scorpioncapital

So if inflation will be higher than expected, I read that companies with debt will get a kick (they are leveraged), gold and commodities should also get a kick. Does this mean the simple business with no debt and just cash-flow is actually going to be penalized for being careful? Not to mention savers?

Didn't the Dow Jones go nowhere the same way from the mid 60s to the early 80s? About the same period of time. Not sure if it's necessary to forecast another 15 years of the same though...

Thanks! I like his points about: - no need to rush into an investment because the opportunity will be gone, there is always time and always opportunity. - study and investigate before investing. He said he studied for like 10 years on paper before buying anything (a bit extreme but still the point is well taken) - know yourself. are you a trader, investor, speculator, none of the above? - Study your mistakes religiously. I'd also like to recommend the book, 'The Theory of Investment Value' by John Burr Williams. The case studies in the back are amazingly good. You can see for various industries how to analyze the value and how to think about investing in some companies or not.

Great book from the 1930s, free - http://www.oxfordstrat.com/download/Wyckoff-How-I-Trade-and-Invest-in-Stocks-and-Bonds.pdf The last 50 pages are pure gold.

Bill Gross suggested a similar trade on Friday on CNBC, structured slightly differently. If you believe the central banks will play good cop, bad cop and allow a certain range of volatility, his plan was to trade volatility around the 10 year treasury bond.

For cash that I am not investing I break it up into 80% and 20% buckets, the 20% sits in the bank and the 80% I use for cash paid merger arbitrage with a horizon of up 3-12 months.

But did you read the last bullet point? "This example is given because it proves that anybody can make money if they are disciplined and consistent."

I think shareholder equity is irrelevant for value of a business (that is not an investment business). Buffett has even said the best business is one that has zero equity and spits out a ton of cash. My answer to this is which business do you understand? Nothing wrong to forfeit a higher return in favour of a lower return that you understand how it was produced. Seems Berk has more diverse streams of income than FB or GOOG which seem to be more advertising based? But someone else maybe understood FB or GOOG better and made a ton of money with it.

"He would absolutely never invest in any of the largest 50 companies in the U.S. The market is incredibly efficient at this level. I" Does this mean Berkshire is out as an investment? :) Or perhaps he's talking about a young professional investor who can afford to take a little more risk and take the time to do research?

some fun quotes to help you outperform - http://the-me-in-investing.blogspot.ca/2011/11/where-are-customers-yachts.html I like these quotes especially! "Rhinophobia – the stock addict Customers who suffer from Rhinophobia always have as many securities as possible. When they sell out stocks at a profit they hasten to fill the void in their accounts with other stocks. The odd part is that they are frequently economical souls who do not believe in frittering away their money on food and drink and momentary pleasure. If they play bridge of an evening for a quarter of a cent and lose $17, they are liable to go home in a pretty depressed state of mind. Perhaps on the same day a slight weakness in the market reduced their equity by $500 but that doesn’t trouble them much; they still have their beloved stocks. It is practically axiomatic for these men that every time the stock market goes bust, so do they. To them, having a sizable cash balance in an account for any length of time is unbearable. Suppose stocks should go way up? They would be left high and dry with nothing but some dirty old money." " When there is a stock-market boom, and every is scrambling for common stocks, take all your common stocks and sell them. Take the proceeds and buy conservative bonds. No doubt the stocks you sold will go higher. Pay no attention to this – just wait for the depression which will come sooner or later. When this depression – or panic – becomes a national catastrophe, sell out the bonds (perhaps at a loss) and buy back the stocks. No doubt the stocks will go still lower. Again pay no attention. Wait for the next boom. Continue to repeat this operation as long as you live and you’ll have the pleasure of dying rich."

If the price was right? ... 1. Lindt 2. Enstar 3. Liberty Ventures

You might want to investigate whether the free or lowest cost Turbotax software actually has all the forms. I bought a standard version and had all the forms of the deluxe package that had investment income forms. It seems they charge for the wizards and might have all the forms. Just double check...

When a company retains all earnings and doesn't use too much debt it's easy to see the return on equity and incremental equity because you just divide earnings by the increasing cash and assets purchased. Something like Berkshire for example. Where I get a bit confused is when companies play all these buyback, dividend, and debt restructuring games, which is pretty much 80% of them. The paradox seems to be that many good businesses have high ROE IF you remove the retained cash. Sort of like taking the money out of the bank account and saying my core business has great performance. However this doesn't tell you if the company can get a return on the total capital or grow. Should an investor do a simulation assuming the buyback or dividend wasn't paid to see the real management's ability to have a high ROE in the face of increasing cash? Or should one look at lack of opportunity and just the return of the core business and take the dividend and assume you can invest it elsewhere. E.g. Buffett does this when he buys something like IBM, a high dividend/buyback payor that cannot grow (at the moment) but which returns to him some money to invest elsewhere. Using IBM as an example again. Assume all they need is working capital of $20 billion to earn $13 billion per year. This is a very high 65% ROE. For all intents, the ROE is infinite as you can just say it earns $13 billion on virtually nothing but people, patents, and expenses everything annually. Ok...so if IBM retained all $13 billion every year for 10 years, they'd have $130 billion in the bank. Now , their ROE goes down to 10%. Clearly without growth in earnings, IBM is like a bank account with diminishing ROE. But if they clear out the balance , you can see the core business does have a high return. So do investors look at earnings growth to determine how a company might earn a high ROE in the face of retaining earnings? Would you say a business was 'good' if it had to clear out the gains, had no growth, but allowed you to reinvest the funds elsewhere via dividends?

Wouldn't imported food be more a seasonal thing? I mean when weather is good you'd think we can grow our own fruits, vegetables, and produce our own meat and dairy in such a large country.

I used to think dividend stock where good in a foreign retirement account (like Canada) since you'd save the withholding tax which are higher tax rate than capital gains. Then I concluded if the dividend payer was reducing it's growth rate, it would still be better to have no capital gains tax and go for the fully retained earnings. Then I concluded it's probably best to own a stock that does a spin-off (like the Libery family of stocks), which are one heck of a headache for non-US holders to elect it to be tax free. So now I hold stocks in retirement account that are breaking up into pieces.

If technology is helping extract oil cheaper from the same ground, then deflation of product price is great. Sure it might be undervalued now and the 'right' price is 40 or 50, but I wonder if we want free markets. $33 / $40 is only 18% or so, hardly an amount that the boundaries of market stability are being tested.

The writer also wrote this nice article about the 1.2x P/BV ratio - https://insuranceinvestor.wordpress.com/2014/08/11/buffetts-buyback-math-why-120-of-book-value-is-the-magic-number-for-berkshire/ and this: https://insuranceinvestor.files.wordpress.com/2014/07/insurance-and-float2.pdf

In general, I think it's a bad strategy to risk what you need in the hope of gaining something you don't need. Fully agree. 200%. Sometimes though it isn't clear what you need, but if one operates on the assumption that building capital from your labours is hard work and sometimes a one time event open to massive change, then protecting the downside is of critical importance.

I would add that divorce is a legitimate option if the situation warrants it, likewise, once you've done this, don't look back, don't drive by, don't call, you have to believe you had good reasons for a breakup. Hopefully if the research phase was solid, this won't be necessary :)

You might look at HCHC too, similar idea of a conglomerate that was taken over with NOLs and under new management. They have been building quite a lot recently.

Making money is much harder than losing money. I consider NOL's virtually worthless in most cases and if they begin to be valuable, they will be a minor part of the value in relation to the 'new' profits that created them. I also think of them differently between those NOLs where the people who lost the money are still in power vs those NOLs (like a new shell) where new management has come on board.

"Minority borrowers earning between $75,000 and $100,000 on average pay interest rates slightly higher than those paid by Vanderbilt’s white borrowers making only $25,000 to $50,000, according to a BuzzFeed News–Seattle Times analysis of recent federal loan data." That is quite a big difference, perhaps the FICO scores should do some absolute income checks that are weighted higher. Overall, the article does suggest a sort of sleazy operation. Probably alot can be solved if they just separated financing and sales but then again notice it's in the financial products section of BRK balance sheet. Probably this is their actual big business, without which they'd make far less. Interesting question: Should a company have tough credit terms in a world once again loose with them, to prevent ending up like all the bankrupt companies from just a few years ago?

Goals - stop falling for the lure of cheap stocks, they give you a one time pop and maybe you wait 5 years. Better to buy a quality company at a slightly elevated price that has both one time gains and continuing gains.

I wouldn't expect too much from net-nets. Anything that is a net-net is by definition dysfunctional. In other words, I wouldn't expect positive cash flow, good plans, or even sound management. I'd expect very little, it'd be 100% optional value, a sort of I might lose 20 cents and maybe make $5 in the aggregate owning a basket of them.

How about PCO, somewhat below net cash in the bank and cash flow positive.