scorpioncapital

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.

Add Canacord Genuity (CF) to the list. An investment bank trading at tangible book value. Usually a good price if their commodity focused client list picks up.

In a video to students in 2001, Buffett was asked how often he checked Berkshire stock price he said once every 2 weeks. I'm working on checking less too through a combination of post-it notes on my desk and stop loss and limit orders that I've decided upon in advance. I've settled on once a week on Wednesdays :)

Only the case if BV doesn't contract. It's a moving target, unlikely to be done instantly. He might wait 3 to 6 months to see the numbers. If the market portfolio of 100b+ drops 10%, reduce the buyback price accordingly.

I'm buying some IILG. It looks cheap with maybe a 16 to 17% initial yield on purchase price and approaching a 3.5% dividend rate, after effect of the merger. Insiders have been buying too.

S&D numbers can be found here for nat gas usa - https://www.eia.gov/forecasts/steo/report/natgas.cfm 2015 - supply 79.6, demand 76.3 2016 (est) - supply 81.2, demand 76.8 Oil: https://www.eia.gov/forecasts/steo/report/global_oil.cfm

Yes, he pretty much said it was a buy in 2012 when it was 80 or so per share.

I like EV/"Warm & Fuzzy" I.e. Is the business alive and thriving, is it a remarkable product or service with great future prospects. That will make a much bigger difference to success I think than just the numbers, even if they look decent.

Gotcha, yes, I used 50%. If the goal is to maintain a fixed number of leveraged shares regardless of how much the share price drops, then this could work. Perhaps another way to look at it is - getting a margin call at 30% might be a favour from your broker if you feel you might start to sweat - even with the put - if Berkshire hit $50 and your equity went from $25k to $6.3k, even temporarily. But one thing that did make sense in your example is that it's better to buy put insurance when you don't need it and it's cheap rather then when prices are dropping and it's expensive :)

So let's say you buy $50000 (~365 shares) and put up $25k. You buy ~2 contracts at $7 each or $1400 Over 2 years cost will be - ~$2400 (2% interest+the put) If the put expires worthless you just bought insurance for $1400. If the stock goes to say $100 ($36,500, or a drop of 36% from today's price) you have a margin call ($18.25k - 11.5k) of $6.75k. Will the put be worth $20 ($120 strike - $100 stock price) or $4000, about $3k short of the margin call? Or is the assumption that Buffett's stated buyback level is a kind of floor for the price and your assumed margin call?

If things go right - the default case - doesn't the put negate the point of doing the 2:1 margin thing in the first place? And if things go wrong, doesn't that also negate the point of doing the 2:1 margin thing? Seems to me if you hedge using borrowed money you might as well not use borrowed money at all.

I would have felt better if the line read, "We have no intention of..." instead of "we *currently* have no intention of..." Quite a way to hedge your bet!

Cliff sounds like an amateur - that's not good for Cliff. “For a guy whose reputation rests on his investing in the stock market, that’s not good,” said Cliff Gallant, an analyst at Nomura Holdings Inc. “It’s been a tough year.” It's a fair comment, the stock portfolio has not done well this year. Buffett would be the first to own up to it. Honestly I see the stock portfolio as an anchor. I wish BRK could just spin the whole portfolio off to shareholders. Then the market would recognize BRK's terrific growth as an operating company, and give it a much higher P/E ratio. How many companies are growing this fast, with such low risk, and selling at such a low P/E ratio ( I think ~13X my 2016 estimates, haven't updated it fow a while). BRK's advantages as a hunter for operating Co's seem far greater than what we can do in the stock market. I believe Buffett said he can only look at maybe 300 potential stocks now, given BRK's size. Plus, BRK is stuck with the giant stocks forever. Come hell or high water, if Buffett wanted to sell KO, WFC, AXP, or IBM, it would cause a huge firestorm...could he even sell them without crushing the price? Heresy, all of this, I know. I thought the equity portfolio was embedded within the capital of the insurance companies. Therefore a spin-off would require a separation of the entire insurance business and the engine of Berkshire's float and investment capital.

Great article! It's hard to make a buck, but it's even harder for 90% of the businesses out there that aren't semi-monopolies.

Working with the names in your post, I would hold just these two: BRK & LMCA (maybe BAM a distant third) Good luck!

Some ideas off the top of my head... - Borrow money so that the dividend income is offset by margin interest. - Do a section 85 rollover of your securities into a CCPC than dividend out profits as eligible dividends and capital dividends. If you have RRSP room, you can offset this further with a contribution in the year you do this. - Use other instruments like single stock futures that are not dividend protected, you would essentially convert dividends into capital gains - and there's no withholding taxes.

Thanks for the analysis, thepupil. Looks great. My instinct is to say that if compounding is fast enough before the next dislocation, you won't lose much at current prices. I wish it was at 1.2x book though! I've always seen the buyback as a "contingent tax efficient non-dividend equivalent". And an admission that range of outperformance options are narrowing.

"If I get a great deal when buying a car by no means did I steal that car." I would argue you didn't get a good deal then. A good deal really does feel like stealing something. I've come to the conclusion great deals are only due to the seller not being fully aware what they are giving up to the buyer. Otherwise we might call it a "fair" deal, but in no case would we call it a "great" deal. Over a long time, it may turn out either the seller or buyer was right or wrong or neither. Well, it seems all the reasons we have for Berkshire are good ones. Hence we pay more than book. But how can it be quantified? I would argue that 20-30% above book gives one a good margin of safety. After all, that is the price Berkshire will buy back, so if Berkshire demands a margin of safety of 20% shouldn't we do the same? Ok, it probably is a range. But there's no doubt that buying below what is considered fair value is going to boost your return. Berkshire was 1x book several times. I wonder if it's worth waiting for that or at least 1.2x instead of stretching to justify the current valuation as being cheap. Fair, maybe. Cheap I'm not so sure....(Oh and I hope I'm proven wrong as I own some Berkshire bought in the dips in late August. I had a large stack in 2009 and sold it at around ~$80 - that was a big mistake, so I guess one might come out ahead even if there is a compression back to 1.2x b/v or even 1x b/v for a short period of time).

Does anyone think any of these >1x b/v reasons are a bit flimsy? Okay, maybe except Buffett himself. I mean, all the reasons we could think of seem to be a margin of safety of 20-30% right? So buying at 1x book if it ever gets there gets you the safety margin. Perhaps there is something else to it. I can really see how goodwill may be undervalued if Buffett made good acquisitions at the right time, but he'd have to some degree be 'stealing it' from the sellers with the sellers not being fully aware. This is fine with me, after all, asymmetry of information creates opportunity.

So it sounds like the only way to justify a price > 1x book are: 1. Buffett premium - for a limited time only. 2. Goodwill worth more than amount on the books - there was something in the a/r about goodwill never marked up, not sure why it would be unless it was a windfall of some sort. 3. Organically grown businesses worth more than book - such as superior insurance underwriting. 4. Investments with a higher market value than carrying cost - e.g. BAC warrants ..Most investments are usually marked to market though.

Also it's not likely that value investors can control the price. In euphoria, all the wisdom that was said will be forgotten, likewise in a time of fear.