cobafdek

Kraven (not his real name: his real initials are I.K.) was born in 1905. I'm older than he, and can't remember when I was born. I can remember as far back as the first page of this thread, and I was the curmudgeon who added fire to this fun flame war. Now I can't restrain myself from donning my schoolmarm hat to correct myself, and to prove I can be both more correct and more up-to-date than the young whippersnappers: strictly speaking, they're not emoticons. They're emojis. Let's get it right, and give the Japanese their just due (or blame).

Ultimately, I'm not sure there can be an objective answer in matters of taste preferences. No doubt In-N-Out is great, and living in SoCal I'd eaten there about ten years before the first Five Guys opened regionally. I had heard from cousins living in Maryland how great Five Guys is, so maybe I was primed, or maybe I was inured to In-N-Out. First bite of a Five Guys burger and I liked it better than In-N-Out. The meat patty is objectively thicker, and I thought it had a richer charbroiled flavor. But then I need to remind myself of the lessons from Cialdini's Influence. The relevant chapters are the one on "Social Proof" and the one on "Scarcity." If you relate to people who happen to be In-N-Out cultists, that's a powerful influence on your taste perception (social proof). If you live in the eastern U.S. with access to In-N-Out only on occasional west coast trips, the taste of In-N-Out will be a novelty (scarcity). The In-N-Out marketing machine constantly repeats their "always fresh, never frozen" mantra, and for objective evidence, they don't build restaurants more than a day from their meat distribution centers. But can I objectively say it therefore tastes fresher? If I do, I suspect their commercials have worked on my unconscious more powerfully. You can make up for the thinness of an In-N-Out burger by getting a Double-Double, which would probably equal the thickness of a single Five Guys burger, and at almost half the price. But it still doesn't beat the flavor of Five Guys meat patty (to me). How long this quality will last, who knows, since Five Guys is expanding at a rapid clip (now more than 1000 restaurants in the past 7-10 years). Maybe quality control is better ensured with the smaller operations of In-N-Out: only 250 restaurants since 1948, in two or three states.

Maybe it's my faulty memory, but do I correctly recall you also dislike emoticons? I'm morally opposed to the use of emoticons. For example, whenever I try to post a negative string of numbers that ends in "8" using the format with parentheses, as in (0.7) for negative 7/10th, I get this annoying guy (0.8). Maybe trying to ban the use of emoticons is as quixotic as Munger wanting to ban derivatives, but here goes: "6. Only Giofranchi is allowed to use emoticons." (I think this is reasonable, since we cannot see Gio's hands and arms while he is making his emphatic points. Perhaps Sanjeev can find some emoticons that are based on hand/arm gestures, including the gesto dell'ombrello.)

Very sensible. Great points. Although for me, I've found that I let cash levels build up if I had a paucity of ideas. So keeping generally the same small position sizes, I've been closer to 40-50 stocks when general market levels seem high, but closer to 80+ stocks and closer to fully invested after major market drawdowns. More generally, I've found Cundill's phrase "there's always something to do" rings true. The global screener on ft.com lists nearly 38,000 stocks. If I had a maximum of 100 stocks, that means picking 1 out of 380. Or on an annual basis, looking for 10-20 stocks over the course of a year means picking 1 out of 1900-3800 stocks. From this perspective, it strains credulity to be able to rank order higher vs. lower conviction ideas.

Good one! How would you assess a portfolio of, say, 100 stocks, built up no faster than 20/year, held for average 5+ years so turnover rate 20%?

Hear, Hear! And Packer's "there" for "their." But I'll gladly slack off from correct spelling if it will improve my returns. Might be better than options.

I think of risk as the possibility of permanent capital loss. I don't mind temporary portfolio drawdowns. Strike that - I welcome major temporary drawdowns, since my best years were either during major bear markets or during the 1-2 years after. So maybe the more frequent, the better for me. I don't know the downside risk of my portfolio. I think it is unknowable in precise quantitative terms. All I know is that it is lower when I buy net-nets, low BV, low P/CF, etc., than if I buy high BV, high PE, highly leveraged companies. I believe, and my past record and those of others show, that I stack the odds in my favor. That's really all I try to do, and let the chips fall where they may. I don't use the Kelly formula either, but I like it and understand the logic behind it. I don't use it because I don't have the kind of edge needed to employ it. I envy those who can do a deep dive and know a company inside and out. I'm not even sure I'd have the ability even if I had majored in finance instead of medicine. To me, all companies look pretty much the same, so I rarely think in terms of higher conviction ideas vs. lower. Surely, I am mistaken here, but I don't go beyond a few pages in the 10K to gather a few time-tested value metrics. Next to the risk of permanent capital loss, the biggest risk to me is thinking I can know a company as intimately as many of the other board members here. There are many kinds of risk, but I think the one to worry least about is short-term quotational losses. If there is a potential Achilles heel in your process, it might be an excessive concern with volatility. I may be completely off base here, but just because volatility is quantifiable doesn't mean one can reliably protect oneself from it. I lived through the 1987 crash, before I started investing, and maybe I've developed an irrational allergy to anything that sounds like portfolio insurance. The analogy is weak, since you're applying it at the scale of an individual portfolio, and you clearly have the skill and judgment. Nothing I say here is meant to say you should not be doing what you are doing. I'm just contrasting my subjective preferences and temperament with yours, as being at widely different poles but still fundamentally value investors. I think our differences are primarily stylistic and matters of taste. You seem to be both knowledgeable and thoughtful, and these traits are your best risk reduction tools. Just reconsider the fear of volatility.

Congratulations on your spectacular returns, and thanks for taking the time to outline your thinking in detail, which, to a wide diversifier like me I find quite fascinating and original. Does the Kelly Criterion fit at all in your thinking? Take the simple-minded form x = [P x upside - (1 - P)]/upside, where x is percentage of portfolio. If I were a concentrator, I'd be conservative and take P = .5. If I found a stock that I thought could double in a year (upside = 2), the Kelly formula would allocate no more than 25% to this stock. If I were more confident, say P = .6, this single stock would still be no more than 40% of my portfolio. Is it the put option that gives you the confidence to think 100% probability of success to your single pick, in addition to your application of valuation principles? I'm also interested in knowing whether these Kelly ideas were in your thinking 7 years ago, or whether it figured not at all in your process. Either way, it's fascinating.

Thanks for providing your local color commentary. Are you a member of other country clubs? How would you compare Crystallaire with others that you know? Are the members primarily local gentry, or does it get millionaire-retiree types for weekend getaways from LA and Bakersfield?

I'll hijack these words out of context and turn them on their heads just for fun and edification. These words could be used to describe my chosen style of value investing. I've long looked for an alternative to the tired, old, hackneyed "cigar-butt" metaphor. Something more colorful and Mungerian - recall his raisins/turds quip. Admittedly, the Antelope Valley may be the wrong hunting ground, but uncertainty and terrible looking sectors are often reasons for unreasonable discounts. Let's hear it for mean-reverting shitholes! It was inadvertent on your part, but thanks for the suggestion, picasso!

I think this would depend on the price, and whether the current quoted price/sq.ft correctly prices that parcel in that particular market. The LLC prospectus might have some DCF projections upon which the $2.50/sq.ft is based, so you might want to take their base rate but double (or even triple) the time horizon (figure 20-30 years instead of 10), weigh the relative likelihoods of the longer time horizons, and whether you could accept these lower adjusted returns. That's my 1-cents worth of speculative advice. P.S. Being an LLC, there's also the illiquidity to consider, plus on-going expenses allocated to the investors. And you might get one of those dreaded K-1 tax forms every year to file with your 1040. P.P.S The broker or representative who pitched you this LLC might have access to the limited market of 7 to 10-year old RE LLCs or non-traded public REITS whose charter investors have since taken a bath to the tune of 50% or more off the NAV. Ask if one of these are available.

Looks like your parcel might have better prospects than what mine has turned out to have so far. For one thing, there's an In-and-Out Burger about a mile east! My parents retired and moved to Southern California about 25 years ago. On one of my annual Christmas visits, they took me out to the Antelope Valley (Palmdale/Lancaster) and asked "Wanna buy some land?" I said, "Sure, why not?" They, and other friends from Ohio who moved out here bought small 3-20 acre parcels scattered nearby. Fortunately, none of these purchases were a major portion of their retirement funds. They said, "You never know with land. Someday, maybe . . . . Just hang on to it." I bought about 2.5 acres for about $12,000. The real estate agent touted the nearby country club and small airport, and coming development. I nodded, "Uh, huh. I see . . ." https://maps.google.com/maps?biw=1280&bih=932&q=crystalaire+ca&bav=on.2,or.r_qf.&bvm=bv.82001339,d.eXY&um=1&ie=UTF-8&sa=X&ei=5kmcVK2RNImrgwTEnYOIAg&ved=0CAYQ_AUoAQ&output=classic&dg=brw Twenty years on, these have been the economic benefits: 1. $386 annual property tax bill, on current assessed value of $24,000. 2. Annual weed abatement notices ("The Board of Supervisors of the County of Los Angeles passes or will pass a resolution declaring noxious or dangerous vegetation or rubbish and refuse were growing or occurring upon or in front of property on certain streets in said city or unincorporated area . . . and that they constitute a public nuisance which must be abated by the removal of said noxious or dangerous vegetation, rubbish, and refuse.") I've received these for years, but so far nothing has happened. Maybe after I post this. 3. In 2008, my dad received a notice from the Code Enforcement Officer of the city of Lancaster. Couches, mattresses, foam, plastic toys were dumped on his property. I wrote a check for $500 made out to 1-800-GOTJUNK. Future prospects? I don't have a clue. Every year, I get 2 or 3 solicitations from no-name RE brokers looking to buy out land for cash. And there are occasional stories in the LA Times about energy companies paying a lot to buy land on which to place solar panel farms. That was several years ago. Your's being closer to the city has better prospects, but of course at a steeper price/acre than mine. At the time, I was reading a lot of Martin Whitman's letters, and Third Avenue bought the 270,000 acres of Tejon Ranch (nearby up the Grapevine) owned by Times Mirror (former owners of the LA Times). I've owned TRC and JOE for about 15 years now. Ten years ago, driving on the Interstate 5, it was nice to see the huge IKEA distribution center at the Tejon Industrial Complex, as well as that nice truck stop with amenities. But it took another 10 years for the great outlet mall which just opened. Who knows when the Tejon Mountain Resort and their planned community Centenniel will take fruition. Being a passive investor with top-notch RE development companies holding land at understated NAV has turned out to be tough slogging, and it is reasonable to call them land traps thus far.

I'll wait for the end of the calendar year to calculate my actual 2014 return, but I'm guessing I'm down about 10%. What, me worry? I found it interesting to look at a 15-year perspective. (All numbers are dollar-weighted, i.e., IRR. I'm leaving out 1994-1998 because those years I knew less than nothing, and some of the results below are embarrassing enough.) (annualized thru 2013)* *for example, 1999-2013 ME 13.1 ME SP500 ME SP500 2000-2013 16.6 1999 4.6 21.0 13.1 26.6 2000 11.0 (9.1) 16.6 9.7 2001 13.3 (11.9) 17.8 8.0 2002 (3.6) (22.1) 8.6 1.6 2003 13.9 28.7 18.1 30.5 2004 16.8 10.9 19.6 21.2 2005 0.1 4.9 10.7 17.8 2006 9.3 15.8 15.7 23.8 2007 (19.6) 5.5 (0.7) 18.2 2008 (43.5) (37.0) (16.9) (8.7) 2009 36.4 26.5 29.2 29.4 2010 22.0 15.1 22.2 23.4 2011 (4.6) 2.1 8.1 16.3 2012 17.5 16.0 19.9 23.9 2013 22.4 32.4 22.4 32.4 Cash levels ranged from 5% - 40%. Earlier years, the portfolio was heavily tilted to the Defensive Investor strategy outlined by Graham in The Intelligent Investor, with investing as a hobby occupying 1-2 hours per day, since I have a more busy day job. Later years evolved into more of an Enterprising Investor strategy, but still a hobby. I've seen value investing results stereotyped as "trouncing the S&P in bear markets, and underperforming in bull markets." If that is the definition of value investing, then I might qualify as a value investor. Graham says that unless you get an excess of at least 5% returns over an index, the effort is not worth it. In my case, it would not have been worth it if I looked at annualized returns of less than 11 years. If I were starting an investment partnership or hedge fund (I'd shoot myself first), I'm sure my marketer would trumpet my 12-, 13-, and 14-year annualized returns, since those periods beat the S&P. The rest of the record would be buried. One-year results are not that interesting. (Edit: down 0.4% at year-end.)

Fascinating perspective, and I had never considered the importance of the optimism factor. It might be an unstated, underlying premise behind Buffett's on-going bet in favor of the S&P 500 index vs. the hedge fund index. Nevertheless, the mystery remains. He must have an appropriate amount of optimism, since over-optimism surely is dangerous? And you have to be optimistic about the right businesses, and at the right price. How does he do it? Munger strikes me as generally pessimistic, a sort of bad cop to Buffett's good cop routine, yet he certainly has a great eye for great businesses. Could examining Buffett's mistakes be helpful here? I don't know. He bought USAir. He didn't sell Coca-cola when it was selling 50-60 times earnings. He bought those shoe companies, not to mention Berkshire Hathaway. Then there are their self-confessed errors of omission. Not purchasing a lot of Fannie Mae back in the 1990s when they went heavily into Freddie Mac. Not holding on to McDonald's in 1996 for more than a year. Is it just a matter of making fewer of such mistakes? In the 1970s, I read an article about intelligence by Isaac Asimov in The Magazine of Fantasy and Science Fiction. Asimov concluded that trying to explain intelligence is like trying to explain jazz, and he quoted Louis Armstrong: "If you have to ask what jazz is, you ain't never gonna know." (I hope I quoted that right.) You can add Buffett's business eye to that list.

And if such a definitive study is ever done, life might be boring without speculative meandering threads such as this one. I'll contribute this more or less interesting/worthless anecdote: As a kid, I saw a Dan Rather report called "The IQ Myth." The program opened with shots of faces with Rather's voiceover: "This man has an IQ of 190." After the commercial break, the man is shown riding a motorcycle in a uniform: he's a motorcycle traffic cop. "This man has an IQ of 120." Cut to a clip of James D. Watson accepting the Nobel Prize in Medicine for the structure of DNA.

I wasn't a nerd, just shy and always "the nice guy". In retrospect, I should have let more women know I was interested because sitting here years later, I saw the signs clear as day. But by the time I realized it, it was too late. To top it off, I usually had a female friend I was close with telling me someone was interested or to just go for it. Or maybe I could have had my female friends........................... oh for f*$k sake. What was I thinking............. :-[ But really, in the end I have a great wife and 2 daughters, so I don't worry about what could have been. ..................often. 8) Today's college youth have the hook-up culture. I guess we're all born too early . . . sigh. Heard an interesting discussion about hook-ups, that females would be more likely to regret participating than the males; males would likely regret NOT participating. Judging from this thread so far, looks to be true!

8.5% owned by Baupost, (bought at higher prices?), representing about a 3% position for them on latest 13-F.

Damn, I should have thought of this idea, too! Keep it up, regardless of whether you start a formal public blog, which you should seriously consider doing. Guys like oddballstocks, NeverLoseMoney, Ragnar, Glenn Chan (and others I apologize for not coming to mind immediately), will look back 10 or 20 years from now at a remarkable body of work they are producing. Maybe some of their early stuff might be embarrassing, but more important will be the evidence of their intellectual growth over time - very valuable to look back on, definitely no regrets for them keeping these "journals." Another minor regret: from Day #1 of the birth of my son, I snapped a photo of him every day for the first 100 days. I don't know why I stopped. I could have done what one father did: he took a portrait photo of her daughter's face every day of her life from birth to (?)college. He posted on the web the entire result of thousands of photos, sequentially chronologically flipping in time-lapse fashion. Very cool. Oh well, I missed that opportunity. At least I quit my overnight moonlighting job that paid $100K/year, so that I could be awake during the day when he was a toddler. That was a potential regret avoided.

I don't think in terms of regret when I think about the past. I guess it's just my mental makeup: I made mistakes and experienced "bad outcomes," try to learn from them, and leave it at that. For me, mistakes don't reach the emotional intensity of becoming "regrets." That would be the way to neurosis. A minor one might be not keeping a diary. But I did the next best things, perhaps. I kept a chronological list of all the books I read and movies I saw, and quotations I liked. So it's a kind of intellectual diary of sorts. Here's some insight on this "regret" question, interestingly from a trashy novel I read in my 20s (The Dream Merchants by Harold Robbins): a brash young man asked a Wise One how to gain the wisdom so necessary in order to avoid the foolish mistakes of youth. "Impetuous young seeker after knowledge," he said gently, "you can learn to avoid the mistakes of youth by living to a ripe old age." The young man thought this over and at last he got to his feet and thanked the Wise One for answering his question. For it was the truth the Wise One had spoken. A mistake is not recognized until it has been made and passed. For a mistake recognized before it was made would not be made and therefore would not be a mistake.

No guarantees in investing, even value investing. To me, the most reliable definition of "value trap" is: a company going down because of a long-term irreversible secular trend, like Blockbuster Video in this streaming digital media age. Avoiding these should be "easy," but, like all of the other good advice above, there will be exceptions. This definition is also pretty restrictive, whereas the term "value trap" is often used in a much broader sense. Consider dropping terms like "value trap" or "catalyst" as being mere clichés. I've never found thinking about these as useful. In fact, a good alternative and contrarian definition of value investing is "a style of investing that is prone to picking value traps, and/or stocks with no catalysts." This sounds great, but to me, another cliché, Nor will it avoid "value traps." Most people on this board seem to subscribe to this principle and are able to employ it successfully. I have neither the skill nor the time to do it, and it doesn't fit my temperament. All value investors try to buy at a cheap price that has a margin of safety. But that is only one factor for success. The others are (2) diversification, (3) patience, and (4) luck. I diversify much more than most on this board, something like 60-100 or more stocks, which takes care of the many that "turn out" to be "value traps." I also wait 3-5 years or more, which would take care of alleged "value traps" like CONN or IBM. Looking at my portfolio, you could say it is chock full of value traps with no foreseeable catalyst. Think "cigar butts" = "value traps." But it works.

Did a quick scroll through, gathered some trivia. Walter Schloss appears 3 times, listed as Asst. Secretary 1953, 1954, 1955. Warren Buffett appears once, as secretary on the Notice to Stockholders/Proxy Statement, March 1956. Then, Douglass Newman was secretary on Notice of Special Meeting, July 1956. (Buffett returned to Omaha in the interim to begin partnership?)

I took the famous Evelyn Wood Speed Reading Course back in college in the 1980s. It does have it's benefits, but overall the claims are over-hyped. Now, whenever I think about speed reading courses, I think of this short comedy item from an album I had in high school:

I think it was snapped up within an hour or two of my posting. Must be a fellow board member taking advantage of an arbitrage situation. Maybe he'll reveal his identity . . .

Whadya know, another Friday, another near-windfall. Yesterday, from the same library used-bookstore mentioned at the start of this thread, I picked up a copy of The Intelligent Investor, "Second Revised Edition," also for $3.00. This time, properly admonished by alwaysinvert, I did not wait for it to be discounted to $1.50. It's a nice intact hardback copy, only the dustjacket a bit ratty, so it will be placed in a protective plastic cover. I may be turning into a pawnbroker, not only in the Tweedy/Browne sense. This 1959 edition is actually the third version; Graham did a first revision in 1954. This "Second Revised Edition" is still largely the same original Graham thinking from the 1949 edition. The updating is limited primarily to (1) eliminating the chapter on savings bonds (now no longer attractive compared to high-grade corporates), and (2) inclusion of updated market and company performance since the earlier versions. Graham's individual stock picks discussed in the 1949 and 1954 versions largely performed spectacularly. He is candid about his overall market predictions, which he admits did not turn out so great (N.B., gio). It turned out he was probably too cautious, maybe should have stayed fully invested. The call he made in this 1959 version, the overall market having tripled since 1949, was to be only 25% invested in stocks. In 1960, the S&P was flat; 1961 up 27%. Graham aficionados who want to savor his original 1949 prose, but who don't want to pay full price for the reprinted edition, can use the 1954 or 1959 versions. (Maybe west knows whether the third edition is still pretty similar.) But hurry, only one left a a great price of $3.59: http://www.amazon.com/gp/offer-listing/B000N88ZEM/ref=sr_1_3_twi_1_olp?ie=UTF8&qid=1417896141&sr=8-3&keywords=the+intelligent+investor+graham+second+edition The next best price on amazon/marketplace is $66; ebay has some copies at up to $700.

The make-up of this board is self-selected and therefore biased. I can assure you that you'll get a different impression listening to the average physician talking investments in the doctor's lounge---you'd be appalled. As a group, because of our education and training, we MDs are prone to arrogance and over-confidence. The purchasing managers, cops, teachers, etc., on bogleheads are wiser and get better results. Hanging out on this board has been tremendous for me, lots of superior brainpower here, yours among them, and many of the mistaken notions I posted have been generously corrected and I've learned alot.