cobafdek

Walt and Jesse.

Actually, it turns out it will not necessarily lower the ROIC. The missing piece in this discussion is what the analyst uses as cost of capital to make the adjustments of both the numerator and denominator. Excess Return = ROIC - Cost of Capital, and both of these variables will change when you capitalize leases, resulting in an unpredictable effect on Excess Return (and thus on discounted cash flow value of equity). For most firms, Excess Return will decrease, but for many it will actually increase. Damodaran himself did a study on the effect of capitalizing leases, showing many such increases. http://people.stern.nyu.edu/adamodar/pdfiles/papers/newlease.pdf See pages 30, 31 for the effect on discounted cash flow value. The appendix show the results of his study.

Ditto for E-trade. I've got Japanese stocks sprinkled between E-trade and Fidelity accounts.

Ahem . . . Brandt, you've done a grave disservice to those of us with an affinity for these strategies. If they become too popular, they stop working. You may have just inaugurated a long period of underperformance for us with this post. Reflexivity, you know. Please take it down. And best of wishes on the job search!

Impressive work - thanks for posting! One suggestion. How about analyzing the same data but exclude nothing? In other words, no dropouts; instead, impute an end-price-per-share of $0. This assumption would be a worst-case scenario for that particular stock, and the resulting returns would be biased downwards. It would be interesting to see those numbers compared to what you've done so far by excluding delistings, bankruptcies, etc. If the return numbers are still good, it's all the more impressive for magicformula. (Such parallel analysis is common in medical research. For clinical trials, there is the Treatment group vs. the Control group. During the course of the trial, some patients drop out from each group, or some inadvertently cross-over from one group to the other. It is useful to see the results doing what is called an "Intention-to-Treat" analysis, and assume all trial participants remained with their initial designation. Such an assumption is conservative, and may actually understate the true treatment effect. However, if a treatment effect still remains, it's all the more impressive.)

There's actually nothing wrong with what you're saying, except perhaps for the fact that it doesn't offer any workable solutions. The point itself is completely sensible though. I'm riding my bike on sidewalks on main auto thoroughfares. Keeping my bike off most non-residential roads until we get something on the order of this: http://designcenterpgh.org/wp-content/uploads/2013/08/M62_FEAT_ProtectedBikeLanes_onewaycycletrack_planters-Courtesy-NACTO.jpg (This thread is not being derailed. The non-male, humanities majors will need the engineers for their solutions to this problem.)

I guess I inadvertently succeeded in striking a nerve with the thread title. Maybe I should have used the wording of the actual poll question, the intent of which was to see how many of the roughly 2100 board members are atypical: non-male and/or non-engineer. Regardless, the resulting comments are revealing and entertaining.

I wonder how many do not fit the mold. Many/most members of this board are male with an engineering background. Sort of hum-drum. And we've already had that poll. It would be interesting to see how many here have no engineering and no formal finance/business training, especially females. I would think such a person would have a fascinating brain. Male/Engineer members need not vote, but comments welcome.

Good point. Will do. Sad commentary for society in general. I think if there were such women here, such minds must be extraordinary and fascinating.

Just curious. The stereotypical board member here is a male engineer. Any non-male non-engineers? Such as a female whose weekday job is acting in Shakespeare repertory or teaching Miguel de Cervantes in Spanish, but kicks back on the weekend relaxing by reading 10-Ks or engaging in a probabilistic search for low P/B, low P/E cigar butts? Is this message board one of those haystacks without a needle? If so, this thread might set the record for fewest number of replies.

You may have hit the jackpot: I'm over 50. But the more I use IB, the more I like it. "If it doesn't fit, you must acquit"!

I'm not sure what this means. To my non-professional ears, it sounds like equivocating noise, since my understanding is that the buy-side needs the sell-side to make trades. I just moved one of my IRAs to IB, to give them a trial. The transfer of funds form was very lengthy, much longer than Fidelity's. However, once that was completed, the transfer of funds took only 2(!) days, whereas transfers to Fidelity takes about a week. I've been with IB for about a week now. I've made one international trade involving a currency exchange prior to the actual stock buy. It was a little strange and cumbersome, but it went fine. My first impression of IB is that it is geared for the professional, which I am not, so there are lots of things that are extraneous to me, and seemingly very complicated. If you're used to TD Ameritrade (or E-trade, or Fidelity), you'll find IB's interface is very clunky and very confusing (quite awful, to be truthful). However, I think it's just a matter of getting used to it, and after a week, I'm getting the hang of it. Customer support is iffy, depending on who you get by phone or e-mail, and ranges from superb to just plain wrong (one guy told me something completely off, which I discovered on my own.) Regarding tax basis on transferred funds, under the Reports section of their Accounts Maintenance tab, I was pleased to find an accurate tax and cost basis report (which is irrelevant in my case since my account is an IRA). But it took forever for me to find it. I'm planning to keep my funds divided up among several discount brokerages, since none of them fulfills all my needs completely.

Yes, if they might not have the attention span and interest for a several hundred page book, blogs would be better. If they really need a good overall personal finance context within which to fit index investing, they may need only two blog posts: http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/ http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/ If they get bit by the investing bug, they can then progress to the bogleheads website.

LifeLock has 3 tiers of protection ranging from their basic at about $100/year, to LifeLock Ultimate Plus, which costs $300+/year and does cover brokerage accounts. It's all primarily a monitoring/notification system, and not really a loss prevention tool. They also have what they call a security guarantee with a $1,000,000 insurance policy to be used to cover costs related to recover stolen assets. Can anyone here make a case for LifeLock? I doubt it. I prefer the hassles of IB's log-in security, which is also available with E-trade.

A comment was posted on a current thread http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/brokerage-recommendation/msg190656/#msg190656 regarding the cumbersome log-in procedure at IB, involving an extra step beyond username and password. I've come around to appreciating this procedure, in view of the frequent recent news items on security breaches at major retailers and banks. Not too different from putting up with TSA procedures at the airport. I'm curious if anyone on the board has had a security breach at their brokerage account. My guess is that it is not as common as for credit cards, since every year or two I have been notified by my card company about a breach, and they've issue me a new card and number. Related question: anyone signed up with Lifelock? Personally, I don't see the point in it since each credit card company, bank, brokerage, etc., have their own security procedures, and notify their customers immediatedly in the event of a data breach. (I think.)

I am currently suffering from Buffett/Munger Fatigue. If indicted for heresy, I am guilty as charged. Up to 2008, I avidly devoured everything written/transcribed, and eagerly went to BRK, WSCO, DJCO meetings. Curiously, since given this book as a gift when it came out in 2008, the addiction has waned. It's still on my pile of books to read, but I don't think I'll get to it within the next few years. (At least Munger can no longer label me as a cultist.) Anything in Schroeder's book about how Buffett seems to be such a good judge of character, whether it's someone's managerial, personal, ethical abilities? Is there anything about these intangibles that is explicitly of a checklist variety, or is it all intuitive? I'd like to get some insight on why it allegedly failed in cases like Gutfreund, Brandon, Sokol, and maybe Schroeder herself? Admittedly his track record in this arena has so far been phenomenal, but, given the decentralized structure of BRK, the long-term future of BRK will be highly dependent on this skill.

1. Maybe, maybe not. Klarman in Margin of Safety cites the Pareto Principle in saying 80% of the research benefit is achieved in the first 20% of the time spent (or something like that). I think there are plenty of guys on this board who are successful at a few concentrated positions in great companies at a fair price. Others are similarly skillful but just not as lucky: http://www.pmjar.com/?p=1401 2. And, it may also be a matter of temperament and psychology. Graham may simply have been at a stage in life when he preferred to spend more time translating Greek and Latin classics (as well as spending quality time with his son's mistress) than in security analysis. All the research and experience shows that all varieties of value investing work. Check out the varied list of investing and trading styles in the chart from the book Excess Returns (featured in a recent Books thread on this board): http://www.amazon.com/Excess-Returns-Comparative-Greatest-Investors/dp/0857193511/ref=sr_1_1?ie=UTF8&qid=1410890655&sr=8-1&keywords=excess+returns+a+comparative+study+of+the+methods+of+the+world%27s+greatest+investors (The chart is available in the "Look Inside" feature of Amazon.) So it's largely a matter of Know Thyself, and Know Which Style/Process You Enjoy.

Yes, that's precisely my question: survivorship bias. How many value investors in the entire world did Buffett actually know? Did he know only the wildly successful ones, because the unsuccessful ones fall under the radar and thus we have no idea of how large the denominator is? Out of 100 value investors, how many are successful long-term (beat the index or whatever)? Is it as high as 60%? Or is it as low as 10-20%? No one knows. Regardless, the essay is wonderful and influenced me immensely. This book Excess Returns has a table with names like Richard Dennis, Bruce Kovner, Michael Marcus, and Paul Tudor Jones, traders who use a lot of technical analysis, with compound annual returns ranging from 26% to 120%(!) (these guys trade commodities and are levered, so not really an apples to apples comparison to stock traders) for periods extending from 10 to 30 years. Ranking lower in the table is Buffett, at a "measly" 23%, albeit for 54 years. If you pitted 100 value investors vs. 100 technical stock traders, I would like to think that a higher proportion of value investors win compared to the traders, but I could be wrong. But will such a study ever be done?

Thanks for this. Sounds like a good book, and I plan to read it. Nevertheless, how much of it breaks new ground? Did you learn anything truly earth-shaking, or was it merely, as you put it, "useful." Like all similar books profiling the methods of legendary investors, it starts with that subset of legends (from my cursory look via Amazon), and looks at their attributes and practices, assuming those attributes/practices are critical, and that the unsuccessful investors were missing many of these traits. Even Buffett's famous essay on The Super-Investors of Graham-and-Doddsville suffers from being a retrospective analysis of only the successful. I'd like to see a historical prospective study of the entire class of value investors who already possess the critical attributes/practices, and find out what percentage of them beat the index by 5%+, and what particular factors are associated with the laggards. I would presume this study would be much, much harder, maybe impossible, but it would truly break new ground.

Not sure if this paper has been cited here before, but here's Montier's work (from back in 2006, and reprinted in his Behavioral Investing book), which includes international stocks: http://www.poslovni.hr/media/forum-user-upload/files/9a/9a5c2b2f55b461120e8d01095cf09a34.pdf

Congratulations! And don't forget to set up for your public vehicle a second class of Korean-style preference shares for us super-deep value investors!

Bump, thanks to threads started by Kraven and west regarding In this session, he states he has come full circle now, and would quite happily investing using MF, with the caveats of following Greenblatt's instructions to the letter, no trying to improve on the formula, no cherry-picking. The silence is deafening. Anybody (especially the naysayers) changing his mind and thinking about actually using MF?

I guess it depends on what you mean by Total Equity. I don't know if there is an official standard terminology, but my understanding is Total Shareholder Equity = Preferred Equity + Minority Interest + Common Equity. So to get BV in the P/BV calculation, you back out preferred and the non-controlling interest. I don't see why this wouldn't be correct theoretically. You could adjust Market Cap by MI times an appropriate P/BV for the industry, like you did in the first post of this thread. Then you would use BV as MI + Common Equity. It could be an interesting exercise, and I wonder which would be more accurate. Regarding EV/EBITDA, I read somewhere that if MI is mostly publicly traded, you might have enough info to figure out EBITDA attributable to MI, so that you could adjust the denominator instead of the numerator, and that this may actually be a more accurate estimate of value. Then again, the effort might not be worth it. But I could be wrong . . .

I believe the answer is yes, that you should adjust Total Equity as an outside passive investor. As an outside passive VALUE investor, it may be even more imperative, since the resulting values will be more conservative, just as your adjusting the EV for MI makes EV/EBIT more conservative. I see this adjustment as similar to netting out goodwill and intangibles, and thus using TBV to compare to P. This question may not have arisen had it not been for FASB in 2008 sort-of-arbitrarily moving Minority Interest from the limbo Mezzanine part of the balance sheet (where it seemingly ranked closer to Liability) into Shareholder Equity. All the Graham and Dodd editions came out before 2008, so their calculation for Common Equity is "Total Assets, less goodwill and less intangibles, and less all claims prior to common." (However, a cursory check in my 4th and 5th editions of Security Analysis shows no discussion of this Minority Interest problem.) Since exceptions are possible in the art of valuation, an investor who views a company as a going-concern with solid earnings may choose not to adjust out Minority Interest, if the subsidiary is meaningfully contributing to earnings. For the same reason, he may not fully deduct goodwill and intangibles if he has strong evidence these are not impaired. On the other hand, an investor who believes the company is more likely to liquidate will stick closer to adjusted TBV. (Not sure if this kind of answer is what you're looking for, and - major caveat - I have no formal training in accounting or security analysis.)

Damn! I'm disappointed! He coulda gone contrarian and adopted an anti-Lance-Armstrong look. Please don't tell me he's trying to clone someone else! Pass him along this book: http://www.amazon.com/Just-Ride-Radically-Practical-Riding/dp/0761155589/ref=sr_1_1?ie=UTF8&qid=1409258380&sr=8-1&keywords=just+ride Whatever. In the end, if it helps him to live for another 50 more year of compounding for his investors, more power to him!