WideMoat

Third sentence seems key--you say, "I would sell if tax concerns didn't matter." Seems like you are getting twisted in the wind by a host of other factors. Certainly I would argue that your other hedge proposals add incremental risk for your existing position rather than decrease it. If you hedge with a different underlying, you need to make a judgment about future correlation to your current "problem" position. The last sentence seems precisely wrong. The one thing you need is to hedge this stock specifically. Reducing exposure is the way to do this, via full sale, partial sale, long put options in that stock, collars, etc.

Volatility on TLT is very high right now, so those TLT puts would be expensive to hold outright, unless volatility stays high for the duration. Also the bid/ask is wide on the long dated puts, so use limit orders. Looks like the tightest bid/ask on the close for the January 2021 put series was the 150 strike, 4.5/5.95, with 5 last trade. That's a 22% implied volatility, 23 delta. A higher probability trade on entry would be an at the money put spread.

Yes, same.

"Involuntary bankruptcy"... currently being litigated, Georgia Northern Bankruptcy Court.

Just looking at the open interest in the Jan 2017 series (600 call contracts and 1200 puts), it would be tough to make the case. You could create a FLEX option, the minimum size is 150 contracts. You can definitely find a market at the right price, what did you have in mind?

Insurance results were down... "Our insurance businesses generated after-tax losses from underwriting in the second quarter of $38 million and after-tax earnings in the first six months of 2015 of $442 million, representing declines from the corresponding 2014 periods. Underwriting results in the second quarter and first six months of 2015 of GEICO and BHRG declined significantly from 2014." Berkshire Hathaway Reinsurance had a $411 million operating loss for Q2, compared to a $9 million loss in the year ago period. Also, less investment gains... "After-tax investment and derivative gains/losses in the second quarter and first six months of 2015 were $123 million and $1.04 billion, respectively, compared to $2.06 billion in the second quarter and $3.24 billion in the first six months of 2014. In 2015, after-tax gains from investments declined approximately $1.7 billion in the second quarter and $2.7 billion in the first six months as compared to 2014. The declines reflected the impact of after-tax gains recorded in 2014 (approximately $1.1 billion in the second quarter and $2.0 billion in the first six months) related to the exchanges of Phillips 66 and Graham Holdings Company common stocks for a specified subsidiary of each of those companies, as well as lower investment gains in 2015 from other investment dispositions."

Annual letter from Mr. Gad for Paragon: http://pgntgroup.com/wp-content/uploads/2015/06/2015.pdf

I would argue that you should be a politician. Basically all Buffett has done is found a really inefficient and incredibly difficult way to tax people and use the resulting taxes to fund health care, foreign aid etc. The same thing Buffett did is accomplished much more effectively by taxing people and funding things through government. One Deng Xiaoping is equivalent to a thousand Warren Buffett's. I enjoy this forum but sometimes I feel like everyone on here is going 120mph and I'm struggling to go 25mph. I have absolutely no clue what this means. Well on this forum, you can find wisdom and sophism, but since they have the same Greek linguistic root, don't worry--they are really just the same thing. ;)

Looks like they now have some financials... http://finance.yahoo.com/news/sed-international-holdings-news-release-183900117.html "For the six month period ended December 31, 2014, consolidated revenues were approximately $69.5 million. Gross margin was $6.0 million, or 8.6% of sales, and the company incurred a net loss of $0.9 million. As of December 31, 2014, shareholders’ equity was a deficit of $6.8 million, compared with a deficit of $5.9 million at June 30, 2014. The Company continues to proactively work to restructure its legacy liabilities, which approximated $17.5 million as of December 31, 2014 of which over $12 million have been settled or subject to settlement agreements at discounts to face value."

I suspect they are selling futures today to fix their spread. Jan 2016 futures closed at 55.34; so buy today in the cash market at 48, fill your tanker, and take a year off. $7 per barrel on 2 million barrels gross, less vessel expenses.

MCO GOOG Two that Buffett has publicly named.

Just got a chance to look at the 10-q. Cash up to $55.8B. Value of equity securities basically unchanged QoQ--from $116.9B at 6/30/14 to $116.4B at 9/30/14. Saw the Burger King preferred mentioned, but had to go to the merger docs to get the specific terms: "In connection with the transactions, Berkshire Hathaway Inc. (“Berkshire”) will purchase for an aggregate purchase price of $3,000,000,000 (USD), (a) Class A 9% cumulative compounding perpetual voting preferred shares of Holdings (the “preferred shares”) and (b) a warrant to purchase Holdings common shares (the “warrant”), which shares issuable pursuant to the warrant will represent 1.75% of the fully diluted common shares of Holdings as of the completion of the transactions, at an exercise price per Holdings common share of $0.01. The warrant may be exercised until the fifth anniversary of the closing of the transactions. Berkshire has informed Holdings that it intends to exercise the warrant promptly following the closing of the transactions." http://www.sec.gov/Archives/edgar/data/1547282/000119312514398471/d786007ddefm14c.htm So much cash, and apparently, so little to buy.

So Lightstream is... not fat? I see proved reserves--after tax and discounted at 10%--having a NPV of $2.56 billion (p.18). Those reserves assume Edmonton par of $92.64 per barrel in 2014 and $89.31 in 2015. They assume nat gas at $4 per MMBtu in 2014 and $3.99 in 2015. They assume an exchange rate of .94 USD/CAD. Let's assume that we time travel back to March and rewrite the reserve report using today's prices. Crude is lower today, nat gas is roughly similar, CAD is lower.

From my seat, it looks like the hire is all about raising money. "The Company transitioned to a new Chief Restructuring Officer in an effort to reduce costs and increase its focus on obtaining new financing for the Company." [Emphasis added.]

There is an additional problem with indexing as well--that the major indices are float-adjusted. See, e.g., [http://us.spindices.com/documents/index-policies/methodology-sp-float-adjustment.pdf] Companies with significant insider ownership now have significantly less impact on index returns than the past. Murray Stahl, Steven Bregman, and Horizon Kinetics have been talking and thinking about this for some time.

"In order to mitigate the risk of further mark-to-market losses on Herbalife, in recent weeks we have restructured the position by re ducing our short equity position by more than 40% and replacing it with long-term derivatives, principally over-the-counter put options. The restructuring of the position preserves our opportunity for profit–if the Company fails within a reasonable time frame we will make a similar amount of profit as if we had maintained the entire initial short position–while mitigating the risk of further substantial mark-to-market losses–because our exposure on the put options is limited to the total premium paid. In restructuring the position, we have also reduced the amount of capital consumed by the investment from 16% to 12% of our funds." I'm sure it was painful, but good move Mr. Ackman.

This is the crux and where we need an answer. Unless developers and non-bank mortgage cos also hold the loans for investment, they are just a conduit. Is it really true that no lender will grant more than 80% LTV in Toronto and Vancouver? In the US, during the bubble, there were mortgage brokers popping up everywhere, from strip malls to commercial towers. They were all offering loose terms, and offloading the loans as quickly as they could churn them. I see stuff like this--http://www.notapennydown.com/--and it all starts to look very familiar. Most specifically, what do we know about places like Verico? On their quite amateur website, they list the following as "preferred lenders": AGF Trust Bridgewater Bank Capital Direct Cove Mortgage First National Financial LLP Firstline Mortgages HomeTrust Company Industrial Alliance Pacific ING Direct Laurentian Bank MCAP Merix Financial National Bank Optimum Mortgage Resmor Trust Scotia Mortgage Authority Street Capital TD Canada Trust VERICO Mortgage XCEED Mortgage Corporation

Speaking abstractly with the numbers given. 32.3 per contract gain / 7.7 basis = 418% return Likelihood: 1.6% Expected value: ~7.1% BUT, you lay out this bet every month, so the annualized returns could be interesting, especially over the short run, coupled with propitious timing.

WestAmerica Bancorp (WABC) has some industry leading metrics and a high price, but should serve as a useful comparative.

A few observations: 1) A moralizing tone ("reckoning," debt aversion, etc.) plays well in today's environment (a la Mr. Beck), but draws upon an emotional appeal that may shortcut detailed analysis. 2) Concentrating on debt outstanding without always and at the same time considering interest rate, duration, and earnings power is a mistake. 3) You seem to imply an unstated and CRUCIAL set of premises something along the lines of: GDP will decline (at some point in the next 3-5 years), corporate earnings will decline, the earnings multiple that equity buyers are willing to pay will decline, ergo the prices of business will be lower, so the optimal strategy is to hold cash today until the better prices arrive, and... then buy? That last chain of argumentation is heard from many, it sounds plausible, and I do not deny could happen. Frankly I cannot handicap that outcome with a fine degree of precision, at least relative to the wide array of other future paths. What I do see are companies with enduring competitive advantages at prices that I find attractive. Might they become more attractive? Sure. Is it more likely than not that prices will be more attractive? In the next six months, I say about a 50% chance. Three years from now, probably less than 20%. I have bought and sold in the last week, selling cheap to buy businesses whose quality strikes me as preferable. There are innumerable reasons why today's prices might be cheaper tomorrow, and the more scary ones are a nuclear terrorist attack, world war, and a rampant worldwide infectious disease. Whether aggregate GDP is lower two years out is a lesser concern than those.

Litigation risk here? Who's the corporate counsel? With the not-yet-approved comp agreement and the outstanding exchange offer, potential conflicts of interest are rife. Say, e.g., the comp agreement isn't approved, Biglari buys back Biglari Capital at the sale price, BH stock price rises (because less $$ for exec comp going forward), and Biglari Capital now owns a lot more shares. Looks reckless from my seat...

Love these lines--after describing the process by which the cycle turns to a hard market: Berkley: "So, we’ll have to see how that comes out and when do people major players starts to say we can’t live with prices at this level. But to make that decision you have to be willing to lose business. And that’s a hard thing for an insurance company executive to say, that we are prepared to have our insurance volumes go down and either fire people or have a bad expense ratio... So that’s the best I can do to tell you that we are bunch of irrational people with a huge marketplace that respond to our emotions more than the economic reality."

The parable frames the issue in binary terms--borrowing spenders v. prudent savers. Yet, when you look out at fiat currencies, the US looks relatively less bad than Japan and Euro nations. Profligate borrowers will continue their habits while they can. And if there are fiscal or currency crises over the next decade, to where will all the savings flee? Not the renminbi. Gold/silver? Perhaps for a intermediate time. Most likely though, the dollar, and the US will continue to borrow. In the long run, Munger will be right. But if the Euro/Yen fall faster or sooner than us, then the game will continue for a supremely long time.

Here are my back-of-the-envelope estimates, though I haven't yet double-checked them. Added 300k shares Beckton Sold 1m Carmax Sold 20m Conoco Sold 854k Exxon Sold 1.3m Gannett Sold 2.1m Ingersoll Added 3.6m Iron Mountain Sold 9.7m JNJ Sold 7.5m Moody’s Sold 1.9m Norfolk Southern Sold 7.7m Proctor Added 4.7m Republic Services Sold .7m Suntrust Sold 2.2m United Health Added 1.2m Walmart Added 7m Wells Fargo Sold 2m Wellpoint Total amount at 9/30/09: 56.546B Amount at 12/31/09: 57.929B ----------- The Iron Mountain add is small in dollar amount. But, combined with the Munich Re purchase, would suggest that insurers will prove a profitable vein to mine with additional analysis.

Here's the thread on this board that discusses the most recent 13F. http://cornerofberkshireandfairfax.ca/forum/index.php?topic=1019.0