scorpioncapital

"The question is, if the odds of such an event are small, how do you protect yourself from that rare possibility of such devastating effect?" Don't use too much leverage and invest in the right businesses/managements - other than that, I'd ignore the odds of small events with big consequences, there isn't much else you can do about it. Some people hedge/insurance but I don't think that's very useful because over time, the bias is towards recovery so the insurance is wasted, you can get "pseudo-insurance" by just not buying more than you can chew.

Question: Why does everyone use the past or statistics to try to predict the future? Is there any reason to believe that data has any information about current macroeconomic events?

I wouldn't be surprised if we reach the 2007 peak sooner than people think, maybe 1-2 years.

What I don't understand with the SSF is if the total contract price is "debited" from my margin account. E.g. suppose i have a margin loan outstanding of $10,000. If I buy 1 SSF contract for $24.50, does $2450 come out of my account immediately today (so my margin balance goes to -$12,450) or only 20% of that or about $500 is debited today. If the former, it doesn't seem like such a hot deal. If I have to pay today $2450 and get the shares now vs. paying $2450 today and getting the shares 8 months later, the only benefit is the interest, not the deferred payment. Anybody know?

I'm trying to figure out which is a better deal. An 8 month SSF at $24.80 when today's stock price is $25. An equivalent option (in terms of premium, i.e. in this case 20% since that is the margin requirement for SSF) expiring in 16 months (twice as long) at $30/share when the stock is $25. My inclination is to say the first option seems better, sure the time is 1/2 but there is no guarantee the stock will climb the 20% wall in 1.5 years.

Does anybody think Buffet is suggesting stimulus be reduced sooner than later to rein in deficits - but wouldn't that curtail the recovery and plunge the US into another recession?

Philip Fischer wrote, " In other words, stocks that are going to have a big rise regardless of inflationary conditions are the only type of stocks that will safeguard the investors' assets against inflation." I am always amazed by all the people claiming hard assets and commodities automatically confer protection against inflation. In the book Paths to Wealth through common stocks, Fischer totally dispels this myth. There is nothing automatic about stocks protecting against inflation nor is there anything that guarantees hard asset companies do the same. His thesis is that it is the individual character of the stock/business, so basically one commodity stock might have a good after-inflation return while another, in the same field, may not. All generalities are suspect, including this sentence :)

A couple of points - my opinion is that I&J will neither be a big sellers or buyers of LUK stock for quite a while (i.e. nothing material), those watching their insider moves are likely to fool themselves into making (or not making) the wrong investment decision. In retrospect, at $10/share LUK was a great bargain, similar to Wells Fargo at $8. In that time, companies were going belly up and even LUK had some discomfort, but except for some preferred conversion, did not dilute or get a major debt/margin call. I'm not sure if a few more weeks of those kind of prices would not have led to a plethora of failures around the country and world. The "puck" is the economy and people's fears. That has moved substantially from Great Depression mode in March to something more balanced. My suspicion, and the reason I'm engaged in dollar-cost averaging even after the huge rise from the low, is that we may not see those numbers again, if we do, dollar cost averaging can't hurt too much, but if we don't, you'll have some more shares added to your nest egg at appealing prices.

Has anybody used them? Seems you can defer payment (20% margin) of a stock purchase up to 8 months locked in at a price today roughly equal to the bid-ask price, i.e. there is no premium like in options, financing cost if use margin is superior. Seems like those department store offers, don't pay principle or interest for 6 months! Only drawback is you have to commit to 1 contract or 100 share minimum and it only trades for major large cap US stocks.

Representing the largest portion of my portfolio (69%), my opinion will probably be highly biased, so disregard as needed, however, it differs from the opinion of others in this thread. I think Leucadia is trading at about 1x-1.2x a reasonable estimate of the market value of its equity/investments. As such, it is neither cheap nor expensive, and I'm leaning in thinking it is more on the cheap side than the expensive side given the context of what may happen in the next decade. So...I'm continuing to add to my stake every month and as prices drop I will add more as cash-flow allows. The last thing on my mind is to sell a single share at these prices.

I don't care who this guy is, anybody who thinks they can confidently forecast the future of the stock market or the economy is philosophically flawed in his/her reasoning.

There are some very valid points in the article. Although the criticism of Buffet is somewhat off target. It is true that all of corporate America has been a beneficiary of TARP and other bailouts. And yes it is probably true that without them both Berkshire's (and this is the key point, everybody else's holdings) might have ended up being depressed for a very long time. So yes, Berkshire benefited, but so did you and I. Do I really believe my other stock holdings would be where they are today without these actions? No way, they'd be in the dumps at the March lows maybe for several more YEARS.

I'm really curious on what you base this assertion. The fact that Biglari has outperformed the S&P by 17% per year (if I remember correctly from one of Sanjeev's posts) over the last 7(?) years in his hedge fund, and is using WEST as a vehicle for investments in the future makes it at least somewhat special/interesting. The fact that he focuses on capital allocation and finding the best use for capital as opposed to just putting money back into the same businesses is somewhat special compared to a lot of companies out there. The fact that at the age of 30 something he's had a very successful hedge fund, taken over a reasonably large public company in a proxy battle, and turned it around in a very short period of time is somewhat interesting. I'm not a complete Sardar groupie (I do think he's had his share of less than perfect moments), but I don't see how you can say that WEST is "absolutely nothing special or particularly interesting". Please let us know what you base this statement on. Thanks. I just don't see anything interesting in the balance sheet/income statement. It trades for more than 2x tangible equity and yet the operating business makes a poor return on the capital employed - something like 5-10% I don't know about the past performance in previous vehicles but current investors don't benefit from it, that isn't sufficient to say this investment will in the future do well.

Don't forget, after Buffet is gone, Gates is at the helm, that's a pretty good leader. Also there are many great leaders in the world, these aren't the only people that can do a great job. About Greenberg, didn't the AIG/Gen Re fiasco occur under his watch?

I think you guys are being a bit too optimistic on WEST and/or management. There is absolutey nothing special or particularly interesting about this company that I can see, or even any evidence of something special that may develop in the future.

Posner had a great article, was in the the Atlantic(?) that suggested words are used in the wrong way. The end of the recession should be defined as when GDP gets back to the same absolute value as it was at the peak. Currently we are 7-8% below that value so that means if growth is 1% this year, 2% next year, 3% the year after and 3% after that, we are definitely looking at 3-5 years before the recession ends.

Why only stocks and options? What about SSF's, single stock futures? In my view, that product is superior to options and ma even be a better way to establish a long position in an equity than buyign the equity on any given date.

I can't see how these two plans are not mutually exclusive. "I also suggested Plan B: if you missed the earlier lows, you must grit your teeth and phase slowly into a cheap market. You can’t gamble that it will oblige you by another low, and historical analogies with earlier, much lower market lows are fraught with genuine differences." and "Given our view that we are in for seven lean years in which the market will be looking for an excuse to be cheap, we recommend taking some risk units off the table, including becoming underweight in equities – between 1000 and 1100 on the S&P, if it gets there this year. Around 880 you should continue to move slowly to fair value, twiddle your thumbs, and wait to see what happens."

The Depression of 2008? More like the Panic of 2008, a one year event, a blip in the grand scheme of one's investment program.

How do you get such a low rate? Interactive Brokers Group (in fact if you have enough assets to borow more than $3 million but less than $50 million, the current interest rate is like 0.30%, it's almost like borrowing from the Fed - free money , of course this can't last. Ps. None of these stocks pay dividends at the moment (although they might in the future). However, I am hoping that at some point, Canadian dollars will pay higher interest on cash than margin interest on US dollars, this may be a few years off.

Ha! Just remember that the broker call rate is about 2%. My broker is charging 4.25% + broker call. So your cost of capital is about 6.25%, well ... mine is anyways. Decent hurdle rate I guess. :) ;) Not at all, I am paying 1.4% interest on the loan.

Leucadia National - 57% Berkshire Hathaway - 42% Enstar Group - 1% Cash - (negative 25%) i.e. 25% margin loan. as follows: 1/3 CDN$, 2/3 USD$ margin

Philip Fisher said it best in Paths to Wealth through Common Stocks over 60 years ago - if you listen to analysts and economists in the media you deserve what you get. Since most of them are playing on fear, most people are going to get not making money or losing it from fear.

A Fed governor recently stated that if the fed short term rate is 0% in 2 years it will be a sign of failure and Japan style deflationary spiral. So keep your eye on the Fed rate. If it stays at zero, we are in trouble.

Between 2005-2009 the rate of annual inflation was in the 3% per year range (official numbers). During this period some commodity businesses and oil went very high. Today many people are saying that if inflation picks up, commodity prices are the way to profit. But I think we are going to be in a low interest rate environment for a while but still commodities can do well. If currently the rate is in the 1% range, then just a move back to 2-3%, which doesn't seem that high could return commodity prices back to where they were 2 years ago. So I'm not at all convinced that very high inflation is necessary for energy and commodities to do well.