scorpioncapital

Who does GE Capital lend to? Are most of their loans to finance corporate and governmental clients buying their industrial products like turbines, etc.. or consumers? That could make a big difference to the nature of those loans.

"then that is fine. But if a partner withdraws capital because of fear of the markets or our investment strategy, then we won't allow that partner to return once they've withdrawn their capital" How are you able to determine the reason for the withdrawal- Truth serum?

You can either always hold a large amount of cash and invest say 60% of all funds only or you can tell your investors that the money they put into the fund should be money they don't need for the next year and have an annual cash-out date (I think Buffett did something like this). How can you run a fund when investors are going to be so unpredictable they are going to demand cash at any time. Best thing is to tell them if you need the money or you are afraid you may need it it is emergency funds and I won't take the money because it isn't long-term capital.

In today's interview, Buffet said we will never see deflation in our lifetimes. Pretty strong words. If this is true, than the mis-understanding of the market on this issue creates amazing investment opportunities whenever there is another "scare" and prices drop.

Nice article. The one assumption I'd like to question is if the budget must be balanced in any given year to exactly zero. Does the government need $1.6 trillion this year or can it raise less and carry-over the deficit to the next year?

Well he did mention at the Annual Meeting that Berkshire stock is not undervalued enough for that at current prices so I'm not sure it is quite a steal yet. Maybe in the low $2000's per B share....

visit the websites of the various brokerage houses in NY, Jefferies, FoxPitt Kelton, Credit Suisse, etc.. as they are the ones that usually host various company presentations in various sectors. Entry is not a problem. In today's economy, just say you are representing a private investor and they'll most likely let you in.

The test has failed for the 5 year rolling period, which means that investors cannot realize the value created by Buffett. The question is how long is this travesty allowed to continue :)

I think that is the purpose of the test in the owner manual, that good capital allocation should convert into an equivalent increase in market price, if it doesn't, you can't benefit from the good capital allocation. Essentially, the market must be inefficient on Berkshire stock. If Berkshire retained $40 billion and the market price went up zero, then the market price should go up $40 billion. What I think is happening is multiple to book value compression, which is not good at all. Essentially, not only you are not getting $1 of increased market value for $1 of retained earnings you are getting a decrease of 1/2 of market value for $1 of retained earnings.

I've noticed since this listing, my Berkshire B margin requirement dropped from 50% to 30%. Nice!

It may not be a good test, but Buffet himself believes in using this test, it is one of the principles of the company from the Owner's Manual.

Someone posted this on Yahoo and thought it made a lot of sense: Retained earnings Dec 2003: 31.9 bil Retained earnings Dec 2008: 78.2 bil Five-year change in retained earnings: 46.3 bil Stock market value Dec 31, 2003: 84,250*1.54 = $129.7 bil Stock market value Dec 31, 2008: 96,600*1.55 = $149.7 bil Five-year change in market value = 20.0 billion In the owner's manual, Buffet says that every 5 years this test should be met or a dividend should be considered. It hasn't been met for 2008 and also hasn't been met so far in 2009. Berkshire stock would have to rise 45% in the next 6 months for the test to be met. Is Buffet wrong in not paying a dividend?

Does anybody know why if I enter 10% discount rate vs. 50% discount rate, the IV of the B shares changes by about $1000/share? http://www.creativeacademics.com/finance/IV.html I can't believe that a 50% discount rate vs 5-10% makes a difference of only $1000 per B share.

But what does this "war scare" have to do with the stock market? If anything, it will make it rise even further.

DCF is as easy as the rule of 72. Your money doubles appx every 7.2 years at 10% (3.4 years at 20% return, etc..). Likewise it gets cut in half (discounted) by half every 7.2 years if you want to calculate value of future income streams or inflation. That's all you need to do DCF, forget fancy spreadsheets and models.

From what I read of Buffet's philosphy, he much rather prefers a say 7% initial yield with some reasonable growth than a 15% yield (P/E=7) with little future growth. The reason is that value is hidden in the "back-end". You will still get a 15% return with the 7% initial yield given some growth assumptions you are relatively certain about.

Wow, in reading that article I'm more convinced we'll hit the all time bull market high of 14,000, maybe not this year or next year but sooner than people expect.

I am at a loss to understand how this guy won the Noble Prize - or even got a degree from a University.

My impression of Snowball was to get a deeper understanding of Berkshire and also the mysteries of how junk can turn into gold. In reading the book, I was asking myself, could you have foreseen the outcome ($140 billion market cap company in 2009) from the early years? And the answer for me was no, it looked like a hodge-podge of crappy unrelated businesses that wouldn't go anywhere. It looked like every deal was a tiny one and yet all those tiny deals added up. Like why all the fuss over a newspaper in some small town, it seemed an inordinate amount of time spent on stuff like this, yet this was the kind of events the capital went through to get really big via compound interest. To be honest, the book gave me less faith that I could spot the next big growth company just by looking at transactions and/or the nature of the business. Instead it seems you have to look more at the mind of the person making the decisions.

I'm not entirely sure you read the article carefully. She said Buffet recommends average investors not go out of the US market, she didn't say anything about super-smart professionals like Buffet.

You've just defined a bull market. People can't stand to not get a piece of the action, so the markets keep on going up. Conversely, people can't stand to lose, even temporarily, so they can't wait to get out of stocks exactly when it is the best time to get in. There are riches in the market, just because people can't control their emotions.

What he probably means is that a startup can have 1000% returns in a very short period of time, very unlikely to find that in the stock market in a short period of time. On the other hand, it is said 95% of small businesses fail so 1000% * 95% failure rate = 50% return which may be comparable to buying a big public company that has a failure rate close to zero.

Is there any other strategy besides these? - concentrated investment in a single company well researched and meeting Fisher's GARP (growth at a reasonable price) criteria. - statistical value investing where many bargins are bought with a net positive expectation but any which may blow-up.

One might argue if GE was properly diversified when the financial product division began to overshadow the industrial business. If you strip the financial business of GE from the industrial business, I would argue the latter would have been fairly well diversified and is as low-risk as you can find short of some fixed income investments yielding next to nothing. The moral of the story, if you mix a good business with a bad one, the bad one can taint the whole company.

Keep in mind that you can diversify across several stocks OR you can buy a conglomerate stock which itself is somewhat diversified. To combine the two, you are getting a double whammy of diversification, which doesn't sound too hot. E.g. say you own Berkshire Hathaway, you already own a very diversified stock, so if you now go out and buy 10 other stocks, you have really way too much diversification. On the other hand if you buy a "single" service or product business, then you could buy 3-5 of them to be diversified. I think owning more than about 3 stocks is silly, but those 3 have to be VERY carefully selected.