jb85

Transaction price has a floor...the minimum electricity and bandwidth costs in order to process the actual transactions (usually about 300KB per transaction). Using 10,000 transactions per second (Visa's current upper limit) you can calculate a rough estimate for operating costs. But again this assumes you are the only miner in the world and are using some cheap PC. In reality you have to add in the cost of mining hardwear (this is significant because the more mining hardwear the network has in total, the more costly it is to mount a malicious attack...so you want it to be decently expensive). Adding up mining hardwear, and other operating costs you can get what is would cost to run the network (mining hardwear is so much larger than operating costs that in effect the transaction volume doesn't really matter) Why can't growth trends keep going like they are for a while (with the block reward subsidizing the transactions for the next 25 years or so and therefore keeping transaction costs low for a long time)? Again in the steady state a bitcoin network cost of about $100B to $1T would ensure a decently secure network (Who wuold have $100B lying around to destroy the network and basically throw away that 100B?). If you had 20-40 Trillion being transacted in that, the costs would quite low. I'm not saying any of this is going to happen or even likely, but i don't see any reasons being give that show bitcoin will certainly fail or couldn't offer a low transaction cost means of exchange (much lower than 3%)

its a borderless technology. 2 or 3% on transactions (with no corruption) would be a great rate for developing countries. It could start off in those developing countries. Those 1% fees exist because the banks charge it. I think thats actually a perfect example of where bitcoin could take over. Assuming it eventually gets to some sort of steady state (wide adoption) i see no use for storing my money in a checking account in a bank. Why not just store it in my bitcoin wallet? i would avoid or reduce a lot of these silly % fees (especially on larger transfers where it costs the bank nothing more to send $1K vs $100K. Good discussion...bitcoin is still a long shot to succeed at this point but i think the main problem will be can it get from $10B market cap now to something in the trillions. The growth to Trillions will be the hardest part. If we could all magically go to a world with only bitcoin tomorrow, i think it would suceed. I'm just not confident it will grow to that level while maintaing 1)network secruity along the way 2) reasonable price levels and reduced price swings

Its better to think of the sum of all transaction fees, this way you can have 1)high # of trans and low $/transaction or 2) low # of transaction and high $/transaction. Again what this does is focus on the real issue which is that the total sum of all transaction fees dictates the total amount of computing power in the network which in turn dictates the security of the network (ie cost to mount a 51% attack). The long term steady state for fees will be what all bitcoin users think is an appropriate balance between low tranaction fees while at the same time maintaing an accpectable minimum cost to gain 51% of the network

The transaction system is actually one of the potential fatal flaws of Bitcoin as I see it. Right now, miners are rewarded largely in the form of the block reward (essentially new coins that are created every 10 minutes...thus making bitcoin inflationary until 2040, when 99% of all coins to ever be made will be made...technically 2140 when last coin is made). However as time goes on the proportion of miners fees that come from the block reward will go down, the proportion of miners fees that come from transaction fees will increase (by 2040 all mining hardward/electricity etc will need to be paid for from the transaction fees) Now the problem becomes a a tradeoff. In our steady state (post 2040) the bitcoin network security is proportional to the total computing power of the network. The more computing power the network has, the more expensive it is to gain control of 51% of the network. But the computer power of the network will be proportional to the cost of the network computing which is paid for by transaction fees. So the more transaction fees there are the more secure the bitcoin network will be. Higher fees = higher security...Lower fees = lower security lets play out an extreme scenario where everyone in the world is using bitcoin (no other currencies exist). To be robust, lets say the cost of a 51% attack must be over $1 Trillion (world GDP is $60 Trillion, global wealth is about $240 Trillion). This would effictevely rule out any single entity from gaining control (you would need to spend that $1T fairly quickly so that the hardwear is not made obsolete by moores law...the US govt could possible spend $1T in a year or two...but we'll just pick that number for now). So that $1 Trillion must be paid for in fees. The fees are not insignificat. 2-3% of global wealth might not be a bad thing, but its definitely not zero in the long run. and again the cost to transact is proportional to the security you demand from the network. so its a give and take

bitcoin is largely borderless. Again, if bitcoin were to succeeed in a few small countries and completely fail in the united states, then it would still be quite valuable.

Im still working this issue through in my head, but if proper precautions are taken...bitcoin makes it relatively easy to avoid taxes (especially capital gains). One idea i've heard is that If bitcoin takes off...most taxes would be collected at point of sale...since its easier to regulate merchants than track indiviudal bitcoin holdings. something like a 25% sales tax or something of the sort. still working this all out, so take everything i say with a big grain of salt. Milton friedman (talking in 1999) had an interesting piece on digital currencies where he talks about how they will collect taxes. (its a 2 min video - good part starts at about 2:11 in the video below)

Go to download the bitaddress.org source code from github (all open source) and generate paper wallet. There is practically no way to brute force hack with that method. This is the way you shuold be storing any significant amts of bitcoin. It is fairly easy to generate these paper wallets in bulk...Store the vast majority of your bitcoins in these paper wallets...occasionally transfer money to less secure hot wallet for everyday spending. This is somewhat troublesome at this point (though would prob require about 5 minutes of xfering work on the computer per month), but third party apps will exist in the future that makes this easier. For the sake of discussion, it seems like most here are using arguments about a lack of features that are not the responsibilty of that actual bitcoin protocal, but the responsibiltiy of third party applications that work with the bitcoin protocal. If these applications don't exist yet that doesn't mean that 1) there is a flaw in the bitcoin protocal 2) that these applications won't be created in the future by 3rd parties. And finally in order to determine if something is in a bubble, then a fundamental value has to be assigned to it. I'd be curious to hear everyones thoughts on this. I personally view in the following format (price/coin : chance of this happening) $500K/coin : 1% $200K/coin : 1% $100K/coin : 1% $50K/coin : 1% $25K/coin : 1% sub $1k/coin : 95% those numbers are approximate and frankly just used for demonstration purposes. The point is that if those nubmers are accurate then bitcoin could be undervalued. Now if you think with 99+% certainty that bitcoin will fail, then fine...anything above $100 is a bubble...in which case the 6 month price stability in the middle of this year was also a bubble.. Just seems to me that people are yelling bubble because the price went up. That kinda logic isn't always true and really needs to get back to the fundamental analysis. Microsft went up similar amts in the 80s it wasn't a bubble.

Yeah its an interesting question that I don't pretend to know the answer with anything near certainty. But in our hypothetical world, were bitcoin is the only currency. Then there would still be credit etc...but the backdrop would be much less safe/assured (no govt backing of any asset). The argument has been made that credit/GDP went up so much because of the implicit government backing, and that if that government backing was not there, then banks etc would have been much more prudent with their lending and the credit/GDP would never have gotten to the levels that it did...therefore removing the need for a "beautiful deleveraging". Kinda similar to Talebs ideas of anitfragility etc. A lot of times what we consider as "safety nets" actually make the system more dangerous. I by no means agree with all of Talebs ideas, but that is at least one of the arguments against the "safety nets"/"government backing is essential" arguments I think at the end of the day this boils down to whether the libertarian ideas in macroeconomics work...and whether they'll be given a chance to be tested. I have no idea the outcome...but i'm skeptical of people who seem to 100% what the outcome will be. I will say this though...I don't think the rise in GDP/capita over the last 200+ years required a centrally backed curency. You can make the argument that the dips/rises would've been higher/lower in a centrally backed/not centrally backed currency. But i think if we had private currencies for the entire 200+ year history, that GDP/capita would be about where it is today.

What is difficult about scanning a QR code? If anything the base bitcoin protocal allows for innovations that make sending and receiving money much more easily/cheaper (especially for merchants) than current transaction methods. Is it a universal requirement that government back is required for something to be a medium of exchange? Without getting too political, there are many that would argue that private/competing forms of currency allow an economy to perform just fine. a decent part of the 1800s in the US had many competing currencies, and GDP/capita rose at the same rate during this period as it has post 1913. Obviously a ton of variables in this, but the idea that a currency collapes without govt backing is far from proven IMO. Finally, i would argue the bitcoin is actually much more secure than gold or any other currency. Not only is it decentralized and relatively immune from manipulation, but if proper security precautions are taken...is virtually impossible to hack/steal. There have certainly been hacks, but none of these have been the result of brute force hacking of the private key. It was some other user error that allowed the coins to be stolen. That is not the fault of bitcoin...and I believe over time more secure third party options will come online.

In regards to the perceived weakness that bitcoin is deflationary ("it will encourage hoarding and reduce consuption") I find this quote helps me think why that may not be the case "Why would anyone buy a product today with a deflating currency that will be worth more tomorrow?" "Why would anyone sell their products today for an inflating currency that will be worth less tomorrow?" at the end of the day, talk to people who have held bitcoins for a while. While it may seem easy to "hoard" bitcoins until they are worht 100K/coin, almost everyone i've spoken with who were early adopters have sold a substantial portion of their coins already. Holding to coins when they increase 100x is much harder than people think. The temptation to sell out is very high. This is what i've never understood about the need for an inflating currency. People act like there is no cost to holding a currency (even if it is deflationary). People make cost benift analysis everyday and just because a currency is deflating at 1 or 2% a year, doesn't mean i'm going to hold it forever. at a certain point the value of a new TV etc is greater to me than the deflating currency. The cost benift analysis certainy changes, but the idea that world would be perfectly fine in a 1 or 2% inflationary world...but would collapse in a 1 or 2% deflationary world always seemed odd to me. _____ in regards to the other arguments "Comparision to other earlier digital currencies" - none of these other currencies have been decentralized. This is itself makes the comparison invalid IMO "The US may shut it down/make it illegal" - this is a valid argument, but when compared to todays valuations i don't see how its relevant. The bitcoin market cap is about $7 Billion now. If even 1 or 2 small unstable countries adopted bitcoin (officially or unofficialy) then just based on money supply ratios to GDP, bitcoin would be worth much more than todays prices. So while a full bull case for bitcoin would involve full 1st world country adoptions, there is also a long term scenario where bitcoin is used as a means of exhcnage or store of value in less stable 3rd world countries" *Also, when people bring up the hyperinflation of the 1920s in germany...its worth mentioning that none of that would've happened in a bitcoin demonated currency. I'm not saying no problems would've existed, but the inflation in germany was a direct result of money printing (which was a result of other issues). *Stocks are still a better place to park your wealth in the long term, but only when/if bitcoin becomes mass adopted. Once/if it reaches a steady state, the return on bitcoin will basically match the growth of the economy (production increases, but the amt of currency stays the same..meaning each unit of currency rises with the rate of GDP increase). The play now is ride bitcoin as it becomes mass adopted and then convert back into stocks or other higher growth investments. I still think bitcoin fails 95% of the time going forward...but it seems like such an asymetric bet, that putting in a small portion of your savings seems to make sense. No one can fully predict what will happen, but the payoff is so skewed at this point, that unless you are 99%+ sure that it will fail, a small bet in bitcoin may make sense

Him and munger recommended a book a while back called "The Birth of Plenty". In that book there is a graph showing GDP/capita since 1820. It is remarkable how steady the growht has been (about 2% per year). He commonly talks about how the living standard (GDP/capita) has gone up 7 fold since he was born and how all these problems with pensions, etc (while they do need to be solved) are not going to bump us off the 2% growth trend line. I'd be very surprised if he expected us to fall of the growth trendline http://www.efficientfrontier.com/ef/702/Fig1.gif

How is ackman doing anything wrong/shaddy? I may not do it personally, but i don't see why its morally wrong to announce a stake in something, especially if most of his buying is already done. If people want to invest fine, if they want to take the other side (like many did in the herbalife situation), then thats fine. I doubt ackman cares all that much if someone takes the other side. (as a side note, didn't Air Products actually force the issue and make ackman announce his holdings) He not in the same exact mold as Buffett, but i don't understand peoples hate for this guy...He practically doubled annual returns of the market since inception, and most of his interviews etc seem very logical and value based. He's actually one of the people i most enjoy listening to.

I've had a small amt in the Magic Formula since fall of 2007 (mainly for data collection/curiosity). You're correct that its about mirrored the SP500, with more volatility. However I think that 5 years being statistically significant is tougher to show. My results have outperformed many value managers i respect. From 2008 - 2010 i would've been right around einhorns results based on this: http://www.gurufocus.com/news/123492/which-gurus-had-positive-returns-from-2008-to-2010

There are about 15 of his "Daily Observations" available here for free: https://www.bwater.com/home/research--press/daily-observations.aspx?agreed=265825

I think your point is irrelevant. There's actually more than one study (I read one by the guy who helped Einhorn start up his reinsurer), which points to the fact that a significant amount of Buffett's good investment results came from the "structural alpha" generated from the insurance operations. E.g.: low/0 cost leverage without the ability to be pulled during market declines. He still outperforms, even without it, but you can definitely see that a big chunk of the results came from being able to lever up returns. I seem to recall Buffet himself saying that about 7% of the 20% annual returns came from float. I've looked for the quote but can't seem to find it. It would be interesting if someone went back through his stock purchases and calculated the returns without leverage. if my recollection about the 7% is correct, then he averaged about 13% since taking over Berkshire.

My RothIRA (as of March 31st 2012) was up roughly 185x "since inception", which was in January 2003 (+18,473%). $10,818 is the start balance necessary for it to be "multi-million" on March 31 (however you probably had more than 2 million in mind). Of course, I'm not sure this qualifies under "investor" -- could just as easily file it under "speculator". Since I'm a little late to the board--was that essentially from the FFH LEAPS during the short attack? (+BAC wins this year?) That was a terrific year (2006), but a lot has gone well since then: YTD: +136.25% 1 yr: +26.57% 3 yr: +83.94% 5 yr: +80.68% since inception 1/31/2003: +76.87% These numbers are as of 3/31/2012. Account has declined 17.5% since then (because of the BAC pullback). So the 76.87 is an annualized figure. But are the 83.94 and 80.68 also annualized or are they absolute returns?

Anyone have any thoughts on Ray Kurzweil predictions? Bill Gates says he agrees with a lot of his predictions, some of which are here: http://en.wikipedia.org/wiki/Predictions_made_by_Ray_Kurzweil

I seem to remember somewhere buffett saying that float added about 7% annually to berkshire's return. Can anyone find this quote/info? BRKs average return of about 20% over the last 50 years would mean that buffetts picks alone (stocks and private companies) compound at about 13% a year. Does this sound right?

I guess I'm asking, does anyone seriously think we will see a time again, like 1974 where the 10 year P/E was close to 5 (and other metrics were much lower than the worst of 2009 as well, including buffett's favorite..in 1974, i believe market valuation to gdp was like 40%, much lower than it ever hit in 2009.) it seems to me like these days are gone, and the market is valued consistently higher. I'm just not sure of the fundamental reasons why this might be true.

Somewhat off topic, but while we are talking about the general market evaluation, would anyone care to share their opinion on why the average market valuation over the last 30 years is justifiably higher in some investors minds? I've heard Joel Greenblatt use only the last 20 years to say that "compared to the last 20 years, todays market valuation is in the 90% of cheap". Why would he use only the last 20 years, when he knows that those 20 years have been historically overpriced? Is there a reason why the Shiller P/E should be seen as PE of 20 = fair valued, instead of the normal(for the last century): PE of 15 = fair valued? I've heard that with the introduction of fiat money, the market deserves a higher PE, but i'd like to hear other peoples thoughts.

I'm still learning about spinoffs, but if i understand it right, when a company does a spinoff they MUST file a 10-12b form. Are companies REQUIRED to file this form, or is there another form? My question arose because i was looking at the GGP spinoff of Howard Hughes and could not find a 10-12b form for either of the companies in the past year. Am i missing something obvious? Thanks in advance for the help

It would be interesting to see what the margins were like during the japan bubble, and if those margins are now lower than the mean (over past century). It seems to me if you are going to compare US and Japan, you have to compare P/E AND profit margin. Is the problem that Japan had a P/E of 70 AND the margins were abnormally high (in effect giving a P/E ratio much higher than 70-when using normalized earnings). Furthermore, is the Japan P/E of 16 really overstated because of below normal margins? I'm not sure on any of these, but as I understand it, this is how grantham arrives at his fair value market (and what the shiller 10 year P/E does in practice as well).

One ratio i find helpful is the rent to buy ratio: http://info.trulia.com/index.php?s=43&item=113 You could slide the scale down a bit, if you think you could get a higher return in the stock market than average. So if you get 15%+ in the stock market, maybe any ratio of say 13 (instead of 15) might be a bad buy. Thats just an example and I'm just estimating Furthermore, as buffett said, he doesn't regret buying his home even though he could have made much more investing. owning a home has some incalculable benefits

the big short def tells you the good that can happen with options. The guys from cornwall capital turned 100K into $15 mil (no outside money) in 5 or 6 years by buying options on mortgages. Their philosophy was buy options that pay 100x but only have a 10% of paying off

I thought it was interesting that he mentioned he is basically not doing any sort of bottom up analysis anymore. He is full time working on his quantitative investment firm. He said he still loved bottom up analysis, just that his other research was a full time job. I wonder if he thinks that after a certain point (maybe when you manage above $5 Billion) that quantative is just as good as bottom up analysis. This is kinda what i've been thinking lately. I guess we'll have to wait a bit longer to see, but besides David Tepper, is there anyone who is beating the MFI (over the past 5 years) by a large margin, who is managing above $5 Billion?