scorpioncapital

I have to agree on one point, as an entrepreneur myself - what separates the outperformers with no capital and the average performers with a ton of it - sales ability. I'll take sales ability any day, it's the most valuable talent one can have in the business world.

So since inception, his investors have netted about equal to an index of the largest 300 companies in Canada. What is so special about this value investor?

Reminds me of that rolling stone song, only in reverse...You may not need it, but you may WANT it, and if you're smart, why not make more money?

Cash is like a stock. Right now it's cheap so I'm borrowing it, if it was expensive I'd sell it.

Why is that so disappointing? The CEO and Chairman of Jefferies was also seeded by Michael Milken and it's one of the biggest and most reputable investment banks on the Street. I don't see the connection.

hedges are for gardeners. The best hedge is time and intelligence.

It's a great letter as usual, however, it continues to solidify my belief that the small, smart, diligent investor should not own Berkshire stock if they are ambitious and want to maximize their wealth. Selling my last 10% Monday morning :)

I think people underestimate the luck component and overestimate the skill component. Which is why I'm an equally big believer in luck as I am in honing your skills.

I've had the pleasure of hearing Rick speak the Resource Conferences that pass through town from time to time and also articles and video clips online. I am very very impressed. Rick is one of the most astute investing minds I have ever had the pleasure of hearing and I listen very carefully at how he thinks abou the subject. I've learned alot and I think he's up there with the greats like Buffet in terms of having a very deep understanding of the game and the interplay between investing and speculation.

LUK's stake in Keen Energy is $231 million as of 12/31/09 (latest 10-k available) LUK's investigation of other energy projects has been about $70 million over the last 3 years. So total investment in this field is about $300 million so far.

As far as the latest published 10-q, their involvement is insignifcant. Personal accounts? That would be highly unethical when LUK could have negotiated for the entire company over the last year or two so I would speculate no on that front too.

One thing is certain, you can't see a movie for a dime like in the good old days. It's about $10 bucks now. Whatever the rate of inflation is, it's there, and it gnaws away over time slowly and silently until you realize that things are quite a bit pricier than you remember when you were younger.

As much as I try, I can't bring myself to use an 18% discount rate when the cost of money is zero now and 4.6% for the next 30 years. Of course it may be hard to borrow money at 4.6% for 30 years for stock investing, usually that's reserved for real estate, which is probably why real estate is such a great deal.

I think the US stock market is substantially undervalued at this point. Even using a discount rate of 7% (rates are now 0%!) it still looks over 20% undervalued. Look at the Berkshire intrinsic valuator, it shows a conservative value of 100/ B share with a discount rate of 7%! At worst, we can say it's fair value but stocks don't look expensive at all. Greenspan did a very good, as scientific as you can get about the future so take it with a margin of error, analysis in his book, Age of Turbulence. His thesis was that in the 2020's, the long term bond rate would double say from 4-5% to 8-10% gradually. So even if that happens, stocks would not be particularly expensive given current prices and growth by that time.

i think people don't even know what they are doing is so psychologically cliche. First they panicked, then they got depressed, then they took money out of stocks, then they missed a massive rally (as always happens like day follows night after a business depression), then they went silent, then they are hoping for a drop, then they buy in, then they lose money again. What is important to realize is that these are all cycles we've seen before over and over and over again and people are impatient. The chatter is counter-productive if you listen to it and believe it. I went to a metals conference recently, I remember 2 years ago in the depth of the crisis, the registration lineup was almost empty, nobody was interested at the bottom. Yesterday, when metal stocks and commodities have gone up 100%, the line-up was right up to the escalator! People in the aggregate behave very similar to sheep, it's beautiful to watch as long as you remain detached from the madness and take their money. The only constant is the predictability of human over-reaction - that and the pretty girls in business suits that usually show up at these shows :)

http://www.accessmylibrary.com/article-1G1-148719197/net-operating-losses-much.html "An NOL occurs when a company's total tax-deductible expenses exceed its taxable gross revenues. The good news for a company incurring an NOL is that it will owe little or no current income tax liability. The bad news is that the excess deductions provide no current-period tax savings. Taxing authorities frequently attempt to mitigate this potential loss of tax benefits by using NOL carryback and carryforward provisions. For example, current U.S. federal income tax provisions allow a corporation to carry its NOL back two years and/or forward 20 years, to be deducted against taxable income reported in these carryback and/or carryforward years. The application of NOLs in this manner could create tax refunds in the carryback years when taxes were previously paid and potentially could reduce tax liabilities in carryforward periods as well. FAS-109 allows these potential tax savings to be recorded on the company's balance sheet as a deferred tax asset, given that positive future cash flows are expected from the tax savings generated by the NOL's use. " "Where are NOL represented in the balance sheet? Are they off balance-sheet?" FAS-109 also requires that a company establish a valuation allowance (similar to the allowance for doubtful accounts) when management believes it is more likely than not that some or all of a deferred tax asset will not be realized. Thus, management is required to assess the probability that the company's NOLs will generate tax savings and reduce the reported deferred tax asset whenever there is a greater than 50 percent probability that some or all of the NOLs will expire unused. Consequently, a significant amount of management judgment is required in this area and potentially provides yet another earnings management opportunity, particularly given the weak internal controls that apparently plague so many companies in the tax-reporting area. " How do you asses their value? (NOL * Taxe Rate *Time Value of Money) ? Correct How can you determine their distribution in time? You can't know this for sure. Can NOL be used to bring a tax rate to 0% or NOL can only be used on a certain amount of income" Usually it has to be matched with the subsidiary that holds the business and it's jurisdiction. This involves some aspects of tax planning and clearly if a management has large NOL's in a company they will try to mostly make investments that can legally utilize them otherwise it's a waste. PS. You may need a local library account to view the complete article above. And a summary of FASB 109: http://www.fasb.org/summary/stsum109.shtml

And who says we live in a free, capitalist country instead of a planned economy, socialism leaning towards communism.

"least they should do is to try to prick up the phone and try to answer them" I think one should distinguish between minimum public reporting requirements and everything on top of that. Even though many companies do it, contrary to popular belief, a public company doesn't have to answer anything by anybody. In fact, having a Q&A at an annual meeting is in itself a bonus as even that isn't required. Once a company has sold its shares, shareholders' only recourse is in the secondary market. If anything, the people they REALLY have to talk to is their creditors, that's a different story entirely.

Here you can read the report at this link: http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf and http://www.federalreserve.gov/releases/z1/Current/z1.pdf $55 trillion is household net worth, that is the wealth of individuals (and non-profits).

"Moreover we may be in the process of discovering that our assets may not be sufficient to cover that debt." I find this claim very hard to believe. US total net worth as of Q3 2010 is about $55 trillion. US total debt is just shy of $14 trillion. Some have argued about social security and medicare costs, but you have to remember these are future promises that may or may not end up in their current form, nor is the net worth figure static, it is growing. In all, I don't see how the massive wealth of the US is even close to our total debts.

All investing is giving your money to somebody else to make you more money. Delegation is assumed. The question is who do you give your money to and what do you expect the return to be and what is the optimal strategy given one's knowledge? When you own a owner-manager holding co., you are delegating to an investor who in turn delegates to other managers. If you think this double delegation procedure will return 15% (and all "doubly-delegated" portfolios are diversified) but that direct delegation based on your own research will do 20% (also diversified among 5-10 stocks) the only argument to hold the former is that you are unsure about the second diversified portfolio. Why are you unsure? Diversification is supposed to reduce bad luck, so the only possibility is bad selection - in fact very bad selection. I'm just saying that it would seem a better strategy to know what you want to do - a) become a better stock picker and take all the rewards - and downside of your own delegation or b) let a highly trusted partner do this. Note, however, that in b) you still have to be good at selecting partners! Which in the end may be the same thing as selecting your own investments.

What I'm suggesting is that it is irrational to hold owner-managers and personally selected deep value plays. The question is what is rational. Either you know what you are doing 100% or you don't. If you don't you hold the owner-managers or an index, if you do, you hold 0%. There is no hedging your bets with knowledge. It's not a gambling proposition, a weighted portfolio of well selected value plays ensures against 1 negative outcome, I just don't see how the two "styles" are compatible, it almost seems like people are hedging if they know nothing and gambling that they know something, just learn it well, know your limitations and there's no gamble. Problem solved :)

I think you should be asking a more important question. If the really good owner-partners are going to earn 15%, then why are you having opportunities to make a whole lot more? Several possibilities are possible.. Why aren't THEY earning more than 15%? Some have said 'size'. But does this mean if you are too good you must necessarily be only marginally above average over time? Logic would then dictate that if you are small (most of us are) and good (questionble premise, but let's assume it) then you must not own ANY of these owner-manager companies. Since all of us are small, then the only question is how sure are you that you are good, that is the only question.

I would think so, dividend reinvestment means a dividend was paid (and taxed) and then reinvested.

Buying US dividend stocks on margin can be one way to shield some of the tax to pay in Canada. You are allowed to substract carrying costs (which include interest) from the dividend/interest received which allows you to carry more of your investment than you would otherwise be able to.