Cigarbutt

Great book that stirred its fair share of controversy including the very basic question if this wasn't mostly much ado about nothing. Conceptually speaking, on the debt question, the authors are descendants of Fisher, Kindleberger and Minsky. If interested, perhaps an article that more or less summed up the issue well: https://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up Of course infinitesimally low interest rates can give rise to an infinitesimally low risk of default and can support huge debt loads as well as lofty stock valuations. http://brucewilds.blogspot.ca/2017/03/low-interest-rates-carry-hidden-cost.html Extension of debt is not an issue when it is felt that the borrower has the ability to repay. It's the confidence part that gives rise to more than infinitesimally small concerns. The timing of which is impossible to predict. Always looks easy in retrospect.

Comments about debt service ratios are valid points. In a way, maybe we are no where near the thresholds that the likes of Reinhart and Rogoff have tried to describe. However debt service ratios are lagging indicators. So count me in the skeptics. Bias disclosure: if stuck, I would root for austerity over profligacy. Will keep an eye on savings rate. Mine and in the aggregate. Back to the 10-Ks.

"Hoping for a replay of the Great Depression to decrease income inequality while it would work mathematically is insane." Mellon's recipe was definitely not very popular. To figure this out, I think it is interesting to review what Richard Koo (the balance sheet recession "expert") said about this when he explained how "successful" Japan was in the 1990's when the government leveraged to balance private deleveraging. He often showed (around the early 2000's) a graph depicting how nominal GDP grew (muted but positive) and how GDP would have hypothetically cratered absent public "support". But now he seems to say that Japan hasn't pulled the fiscal arrow enough (?). This has been going on for more than 25 years and it looks more and more like palliative care. Question: If there is anybody insane, who is it? To deliver chemotherapy, an informed consent is necessary. Please show me the money. Tell me where I'm going to die so I don't go there.

"If you have a gangrene on the foot you don't want to operate on the liver." I submit that giving antibiotics, although slightly less grotesque, will not improve the outcome. Nobody likes to hurt. Optimism and patience required but the rehab may take a while.

I think that is not exactly what gigglebutt meant. :) No insight about the number of incoming calls. Just an impression about the overall supply/demand of deals. We understand that Mr. Buffett does not contribute to demand. My understanding of the supply side, looking at mergers and acquisitions activity, is that the trend is up. https://imaa-institute.org/m-and-a-us-united-states/ Also, on the supply side, there is simply more competition and buyers, including private equity, increase the supply of capital and (ultra?) cheap debt which converts into higher EV/EBITDA and Purchase price/Revenue multiples. https://www.theventurealley.com/wp-content/uploads/sites/5/2017/03/PitchBook_2017_Global_PE_Deal_Multiples_Report_Part_I.pdf For all I know, Mr. Buffett may buy Nike, 3M, Hershey and John Deere tomorrow. But he hasn't done so at this point. I bet eventually something intelligent would/will come up.

"The most brilliant Macro argument I have ever seen in my life is this one: http://www.gutenberg.org/files/15776/15776-h/15776-h.htm" So this refers to Keynes work on the economic consequences of peace. Indeed brilliant. Some numbers but a lot of common sense. Words that should have been heeded? Keynes was a complex man and his opinions have evolved, sometimes even coming full circle. His 1919 paper dealt among others about the dangers of currency debasement. I understand that he subsequently advised FDR against an expansive monetary policy because hoping to get the economy going this way was like trying to get fat by buying a larger belt. Isn't the velocity curve graph these days supporting this loose belt hypothesis? Also interesting to note that Keynes, the great mind, apparently did not do so well with macro investing. My understanding is that his record became much better after the 1929-32 debacle when he used a value-based framework. Food for thought. Yeah, a lot of this is based on intuitions and impressions. In 1919, Keynes felt "dreadful anticipations". The sad thing is that he was right. Cameron, please keep the numbers coming.

"Whose the economy working well for today? " Rising asset prices benefit those have assets. The more the better and more and more so. Isn't this the objective (the so called wealth effect)? https://realinvestmentadvice.com/fed-study-the-bottom-90-the-failure-of-prosperity/ That's assuming that there won't be a populist backlash against the establishment. ???

-Often wonder if this macro stuff is worth the time spent. -Looking at the charts, especially the first one: -if you look at the period that corresponds to the Buffett partnership years (1957-70), market headwinds were favorable and Mr. Buffett closed his funds "when statistical bargains disappeared". It's all about the risk-free rate, isn't it? -the 1987 "crash" even if described as "epic" was really only a blip in the long term scheme of things. Simply a buying opportunity. -if you "smooth" the line from the early 1980's to now (smoothing in the sense that the dot-com and the 2007-9 episodes become blips in the long term scheme), the upward move is mostly unprecedented and breathtaking. -the Great Moderation, which remains largely unexplained, is still alive. -the Great Moderation may have something to do with the greatest monetary experiment of all times. So, what to do? Even if concerns are valid, holding your breath may be detrimental to your capacity to survive. Going long volatility may cause your investment thesis to decay. The commodity price disconnect with asset prices that is described after the post-war short-lived recession did not correct immediately as a result of mean reversion forces. There is a difference between thinking and shouting that the emperor has no clothes. Occasionally the easy thing is the hardest. Disclosure: sustainability bias.

"I don't remember any technical analysis in level 1." When I did it, I think it was near the end of the "quantitative" section. That's also where I learned about regression.

Just finished. Potential advantages of unconventional thinking. Especially liked chapter 6 which deals with skill versus luck. Something I came away with is that people like him are essential for progress but it would be difficult to get through each day if everyone were like him.

Technical stuff is required reading in the CFA material. I thought the specific chapter in level I did the job. Otherwise, for flavor, there is also: https://www.credit-suisse.com/pwp/pb/pb_research/technical_tutorial_de.pdf Disclosure: not using any of this but I seem to remember that there can be hope after despondency.

Dynamic, I appreciate your posts. One of the reasons for participation on these boards is to improve. Some of the ideas implied by the posts and related links help with that. Your posts are also uncomfortable. My opinions sometimes differ. But you may be right. My return assumptions for the Market as a whole over the next ten years are based on more restrained optimism. Counter-cyclical macro focus has worked for me in the last 20 years but that may change. It’s a numbers game played in an animal spirits environment. Crystal ball versus the rear view mirror. As you say the best answer is I don’t know. Still. In the past, spent some time understanding the VaR concept. Not because I felt it was useful but because it seems that it was a fundamental flawed concept used by large financial players and which played a key role leading in the 2007-9 global liquidity crisis. A contention I make about present conditions is that the future may not look like the past and one may have to discount the possibility of thunderstorms even in sunny skies. One of the concerns I have is the disconnect between the average Joe and the privileged top. On this Board, there are discussions about the real estate environment. There’s a description of a real estate deal for a house in Vancouver and I try to connect that story with what my nephew (average Joe) is experiencing. Here’s a link. http://www.mymoneyblog.com/hours-work-required-to-buy-sp-500.html As one of your suggested links implies : « as with any chart, there is a clear and present danger of reading too much into it. » and the warning may be particularly relevant for this last link but, still, this raises interesting questions. Maybe, the chart shows an artificial and irrelevant correlation. Maybe we will just muddle through. Maybe wages will eventually catch up. But maybe there is the possibility that the imbalance disappears through a lower level for the S&P. It’s happened before. Keeping in mind the discount of various possibilities these days, I submit that cash has value and firms with strong balance sheets and enduring strength such as Berkshire Hathaway also. Maybe I just need to get rid of concerns. Not there yet.

While we are on the bet aspect, here is a potentially interesting article about another aspect of Berkshire Hathaway. https://www.fool.com/investing/2017/07/23/an-interesting-chart-about-berkshire-hathaway.aspx What do you "see"? -If you believe in cycles and occasional divergence from intrinsic value, BH may be well positioned to increase the distance of the two curves for some time. There may be circumstances when a Fort Knox type balance sheet will fetch a much higher value. -If you believe in diminishing returns due to size, there will be an increasing tendency for the two lines to converge. Buy, hold and prosper?

Versus Supremex: Followed closely when they were consolidating the envelope manufacturing industry in Canada. -did not result in a very profitable result either because timing was too early and/or paid too much. Now seem to be involved in a similar environment in the US. -your analysis may help you decide if this will be worthwhile or not. -maybe better positioned for gradual geographic expansion, as manufacturing operations have a geographic radius of potential profitability. -maybe worthwhile to look into Cenveo which is a large relevant US competitor in relative distress. -Cenveo and Supremex have a common history (many years ago). A key aspect is that the main business will get to be a gradually smaller pie overall. Also, they are trying to diversify into related fields which has its own risk-reward profile. Will follow too. May get involved if I become convinced that they can profitably grow market share in the US. Not convinced at this point.

I enjoyed reading about the D-L method. At this point, I find that game theory has been much more helpful than all the CFA stuff that you refer to. Since we're into sports, you may be interested in the odds of a squeeze play in base-ball. There's a safety squeeze and a suicide squeeze. It's all about risk management. And there's nothing like doing it for real. Back to the position sizing and this post, I understand that a lot of participants have sizable positions in Berkshire Hathaway. One of the obvious advantages is that one benefits from the equity return of a firm with good prospects. If one thinks that better results can be obtained without BRK in the portfolio, maybe, a periodic retrospective look over the long term is necessary to verify that assumption. However, I would submit that one of the reasons to hold BRK may be related to a concept that can be derived from the efficient frontier (despite being obviously flawed with the definition of risk) where holding an "uncorrelated" asset will drive down the volatility. In this case, holding BRK in a downturn, may give rise to loss of proportional correlation with markets as (rightly so I think) BRK is likely to fall less. The [shadow=red,left]potential[/shadow] bonus is that BRK [shadow=red,left]may[/shadow] rebound more than the market after. When reading the early partnership letters, Mr. Buffett describes this phenomenon as being related to his investing mindset. And he is still at the helm. And this may have something to do with the rising cash position. So, I would say that it is more relaxing to hold BRK as a core holding because, otherwise, the hurdle becomes to beat BRK over the complete cycle. Perhaps, this may become easier going forward. Simple concept, easier maybe but still not easy.

Late 1990's, when started to experience positive cash flows from my own operations. Autodidactic learning. Took a while. Reading annual FFH reports helped define a contrarian, concentrated and value-based approach. Around 2000, inherited Nortel through a spinoff (Bell Canada). Sold Nortel. Then watched it rise and fall. These were the days when re-pricing of risk and mutual fund run risk were discussed and when concerns were backed by more than words.

Links: https://www.wired.com/story/captains-of-finance-dismiss-bitcoin-at-their-peril/ https://www.forbes.com/sites/johntamny/2017/10/22/bitcoins-surge-to-5600-reveals-why-its-a-junk-currency/#4ca9293f61c8 from Mark Jr: "These things are an inelastic currency that use asymmetric cryptography to facilitate zero knowledge capital flow." One of my tests for investment ideas requires that I could convincingly explain the thesis to my 10 year-old in less than two minutes. I'm not there yet. First, I have to review the meanings of trust and agreement in the dictionary. Then again, who can you trust these days?

Interesting to note that the introduction of your post did not lead where it said it would. It seems that the message slid into how the "one belt one road initiative" may be taking pre-emption on the "gunboat diplomacy". Would humbly submit that the topic may need to be discussed and is an issue where I come to a very different conclusion. Energy and Politics are indeed intertwined. Back to wind turbines.

The underlying topic is capex of a BH sub in a form of renewable energy and in a regulated market. Business aspect and political aspect. -Mr. Buffett has made significant investments in this field and, presumably, will continue to do so, based on the fact that the energy market is large, regulated and will continue to provide relatively high and consistent returns. -He has stated that his investment decisions are, at least partly, based on the fact that "society" has "decided" to foot the bill concerning certain environment-related liabilities. (2016 annual report and others) So one may or may not agree with the above for political or ideological reasons and it is important to look at the whole picture but it must be possible sometimes, for healthy discussion purposes, to separate the business and political debate. Access to relatively low cost energy (so far mostly due to fossil fuels) has gone hand in hand with a massive and unprecedented global improvement in standards of living. But now, [glow=red,2,300]we[/glow] face a transition that may be (?) needed because of environmental concerns and that will eventually be inevitable because of natural depletion. In order to get through the transition, [glow=red,2,300]we[/glow] have to come to a satisfactory understanding about how this should be done and this will necessitate competitive collaboration at the business and political level. But, as far as this post is concerned, I am (and maybe others are) trying to decide if BH will continue to be a rewarding investment and understanding of the business underpinnings of its energy operations is an important component. I want to learn. I really admire and respect Mr. Buffett but that does not mean tough questions cannot be asked. There is a grey zone between building strong and efficient operators that will "optimize" competition and drive out "sloppy" operators on the one hand and, on the other hand, the possibility of regulatory capture through potentially unfair practices versus already existing competitors and through potentially unfair tactics versus potential new entrants (ie residential solar). Maybe the best place for that discussion would be in the thread recently initiated by LC. Concerning wind energy, my opinion is that, very long term, it is unlikely to be a winner because others forms of energy will continue to benefit from persistently decreasing costs whereas wind is likely to reach some kind of relative plateau. Whatever opinion or who you vote for, the reality is that wind energy is likely here to stay for at least some time. So, it will be interesting to see if and how BH continues to invest in wind energy. I found a link (see below) that maybe was covered on this Board before and which describes the various operations in some detail that is helping to understand the business dynamics and that, maybe, can contribute to a constructive discussion. https://www.berkshirehathawayenergyco.com/assets/pdf/2017-fiic-presentation.pdf For those interested, here's a reasonable link: http://mragheb.com/NPRE%20475%20Wind%20Power%20Systems/Economics%20of%20Wind%20Energy.pdf There will be many challenges and conclusions are based on very long term assumptions. There is clear possibility that some costs are vastly underestimated (transmission, storage). The price for "collaboration" on the "smart" grid may be particularly high in some markets. Food for thought.

Perhaps, as we can see on a related thread about solar power and BH, incentives matter when it comes to adoption of renewable energy options. (Un?)fortunately, the government is also involved and, like it or not, policies can influence choices. ------------------------------ sidetrack for Canadians I also feel uneasy about the equalization payment asymmetry (even if I am on the receiving end). These are tough questions and we should restrain from easy generalizations. That said, the present system seems to represent an unfair subsidy to provinces that have hydro-electric power generation potential. To me, higher electricity rates with some form of mitigation for the very low earners makes sense. http://nationalpost.com/opinion/peter-holle-artificially-cheap-hydro-power-your-equalization-dollars-at-work https://www.fraserinstitute.org/article/quebec-proves-canadas-equalization-payments-are-not-always-equal From one of the links however, it seems that fair compromises can be reached, ie Hibernia. end of sidetrack for Canadians -------------------------------------- So, when MidAmerican decides to invest long term in wind turbines, one has to consider that there may be a potential role for government involvement and one has to accept that the intervention may introduce inappropriate incentives. We need energy going forward. I have incomplete knowledge but, long term, I would bet more on solar. From Thomas A. Edison, who may be a reasonable reference: "I'd put my money on the sun and solar energy. What a source of power! I hope we don't have to wait til oil and coal run out before we tackle that."

This position and cash post is a component of the alpha that we try to obtain through "active" investing. Relevant link. http://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19 The article is about fund investing but I would bet that conclusions can be generalized to specific investments pickers. In the end, this is a zero-sum game. It's comforting that people on this Board are part of the group in positive territory. ;)

I held Supremex a few years ago and it was a mistake. The main business was (and I think this is still the case even if they are trying to catch the new wave related to e-commerce) envelope manufacturing in a consolidating and declining industry. During the time I held it, it behaved like a value trap. Ended up with +/- zero return (small capital loss more than compensated by dividends) but the opportunity cost was very significant. Went to annual meetings and visited their installation. I liked the CEO who was at the helm then. This is a company in transformation in a commoditized environment. Will keep watching. Good luck.

-Informational post only. In order to better understand the dynamics (economic and political) of the coming energy transition, since early September, I am following a Coursera course named: "The Future of Energy". Overall, I find it quite good but it is not free of bias. The course is a nice complement to "Fundamentals of Global Energy Business" which is more conventional. For those interested in espousing or rejecting wind power as a potential solution, week 2 of "the Future of Energy" has two relatively short videos on wind power and turbine technologies. The "lecture" is given by a structural engineer and deals with topics like: blade structure and aerodynamics, torque and others. I learned why there are three blades. The engineer feels there may be future in off-shore wind power? If the course is not open now, it will likely re-open in the future.

In a way, investing makes most sense when it is business-like. Would you shut down your business simply because a downturn may be around the corner? Sustainable businesses through ups and downs often show financial flexibility, useful in both scenarios. What is fascinating in money management though is that you don't need to sell assets, terminate leases or fire employees if you want to change course, you just need to press on a button. I think that is also a form of flexibility that comes with its own risk-reward profile. What is also fascinating (think of the Graham-Doddsville theme) is that there are many "right" ways to deal with position sizing based on your investing style and personal temperament. "Perhaps we should include how we think about preparing in advance and what actions if any to take." Maybe, we can expand on that using principles or specific examples but, for now, I will give you a short answer. I understand that you are from the UK and maybe hockey is not your thing but a guy named Wayne Gretzky, who was called "the Great One", apparently candidly explained his successes by saying that he tended to go not where the puck was but more where the puck will be. Simple but not easy.

I have some training in biology. That may be a handicap in terms of perspective. Scientific progress is often incremental but can occur step-wise (unexpected). So, don't want to be a naysayer and dampen the enthusiasm but I would submit that this research is going in a completely different direction. It's not about finding a way to unclog a blocked blood vessel or to lower blood sugar, it is about a significant change of genetic expression or even a fundamental alteration of the genetic code itself. Here's a link that offers, perhaps, a more balanced perspective. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2774752/ Primum non nocere. Quality over quantity?