scorpioncapital

" If you look 10 years out, yes LUK outperformed BRK by 139% but if you start looking out even further, let's say 20 years BRK outperformed LUK by 29% which speaks volumes on it's own. If we look out even further it would be much more dramatic. " It's unbelievable the lack of research people do on these things and think they should post. Leucadia market price Dec 31, 1990: $1.10 Leucadia market price now (ADJUSTED FOR SPECIAL DIVIDENDS, SPINOFFS, AND DIVIDENDS): $33 CAGR (20 years): 18.5% Berkshire market price Dec 31, 1990: $6850 Berkshire market price now: $119,000 CAGR(20 years): 15.3% And yes you are right over longer the difference is even more dramatic, but not in the way you think.

Exactly, the last 4 years have been great to own Berkshire, now I'm shifting into LUK. However, I don't think 4 years is a defense of anything, try 10 years, LUK up over 200%, Berkshire maybe 100%. That's a whole lot of $$$ on the table over 10 years.

I'm shifting into luk from berkshire, berkshire is a great co. but I don't see it outperforming so why hold a single share when a co. like luk can do equal or better, makes no sense...

I wasn't aware Leucadia had any non-insurance float income, what exactly does that mean? I think something like Brookfield Asset Management or Loews has some similarities, but they also have very large differences. The big difference I see at LUK is throwing the institutional imperative against the wall and the concept of bi-modal investing. I've seen several conglomerates that have a large amount of capital in some industry and can't find themselves to sell it all and go where the money is likely to be. I've also seen some very diversified companies that have a little bit of everything and don't make large, concentrated bets on high probability deals. These features distinguish the best investors from the average ones. As a side note, I notice Buffet's new protege Combs bought some LUK in his portfolio.

think of utilities...these are expensive assets, nobody is going to fund it with 100% equity. Think mid-american energy. Think a reasonable return on (usually government-entangled) assets and earning power that are not going away for a very long time. What matters is return on invested capital. Also you'll want to adjust net income for the very large depreciation charges, some of these properties capex is far less than the amount being depreciated. FCF is 2-3x the net income figure.

Bam is one of the simplest businesses to comprehend. The CEO, Bruce Flatt has said on numerous conference calls and reports that the goal at Brookfield is simplicity and not doing things that are complicated. Each annual report has an estimate of intrinsic value so you can compare that to the current stock price. All they do is own real estate, hydro, and infrastructure assets, financed by permanent capital and long-term debt that kick off large streams of cash-flow. Simple!

Get 600% a few times and who cares if you lose 80% :)

Isn't this an expected value exercise? A) .9 * 100 - .1 * 20 = $88 B) .7 * 600 - .3 * 80 = $396 C) .75 * 300 - .25 * 50 = $212 So one would reasonably put 100% into B? I would think the bigger question is how you get the confidence levels, people pull these out of a hat, but there is no way to tell that one is right or wrong about these weightings.

"such volatile businesses with unpredictable revenue. As rohitc99 just mentioned, the fact that they own some businesses which "could be profitable in future" makes it tough to value some of their business/investments." Actually I find this a fascinating subject. Consider a predictable business a la Coca Cola whose earnings and future can be modelled with greater certainty. Such a business should theoretically be easier to value and without making any calculating mistakes, an investor can get a reasonable return and sleep well at night. Buffett loves these kind of situations... However, There is another situation which is equally lucrative and that is the Leucadia model of making investments with intrinsically volatile and sometimes uncertain outcome. This is not to say it isn't a probability play or that a baseline value is not available, but the future outcome has more possibilites and valuation ranges. Why is this model also good? Because as Buffett mentioned, there is a volatility arbitrage trade, namely the trade where you know more than the market and are willing to give up certainty for the extra return possible where the market cannot so easily value the future cash-flows. I am very comfortable with this model and feel that in today's semi-efficient market environment, this is one of the few opportunities for outperformance. Embrace the volatility, with intelligence and being an astute deal maker, and you stand to do very well.

It's a catch 22, you either have to buy it during periods of panic, but how can we know those ahead of time or you have to find a long stretch of undervaluation - but if you find a long stretch of undervaluation then something has gone wrong, namely it is less likely that you'll get your 18%. In other words, if it sells for 50% of book, it may be that you'll now be getting 9%, the addition of the two should, theoretically, amount to the same end result (9% return to book + 9% annual return = the same 18%). Really an irrational panic is the best time to buy but you have to determine if a) it's an irrational panic or b) something has changed about the company.

Look at it this way, even if trading at book value, if book value is growing at 19% per year over time, I would say that's a pretty respectable return all other things being equal.

Obviously Munger you didn't read the article you posted :) What is important is not only what Buffet says but what he doesn't say. He says inflation swindles the equity investor but that is only because it swindles the cash holder, bond holder, gold holder, property holder EVEN MORE!

I think growth in book value per share is a better gauge of performance that share price because as you mentioned they can't control the share price, that it went up 600% is no reflection positive or negative. BV/share however has been more steady, averaging around 19%/year when you factor in divestments and return of capital to shareholders.

only in Wonderland would people be having a discussion of what net worth is and if it includes your house and if an $8 million house should be considered part of your net worth. There are people in the world with nothing, whether you include your house or not, sell it or not, most Americans are rich by global standards.

This assumes the hedge fund fee is paid yearly. However, how would a fund , mimicing Berkshire, pay 20% of unrealized gains in any given year? Buffet partnership paid the fee in the form of share dilution by increasing Buffett's ownership interest, by not taking it out in cash he actually created a better return, even though the fee was the same.

this question is an exercise in valuation. Do the voters consider their house as part of their net worth? Do the voters consider the potential market value of a private business which may or may not be sold and whose value is more subjective than a stock quote?

Nobody has mentioned LUK, masters of the capital allocation universe :)

Did Buffett achieve a 50% annual return when he was younger or is he claiming this as of today? I believe the partnership was shy of 50% per year. Obviously a claim that an experienced 70 year old investor can do 50% on small sums is a completely useless statement in relation to a relatively unexperienced 30 year old.

"Which is why i am surprised to hear Buffett appear so definitive " Actually it's very simple - the National Bureau of Economic Research has not called the recession of 2008 over yet, therefore Buffet can be certain there will be no double-dip because you can't have a double dip if the original recession is not over. Semantics? No - a perfect prediction!

I would put far more trust in the dating skill of the main body for dating recessions than the one quoted in that article (http://www.nber.org/cycles.html#navDiv=6) Notice they have not called the end of the recession that started in 2007 yet while the article is already talking of a new recession - how can you have a new one when there is doubt the original one has ended yet? "Q: Why did the committee not declare the end of the recession when in met on April 8, 2010 even though, as it noted in its announcement, most indicators have turned up? A: The committee does not judge in real time. Rather, once all the relevant data are in and the early revisions have occurred, it looks back on history and determines in what month the economy reached bottom and began to expand again. The committee also has to guard against the possibility, even if very small, that what seems to be the beginning of an expansion is actually just an interruption in a longer contraction."

I don't have all the answers to this question but one thing I strongly believe is that model #3 is absolutely the worst of all possible worlds. Owning 90% of a large subsidiary and floating 10% seems destined to lead to perpetual undervaluation. As a stepping stone to divestment of the majority control I can understand but the idea that you do it so you can get a public valuation for something you own 90% of is just idiotic.

but then how do we pay for social security?

'However, as we’ve discussed in the past, perennially large deficits and an already elephantine national debt should drive interest rates higher on their own." If people aren't borrowing when money is free, why would they be clamoring to borrow when money costs 10%?

I for one am excited about certain stocks. Here's the most important thing to realize about this whole mess: What matters is REAL numbers not nominal. As long as the world has businesses and those businesses make a buck, what you have is a REAL return in ANY environment. An entrepreneur will make money as long as he charges more than his cost and that occurs pretty much in any environment - ignore the bad businesses of course! Rogoff did a comprehensive study on nations and showed that eventually all those that control their currency get over the crisis through a combination of a) a bit of growth and b) a bit of devaluation, sometimes more of one than the other, but the results I saw show it's about 50% growth, 50% devaluation.

Your historical statistics are spot on. Likewise, I can produce balance sheet, income statement, ratio analysis, and provide historical data on a company I might invest in (the US - or the entire world for that matter may be considered a giant company with many subsidiaries, but unlike a company it has different economic dynamics). However, I think the chain of logic to your conclusion has some weaknesses in it. The primary weakness is that the argument hinges on a comparison of a past historical state with the current historical state and an extrapolation of future consequences unravelling exactly like in the past historical state. However, much about the world in 2010 is very different than the world in 1929. I'm not talking about economic ratios alone, if the world is a machine with trillions of variables, the state of those variables today is a very different configuration. To wit: even if GDP were to suddenly drop 20% today in the US, why is it a foregone conclusion that the consequence must be the same as in the Great Depression?