scorpioncapital

" I've read guys say they've been margin called when their trading portfolio just dropped 10% on 2:1 total leverage. " I hate to say this but isn't that normal? If you use max leverage don't you get a call if it drops 1 cent? Having said that, my experience with margin and IB is that they have given me considerable leeway intra-day, for example, during last year's crisis. Still, I like that they protect the firm, it does nobody a service for the firm to go down to give over-leveraged traders some sort of leniency.

Maybe one day it will be the Microsoft of financial trading platforms and opening markets to people around the world. If I had to bet on one great business this is it. However, valuation is important. Likewise, consider the nature of trading. It is all arbitrage. Everybody else is an investor or a gambler. If gamblers lose money, then IB is the house/casino for human nature. If you believe that casinos will exist forever, IB will never lose that revenue stream. But if you believe people are smartening up with their money and being more serious investors, IB will be killed when an investor buys thousands of shares for 1 buck and sits on it for years. So, do people use the markets the same as casinos, obviously people gamble much smaller sums than their retirement accounts.

The investing game is diabolical :) Even if the best buying margins are in a big financial crisis, that crisis may come around once in fifty years or not at all. Many people have this belief that 2008 was predictable and bound to happen - but that is an incredible dose of hindsight bias. The crisis, hard as it may be to believe, may not have happened and prices and asset values may have stayed at those levels forever or much longer anyway. So even if we believe the best values are in such a crisis, we may end up holding cash for decades? Somehow there has to be a balance between the two. It almost seems to me one should expect to just go through these events either partially or fully invested and almost expect never to have a cost basis at the exact bottom, which is impossible.

I learned that a value investor with a desire to justify a valuation as cheap can easily delude himself, only to find out that the definition of cheap was not nearly conservative enough. If you combine that with margin, it gets even worse. So I guess the biggest lesson is that overconfidence is a very hard bias to overcome.

If you socialize losses on a constant basis over the years, as opposed to the US model that does more of a bailout IF and when a crisis develops from time to time, it would seem that you are pretty much trading volatility for a smoother return in the economy. Of course, volatility is better for investors to take advantage of the madness but not so hot on the citizens of your country. I'm not sure which model, in the end, is more expensive or if they are equivalent. But the common thread is that taxpayers over time are always subsidizing an economic crisis, either once every five decades or a little bit each year.

The capmark deal has very little to do directly with CRE market, it is more a servicing business and probably will be in some sort of run-off with loss reserves rising. Future originations are going to be the bulk of the profits here.

I would think a repeat of 2006 is more likely. We'll be there in no time in terms of the S&P 500 index, maybe even next year.

I think critics don't understand the constraints under which Berkshire operates. The first principle is this: What's good for Berkshire is not necessarily good for others or individual investors. Berkshire is so big that it is seeking investments within a very narrow range of expected return. Seeking certainty and a modest return (more modest than most people would desire) is job #1 at Berkshire. Since it has low to no cost leverage, it can also seek investments yielding as little as 10% per year and it would still yield say 14-15% on shareholder equity. In this context, Burlington is within the Universe of stocks available and Very likely to meet the return expectations required. For this reason, Berkshire can pay this price that others would not find very appealing. Even Buffet has stated it isn't a bargain, but Berkshire does not need a bargain to achieve its goals. We, or Greenwald, on the other hand do need that and so might choose to pass on the investment. I can't believe intelligent investors like Greenwald (and even Niall Ferguson was critical of the deal on Charlie Rose) can't see something so obvious.

Let me qualify that, because a year or two is irrelevant. Over some meaningful period of time, there is no deflation and there won't be going forward. That is the nature of our Western society. As long as people will not stand for the alternative we will have constant inflation over time. Just look at your own experience...Somebody I talked to said in 1978, it cost 10 cents to ride the bus in the Seattle area, rent was $80/month. What is it now? Even creeping up at 1% per year, prices are going to be at least 10% higher in 10 years, and 1% is an extreme. Having said that, inflation is largely irrelevant for making money in stocks. It is part of the constant background noise and whether you make money or not in stocks depends on many other things of which inflation is at the bottom of the list - but that's another subject for debate :)

That's not how Buffet analyzes an investment. Greenwald has it wrong. Guaranteed (or close to guaranteed) income commands a high price.

I think there is no debate - we will not see deflation in our lifetimes.

"we could observe that they were building over a period of years." The only reason we say this is because it "popped" and we are looking back. If it never popped, we wouldn't be observing anything. All our explanations are skewed by having the "answer" of what happened. It was much more uncertain at the time. If there was no crash, it would be notoriously hard to say anything about a bubble.

If I may quote Bernanke: It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” Bernanke said in response to an audience question. Nobody knows where the next bubble is, nobody really knows where the current bubble is, if any. Anybody who says they know is lying or suffering from hindsight bias or a lucky prediction.

"WARREN BUFFETT: If they wanted to reproduce the Burlington Northern Santa Fe, it might take $100 billion or so. " Not sure but this sounds like Buffet believes his purchase price of around $25-$30 billion is 1/4 to 1/3 of intrinsic value.

Transcript of Interview: http://www.charlierose.com/download/transcript/10711

The idea that BNI's moat is "bigger" than Coke's is funny. Just look at the market caps, that tells the whole story - $30 billion versus $130 billion.

Anybody have a link to this video session online? Here's the transcript: http://www.cnbc.com/id/33901003/print/1/displaymode/1098/

This airline is still making money in the recession. They have a model of contracting out services to major airlines. $850 million market cap against $1.5 billion in assets. Cash-flow positive after cap-ex. A big part of the asset base is small jets, not sure the dynamics of that. Obviously jets depreciate, like cars, but as long as the method of depreciation is conservative and given the possible inflationary future, wouldn't this type of hard asset, lean business model be a good buy at current prices?

"On the other hand, LUK has high exposure to real estate and medical stuff" LUK's investment in Sangart and Real Estate is less than $500 million. Of that, Sangart has been written off to zero so the total stated invested is probably closer to $400 million. $400 million in relation to equity of $4.2 billion is just shy of 10%, which I would consider minor exposure, not high at all.

Interesting conclusion. I've come to the opposite one, what metrics are you using and how can an insurance company be compared to a non-insurance company?

I looked at the latest 13-F for Alleghany and it shows they own like 1 million shares of BNI, peanuts really, maybe a $30 million rise on a $2.5 billion company.

http://media.libsyn.com/media/mfconversations/10_28_2009_Motley_Fool_Conversations.mp3

It's hard to tell, but I would say don't be so quick to discount the value of the $2100 tuition. There is a world of difference between great value investors and bad value investors because there is a huge divergence between practice and theory. Maybe there will be people there who are successful and you can get one good idea worth the entrance fee alone.

And as the article says, nobody knows the answer to any of these questions. Really, there is only one actionable piece of intelligence I found in the article (from an investing standpoint) and that is to not invest using too much debt. Other than that, what else can you do except wait it out, whether it takes one year or ten years?

I see nothing mutually exclusive with a moderately stronger US dollar in the near term and commodity stocks/prices flat, in fact this would be the best of both worlds for a Canadian investor holding US stocks.