calonego

Well said Al! The guy studies much more than 10hrs a day, seven days a week though ; ) To be clear on what I said earlier - if one wants a job in 'the biz', it's easier to get a job as an excel/DCF junkie, it's a career path. If you wish to make money from investing (as Al and I do!) the best way is to think like a businessman.

If one were a portfolio manager of a large fund, or due to their employment was required to have an opinion on or own a hundred securities or more, a DCF of model based structure may be the easiest way to get things done, with less risk of non-conformity (it's what the 'profession' of money management teaches). Similarly, one could rely on sell-side analysts and their models and "research" in a career managing a large mutual fund. If one wants to make money, you should think like a businessperson, analyzing the business continually, based on the underlying economics and qualities. Purchases need to be made based on the economics, incentives within the organization, and valuation. If you can understand #1 & #2 and see it quickly, you can passively follow hundreds of good firms, #3 will jump out at you periodically (based on assets, CF generation, one-time issues, etc). You may also see a similar business that you don't follow, but you begin to understand it rather quickly due to your prior knowledge of similar firms. When it looks too good to be true and you start really trying to blow apart the seemingly good investment, but you can't, you gotta back up the truck. I'm no pro, but that's my thoughts on the system Buffett et al seemingly use (tons of annuals get browsed). There are (or 'were' I should say!) many people out there looking for a career in money management. Directing them to a life of entrepreneurial business ownership/investment may prove harmful as it can limit their employability. Few really good investors need employees in analysis, thats what they enjoy doing.

The furniture isn't great, but they all seem to have a selection across differing price points. Would you call the Nebraska Furniture Mart a retailer of "crappy furniture"? The have some similar stuff... 10% of BRK.un's furniture sales is via franchised operations, while Leon's has about 22% and BMTC is zero... BMTC GM is 40%, Leon's GM is about 40.5% as well (excluding the franchised business), while the Brick GM is about 40% including franchised (only retailing though, its excluding finance - per pg 112 of the '08 Annual)... so not as clean IMO... I've prob missed something, but I haven't found a good way to separate the corp from franchised biz at the Brick for the GM, etc. Gotta love the BMTC model of simplicity - nothing fancy there. They own the property, own the stores... really buy back a ton of stock. BMTC does a tremendous amount of business based on the floor they have... 32 stores doing $860mln is amazing (hard to breakdown on sales/ft as there are DCs and mattress stores etc).

I should say "has been healthy" - I bet '09 will look terrible for these companies.

Look at GM at The Brick and Leon's. Not sure why gross margin in furniture retail in Canada is healthy, but it is.

Sorry about the inaccuracy ECCO - The management is from Quebec (the city) as far as I can tell, even though the company is in MTL. You're probably right on the Quebec issue, Bouchard just scares me a ton. It's highly likely he and management are in similar social circles, why else would a politician be on the board? Having said that, it's probably not a material point at this time, in the future it may be. I should have stated this properly - with no tax issue for me (you have one from your phenomenal historic investment), I believe the valuation is high given the opportunities out there and that a smaller issue is the slight uncertainty of ownership for a foreigner a long ways out (10+ yrs). I'm a resident of another province and in a hostile situation would be deemed a foreigner by the Nation of Quebec. BTW - I love la belle Province. I own land there as well, so I'm not overly concerned, but it's a factor in my valuation.

From my limited experience in La Belle Province, BMTC historically had a substantial advantage based on the limited national competition there (The Brick and Leon's weren't as prevalent there till recently, The Brick only recently expanded to the second largest city, Quebec). So going forward you have a little more competition, but that's not that big of a deal, The Brick shouldn't push margins much. And the main story with BMTC is working capital efficiency and smart buy-backs. The board of BMTC includes Lucien Bouchard, the leader of the 'oui' side of the '95 referendum (Quebec the province, or Nation as he would say, nearly separated from the rest of Canada). Bouchard is listed in the annual filings as the former Prime Minister of Quebec, where as every other leader of a Canadian Province is referred to as a Premiere (he is similarly referred to as a Premier by most Canadians and on sites like Wikipedia...) The company is based in Quebec City, and is likely pro the Quebec Nationalistic ideal... This bothers me slightly, as does the valuation. I have friends that are Quebec Nationalists, and dated a few Quebecous, but am clearly no expert.

http://www.furnituretoday.com/article/191145-New_book_tells_The_R_C_Willey_Story_.php

Isn't Kirby Vacuums a MLM organization too? There's two main reasons outside of the MLM debate/etc as to why I don't believe he would ever be interested: - He's always talked ad nauseam about AMEX from the card/network perspective, but ignored Ameriprise (which was a large part of the valuation before). - He hates most active money management and the variety sold via smaller IAs, DSC'd crap product, is up there with buying term-life on your neighbor.

look at the spelling on the graphic... Oh - and do you know the Primerica business model? not BRK style... Just a dumb April fools I just found...

http://www.thefinancialblogger.com/primerica-for-sale-not-any-more/

NP - I love it! next time someone does this, please notify the board of your actions so we can all be involved... I mean, watch from the sidelines...

is there a worse industry? NA autos maybe? But autos in general isn't as bad as airlines... I did look at the leasors for a time... but they just support the stupidity. A leasor run by non-airline guys, the ones calling the shots are financial engineers, can be alright... maybe... thoughts?

Very detailed explanation (http://www.berkshirehathaway.com/letters/1983.html): "Another reality is that annual amortization charges in the future will not correspond to economic costs. It is possible, of course, that See’s economic Goodwill will disappear. But it won’t shrink in even decrements or anything remotely resembling them. What is more likely is that the Goodwill will increase – in current, if not in constant, dollars – because of inflation. That probability exists because true economic Goodwill tends to rise in nominal value proportionally with inflation. To illustrate how this works, let’s contrast a See’s kind of business with a more mundane business. When we purchased See’s in 1972, it will be recalled, it was earning about $2 million on $8 million of net tangible assets. Let us assume that our hypothetical mundane business then had $2 million of earnings also, but needed $18 million in net tangible assets for normal operations. Earning only 11% on required tangible assets, that mundane business would possess little or no economic Goodwill. A business like that, therefore, might well have sold for the value of its net tangible assets, or for $18 million. In contrast, we paid $25 million for See’s, even though it had no more in earnings and less than half as much in "honest-to-God" assets. Could less really have been more, as our purchase price implied? The answer is "yes" – even if both businesses were expected to have flat unit volume – as long as you anticipated, as we did in 1972, a world of continuous inflation. To understand why, imagine the effect that a doubling of the price level would subsequently have on the two businesses. Both would need to double their nominal earnings to $4 million to keep themselves even with inflation. This would seem to be no great trick: just sell the same number of units at double earlier prices and, assuming profit margins remain unchanged, profits also must double. But, crucially, to bring that about, both businesses probably would have to double their nominal investment in net tangible assets, since that is the kind of economic requirement that inflation usually imposes on businesses, both good and bad. A doubling of dollar sales means correspondingly more dollars must be employed immediately in receivables and inventories. Dollars employed in fixed assets will respond more slowly to inflation, but probably just as surely. And all of this inflation-required investment will produce no improvement in rate of return. The motivation for this investment is the survival of the business, not the prosperity of the owner. Remember, however, that See’s had net tangible assets of only $8 million. So it would only have had to commit an additional $8 million to finance the capital needs imposed by inflation. The mundane business, meanwhile, had a burden over twice as large – a need for $18 million of additional capital. After the dust had settled, the mundane business, now earning $4 million annually, might still be worth the value of its tangible assets, or $36 million. That means its owners would have gained only a dollar of nominal value for every new dollar invested. (This is the same dollar-for-dollar result they would have achieved if they had added money to a savings account.) See’s, however, also earning $4 million, might be worth $50 million if valued (as it logically would be) on the same basis as it was at the time of our purchase. So it would have gained $25 million in nominal value while the owners were putting up only $8 million in additional capital – over $3 of nominal value gained for each $1 invested. Remember, even so, that the owners of the See’s kind of business were forced by inflation to ante up $8 million in additional capital just to stay even in real profits. Any unleveraged business that requires some net tangible assets to operate (and almost all do) is hurt by inflation. Businesses needing little in the way of tangible assets simply are hurt the least. And that fact, of course, has been hard for many people to grasp. For years the traditional wisdom – long on tradition, short on wisdom – held that inflation protection was best provided by businesses laden with natural resources, plants and machinery, or other tangible assets ("In Goods We Trust"). It doesn’t work that way. Asset-heavy businesses generally earn low rates of return – rates that often barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses. In contrast, a disproportionate number of the great business fortunes built up during the inflationary years arose from ownership of operations that combined intangibles of lasting value with relatively minor requirements for tangible assets. In such cases earnings have bounded upward in nominal dollars, and these dollars have been largely available for the acquisition of additional businesses. This phenomenon has been particularly evident in the communications business. That business has required little in the way of tangible investment – yet its franchises have endured. During inflation, Goodwill is the gift that keeps giving. But that statement applies, naturally, only to true economic Goodwill. Spurious accounting Goodwill – and there is plenty of it around – is another matter. When an overexcited management purchases a business at a silly price, the same accounting niceties described earlier are observed. Because it can’t go anywhere else, the silliness ends up in the Goodwill account. Considering the lack of managerial discipline that created the account, under such circumstances it might better be labeled "No-Will". Whatever the term, the 40-year ritual typically is observed and the adrenalin so capitalized remains on the books as an "asset" just as if the acquisition had been a sensible one. * * * * * If you cling to any belief that accounting treatment of Goodwill is the best measure of economic reality, I suggest one final item to ponder. Assume a company with $20 per share of net worth, all tangible assets. Further assume the company has internally developed some magnificent consumer franchise, or that it was fortunate enough to obtain some important television stations by original FCC grant. Therefore, it earns a great deal on tangible assets, say $5 per share, or 25%. With such economics, it might sell for $100 per share or more, and it might well also bring that price in a negotiated sale of the entire business. Assume an investor buys the stock at $100 per share, paying in effect $80 per share for Goodwill (just as would a corporate purchaser buying the whole company). Should the investor impute a $2 per share amortization charge annually ($80 divided by 40 years) to calculate "true" earnings per share? And, if so, should the new "true" earnings of $3 per share cause him to rethink his purchase price? * * * * *"

There is to be no wasted butter chicken or, heaven forbid, mini-burgers... Please don't do it... ; ) I was just trying to be funny... you're taking it too far! Butter Chicken is way, way too good to waste (kinda like throwing a plate of momma's pasta at someone - very wasteful, and borderline sacrilegious!)

Just to quell the rumors... In spite of my heritage, I am no tire deflating mafioso... (just bugging Sanj - I'm in!)

Don't know much about IR - but the 13f at Dec 31 says that he personally controls $11mln worth and through GEICO/GEC/NI etc, > $100mln. Positions that he's had more influence on tend to miss the GEC and GEICO disclosures (the Simpson controlled float, look at AXP). I wouldn't put money on him having much influence on the IR position as of Dec 31. Correct me if I'm wrong.

Premium writing can be highly profitable, but it's certainly something that would destroy most that attempt it, and rather quickly. Eric has gone over stuff here a pile of times, but basically if you write very high premium options on names you've done fundamental research on, and you have cash to buy the stock (in the instance of puts), it can be highly profitable. But it's always been an area for the pros, many of whom have capital issues now which may be why it's become so much more profitable recently. I have a friend who does this with a portion of his fund and does quite well with very minimal risk, but he's very smart and knows what he is doing. Writing options and spending the float or back-up cash (the nominal you are covering) is suicidal. If one thinks of it was an insurance underwriting operation, it can be quite profitable and enjoyable.

I was looking at them abit - AYR looks interesting (60% LTV, most in non-recourse and Cov's seem to cause mainly principle payback, not default). It ran away though - Just wondering if anyone has spent time on them (AYR, FLY, AER etc), it's a distressed area and potentially as fruitful (or more) than say real estate as the cap rates are quite high.

Partner, Agreed - the bashing does eliminate credibility. The unfortunate thing is that most readers have this "ha ha - rich people deserve to lose money" or "I always figured he was just a lucky guy, this proves he's not that bright" mentality and when you mix that with their poor memory and impatience, they likely will have forgotten her comments and their doubt when Berkshire is reaping what has recently been sown. People tend to have very poor memories with regard to their mistakes.

Buffett bashing is cute... I know I don't know much, but the one thing I'm certain of is that anyone taking a blanket stance against him will one day look pretty immature and stupid. NP - you're right - or they're just not that bright.

I would be shocked if Prem isn't at least somewhat disappointed by her article. It's odd that she would categorically criticize Warren on grounds that have a strange semblance to the investment actions of Prem & Co. (withstanding the one-time, rabbit-out-of-a-hat stuff - CDS, etc). I'd bet money that both do quite fine in the coming decade - FFH puts don't pay enough and sadly can't write BRKs... It's thankfully not inline with some of the BS out there (like Kass), but it's way off.

If you copy/paste the URL it works. Thanks for the spreadsheet -

That link didn't work for me.

eric, 2009 is very different than 1999, but there were some excellent values then too. Per your comments: - he can find opportunity, all I'm saying is that it is generally wiser to purchase your own shares than another Co's at a similar discount to IV (maybe you're confusing another post, this had nothing to do with the IV of WFC till you brought it up). - purchasing your own shares is tieing up cash in a way similar to buying a position you can't/won't sell. I can't see how it weakens the balance sheet if it's a correct decision based on IV. - he only has one way to purchase more of many of his holdings. If you imply out the value of BRK via insurance op, plus CF of operating subs, it may prove prudent to buy the parent stock to purchase more of the private holdings. - BRK would be far better off buying it's own stock back relative to buying WFC in the event something went horribly wrong. Just walk through what would happen to the BS in the event WFC went broke and he owned 800mln shares, rather than the 300mln he owns (and he cancelled some BRK shares at $75k). - I'm confident he won't buy more WFC thinking he'll get a tax break from it going broke (which is highly unlikely). So the 10bln figure on a comparative basis should be allocated to BRK, WFC or other companies. I don't get why you'd only buy back 6.5bln relative to buying 10bln WFC. In any event, WFC is now in the mid-14s (and was when you wrote out what you wrote), I hope he bought shares at $9-11, but that isn't an option and wasn't when you wrote that. I'm not saying BRK vs WFC, just that buying BRK may be highly prudent.