Myth465

I see your point and you see mine. We will just have to agree to disagree, but thats what makes a market. Happy investing. http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2856.0 As will I. Enjoy the wait though. A selection of prior topics discussed by the Original Poster. Hussman slams QE2 All the negative news Reconciling the two Buffetts... The Fed is Completely Insane Prem and the not so cheery outlook Re: Buffett on Inflation and Stocks (Part 1) Charlie Munger on US Economy: Pain Not Over ---- I am not that bright, but I see a theme. Anyway I have said my piece and probably a bit more. As I said prior the market is probably a bit ahead of itself and one of these days you will be less wrong and more right. Also you were right, I stand corrected. It looks like your cash was around 50% and you said earnings not cash flow. Congrats, I never had the best of memories. :)

If oil goes to $20 BNSF will have been a poor investment just as SD and CHK will. Different assets ,same drivers, ultimately same outcome. Having something go from 20x earnings to 8x makes you look like a genius, having it go to 50x earnings due to low energy prices has to kinda reverse that doesnt it. SD, CHK, XOM wont disappear at $20 oil, they will just be repriced downward similar to BNSF. Assets have value - you can buy something and use it to generate cash. You can buy an empty house, fix it up, and rent it out at 12% -20% cash on cash returns. No speculation, no greater fool. As I said not every none cash flow asset is like gold. The only way Coke generates income is when it sells its Sugar Water to someone who has a better use from it. By your logic, investors are speculating on the price of Sugar Water and hoping that Coke can sell increasing volumes of fizzy drinks at higher prices. JOE is not speculating on anything. Neither is Berkowitz. Neither is Einhorn. They all have different ideas of what the land is worth thats it. 3 investors, 3 ideas (well 2 now 1 got fired), and 2 different valuations. Its not speculation because there is no cash flow. There is a cash flow valuation, and a net asset valuation. A building in the middle of New York City is not a speculation because it has no tenants. LOL But thats my opinion. We can just agree to disagree. Speculation has more to do with the investor than the Asset. An asset could have 5 stakeholders going long / short. 5 people could have 2 investors, 2 speculators, and 1 idiot. Its more about the mindset and knowledge of the person than the asset inmo. ----- Smazz - some of those words are a carry over from about 6 prior doom and gloom conversations which went back and forward quite a bit. Unless I am thinking of the wrong poster. I find the Macro posts interesting and useful actually. They serve as a trigger to get me to reconsider things.

What do you mean, Wells has great customer service ;). Bank confusion turns into $10,000 problem Man gives (cute) daughter $10,000 check. Wells Fargo thinks its fraud , closes her account and then wont return money! http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=7996116 Stolen from FW. With that said My brokerage and Checkings are at Wells and TOS. Tough not to have a few weird cases when you are closing in on 10% of deposits.

No prob. I believe the original poster has held greater than 75% cash since early 2010.

Agreed we just have different styles. I dont adjust my cash based on the market. I adjust it based on whats out there and what I find. If you found a security that contained safe high quality liquid assets of $100 million, selling for $25 million would you not buy alot of it because the market was overvalued? I think Buffett would make the same argument. I dont think there is anything wrong with timing the market. I attempt to do it with most investments lol. I just dont agree with this whole armagedan is coming I want 100% cash mantra. My issue is you are focused on the level of the market vs. the IV whatever you are interested in. I react similar to Soro, im fidgety and nervous, and bothered when the markets are high. The only way I end up getting peace is by selling something and holding cash. I just dont agree with 100% cash, then back in and then back out. You find yourself like our original poster. Missing great 2-3 month rallies on cheap securities. Again different styles, yours is a fair one. I think you misunderstand here, Assets have value because they can produce cash flow. A piece of land doesnt rely on the greater fool, it relies on the fact that the land has an intrinsic value because it can be put to a better use which generates cash flow. You are confusing all non cash flow generating assets with gold inmo. An empty building still has value, and so does a patch of land with oil on / in it. Well CHK and SD are interesting. They are asset plays which are turning into cash flow plays overtime. SD and CHK rely on the same premise that Burlington Northern did. Higher energy prices over the long term. Pickens, Watsa (guessing here), Buffett, Grantham, and many other value investors believe in the premise. CHK is gas, SD is oil. Supply and demand for Gas are not good, they look great for oil though over the long term. I will be the first to say oil is getting ahead of itself but the supply fears with the mid east are real. SD is hedging 100% of production over the next 4-5 years at these prices. Not found in Google Finance 2010 numbers are 1 million acres in what may be the best oil play in America. SD paid $200 an acre for the land, while others are paying $5k to $10k per acre for similar though less good acreage. All cash will go to drilling, and all additional cash will go to drilling, they will convert reserves to cash flow and find new reserves. If you think over the next 10 years oil will go higher then the reserves value and cash flow will increase. If you think oil is a bubble and should be $40 then you would be a fool to buy. At $85 Oil SD is worth north of its current share price. You have to make a macro call on energy prices, similar to what Buffett did with Burlington. Its not speculative. You do your research, make your bet, and you are either wrong or right. Its all a bet, hopefully we are simply making educated ones and are right more often then not. Bet when you think you have an edge, and bet within your circle of confidence, finally bet at the right price. I dont do banking bets, just dont get them yet. I can understand why Buffett avoids direct bets on commodities and tech, but that doesnt mean a 20 something should follow directly in his footsteps. SD is getting 120% returns on hedged oil in the Miss. You are correct though, its hard as hell to get your mind around where they are going. They have made it much easier with the investor day. With that said, I would be looking to sell oil now or after the next big spike if there is one. Im in a bad position though, I think SD and ATPG are still severally undervalued. These oil prices will have to break down at some point, but if Ward is hedging I am willing to hold. I may end up hedging if I can find a cheap way to and if we see another $150 oil spike. Basically SD will rally until it doesnt, and then will trade down when energy prices fall as they will and as they should. I dont know when it will stop rallying, dont know when it will fall, do know oil is out of wack, but will hold. Perhaps it goes to $20 and falls to $15, below IV but well above here, perhaps we see $7.50. Who knows. I dont. If you do please send me a PM. Finally the last downturn Ward and his team were able to add perhaps more than $2 - $4 billion of value to SD. They bought Forest, Arena, and the Miss play on the cheap with oil from $40 - $80. If the Miss works out then we are talking perhaps several billion in value. Beerbaron and many others were able to add several $s to their networth. Downturns arent all bad :). The world is just a better place with $90 oil, going up 5% to 10% a year. I believe we will have to deal with peak cheap oil, just hope we deal with it with a less fragile economy.

Please do. I would really set aside sometime to read it.

Ha! I had noticed that! It makes you two sound in a good mood and enthusiastic, so that's not a bad thing ;D Honestly this was my take away from it. I assume you are chipper and positive most of the time based on your posts and exclamations, its a good habit.

Lol I am just wise the original number was a bit bigger. A little x 2 is still a little lol. There are 2 - 3 items I want to dig into. MBIA and 2 other stocks. I just dont have time between work and Q4 updates and studying / gym / personal. Perhaps I should post a bit less.

Our original poster is waiting for Coke and Kraft at 5x future Cash Flow. I dont agree with that I would hold WDC, SD, and ATSG with or without quotes. ATSG has a fairly bullet proof business model. WDC is a market leader. SD is hedging oil for 3-5 years at greater than 100% and greater than $100. Oil could go to $2 for 3-5 years and they would be fine minus the revolver. They are even pushing out debt. SD has $1 billion in cash flow locked in by 2013 based on hedges and planned drilling. WDC is hardly a tech company inmo. Its basically a parts supplier in an industry with 3 big players. They have R&D but every parts supplier does. I wasnt kidding, if you would loan me $4 billion at a reasonable rate, I would buy the whole company (PM me if the funds are available). Same with SD and same with ATSG. FBK and ATPG probably not. Dont get me wrong I love having the quote and need it due to options positions, but I consider myself an owner in all of these businesses. My partial ownership allows me to trade them when Mr. Market gives me a crazy price or when the prospects for the businesses look grim, and I am eagerly looking forward to that day. Also no one has a clue what any company will earn in 5 years. Buffett doesnt really know what most of his holdings outside of the utilities will earn in 5 years. Does anyone really know what an insurance company will earn in 5 years. Whats FFHs profit for 2016. You dont think Prem Watsa would own FFH without a quote. The man wrote in a letter that when he is dead his kids cant sell his shares. LOL What I am saying is I could spend 1 hour and find 20 Buffett quotes saying 10 minutes on macro is 5 minutes wasting or its important but unknowable so dont spend much time on it. We can trade quotes all day. Close the market, and exercise my options when they run out. I am quite happy with most of my holdings. The markets are ahead of the economy but they are forward looking. Either you like what you own or you dont, like the market or dont. Pick one and go with it. This broken clock will be right one day. But so is every other broken clock. At least they right twice a day. A massive pullback is coming. Probably set off by Oil ($100 oil has a way of ruining a good dance), Politics, Euro Crisis, US Debt, and whatever the hell is going on. Everyone has been saying it for months. Hell I am up 75% and I have been saying it for a few months. All I am saying is going to cash and waiting for Dow 5000 doesnt seem like a reasonable strategy. Hold em, fold em, or .... Either you own companies which you know, understand, and like or you own pieces of paper which move up and down each day. Pick one. I own both, and can honestly say that. Alot of people here like to pretend they own businesses, but freight because Mr. Market has gotten a bit excited with everything but his business.

We can trade Buffett quotes all day. Over 40 years he has said quite a bit of things. Doesnt this Buffett guy talk about owning businesses and not stocks,and not caring about getting a quote for 5 years. People kinda like to quote him when it suits their argument and ignore him when it doesnt. For example refer to the original poster. Everyone in the value investing camp agrees the market is on the high side. The question is what to do about it? My argument is its prudent to raise cash. I plan to do so over the weekend (at least put together a plan). Its just not sane to cling to cash waiting for Coke at 4-5x future cash flow.

LOL. Taking what twa said, show him some basic metrics. Give him a basket of 10 companies with 2-3 crappy ones in there and $200-$500. Tell him after 2-5-whatever years he keeps whatever it returns, but you get 80% of the basis or something like that. He would have to pick 1 insurer, 1 reinsurer, and 1 whatever. I am sure he would be quite interested and will learn naturally over the next few years. Its what I did, except without a nice uncle to spot me the money. Also have him listen to some LRE conference calls.

The IV of the market is irrelevant unless you are buying the market. With that said its on the high side of its valuation per Grantham and Schiller. Both of them have a few people dedicated to calculating this. It bets whatever I am going to end up doing. Grantham or Schiller saw zero returns for the next 10 years.

I understand your rationale (I kinda agree and have agreed for a while), but just dont find the way you are playing it out to be rational or realistic. Things are expensive and 10% - 30% cash seems very prudent right now, but I dont think top companies like Coke or Kraft will ever hit 5x Future Cash Flow. Based on your prior posts it appears that that is what you are waiting for. Thats not a pullback, thats Armageddon. Klarman talks about a margin of safety. I could see and have seen him buying companies when he finds that margin. I see you counting cash and talking with Peter Schiff.

twacowfca thats true and a very good point. Someone needs to get to the top, then fall on their sword, but I guess thats asking alot.

Hopefully the thesis plays out accordingly. Hyten is right this thing is quite volatile.

LOL

Not that my vote matters but, Uccmal is quite convincing. Do you work in sales?

That link I sent had an interview with a pretty smart guy. He said Teachers want to be treated like professionals, but the Union wants to be treated like steel workers. They have to make a choice. If I was head of the Union. I would purge the ranks of Pedophiles and tired old ladies who add little value, and would "DEMAND" more pay for realistic performance goals which are controllable by teachers. I would say we are a skilled and professional workforce and I will be the first one to call for the firing of an ineffective or uncommitted teacher. After everyone clapped I would leave the stage and spend 90% of my time developing and creating actually metrics which add value, arent totally test driven, and are realistically controllable by a teacher. --- Unions are run for employees and are part of the problem in regards to our school situation. But they arent the problem. Parents and Society are, I dont like making them out to be the great Satan standing between balanced budgets and academic dominance.

My thoughts are listed here and slightly in the LVLT 3 thread. http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3680.15 I was up 30% on this and am now down 3% due to holding 2013 leaps. Some smart guys who I like also own a good chuck. See Guru Focus. I bought first though lol. It rallied on a potential takeover for Seagate and a great Q4. Management has been issuing horrible guidance though due to oversupply (by competitors), and HP sucked wind on earnings / guidance and it tanked. I have some options coming up (ATSG) which need to be rolled over or exercised and I am down to 4% cash. I plan to site down this weekend to sort out the options issue, and to hopefully raise some cash for more WDC. Its dirt cheap at something less than 5xCF when you take out the cash. I may not buy but its on the watch list for a potential purchase on a pullback. Many people basically think smaller devices which dont have hard drives are the future. They also think SSD will kill the mature hdd market. WDC had a presentation and basically noted that every picture on facebook is stored on 6 hard disk drives around the world and maybe a bit more for redundancy. Devices drive data creation and data storage, and the "cloud" is realistically some dark room somewhere with thousands of hard drives. Traditional hard drives have the best price per gig and reliability and they bought an SSD company to move into that when it gets more mature. I think its a fat pitch, and think people are a bit off base. Where do you think Netflix will store there library once they fully digitize it. How many copies of movies will they have to maintain for digital downloads. And finally what happens when everyone switches to HD and Blue Ray downloads? Thats my 2 cents.

I believe when asked about RE, Charlie Munger remarked that you only get adequate returns if you use large amounts of leverage. So it might be the requirement of leverage that turns them off. P.S. - Munger initially made his fortune in RE and his law firm, Munger Tolles and Olson, was originally formed as a law firm that specializes in real estate. So it is well within their circles of competence. This is actually what turned me off from RE. You really dont earn much without the 5x - 9x leverage.

LOL who said it wasnt in his circle of competence. The guy bought a farm at like 14. He just doesnt like the price.

It seems as though nothing is working out for him. I wonder what the new plan will be going forward.

Aw yes, I forgot the board was dominated by Canuks. You guys have been quite busy with IFRS conversions. If you are correct and its negative then everything will drop to compensate is my guess. My issue with Wisconsin is they have already agreed to all the budgetary demands. They are protesting pretty much solely union busting at this point. With that said you are correct. I was talking to a teacher friend and told her I thought 2011 was going to be something special. She said alot of her friends were being laid off. I was like who - teachers, police, fire, state employees. Its weird. They are going thru their 2008 now. They were sitting pretty though in 2008 and 2009. Finally I agree with you on oil. I think it will break the back of whatever is going on. Its practically embedded in the price of everything produced and sold.

Bronco I think you are on to something. Buffett seems focused on buying businesses he knows will be around in 20 years. You can quickly see the difference between him talking about BYD vs. Sees or Burlington. I dont think he likes complicated competition and prefers monopolies, and duopolies. It was very insightful when he said a good business is better than cash. I think many people gloss overit and think its gradpa Warren speak, but I have really spent sometime thinking about it and it makes perfect sense. I can now see why he held onto Coke despite the over valuation. Cash comes and comes for BRK, but there is only one Coke. I will churn and burn until I have the same problem (He still could have bought puts on Pepsi though).

Damn what a crappy ending. You would think he would have put away a bit of cash.