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Sanj...thanks for the articles. One quality that leaps out of Maida's character is patience -- obviously the name of the firm comes from this. I keep a copy of speaking notes (link below) by Seth Klarman in my laptop bag. Like Maida, Klarman sets a great framework for patiently managing a portfolio for the great opportunities that come along. It's possible to have outstanding returns with reduced risk by being patient. http://1-2knockout.typepad.com/12_knockout/files/Seth_Klarman_MIT_Speech.pdf -O

http://www.patientcapital.com/newsletters/newsletter-2010-12.pdf As you might expect we are of a different mindset. We believe that now is the time to be very cautious. The past year’s strong returns have increased valuations to levels that we feel are extremely risky. ... ...Strongly rising markets are a double edged sword. We have enjoyed the recent strength in the markets as we have taken substantial profits in many of our holdings over the past several months and most of our remaing holdings have shown strong appreciation. On the other hand, current circumstances make it difficult to find investments that meet our very high standards of value and quality.

Sanjeev: Rocky Gaudrault, CEO of Teksavvy, puts some more colour to the positioning of Bell in particular. Teksavvy buys wholesale service from Bell and he has some compelling comments about Bell's competitive positioning against Netflix. http://opinion.financialpost.com/2011/02/07/internet-usage-debate-the-real-myths/ It's worth a read.

Ta Da! http://www.thestar.com/news/canada/article/932571--ottawa-to-reverse-crtc-decision-on-internet-billing?bn=1 “The CRTC should be under no illusion — the Prime Minister and minister of Industry will reverse this decision unless the CRTC does it itself,” a senior Conservative government official said Wednesday. “If they don’t reconsider we will reverse their decision.”

There must be a ton of carry trades being supported through this. http://stableboyselections.com/2011/02/03/macau-casinos-welcome-to-the-bubble-machine-the-last-thing-we-need-now-is-a-terrorist-attack/ HIBOR is very low. That’s because the Hong Kong dollar is still pegged to the U. S. dollar, and our interest rates are almost nothing. The cheap money (and perhaps some corruption) is causing incredible real estate speculation. You know there is a bubble going on when only 100,000 out of 8 million residents can afford to own a home. More than half of Hong Kong’s residents depend on the government to subsidize their housing requirements. Meanwhile SHIBOR keeps going up because the Mainland Chinese want real estate speculation and inflation to slow down. If this can’t go on forever, it has to eventually stop. At some point the bubble will become so extreme that Hong Kong may finally depeg from our dollar. HIBOR may then imitate SHIBOR. I really hope we are range bound. I would love a 10 year range bound market while I am building capital, and then a 10 - 20 year bull market starting in 2020. One can only hope.

Hi Sanj, Agree with the general sentiment that there is differentiation in the customer base, but the base provisioning of the service is identical everywhere. By your logic, heavy users of the phone system should be charged more -- which nobody does anymore. The internet is little different from the phone system in terms of its geographic dispersal and the dispersal of routers and switches. The ISPs already have differentiated pricing based on access speeds. The cost of use is another differentiation that is attempting to be introduced, but the argument "use more, pay more" doesn't hold up when you compare it to the phone system. This type of differentiation is being attempted, but it is also competitive positioning to delay leakage from TV distribution to internet distribution. In internet distribution, the ISPs are "dumb pipes" with no competitive hold on content -- it's a problem and they're fighting to get more for their internet infrastructure investment in anticipation of other revenue destruction. The argument that it costs more to build out internet infrastructure (switches, routers) is a blatant misdirection when costs are actually exposed. The largest cost of the infrastructure is wire/cable/fibre installation or spectrum if wireless. Once put in place, these are sunk costs intended to be amortized over decades. It's the loss of the TV distribution monopoly that has these providers scared shirtless. It's a business where government and industry are hopelessly co-mingled and effectively cartels are established and maintained because the industries are not competitive by nature; they lead very naturally to monopolies where regulation is weak. The regulation is a necessity in comparison to monopoly, but when true costs are exposed, it's never satisfying to the consumer who ultimately overpays for the costs of regulation and uncompetitive service delivery. I've taken the consumer view, while you've argued the business view. I'm all in favour of reducing costs to the consumer and would love to see a better regulator. -O

Sanj, This is about delaying competitive threat to television content distribution over the internet. The incremental cost of delivering a GB of bandwidth is <$0.01 where the ISPs want to charge overages of $1 and $2 which is over 10000% markup on cost. http://business.financialpost.com/2011/01/27/crtc-petitioned-to-stop-usage-based-billing-as-netflix-questions-its-canadian-future/#ixzz1CHF6S7bK In a letter to Netflix shareholders released Wednesday evening, Mr. Hastings explained why his company’s is opposed to the UBB model. “The ISPs’ costs to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling,” he said. “So there is no reason that pay-per-gigabyte is economically necessary.” I have a TV in the basement that only does TV over internet with no cable connection. The ISPs which have traditional media distribution channels to market are trying to maximize this capital investment. -O

The legislators are reviewing the recommendations of an unelected regulatory body because of citizen petitions and calls to legislators. Expect a change in position. -O

The naysayer responded: Well, perhaps “rebuttal” isn’t the best word to use because the piece – which appears in the January 28 edition of Investor’s Digest – relies more on personal attacks than persuasiveness. He refers to me as “some gold neophyte” and calls my article “egregiously awful.” http://www.theglobeandmail.com/globe-investor/markets/markets-blog/gold-bug-gets-testy/article1884812/

I'm impressed with the personal growth of Watsa through the hedge fund crisis and the fixing of FFH's balance sheet. I don't think that he was in the same position as a leader 10 years ago as he is today and he's the better man for it. If he's up for it, I have an idea on Bloor Street in Toronto that would be right up FFH's ally as a whole company purchase where the principal shareholder is in his early 70's and runs his business on a pre-tax 15% ROE hurdle. The whole company could be bought for <$200M. -O

Well said. We all have our specializations and you have to do unique things to outperform. I've been down the deep value road and generally like to keep the "special situations" to a small part of the portfolio. Usually my deep value plays are good small cap businesses that have stumbled over short term issues with the business model still intact. You would be amazed at the bargains that can be turned up even after you hive off every commodity-based business in the investing universe. In baseball terms, I make a reliable living off a steady diet of hanging curveballs and don't even lift the bat for a fastball. This forum seems preoccupied with commodities at times because it's the flavour of the day, and cycles can move quickly against trend. But, moving away from where the crowd is, you can find lots of other niches that are profitable. And to stay on theme, I feel adequately protected against inflation. -O

I asked Sam Mitchell about this issue a few years back and he indicated that FFH would look at this in the future, but it wasn't their focus since they still considered themselves to be an insurance company with some equity investments. Obviously they do think about this very issue. -O

Myth...you're equating things that aren't equal, scratch a bit deeper. I'd take the Buffett approach in a heartbeat over investing in commodities and commodity producers. If you've modelled the types of businesses that Buffett recommends, you'll note a stability vs high variability. Why is that important? Things that Buffett invests in have certainty (i.e. a lack of sensitivity) when modelled. It makes a ton of difference in setting intrinsic values. With the high variability in demand for commodities, the valuation modelling and results are similarly fraught with error. I choose to let pitches labelled commodities go with very rare exceptions. Not losing money in the portfolio makes a big difference in the long run. I'm concerned about inflation just as everyone else in the thread is, but my framework for approaching the problem is different and uses another approach that may be helpful to guys who are confused into making unforced errors by the macro events. Where Buffett has invested in commodity producers (see The Midas Touch by John Train to go way back), they have been minority positions based on single company undervaluations. -O I think everyone is implicitly or explicitly making productions about the future. Even Buffett in the recommendation is assuming high margins, pricing power, and other benefits of quality businesses persist. While many are making assumptions about the future, I dont think anyone here has made investments made on correctly predicting these outcomes (except for maybe buying gold directly). Even engaging in a discussion about how to protect against inflation is basically assuming / predicting a future which entails inflation. lol. With that said, Buffett himself predicts inflation in the long run, as does anyone else with any sense.

Swizzled...why not expand the choices? When looking at commodities, every one of the posts in this thread is trying to predict future events -- an exercise fraught with error. Montier and others write about this and none of us have any special abilities to predict the future. What Buffett recommends is to look at businesses with high margins, pricing power and the ability to pass on most cost inputs to their customers. This allows these businesses to continually increase earnings on an inflation-adjusted basis. -O

Peter was an amazing individual. Sorry to hear of his passing. -O

Through all the fluff ;) about macro, I haven't changed my discount rate -- have you? I am not finding as many undervalued companies as when the markets were obviously underpriced. -O Agreed. Also, I just thought we were all sick to death of talking about macro. :)

http://www.hoisingtonmgt.com/pdf/HIM2010Q4NP.pdf Proposes a set of results coming out of the QE2 initiatives by the Fed.

BB...good work on the theory of relationship between gold and the value of asset classes. There are other demand-warping factors in play at the moment which are stoking commodity prices. http://www.hoisingtonmgt.com/pdf/InterQuarterUpdate20101209.pdf On the effects of QE2: "Commodity loans can be financed at 1% or less. This encourages speculative buying of commodities for inventory, thereby causing food and fuel price increases." -O

BB...now that the assumptions are on the table, we agree for the most part. I would question your assumption about gold being an invariant store of value -- it's hardly inelastic and is prone to some tulip bulb moments (hat tip to oldye). -O The currency in Germany never stabilized... it disappeared.. your wager would be lost. "regardless of the base currency measurement." Only if the base currency is sound.. it would be linked to gold (like the Swiss Franc in prior years)... and would perform identically in either base currency or ozs of gold. If we agree that BRK is a wealth creating company it has underperfomed the price of gold by WEBs own admission over the last decade. Sorry to be so disagreeable. The value of fractional ownership of a company ultimately is derived from the profitability of the whole enterprise. This is the gap between it's real input costs and its income. If at any point an accumulated deficit in profitability eats up its existing real capital, the enterprise is bankrupt and needs to be either recapitalized or liquidated. The value of the existing shares goes to zero in any measure. This profitability gap can be measured in USDollars, deutchmarks, Zimbabwian dollars, bananas or any other currency. The problem with these yardsticks are that they themselves are not a constant store of "real" value, they too are subject to their own changing profitability dynamics. Gold alone or currencies convertible to gold at a fixed ratio are the best measures of real value of all the alternatives.. for they are universally and historically accepted as money, have a constant virtually uninflatable value and is virtually indestructable. If Seimens was a profitable concern in real terms during the Weimar inflation, it would be so afterward as long as its real costs and real income remained intact. These would also be the same if measured in gold currency, but totally skewed if measured in Weimar marks. What you perceive to be a bubble in the USD price of gold (and by extension in copper, coffee, sugar, oil, the whole commodity complex) is simply a tit-for-tat price adjustment between a commodity whose purchasing power is being dilluted and one which remains constant. BRK of course was wildly more wealth creating in its early years but less so in the last decade. A performance more accurately measured in ozs of gold than USdollars.

Ghost towns of China - hat tip to Katsenelson for the link. It makes one wonder how much longer the misallocation of capital can continue before real estate pricing corrects or inflation becomes rampant in China. http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html

Prem Watsa always takes time in his annuals to point out the significant bubbles of the day -- housing in 2006, tech/media/telecom in 2000. He has a few to choose from for the 2010 annual. Will it be gold/commodities bubble or the reflating tech bubble? -O

BB...no, the shares were still worth a fractional ownership of Siemens or Hoechst. Once the currency regime stabilized (i.e. new currency was introduced), the intrinsic value of the shares would have stayed constant. Cost inputs were probably ridiculous at certain points, but in the end, both companies survived. As for the point about BRK underperforming gold in the last 10 years, it's a matter of choosing start point and end point for comparison. Going back 30 years provides a different story. As we go forward, I'm sure that the story will also change as the speculation in gold runs its course. Grantham and Montier have lots to say about mean reversion. -O The currency in Germany never stabilized... it disappeared.. your wager would be lost. "regardless of the base currency measurement." Only if the base currency is sound.. it would be linked to gold (like the Swiss Franc in prior years)... and would perform identically in either base currency or ozs of gold. If we agree that BRK is a wealth creating company it has underperfomed the price of gold by WEBs own admission over the last decade. Sorry to be so disagreeable.

Not sure if this was posted, but Tilson has updated his valuation of BRK. He's calling BRK a 75-cent dollar with reasonable growth projections for 2011. http:// www.tilsonfunds.com/BRK.pdf -O

Hey Mark..I get your point that paper devalues and it's a good one, but so does gold if a wealth-creating company is your fixed baseline measure. I would wager a small sum that under German hyperinflation in the 1920's, even shares in companies like Siemens or Hoechst were more valuable than an equivalent holding of gold once the currency stabilized. These companies produce units of value that are reasonably constant as a fractional ownership of profits regardless of the base currency measurement. Buffett made the point recently about how much value could be purchased with the total sum of the available gold. If you read his point closely, he says at the end -- which is going to produce more value? The rhetorical point being that gold will debase relative to wealth-producing assets. "Look…You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?" Munger had a great one-liner about the general population and math: "Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest.” -O

The article is attributed to Robert Morrison. Can anyone shed light on who he is? Thanks! -O