Cigarbutt

Mr Maida, in his letter, comes to the conclusion that the recent election does not essentially change the global investment picture. I would tend to agree. LC, feedback appreciated. You clearly spell out a position and openly recognize what you consider to be a mistake. I really respect that. I will try to do the same if and when needed. At the end of the day, I agree that your "exposure" to "risky" assets is a personal decision especially if you don't manage funds for others. Here, I will keep looking for opportunities and, whatever the context, remain ready to deploy funds in a big way. I tend to hesitate about the "trade-offs" that Mr. Maida describes especially now. I would tend to side with Uccmal but "delevering" has gone down much further for me. Delever in order to deliver. I think Mr. Munger has mentioned that Benjamin Graham's results would have been better during his later investment career if he had not been shaken by the 1930's period. Despite the bumps that we went through in the last few decades, can we not say that times have been good? I wonder if some famous investor in the future will reflect on today's time as unusually complacent? Carpe diem?

Let's not mix politics and regress here but for context, I usually lean right. Flexible though. Medical user fees have been used in many countries and the impact has been studied. (My understanding is that many Scandinavian countries use them) I include a simple link but "academic" studies also point, in general, to the same conclusions. http://www.cfhi-fcass.ca/sf-docs/default-source/mythbusters/Myth_User_Fees_EN.pdf?sfvrsn=0 Interesting to note that sometimes theses fees are referred to as deterrent fees. My first reflex is to agree with user fees. At first glance, it seems to make sense. However, when you think about it and look at the studies, the net result is a negative. -People of the hypochondriac variety will consult even if there are fees -A significant number of people (especially the poor or those close to their money) will not consult or stop follow-up -Fee revenues will be negated by higher administrative costs Health care system waste and inefficiency are big problems. Unfortunately, I submit that user fees are not the answer.

Some way want to look at some graphs esp. p.14-25. https://www.fraserinstitute.org/sites/default/files/sustainability-of-health-care-spending-in-canada.pdf CDN data but, in fact, similar trends appear elsewhere too. Add demographics and it will be interesting to see the political capital allocation game going forward. With change come opportunities?

For somebody who has no idea, I find your insights pretty convincing. If interested in comparative benchmarking: https://secure.cihi.ca/free_products/Benchmarking_Canadas_Health_System-International_Comparisons_EN.pdf If interested in aggregate measures: https://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_per_capita I would tend to say that the CDN system compares to European counterparts. The US is a clear outlier in the aggregate: much higher expenditures/capita and failing marks on basic health measures. I also would like to bring another level of comparison ie inter-generational level of health care. I would submit that, despite significant improvements needed, the level of care that you may receive has nothing to do what perhaps your parents or grand-parents had access to. Food for thought.

Starting to see the bigger picture here. I realize that the administrator is the soul of this forum. Apologies for the Fairfax punches. I accept the fact that my working hypothesis is taken as wrong. We all face our potential Waterloos. (Maybe polite dissenting voices should be heard) Yes, downside protection, patience and prudence are not fashionable these days. I like though the idea of chugging along ahead of the markets over long periods AND sleeping well at night. LC, thank you for your post. I aim to dissect specific ideas but this is a major question for me right now and I assume that it is also relevant for some. You see, when I read your post I agree completely. I reviewed the work done by racemize (thank you) and I nod yes reading the analysis and the conclusions. However, the difficulty I have (trying here) now is that I don't see opportunities. The obvious answer is to consider trade-offs like Mr. Maida suggests and to expand the opportunity set. Reference to Mr. Buffett in the early days is very relevant. His actions have been studied but he is not the kind of guy to show all his cards. My understanding though (early 70's period) is that he was pretty much fully invested and possibly sold positions that suffered less in order to buy deep bargains (eg Washington Post). That makes sense. Giverny Capital, an investment firm I follow from the outside and who I respect have shown long term decent returns using this approach. But, right now, even if I kept everything in cash, my inner circle has enough to last expected life remaining and more. The idea (fun) is to get closer to the returns that Mr. Buffett was having during his early periods by adapting the model. When you change something, the aim is to improve, but this is a Bell curve in the aggregate. Perhaps I need to get rid of biases and misconceptions but I just looked at my portfolios in 2008. Outside of cash and equivalents, the only holdings mostly left were FFH, ORH(OdysseyRe) and Gold. Looking back, I have difficulty believing that I held gold bars in some vault at some point. This was primarily the result of limited opportunities which I realize in my case tends to be correlated with overall poor returns going forward for the markets in general. A similar situation occurred during the dot-com bubble. I want to adapt, but for the better. I want to be convinced that I need to be more fully invested. The easy answer is to expand the opportunity set and accept trade-offs. Somehow though, I submit that this may not be the best time to switch hats. We'll see.

http://www.patientcapital.com/news The Winter 2017 edition is out. Mr. Maida shares his usual concerns and wonders about notable investors going all in. He also takes a shot at the "Cult of Buffett". Price is what you pay and value is what you get sort of analysis. Interesting take on trade-offs in investment decisions. He reports a 7.0% return since inception (early 2000), before fees and expenses. From the letter, we can infer that he has maintained a high cash and cash equivalent balance overall. His conservative approach is heavily weighted towards downside protection. Since inception, this has "cost" some return. But, you know what they say, past returns are not indicative of future results. I would submit (opinion) that, going forward, that cost may have more embedded value. I have respect for him and would advise my estate to consider him given his long term patient and prudent perspective. For now, going all in, be more selective than ever or somewhere in between, that is the question.

I’m new here. My goal is to reach 100 posts and then to contribute to specific ideas. The interesting part of this forum is to create investing goodwill by combining our higher thinking capacities. Isn’t it? Respectful collision of ideas. Invert, always invert, some say. When discussing politics, we tend perhaps to revert. Here, a concept and a picture are worth a thousand words. http://www.kheper.net/topics/intelligence/MacLean.htm Can we stay at least at the primate level?

I did not know what dud meant. I looked it up. Your judgement is quite severe. We'll see. Maybe, over time, the 90-90-90 rule will apply here as well. Looking back some threads and anticipating, I continue to think that compounding can be maximized in some instances. Good luck.

Interesting. There are many ways to skin a cat, some say. Like many, I find investing fascinating but it remains only one area of interest. Perhaps a gratifying aspect of investing is that results allow you to gain control of the schedule and have more time for other activities (whatever you may choose). Over the years, I find that I'm using a sort of an unconscious 90-90-90 rule. -90% of the investment universe is outside my pockets of wisdom. -Of the remaining 10% of potential opportunities, at least 90% get rejected very rapidly. -Of the remaining 1%, I devote at least 90% of my time to delve. When I hold something interesting, I delve deep and sometimes, the idea makes it to my investment punch card. I know I miss a lot of opportunities that way and I enjoy slowly enlarging my opportunity set but that seems to be an approach that maximizes the return on the time invested. I will call this the "ROTI". Involvement in this forum is likely to be beneficial in that regard. Hope this is useful to others.

Financialization and financial engineering are the issues. And it disturbs me too. I know this too shall pass and that won't prevent me from eating my breakfast. Banks are critical but the underlying business is pretty simple. Isn't it? A lot of talking heads link this financial hypertrophy to income inequality and income stagnation. Makes sense. The solutions proposed by the same though often only circumvent the issues. More regulations does not sound good. I hope creative destruction infiltrates the network of financial intermediaries. Hopefully, the damage will be "contained". Make the real world great again?

Mr. Buffett is revered for his good decisions leading to good results. The Lubrizol loss is significant. However, despite the amazingly large size of BRK, these types of losses occur at a relatively very low frequency and, when they occur, are embedded in a sea of black ink. Another aspect of his accomplishments is the unbelievably low rate of bad decisions leading to bad results. But nobody's perfect. Thanks for the link.

Not intended to be a political post. Informational only. Interesting recent links for long term oriented investors perhaps. https://finance.yahoo.com/news/top-prosecutor-bharara-remains-office-being-asked-quit-191220559.html http://www.newyorker.com/magazine/2017/01/16/when-the-feds-went-after-the-hedge-fund-legend-steven-a-cohen “Animal spirits are back”. Interestingly, the second article was also run under the title: “Total return”. By the way, my favorite Star Wars movie is the Revenge of the Sith. I wonder about the ending though. Like the recent Nobel Prize winner pushing for deregulation used to say: “The times, they are a changin”. It’s all about adaptation to an evolving environment, isn’t it?

Interesting topic. Can bring some relevant info from micro and macro side. Premises before reading on: -Healthcare advances, organization and access have improved overall +++. -Prevention is key and large problems are entrenched. -The perfect system does not exist. The question is: where do you go from there? Opinions: -The CDN system performs better in the aggregate (mostly because it is socialized). -The US spends much much more per capita but it is less efficient. -For the well-to-do (most people on this board, I presume), The US has advantages that still currently outweighs the disadvantages (mostly costs). For those really interested, Ezekiel J. Emanuel from the medical policy division at Pennsylvania University, through Coursera, recurrently gives lectures on the US health care system organization and teaches a special course on the Affordable Care Act (Obamacare). If you go this route, one has to remember that he believes in government intervention and has been one of the architects behind the ACA legislation. Even if you can't stand the Left, I would say that he does a reasonable job giving the info and letting you decide for yourself. The US system developed in a very unusual and atypical way because of many reasons, including the bi-partisan nature of American politics. The resulting infrastructure is mostly the result of incomplete and often contradictory compromises. The fundamental problem is (my opinion) that the foundation is fundamentally weak in many ways. This created a situation where many layers of "improvements" (Obamacare/Trumpcare type programs) were applied over a poor foundation riddled with unintended consequences. After reviewing the projected new legislation, I would submit that Trumpcare offers some differences but I agree that it is basically an Obamacare-lite or a Obamacare-more Republican friendly type of legislation. If enacted, the number of uninsured will rise but the underlying flaws will not be addressed. I suggest the following link because 1-it shows somebody looking for a job and 2-perhaps it helps to understand the bi-partisan dynamics of the US political system. http://www.salon.com/2016/12/03/obamacare-architect-ezekiel-emanuel-donald-trump-has-an-opportunity-to-do-enormous-good-or-to-create-chaos/ Individual opportunities will happen for investors in this space but the fraction of healthcare expenditures/GDP cannot rise forever especially in the context of the aging demographics. There is also a huge (and largely unpredictable) regulatory risk. One way to spot occasions would be to look for survivors and to identify those that can build market share in a mature market. Long term, I hope I can be of some help here eventually.

I think I met the loyal shareholder label. I remember very well when I increased my position in 2003 (even in my kids’ portfolios) without even blinking. I had remained confident and optimistic despite the shorts, the restatements, the material weaknesses and the rest. In the last 15 years, investment in Fairfax varied but ran as high as 40% of my net worth. Over the years, some significant investments looked unusual and the Blackberry twist raised an eyebrow but I respected the long term track record and remained optimistic. The cautious approach made sense given the definition of risks that they saw. Yes the world is changing but the change did not occur on election day. I just cannot incorporate this presidential volte-face into an intellectually honest framework. Apologies. Maybe, I am not bright enough. The easy thing is just to sell, which I did and will say no more. Fairfax used to be my flagship holding and now it stands in my cigar-butt bin. Sad. I sincerely wish them good luck. The sun also rises.

LongHaul, I like your bottom line: "Best to do industry by industry when one invests". Going after the moat, aren't we?

Thank you all for the discussion. Yes this is a great board. I agree: -Mr. Hussman's record has been poor over quite a long period. -when one is wrong, it can become very hard to admit it without losing face. -I agree (not as easy as it sounds) that one has to change conclusions with changing facts. -investment is most fun bottom-up looking for opportunities. However, it may be still to early to cast the final vote on him as: -many respected value investors look awkward now. -some could argue quite strongly that markets now are at least frothy. If I would lose my mind (I have a feeling some here may politely and rapidly suggest that hypothesis), I would split my estate and probably a portion would be allocated to both Mr. Vaida and Mr. Chou. Just like a business, I submit that one has to look for: -competence (education and experience) -passion -integrity (and that includes intellectual integrity) Bottom line though, if I would have to choose the best of a limited set of options, based on the third criteria, I prefer somebody who is wrong but gives you his rational underlying the conclusions versus another group who change (radically, with basically the same numerous underlying assumptions in place, just adding an inconsequential ingredient) their mind without a reasonable and rational explanation. Sorry. We may have a chance to discuss this in another thread later on today.

Thank you notorious. I enjoyed the presentations. Painful reminder though. In 2008-9, I had my finger on the trigger for both Carmax and Stella-Jones. Chose two other targets. Did well. But would have done even better with KMX and SJ. Live and learn. Both are still on my watch list but our job is to buy low and sell high, isn't it?

I would say that Mr. Hussman never came across as a greedy or dishonest individual. You can affirm that he's been wrong but, at least, you can base your conclusion reviewing what he has repeatedly explained concerning his premises and reasoning. True, he may suffer from anchoring bias (most of us do, don't we?) but, at least, he's been consistent. For (?gullible) investors still with him, at least they know that his process will not change 180 degrees because of a relatively peripheral reason ie a presidential election. To outperform, you have to be different AND you have to be right. In 1969, Mr. Buffett felt that relevant opportunities had virtually disappeared, that he was no longer attuned to the market environment and that he did not want to play a game he did not understand anymore. Based on that, he liquidated his partnership. Wow! He was different, he was right and he had the timing right. That's why he's referred to an Oracle. I would submit though that Mr. Hussman's message here maybe was simply related to the fact that it may not be easy to liquidate BRK now (!), in the event that, deep inside, Mr. Buffett felt that markets are speculative now. And yes, let's focus on finding ideas. By the way, in a video presentation (around 3-4 years ago), Mr. Maida had shown a slide showing his returns with the effect of cash balance removed. He had explained that he usually kept a high cash balance and that caused his overall returns to come down. Perhaps the easy conclusion is to remain fully invested at all times? However, 1-this is retrospective analysis, 2-maybe the higher stock returns happened because of the high cash balance or the hedging and 3-a challenging aspect of investing is that it takes a VERY long time to define your performance. Secular forces sometimes have a way to change individual trajectories.

stahleyp, I like your balanced approach. There is a lot to learn here. It may be useful to "learn" from others' "mistakes". I have long term respect for both men and this gives rise to cognitive dissonance. Mr. Hussman may have a point when he suspects that Mr Buffett does not want to cause a ripple as he is writing his last chapter. Mr. Hussman uses a lot of technical/statistical verbiage that tends to over-simplify the complex nature of markets. However I find that a lot of his conclusions have a sound basis. Timing is a key issue though. If you are a vocal bear and a doom and gloom predictor, you better be lucky or right fast. Otherwise, you may look like you're stepping out of line. Then you look at the trend for AUM and realize that it must really feel lonely. Even if you're right, markets can remain irrational for very long periods. Mr Buffett is really a champion in terms of being ready if and when warranted. Like right now with a huge cash position and a long term outlook. I really admire that. One has to balance keeping rational principles intact with an evolving environment with new facts or newly integrated known facts. Challenging. This board has to do with facts but opinions also count (less). Right now, if I would manage funds for people outside of my inner circle, I would close my fund and advise to buy Berkshire stock. My last line would be from the Terminator: "I'll be back".

Hi Schwab, You're right. There are many variables, some are correlated and some go in opposing directions. We're trying perhaps to detect material trends within this maelstrom of variables. You touch on many of those variables. To help, cou you elaborate on the "hidden deflation for nearly all types of goods and services, other than necessities and labor"? Also, my understanding is that Mr. Yardeni is mostly a data provider. It is reported that he may feel that margins may stay elevated for some time before competitive forces eventually prevail. But, I don't have knowledge that he has made specific hypotheses with specific underlying premises/reasoning to support or reject an initial assertion. Can you clarify which main factor(s) will cause the presently high margins to stay high over time?

LongHaul, I have looked at this (foreign sub advantage) many times. Perhaps you can look at fig. 9 and 10 of the next link (Yardeni work). http://www.yardeni.com/pub/ppphb.pdf I think foreign profits tend to move margins higher but this does not appear to be a major factor especially since the "Great Recession".

I want to move away from these macro questions but the recent letter by Mr. Bill Gross sways me back to this "problem" with "generationally" high margins. https://www.janus.com/insights/bill-gross-investment-outlook/archive-page What is going on here? Concerning the stagnation concept versus more dominant players around notion, I would tend to side with the stagnation mindset as we are going through an amazingly weak recovery despite unprecedented monetary stimulus that just does not seem to get transmitted to the real economy. I prefer to look at companies at the micro level but there may be an interesting parallel to be made here with real implication for the individual value investors. There are typical stages for a firm. When a firm reaches maturity, it will normally "stagnate" in terms of growth but, despite this, will, initially in that phase, maintain its margins. What is expected after is a collapse BEFORE a new phase. At the aggregate level, since the "recovery" after 2008-9, asset utilization has disconnected (down) from profit margins. see end of document, fig.25 p.13:http://www.yardeni.com/pub/ppphb.pdf This disconnect, I think, point to inflated aggregate margins due to unusually low interest rates and a net declining trend for effective tax rates in the US. Some may refer to this state as a zombie economy. Mr Dimon refers to animal spirits being back in the game. I would submit that this awakening is not likely to come durably from promised lower corporate taxation. My take is that our economy may have reached some kind of maturity. Who knows what comes next? Maybe creative destruction will do its magic. Let's not forget though that destruction is sometimes painful. I certainly don't hope for a deep recession but downturns represent opportunities to move with a cleaner slate.

Interesting. Good links too. In the past, J. Grantham, J. Montier and J. Hussmann have also produced interesting work on this issue. At the aggregate level, there are many moving variables and the link of profit margins may be just a correlation through the Dupont ROE decomposition. The chicken or the egg? I still think though that profit margins are cyclical and present levels don't appear to be sustainable long term, but perhaps we should not hold our breath. I agree that unusually low (suppressed?) interest rates play a fundamental role linking much higher debt/leverage and still lower interest payments on that debt. Despite the apparent dynamism of some sectors (FANGs and others), I submit that we need more competition driven creative destruction. Of course, you don't always get what you need. What's the implication for stock picking? From my perspective, I usually use a long term view with normalized earnings that take into account a more normal competitive landscape in the specific industry where the index firm is operating. By doing so right now, a lot of investment candidates simply become too expensive. I then tend to pass. Missed opportunities maybe?

I’m (slowly) working on a few specific investment posts but keep coming across this question when fishing the bottom sea. An argument could be made in favor of a permanently higher plateau for profit margins. Perhaps I need to be educated here cause I think it is mean reverting and, obviously, the implications are very real. Irving Fisher almost last words had to do with « a permanently high plateau ». We know how that ended. Our mentor, Mr. Warren Buffett has made pretty definite comments about this a few years ago (see link below), but I gather that he may have changed his mind on this? http://www.businessinsider.com/warren-buffett-on-profit-margins-1999-2014-3 Recently, respected sources (like the Semper Augustus letter) have tried to define a rational behind this new paradigm. Many pundits support that hypothesis (on premisses of lower interest rates, lower effective taxes, more mature economy, modern Great Moderation macro achievements etc)… When I hear about new areas, I fret. So perhaps, I need to be educated here. Any thoughts?

I also would mostly agree with the provocative post by Jurgis. One of the great things about value investing is that it is OK (even desirable) to be un-conventional. If you have a strong inner score card, independent thinking can be rewarding (fun and $). Having said that, if you want to be happy, probably better to see value investing as an adjunct. If you manage funds for others, it is hard to succeed using a singular approach, in part because unconventional failure (even temporary) may be hard to swallow for the partners. Perhaps this is a topic for another thread (book review), but I have also a copy of the book "Free Capital" that I keep on my desk. Wildly different lifestyles combined with seemingly divergent value investment styles can lead to similar results. Interesting. Interesting links winjitsu. I would only add that investing, in a way, tends to be simple but it's not easy. Outperformance is the goal. To achieve this goal, we have to be different than the average AND we have to be mostly right. And we need to be constantly adapting to new circumstances. And there is a lot of (uneven) competition. Difficult. Worth the try.