the investment industry: "Past performance is not indicative of future results", unless the conditions that led to the past performance remain unchanged.

A somewhat negative take on the incoming "scheme": https://newrepublic.com/article/148121/control-14-billion-people I wonder how online participation to a Board such as this one, where "dissent" is a defining principle, would affect one's social credit score.

Vinod, This post is not to pick on you. Just trying to understand. BTW, spending most of my time these days trying to find individual issues selling below intrinsic value. (aren't we all?) Still, interesting to occasionally have a "feel" for the environment. Don't know if bubbles are becoming more or less frequent. The challenge is that bubbles, almost by definition, are recognized only in hindsight. It's possible that many "bubbles" were never recognized because imbalances did not reach a certain threshold or because a certain confluence of factors was simply absent, allowing the imbalances to correct over time. So, let's stay away from the bubble terminology and try to assess, à la Grantham, how far the market is swinging from the norm. On this Board, on December 1st, 2009 (yes there was a discussion about a bubble forming then...), you mentioned: "Agree on the sanity check. I think we disagree due to differences in what is meant by a bubble. To me that means a near unambigous and demonstratable overvaluation. Take S&P 500 in 2000, at its peak of 1500 its dividend yield of 0.9% and normalized PE's in the 40's the expected real return on stocks in the long term is less than the return available on TIPS which at that time were having a real yield of 4.5%. This to me is a clear and demonstratable case of a bubble. Take the present situation, using any of the most commonly used methods of estimating fair value for S&P 500, leads to a fair value range in the 850-1000. With nominal treasury yields in the 3-4% range and TIPS real yields around 2%, the expected returns on stocks over the very long term is much higher than bonds. It looks a little expensive but no where near the bubble range." The S&P was around 1300 then but I agree with your assessment of "fair value" for the S&P at that point. If you try to think like Mr. Buffett (at least from what he wrote in 1999, see below), what happened to the S&P, since your quoted post, is very interesting. http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm If you follow Mr. Buffett's logic about how growth of the S&P should be connected to the GDP growth over the long term, starting with your assessment of "fair value" then, the S&P should trade between 1100 and 1300 today. ??? Helpful variables: -S&P profit margin over GDP: 2010: +/- 10% now: +/- 10% -10 year government yield: end 2010: 3,3% now: +/- 3,0% -the S&P index closed at +/- 2650 today What "explains" (math point of view) the difference between projected and realized is that, for the S&P 500, PE went from +/- 16 to +/- 25. Of course the best may yet to come but one should perhaps discounts the possibility that PE stays at the same level (or even decreases?). I agree that one should look from the bottom up, but when I look at an opportunity that sells for twice fair value, I tend to wonder (and, bubble or no bubble, unambiguously go for the next idea). So, this discussion does not change what I do day to day but I wonder if general expectations are in line with historical parameters. Or is it different this time?

I've done what EliG describes. So far, so good. The form is a pain and I hope it is worth it for the CRA. For interest, it seems that they are getting positive NPVs on their "efforts" to crack down. https://www.canada.ca/en/revenue-agency/campaigns/about-canada-revenue-agency-cra/cracking-down-on-offshore-tax-evasion-aggressive-tax-avoidance/cracking-down-getting-results.html They seem to focus on specific cases and have put more emphasis on the analysis of electronic fund transfers which are also "monitored" when more than 10K (CAD). A nagging question is if it matters if you volunteer to raise funds or not. http://www.cbc.ca/news/business/stephen-bronfman-trudeau-paradise-papers-1.4382511

Interesting parallel. In a zoo, the wildness lies in wait. From a book I read a few years ago: "A good investor has the courage to make choices. The stock market is a bit like a zoo. There are all kinds of animals, there, from elephants to tigers to snakes to monkeys. You only need a few of the best species to build a good diversified portfolio that will provide sustainable, low-risk, high compound earnings. All you need to do is find them, buy them at reasonable prices, and make sure they stay on track.” https://www.amazon.com/Investment-Zoo-Taming-Bulls-Bears/dp/2894722591/ref=sr_1_1?ie=UTF8&qid=1524608563&sr=8-1&keywords=jarislowsky The book may not be worth the read unless you want to learn about Mr. Jarislowski who has been a very successful investor as well as a Renaissance man. What bugs me is that the title, when translated in other languages, used "jungle" instead of zoo.

I like this quote as well and, as is often the case with Mr. Munger, it has powerful implications. I submit that it could be applied to other fields than investing and on a personal level. Whether you are a shaman who can repair cars, a guide into legal mazes or a “true” healer of physical ailments, how you bridge the gap between information asymmetry and competence will determine the value that you bring from the rational point of view. The best way to bridge this gap is to make your “client” more competent. However, this noble objective may have a levelling effect on your profit margin. So, watch out, human nature at play. Back to investing, this line of thinking helps us to remember that these shaman-type incentives contribute to mispricings and deviations from efficiencies, sometimes spectacularly so. Why are humans so drawn to stories?

Hi Charlie, I have 10 quotes and most are not directly related to investing. The other relevant two are: “Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.” - Charlie Munger "One good deal may create more wealth than 10 years of brilliant operations." - Marty Whitman About you?

Nice article. One small comment: I hear a lot of people complaining about mental exhaustion in relation to their job and I wonder if job satisfaction is an issue. I have about ten quotes on the wall beside my "working" station and one of them is from Mr. Munger: "It's been my experience in life [that] if you just keep thinking and reading, you don't have to work." :)

Maybe this should go in a different thread. To keep John quiet: I bought a new BBQ today. It seems that we, as a group, would have difficulty defining a clear distinction between investment and speculation. Also, most here seem to be value investors but investment styles and holding period horizons vary tremendously. As the Graham-and-Doddsville list suggests, there are many ways to obtain superior results. However, what works for one may not be adequate for the other and vice-versa. Perhaps an interesting way to appreciate this is to take the perspective of the value-universe investors looking to obtain high ROE numbers on their portfolios: ROE=PM*AT*EM Let’s leave leverage aside because that’s another decision. In terms of time spent and relatively speaking along the spectrum, you may try to obtain high returns by focusing on asset turnover at the expense of lower net profit margins. Or you may try to obtain high returns by focusing on profit margins at the expense of lower turnover. I would add that one has to periodically compare to some kind of benchmark. If you are happy with the results (ie if you can differentiate between value and price), I would say that, apart from minor adjustments, one should just carry on. Probably important to remember the potential biases associated with one’s ROE profile though. Despite this, we can still learn from each other. From my point of view, thinking of writser’s comments, a lot of time can be saved using filter mechanisms that reject automatically most possibilities. And to echo Liberty’s comments about confidence, in the past, I have often used a concentrated investment profile and this has been associated with significant time commitments especially when averaging down. :) For the first time, I have been able to write a shorter answer than Spekulatius (barely).

With all due respect, this may be a very relevant topic. I'm a slow learner and can get frustrated at times when, after spending such a long time on an issue, problem or investment thesis, I come to the conclusion that there is no actionable/investable end-point, while, at the same time, somebody else, with greater and different talents would have been able to form a correct opinion after only a brief analysis. There was an interesting discussion before about the issue of fact gathering activities before pulling the trigger. www.cornerofberkshireandfairfax.ca/forum/general-discussion/reading-10-ks/

You are correct in saying that these are tough issues. Jumping to conclusions can be a risky proposition. Your mention of asbestos exposure is interesting. I've followed this topic closely, including because I have invested in insurance companies whose results were somewhat dependent on the "social" evolution of case law. From a few days ago: https://nypost.com/2018/04/16/critics-say-tort-reform-necessary-after-60m-asbestos-settlement/ Very sad case and, on the surface, it looks like an "award" was indicated by the facts of the case. However, the entire area of asbestos exposure liability (inclusion criteria, level of settlements) suggests that tort reform may be necessary. Reform is necessary when there is not enough and when there is too much. We just have to push in the right direction. Combining heads may help. :)

"a sentencing jury was not established, the excuse being it would "take too long", and therefore Citgo pays a 0.2% cost-of-doing-business expense. 0.2%!!!" Just read that Lance Armstrong has settled with the US government. He is not a corporation. The deal seems unfair but would need to evaluate the merits of the case before judging. The case you mention is interesting and raises questions about fairness on many levels. (regulations, municipal and local enforcements, socio-economic issues and differential treatment of small versus large corporations). Let's say your new house (I hope you enjoy yours) is near a beautiful golf course or in the neighborhood on an electricity transmission line and you get nominated by your community because of your civic engagement qualities and it is felt that there is an unusual incidence of cancers in the area. Results of investigations demonstrate that the "corporations" did not follow environmental guidelines (pesticides, distance from fields) and some studies remotely suggest the possibility that there may be a link between the violations and the cancers documented. Then do you expect the fines for the violations to be proportional to the profitability of the corporations and do you expect that automatically someone will guess how much should be distributed to people who were diagnosed with cancers? Remember also that the burden of proof is much higher for criminal cases vs civil cases. As said before, there is data available and favorable verdicts can be reached. Need good people AND a strong case. Even if I don't know the underlying specifics of the causality dilemma for this pecific case, I understand that people in the community got together to fight "the toxic neighbors". http://www.umich.edu/~snre492/mezza.html With the reservations stated above, I have a feeling that the evidence for causality between the exposure and damage was very weak and that the likely outcome would have been more legal fees and the same financial end result for the community. Big corporations have a lot of power (a strong argument can be made for corporate cronyism) but legal short cuts may not be the best way to right the situation. In terms of moral hazard, as mentioned before on this thread, a facilitated piercing of the corporate veil in criminal cases may go a long way for environmental protection and other areas because people, even managers, usually don't like to go to prison. I'm told the environment is more toxic than in the Refinery Row districts, especially on your side of the border, apparently.

Thought this was relevant. https://www.usatoday.com/story/opinion/2018/04/18/self-driving-cars-uber-tesla-column/522623002/ It's about difficult transitions.

To prevent the deleterious aspects of factions, there need to be separation of power as well as checks and balances. The US is not perfect but the design allows dynamic adjustments. I agree that corporations have unusual ressources and that needs to be monitored. In Venezuela, property rights existed; they were simply not enforced because of concentrated power, corruption and a dependent judiciary arm. LC, The case you describe piqued my interest as I was involved, in another life, in similar cases (both sides of the fence). I agree that the decision "seems" unfair but I politely submit that you may be cutting corners. I understand that an appeal may be underway. Also, you may want to put yourself in the position of the judge. On the surface, you "see", on the one hand, this big and profitable company that doesn't seem to put emphasis of environmental protections and, on the other hand, a group of poor people suffering from many ailments. However, these environmental exposure cases are extremely complex as disease causation is incredibly difficult to prove because disease profile prevalence variations may be due to a very high number of potential causes, including intrinsic (personal) causes. Let's say you are the judge, how do you determine the amounts arising from the inevitable necessity to attribute damage to a variety of causes in the context of mostly inconclusive studies? I understand that the judge defined criteria that could become case law. https://mic.com/articles/89447/a-huge-corporation-just-got-away-with-murder-and-it-sets-a-scary-precedent#.8bOm3Of2c I agree that the bar may have been set relatively high and that the government may subsidize studies and define guidelines in certain circumstances to help groups of people that lack ressources to "defend" themselves but I politely submit that arbitrarily deciding amounts may not result in a fair result. Having said that, the burden of proof is high but it can be done. Erin Brockovich has written a book and it's titled: Take It From Me: Life's a Struggle But You Can Win.

I guess it depends if you do this for fun, to increase mental capacity or to prevent decline. :) For those interested: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3622463/ Neuroplasticity is an amazing concept but just like everything else, it has its limits. If you look for "true" results, the key criteria seem to be: -relevance to real-life cognitive challenges -components related to performance (like sports, increasing levels of difficulty, persistence and frequency) -helps if the activity is enjoyable Concerning the last post and critical thinking exercises, http://www.businessinsider.com/warren-buffetts-favorite-critical-thinking-exercise-2014-10 In 2018, if you look at the top ten, the things, they are changin'. In the last link, which has now 1192 comments, we learn that one in six intelligent phones has fecal material on it. Is that what you call evolution?

The basic idea here is: the business of business is business. In the 1960's, Davis and Blomstrom came up with the idea that firms had a social role to play and then followed the corporate responsibility concept. I don't agree with that approach but I think they had a point when they said: "In the long run, those who do not use power in a manner that society considers responsible will tend to lose it". Play by the rules but the rules of the game have to be fair, somehow. Rights come with responsibilities. For instance, Starbucks has played the human rights game before and now the CEO will spend some time in Philadelphia.

The distinction between property rights and liberty rights is important. Corporations can be thought of as interest groups formed by people. James Madison who was instrumental in bringing forward the Constitution and who was a champion of alliances and compromises warned against "factions" who could undermine the fundamental balancing act. An argument can be made that corporations may have an unusual amount of power that needs to be restrained. In order to guard against unintended consequences, a way to manage this would be to open the possibility for corporations to invoke liberty rights only in selected circumstances and in exchange of a decreased threshold to pierce the corporate veil. In that sense, IMO, it would be "fair" for corporations to have some protection in certain areas (expropriation, reasonable ability to earn profits etc) but at the same time, socialization of risk should be associated with a relative loss of limited liability. I submit that previous customs of making bank directors personally liable for losses was a helpful bulwark against moral hazard.

Enjoyed a lot of what he wrote. Thanks for the link which refers to: https://mjwhitman.pressbooks.com/ I often go back to Modern Security Analysis. especially chapter 7 (Creditworthiness) and chapter 23 (Restructuring). Also like his take on the fulcrum security concept: https://www.valuewalk.com/wp-content/uploads/2014/09/2014_Q3_The-Fulcrum-Security.pdf I have one of his quotes taped on the wall beside my computer screen: "One good deal may create more wealth than 10 years of brilliant operations." RIP.

First time I see this. Interesting. Ancient Greece is when math, physics and astronomy started. Civilization can indeed fall asleep for very long periods. Not reassuring when one sees statistics and surveys showing that beliefs about paranormal, esoteric and astrology are on the rise, even in the groups having scientific backgrounds. Goes in cycles.

Looked at some numbers and trends. Since about 2011, private equity has put money in the auto subprime area and some players seem to be looking for an exit. 2015 and 2016 results were quite poor. In 2017, results +/- improved in the context of lower volumes and tighter standards. Two typical examples are Exeter Finance Corp and Flagship Credit Acceptance. Exeter is supported by Blackstone and that may explain the recent first AAA-rated securitization. Haven't looked in details in Exeter yet but it seems to me that continuing consumer strength are expected in the numbers. Flagship is interesting. In 2017, they also tightened their standards and pretty much abandoned some areas (do not really write the "thin-file" loans anymore). But the loan balances are high and terms very long. Also, I find that ratio of refinancing loans to total loans to be unsustainably high in the present context. https://www.flagshipcredit.com/news/detail/flagship-credit-acceptance-issues-263.1-million-abs https://www.spratings.com/documents/20184/769219/FlagshipCreditAutoTrust20181/5925ea46-05c5-425c-8688-13f97104ebf2 The picture is still incomplete but somehow, notwithstanding the assumption that the consumer will continue to tap the subprime market, I find that deteriorating conditions arising from intensely competitive pressures have not, so far, shown up in reported numbers. https://www.fitchratings.com/site/structuredfinance/abs/auto Maybe still early but it smells fishy.

Very controversial and delicate topic. Very real disease but diagnostic criteria are vague and an area where respectful discussions can occur despite the sensitivity in order to optimize ressource allocation/utilization. First-hand experience with war and its consequences may help to treat the topic gently. Second-hand descriptions may offer a reasonable alternative. Example: https://www.amazon.com/Waiting-First-Light-Ongoing-Battle/dp/0345814436/ref=sr_1_1?ie=UTF8&qid=1523822774&sr=8-1&keywords=romeo+dallaire+memoirs With the above in mind, have to evaluate how poor incentives may aggravate the situation. There is a fair amount of work showing that a significant amount of people have pre-existing pathology and may eventually have manifested symptoms compatible with the label of PTSD, even without war experience. Also, with the newer threshold for diagnosis, some feel that it is acceptable to label someone with PTSD even if one was unconscious during the traumatic episode... Some therapists have even suggested that the disease may be "contagious" through hearing the stories... A few years ago, in my area, two prison guards were killed by a biker gang as a way to intimidate the judicial system. Prison guards who were directly involved were also considered "victims" and received help. However, there was a very large contemporary request by a large number of prison guards, all over the province, who then applied for long term disability (supported by medical certificates) related to PTSD after viewing on TV that a prison guard they did not know had been killed. Those claims were denied and I understand that most of these prison guards did not maintain their disability status. So, tough topic and hard to understand but sometimes by trying to help, one may aggravate the situation.

Thanks for sharing. The story shows the induction problem which can be applied to investing as well. Like Spekulatius describes now in a separate thread, we have to make decisions on incomplete information and to use best possible process. And, invariably, biases will seep into the process (confirmation bias, recency bias, halo effect etc). Also, a classical potential trap when correlation and causality are mixed. Perhaps important to underline that scurvy was likely not the cause of Mr Scott's failure to return home. Here's a complementary article: https://www.rcpe.ac.uk/sites/default/files/butler.pdf Also interesting to see how the status of "hero" over time changed for Mr. Scott. At the time of his exploits, he was considered a national champion. Over time, it was discovered that, as a leader, he was far from perfect and got a fair share of criticism. More recently, his status has been given redemption to some degree by serious authors who suggested that critics should try to put themselves in the extreme conditions that the explorers were submitted to. Maybe, we should do the same when we retrospectively evaluate how people were dumb before. For those interested in the topic (South Pole expeditions), the article, that rukawa refers to, mentions Mr. Shackleton as somebody who accompanied Mr. Scott initially. Both became fierce competitors after and led parallel expeditions. Mr. Shackleton is a fascinating character and an atypical leader. I had referred to him in a book review that I submitted some time ago: http://www.cornerofberkshireandfairfax.ca/forum/books/forged-in-crisis-nancy-koehn/msg321901/#msg321901