Cigarbutt

By the way, my aim was not to drift into military spending or other. slides referred to were 14,15 and 16. These slides show facts that are accepted across the board. These are not fake or alternative facts. What you do with those facts is the question. My point was to think how to improve healthcare delivery per dollar invested. In another life, I was involved in that at the micro and macro level. Yes, as advanced societies, we invest individually and collectively huge amounts. Are the funds spent wisely? My answer is not really. Do we need to have a revolution? My answer is not really. But. Perhaps a down to earth observation (always keeping in mind potential investment opportunities). In the US, I understand that many (perhaps many that don't feel connected to the elites) can run into major financial difficulty when they become sick. The same problem occurs too in Canada but much less so. Isn't fascinating that about 18% of GDP spent on healthcare is not enough for basic coverage? Some diseases go away by themselves. Some, if not treated, can leave scars. Healthcare will tend to become a larger issue going forward. Can we manage? Absolutely. May be some paradigm shifts however. I like prevention, if possible.

rb, I appreciate your encompassing opinion. You're right. Somehow, in the aggregate, we will all be fine. Ronald Reagan said:"America's best days lie ahead". Albus Dumbledore said:"'Dark times lie ahead of us and there will be a time when we must choose between what is easy and what is right". Perhaps hope for the best but prepare for the worst? Isn't what margin of safety is all about?

The contract is very interesting... I presume it is humorous but can't tell for sure... By the way, your junior investor may need better legal representation as your rates meet the usury definitions! When I thought that the World was filled with complacence about debt. I would then respectfully submit: "It is not the healthy who need a doctor, but the sick." Good luck with the kids. Do you ask them for collateral?

Here's the link: http://www.pgpf.org/sites/default/files/PGPF-Chart-Pack.pdf

I know: -This is mostly an investment forum. -The topic has political implications. -Despite being an interest of mine, healthcare has never made it to my investment punch card. (?) But this may be of interest for some, especially for our American friends. This post is non-partisan (I hope anyways). As most must be aware Trumpcare has not been enacted. I would humbly say that this may be a minor issue in the grand scheme of things. A link here from a presentation that talks a lot about debt and all but, for relevance with this specific post, look at slides 14, 15 16. By the way, long term, I would not bet against the US. The slides show though that a lot of $ is spent on healthcare and aggregate results don't show up. Time to think outside the box? Opportunities?

SmallCap, I'll give you my take for what it's worth. For basic financial education ie saving vs spending, how to buy a car, use of credit cards, how to make a budget etc, I think that parents can play a key role (walk the talk). In terms of value investing hindsight, I would be... more realistic. Successful value investing perhaps requires a certain mindset and attitude. The trait may not be so common and maybe the genetic/environmental factors may not be sufficient. Sorry. That's been my experience so far anyways. Unless there is a true vocation, perhaps it is best to go with an index fund type of approach. In my case (I prefer to think long term but who knows?), I am setting up a way to put me off track when the time comes and alternative ressources have been identified. Index funds are also an option. Having said the above, an entrepreneurial activity with the small ones can be useful AND fun. My mother used to say business before pleasure. But that's not in the offing anymore.

For those interested in RESP accounts, maybe one way to look at them is to expect a +/- 70% penalty at the end of the road for the amounts left. Food for thought. Especially if you like snowballs. Also, something that can be done and which is absolutely legal is that once an older child starts post high school education, the capital amount can be retired without losing the government grants. Then, if applicable and if you want, you can contribute the same amount retired to a younger child (in a family type account) and get the grants again. It's rare that the taxman lets you get away with this type of action but that's the way it is right now.

rb, I would like to provide a better answer but...the best I can come up with is: in the long run, we are all dead.

Viking, I've had a similar experience with our family RESP. I hear a lot of complaints about the cost of higher education but perhaps filling up a form and a slight modification of lifestyle can go a long way for all income tax brackets.

Would add that you can open a TFSA account only when you turn 18. For RRSPs, your contribution is tied to a fraction of work income, perhaps not significant when still in high school. I would add personal experience for others if you decide to help your kids this way. You can, in a relatively simple way, open an "in trust" account at a discount broker in the name of your child. I did that for all my kids. The nice thing is that capital gains are taxed at the child level (think about that for a minute). Second generation income is also taxed at the child level. You need to really follow the attribution rules. I must say that, for 4 or 5 years in a row, I had to submit documentation showing the allocation process. The last year I did this, my document was about 20 pages long. They stopped bothering me after. You need to, if you go that route, follow the rules and be ready to justify. Otherwise no mercy. I understand that this is no longer permitted in my province but, from what I hear, it is still allowed elsewhere. Of course, you have to remember that the funds actually belong to your offspring when they reach 18. Harvest what you sow maybe. Hope this can be helpful.

investmd, I like your way of asking more questions than providing answers. We should continue perhaps bottom fishing looking for value but the question you ask: "Are there any structural reasons to think that the next 10 years will be drastically different?" really haunts me. Obviously, there is a lot of noise. Always the case. To separate the wheat from the chaff is the challenge. I would appreciate also hearing Mr. Chou on these questions.

Interesting story. Reminds me of similar experiences with the Monster. Perhaps it becomes, at some point, a simple investment decision:ie is it worth the time or aggravation? If it becomes a matter of principle, re-evaluate? When you reach points of resistance, it may not be time to pick up and read Atlas shrugged as you may feel like looking for a guy whose first name is John. Who? I encourage you to continue your venture. Keep us informed. Good luck.

Hi DCP, Hope this helps. From Hagstrom The Essential Buffett p157-8 Buffett on Diversification Buffett's view on risk drives his diversification strategy; here too, his thinking is the polar opposite of modern portfolio theory. According to that theory, remember, the primary benefit of a broadly diversified portfolio is to mitigate the price volatility of the individual stocks. But if you are unconcerned with price volatility, as Buffett is, then you will also see portfolio diversification in a different light. "The strategy we've adopted precludes our following standard diversification dogma," says Buffett. "Many pundits would therefore say the strategy must be riskier than that employed by a more conventional investor. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying into it." 12 That is, by purposely focusing on just a few select companies, you are better able to study them closely and understand their intrinsic value. The more knowledge you have about your company, the less risk you are likely to be taking. "Diversification serves as protection against ignorance," explains Buffett. "If you want to make sure that nothing bad happens to you relative to the market, you should own everything. There is nothing wrong with that. It's a perfectly sound approach for somebody who doesn't know how to analyze businesses." In many ways, modern portfolio theory protects investors who have limited knowledge and understanding of how to value a business. But that protection comes with a price. According to Buffett, "It [modern portfolio theory] will tell you how to do average. But I think almost anybody can figure out how to do average in the fifth grade." (OID)13

Perhaps people have heard about TFSA stories like this one: (2013) http://business.financialpost.com/personal-finance/tfsa/how-about-a-big-bet-on-the-u-s-housing-market-for-your-tfsa?__lsa=dde9-c7fe Then you say that he is a gambler. But: (2017) http://business.financialpost.com/personal-finance/tfsa/not-for-the-faint-of-heart-the-500000-tfsa-and-whether-its-right-for-you?__lsa=1bb1-7f23 Maybe the investor is on this board as I gather that a lot of people liked/like Fannie Mae stuff. I understand that CRA (CDN IRS) may have an eye for outliers. We're egalitarian, aren't we? Or perhaps they believe in efficient markets! The other point I'd like to make is about the other side of the sunset provision. I recently discussed with my two older children (turning 21 and turning 20 in 2017) about the effect of compounding on the maximum possible contribution (they both got the 10k bump in 2015) over a period of 30-40 years and +. It helps to restrain yourself from keeping up with the Joneses. And from Bloomberg today:"Prime Minister Justin Trudeau will try to convince Canadians he’s just as good at generating growth as he is at handing out checks". I agree with basic distribution but the wording unfortunately reveals the underlying subtle pervasiveness associated with the Robin Hood etiquette. One of my interests is exercise physiology. At some point, if you want to shine, you simply can't improve endurance AND strength. At some point, one has to compromise, ie the "improvement" obtained on one side is made at the expense of the other. I suggest that the automatic stabilizers may offer better protection than some arbitrary choice. Today, no change has been announced for investment taxation but it is in the air.

Uccmal, One of the great things of this forum is to read stuff that resonates with our own thought processes. I find that what you write is useful and hope to eventually contribute too in a material way. I will keep a safe distance though and will not hesitate to challenge you (politely). This is a period of relative hibernation but I'm sharpening my pencil.

Interesting take rukawa. You may be interested in a course given by Andrew Metrick and Timothy Geithner (yes him) called the Global Financial Crisis (Coursera). I enjoyed it. I will tell you that I feel for the main actors when Financial Pearl Harbor hit. The course actually does a good job (balanced) at describing conflicting priorities that have to be dealt with urgently, with incomplete information and an un-written script. I see your point but perhaps one does not need to modify profoundly a system that has worked fairly well over the last centuries (reference to schwab's post). Perhaps, to prevent moral hazard and unintended deleterious consequences, strict and focal application of the Bagehot rule should prevent short term liquidity crisis management from morphing into a nightmare of historical proportions. For completeness sake: Bagehot rule:Walter Bagehot, a 19th century economist and editor of The Economist, designed the solution that remains as relevant today as it was then. The Bagehot rule is that the central bank ought to lend freely to a failing bank, against high-quality collateral and at a punitive rate.

I'm with SharperDingaan on this one but thank you Schwab for the thoughtful and measured response. Yes, the "over-hype" has to be put in perspective. I also think that there is now a pervasive and embedded moral hazard. There are "checks" but I submit that this may not be effective going forward especially during periods of stress. Given this context of equilibrium, how do you explain the Japan experience (not exactly conservative in its money creation predisposition during the last few years) and the evolution of its currency exchange rate curve? Thank you for the historical link. A few months ago, I read a book about John Law who has contributed greatly to the application of fractional reserve banking (good thing and a cornerstone of capitalism). Perhaps then (like today?), this foundational concept was contaminated by money printing gone too far. I plan to start a new thread with a commented review of that book or perhaps will include it later in this thread if it continues to have life.

I really admire people who are successful and humble. Rare combination though. We often underestimate the impact of luck. This is hindsight bias at work. Retrospectively, it may be easy to attribute your results to skill when really there was a confluence of circumstances. Having said that, long term good results are likely related to a superior approach. Hearing about the study done here, a parallel can be made to the book Free Capital. People from various backgrounds using different approaches can obtain good long term results. There seem to be common denominators though.

Good point jeffmori7. For our international friends, The TFSA is an individual tax protected account with rules. This is specific for Canada but many countries have them. My understanding is that for the US, the Roth program is similar. Interesting though how initial intent (announced intent anyways) was to give an opportunity for all adults (from the richest to the poorest) to amass sums for whatever, be it big ticket items, special family trips, down-payment for a house or retirement. If you look at official government statistics and some studies, those who benefit from these accounts are those who don't really need them! ie the high wealth households. Like you say jeffmori7, it is possible to benefit from the deferred tax advantage especially if you save and invest with a plan already. If you look at the statistics, the high wealth household effect is even more marked when you take into account the spousal contribution of those with no or minimal real earnings (ie the contribution is really derived from the spouse having earning power). Over time, it can really add up. Snowball. The disappointing revelation though is that many of those (my take: the majority) who would benefit from saving and compounding end up using the account mostly as a short term savings account. Also, some have shown that the contribution to the TFSA mirrors a smaller contribution to other tax deferred accounts (RESPs). So yes, this is an advantage to the high wealth households that is relatively new and compounding. But isn't it available to all and isn't it a matter of choice to a certain degree? Some suggest that the government should try to convince people that it is a good idea to save... really? Delayed gratification is not fashionable these days. Carpe diem?

I know, we should look for undervalued securities and remain fully invested and all that. I know, we've been through world wars, depressions etc and most of us are still alive. What's more, fractional reserve banking may not be the topic of predilection on a first date or during cocktail parties. And to top it all, some pundits (often dogmatic) have been pounding on the dangers of FRB for years, in the midst of the Great Moderation. BUT I really wonder though because we really live in an exceptional period. Don't we? Fractional reserve banking is the topic and unprecedented central bank back intervention is the source of unease. Why worry? Maybe because my 10 year-old daughter would likely reject this model if basic premises were explained to her. In the 30's, Henry Ford probably said that it was a good thing that most Americans did not know how banking really works, because if they did, "there'd be a revolution before tomorrow morning". Mr. Ford was certainly an exceptional man but his opinions on economic topics have generally not followed him in posterity. He may have had a point though. Connecting to our New Era, I would say that if people had an inkling of the greatest (by far) monetary experiment of ALL times, perhaps we would need something more crushing than financial repression. Schwab, thank you for the explanations and the link. My take on the topic is less technical and more historical. In this context (even if short term in nature), I would not use smart to describe the extent and duration of that experiment. Like you say, for the system to work, you need trust. Long term, the foundations of systems are occasionally re-visited and, when this happens, sometimes you find that the emperor is naked. I would not want to go back to the Gold Standard but, at the end of the day, there has to be some kind of rational quasi-automatic mechanisms against human nature. The whole global financial montage sits now on the confidence that the Federal Board members (and other Quantitative Easers) inspire. I say this is not healthy. My opinion is different and I take into consideration your points. This is just my perspective. I apologize but the following link (cartoon top right) perhaps depicts the great man under a different light. http://www.philstockworld.com/2012/09/13/thursdays-fed-folly-time-for-bernanke-to-put-up-or-shut-up/ The money and artificial reserves creation has blurred the reference points essential for the markets to function in a self-sustaining way (yes with recessions and without volatility suppression) and (I believe) has created an unprecedented minefield of unintended consequences: yield seeking speculation, artificial levitation of global asset prices, quasi-equivalent funding to governments to run deficits and accumulate un-sustainable unfunded liabilities and general complacency about debt. Reserves dynamics obviously are highly complex. I tend to wonder at academic banking geniuses with little real world experience who tamper with the foundations of our market-based economy. Who am I to say? Maybe I should ask my ten year-old. What will happen? I simply don't know. I feel though that it may get dirty and may not smell good. Who will be there to pick up the pieces? Time for NIRP, Helicopter Money, anything else? The sky is the limit?

RichardGibbons, I must say that my opinion here is different. That's OK. I submit that you are making a very big assumption when you say:"Thus, there's a decent chance that the economy will actually be bigger if you redistribute the wealth to people who will actually spend it." I agree on basic redistribution. But, perhaps a significant factor that should not be forgotten is that wealth has to be created before it is re-distributed. Perhaps from personal experience, did you ever feel how easy it is to spend funds that does not come from your pockets. Noble intentions make this endeavor even more gratifying (on the surface). G. Gekko said greed is good. The Great Allocator says redistribution is good. Funny but I feel uneasy about both characters. The balance must be somewhere in the middle. And the second one (my opinion) may even be more insidious.

The topic is potential increase in the inclusion rate of capital gains. Hope it doesn't occur. Of course, this is a subjective topic. An interesting angle is that it is a comparative game. Here's a link that is representative of many. (see p.17-18, fig. 4) http://www.theasi.org/assets/EY-ASI-2014-International-Comparison-of-Top-Dividend-and-Capital-Gains-Tax-Rates.pdf The top integrated rates relate to the double taxation impact of capital gains. The US stands out but many (controversial) suggest that the true effective rates are lower than statutory corporate rates. For reference a Forbes article. (relatively objective article but some may want to look elsewhere perhaps for a more balanced discussion) https://www.forbes.com/sites/taxanalysts/2015/03/25/the-truth-about-corporate-tax-rates/#76b94034742c My opinion (personal opinions not worth very much) is that -comparatively, there is little room to go up. -at some point, a small or any increase may have a disproportionate net negative impact. (I think we're there) As the famous economist (who won the Nobel prize for technical work) summarized: "There is no free lunch". I say: "You can't have your cake and eat it too". At some point, you can have too much of a good thing. Let's at least hope that rates are kept where they are.

--Interesting comment about turnover: "In other words, average "passive" investors hold their ETFs only about 47 days! It’s even worse with the SPY index fund (linked to the S&P 500), with an average holding period of around 12 days, or an annual turnover rate of around 3,000%. This compares with an average turnover rate of 120% for stocks in general. Just to give you an order of magnitude for the purpose of comparison, the turnover rate of our model portfolio is around 14%, which means that we keep our stocks on average for about 2,500 days at Giverny Capital!" So now long term investing is when you hold your investment for more than 3 months? How will this crowd behave if/when somebody shouts fire? -Mr. Rochon talks about his podium of errors. Impressive. --On Valeant: "Our confidence in the CEO was, in retrospect, a serious misjudgment of the person and his leadership qualities. Clearly, under pressure to maintain a high rate of growth, deleterious decisions were made. This was coupled with a significant increase in indebtedness." Valeant has a separate thread. Mr. Rochon considers the investment a mistake even if they made money on it. I prefer this kind of mistake but like, the Giverny guys, it may be important to learn from those as well. Leverage is beautiful when there are no headwinds. --On Alimentation Couche-Tard: "In 23 years, the stock has multiplied by more than 200 times." "This omission mistake has been haunting me for more than 20 years." Me too (in a big way). For those who are not familiar, this company is not about technology or revolutionary products. It has become a global consolidator in the convenience store industry! The history is fascinating. I am reading (in the huge pile on my desk) the founder's biography. This may be an idea for another thread. The conclusion here is that, if you can spot, a true long term wonderful compounder, be ready for pay for a good price. When I was in university, I bought myself a car (VW). If, instead, I would have put the money in ATD.B, today the investment would be worth around 3 millions (that's a lot of Ferraris). Food for thought. I know, we should not think like that. Shakespeare had something to say about this line of thinking: "We know what we are but not what we may be." (Hamlet, Act 4, Scene 3) I say that, maybe, it is better not to know. This story is particularly frustrating because I was able to witness (scuttlebutt) first hand the transformation that the acquired stores went through after the serial acquisitions and this was within pretty much anybody’s circle of potential competence. In the years 2000's, I was always behind the ball on this one. In 2008, I finally put my finger on the trigger. Chose other targets. The founder CEO Alain Bouchard pulled the trigger himself in 2008 and purchased 16.9 million shares. Since then the share price went up at least 12x and they introduced a dividend since. Do I need to say more? One of my long term goals on this Board (my take of long term is not 3 months, it's more like 10 years) is to help uncover and dissect such a long term compounder going forward. --On Mohawk industries (carpet manufacturer): The Giverny group did not double down in the 2008-9 downturn. I have held MHK too and my mistake is different. I picked it up in the 2008-9 period as a investment that was blasted by the real estate downward spiral of the subprime unraveling and that would recover to intrinsic value relatively rapidly. I got that right but failed to see the long term compounder characteristics of the firm after. It became a bagger. Could have been a multi-bagger. Food for thought. --On politics, Mr. Rochon says: "It would be a mistake to let our political ideas, as valid as they may seem in our point of view, to blurry our investment decisions". I would tend to agree but then again who I am to say?

Thank you Charlie. I tend to read the report every year. He may not be well known as he comes from the other solitude. He is one of the fund managers I respect a lot. Has a very satisfactory long term record, a consistent approach and recognizes and even discusses mistakes. I like the quote from Mr. Munger: "I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn". And I'll add this one too: "There’s no way that you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke". Time to read and think.

Wow! What a post. In all due respect, Mr. Buffett may not be able to go back in time but I would not rule him out as he may be able to opportunistically wind the clock a few more times. (reference to the movie trailer) I came to investing mostly as an accident. Mental models and multi-disciplinary thinking are cool. (and useful) What you describe makes me think of hysteresis. A concept applied mostly in science (often electro-magnetism). It has to do with the fact that exposure to a temporary phenomenon can leave a permanent impact (latent). This concept ties well with your path dependency description. Hysteresis is applied also to social sciences. I think it is used for instance to explain less than rational decisions related to the concept of sunk costs. We tend to think that we are free from biases. Not true. Unrecognized biases are the worst. Your post helps with that. Thanks.