Munger_Disciple

I was at the meeting & this is not what Munger said. From my recollection, he said something to the effect of: Never in my life I have seen more people I respect holding so much cas.

I think that generally betting on Black Swans by purchasing out of money options is a losing bet. It is possible that occasionally when the market is at a cyclical peak and is dominated greed as opposed to fear, you may (or may not) be able to purchase cheap puts as insurance. But I think doing it day in and day out is a losing proposition as illustrated by the previous expected value calculation & due to the fact that this insurance is priced mostly right.

Not true at all. Option market makers are quite sophisticated. You can observe "volatility smile" and "volatility skew". Volatility smile means that implied volatility is higher for out of money options than at the money options. And volatility skew means that the implied volatility is higher on one side of the strike price than the other side. This is completely contrary to log normal distribution.

jb85 & widemoat, The correct math assuming a 10% drop in the index is as follows: Expected value of the bet = prob of winning* winning take - (1-prob. of winning)*price paid Thus equals $40*1.6%-98.4%*$7.70 = -$6.94 Therefore this is a losing bet and should not be placed. It will be interestng to work out the odds for a 30% drop in the market.

Prior to 2008-2009 crisis, Buffett wanted a minimum cash of $10B to satisfy insurance related obligations. But I think his view on this changed as a result of the crisis. Now he says he wants a minimum of $20B cash to handle insurance payments at any point in time. I think this is the main reason he chose to borrow the money to pay for BNI purchase. I think this implies that there will not be any dividend or share buyback anytime soon.

I have decided to go the Mac route with Open Office even though it is not optimal from a pure cost standpoint. My decision is mainly based on the fact that the rest of my family (wife & son) loves Macs, and it makes sense to have just one OS in the house (easier to organize backups, have a server play music, pictures in the house, etc). I am now trying to decide among the plethora of options, iMac, Mac Mini, Mac book pro, or Mac Book Air. Thank you all for your valuable feedback.

For the last 20 years, I have always used a PC. Recently my 6-year old windows XP pc crashed and I need to get a new machine. The two options I am considering are getting a Windows 7 machine or an iMac. Hardware wise, you can get way better processor, memory and hard drive for 50% of the cost of a Mac. However, I have heard that Mac is way cooler OS wise even though I have personally not used a Mac before. I will be using Office software (word, excel, ppt, etc) heavily, and some analysis tools like Matlab in addition to usual web & email programs. I really appreciate feedback from members. TIA.

I also don't understand the ethical issue with buyback. However, if Warren is really worried about closing out partners, Berkshire could always buy back the donated shares to Gates Foundation. Since Gates Foundation is required to spend the money, there would be no ethical problem.

I meant buy back stock if the shares are reasonably valued (at a discount to IV).

Bronco, I agree that the buyback is not presently on the cards as my previous post implies. In the future if capital cannot be efficiently reinvested inside Berkshire by Buffett or his successor at decent rates of return due to ever increasing asset base, Berkshire should buy back stock in stead of issuing a dividend.

Berkshire can also buy back its own stock which is more tax-efficient than a dividend. I assume that Buffett looked at all the capital allocation alternatives and decided to buy preferreds and the railroad. Berkshire needs to keep a portion of its portfolio in fixed income securities due to insurance liabilities, so preferreds are an alternative to low yielding bonds.

Parsad, The media definitely seem to think Sokol is the heir apparent. But, don't forget that everyone assumed Li Lu would be joining Berkshire very soon, only to be proven wrong. I for one would not be so sure who the next CEO of Berkshire will be. Please share your thoughts on why you think Sokol would be the best choice for CEO given that the fountain from which all the funds flow for Berkshire is insurance.

I would like to pose the following question to the board members: Who do you think will succeed Buffett as Berkshire CEO & why you think so? Vanity Fair article mentions Sokol, Abel, Jain & Rose as potential successors, but you can name others. FWIW, I think it will be either Ajit Jain or Dave Sokol. If I had to pick today, my guess would be Ajit Jain because insurance is still the #1 business of Berkshire.

My mistake. I just started reading your notes where you mentioned you attended the Chicago event.

Thanks Alex. Did you attend the Chicago event or CA event or both?

Does anyone on the board have access to Pabrai 2010 AGM notes? Thanks in advance.

Happy Holidays to all board members! And special thanks to Parsad for hosting this wonderful site.

Future is obviously uncertain. But if I had to bet, I would also bet against deflation.

If you really think there is going to be deflation, you should buy long-dated treasury bonds.

Careful with your spelling...Lowes is the home improvement retailer. I assume you're referring to Loews, the hotel & insurance, etc company. Thanks for pointing out the spelling error. I meant Loews (hotels, gas, insurance), symbol L, and not the home improvement retailer.

While Lowes always trades at a discount to sum of parts, its operating businesses are far inferior to those owned by Berkshire. So, in some sense these are two different companies. Lowes is more a Ben Graham play whereas Berkshire is becoming more and more like a company Phil Fisher would invest. Full disclosure: Long Berkshire and Lowes.

I have a different take on ratings agencies. I think they make cyclical credit problems worse. When things are good, they issue AAA to just about every product concocted by Wall St (eg., subprime junk). This has the effect of prolonging and enlarging the credit bubble. When things inevitably turn around, they make matters worse by downgrading everyone including very credit worthy institutions (eg., Berkshire). This has the effect of worsening the credit deflation. I have no idea why large institutional investors pay attention to credit ratings from Moody's or S&P. They certainly have the means to do their own credit analysis. It comes back to the institutional imperative that Keynes and Buffett talked about.

It will be indeed interesting to see if Fairfax's future debt costs come down if they get upgraded by Moody's.

Parsad, It appears to me that the debt markets by and large do not care about Moody's ratings these days. For example, even though Berkshire's credit rating was downgraded, they have been able to issue debt at very low rates.

In my opinion, Moody's ratings are meaningless especially after how they rated all the subprime CDOs AAA.