MrB

Buffett will most likely end up owning a sizable chunk of the common via the warrants (Edit: Sorry warrant). Maybe up to 10%.

BAC is cheaper but turning around while AIG already did. That AIG has more tentacles? Actually I would say the reverse is true since BAC is taking much more of my time. Both in quantity wishing that they don't recover together to be able to pile on the laggard. It might be a case of personal preference in terms of what one feels comfortable in analyzing. However, ignoring the people aspect for a moment; for me, AIG today is much easier to analyze than Fairfax was in 2003 and BAC today is more similar to Fairfax in terms of how comfortable I can get with it. Again that is mostly down to my personal preference/analytical limitations and ignoring the people aspect. LTA

Yup! They are further along than I expected at this point after reading the 2nd Q report. But the stock is doing laps like it's still going to go under, and the market perceives it as the worst capitalized out of all major and regional banks. If Bank of America goes down from some cataclysmic event in the world, then Wells Fargo & JP Morgan won't be far behind...probably days at best...and I doubt if Citigroup would last as long as BAC. The markets are counting the broken branches on the tree, but not examining exactly how strong the trunk is and all of the other branches where leaves will still sprout. Cheers! Except, that as I started to put money into BofA, I thought it would be the only circle of my competence currently under financials. But my knowlege of the AIG situation also grew over the last months and made me very comfortable to put the same amount into AIG,... so currently I have for every $1 of BAC, also about $1 of AIG. Somehow Buffett's IBM share repurchase thesis gave me my "eureka effect" about AIG. The AIG position is mostly in common stock and a few warrants. Sanjeev, how do you think BAC stacks up against AIG? Anyone else cares to comment?

As I recall he made the following observation, Bank of America is a great bank. The main asset is funnily enough its main liability, which is its deposit base. That is the main strength of BofA. It has immense reach across the nation and he has always thought it had a great franchise since reading a book on it when he was in his 20's. I don't recall him making a main point about the book; just enforcing the point that he thought it was a great franchise for a long time. Also, he was asked whether he bought because of Brian or the quality of the business and he said both. Brian is doing all the things you would want him to do. There was a rumour that he approached BofA in June 11, but was turned down; he denied it as simply not true. Lastly he said he regrets not doing 10Bn of preferreds. This is from memory, so don't take it for the gospel truth.

Susp of murder. http://www.telegraph.co.uk/news/uknews/law-and-order/9397364/Eva-Rausing-husband-Hans-Kristian-Rausing-arrested-on-suspicion-of-murder.html

Buffett, "‘Buy into a business that’s doing so well an idiot could run it, because sooner or later, one will,’”

"The more I practice the luckier I get" - Gary Player.

And then syndicate a show or just take over from this guy http://www.youtube.com/watch?v=fIp0rWRnzME

Why buy a European bank when you can buy a British bank and why buy a British bank when you can buy a US bank...worth considering.

Too hard pile. Base your numbers on the assumption it will revert to the mean and Bob's your uncle.

I don't follow US politics that closely and was quite surprised to see Baker and Clinton openly talking about the fact that the US is "broke". Refreshing to see leadership/talk from the top. Maybe it is old news. 42 min mark http://www.charlierose.com/view/interview/12416

My numbers are for KO today. I'm trying to answer whether Buffet would by KO today if he didn't own it. Please correct me if I'm wrong, but you seem to think he will not buy more KO, simply because he already owns it? Why?

The basic concept is still that you are buying $1 at a discount and the fact that the market will ascribe a premium to the $1 or that Buffett is willing to incorporate that into his assessment of value should not confuse the issue. You are in very tough territory when you start assuming growth and what premium the market is willing to put on it 10 years down the road, because these are issues of certainty and when you get your birds as discussed by Buffett when he talks about Aesop. A "value" investor needs to crawl before he can walk and unless you really understand the very basic concept of what "buying a company for less than its intrinsic value" means, particularly if you are using a high discount rate then it will be impossible to appreciate the risk in paying a premium for a company with a good franchise. The basic frame work does not exclude paying up for growing companies with fantastic franchises it serves to highlight the risk of paying up for a heavily discounted cash flow more than 5 years down the road. Hence, it should make one stop and think really hard about why Buffett refuses to buy Microsoft when it is sitting on a EV/NI of 8 times, but was willing to buy Coke in 1994 when it was sporting a PE of 22!

Thanks, this is a great description. I've also heard that he pays a lot of attention to ROE. How does ROE figure into all this? For eg, for KO, ROE is in the 25%-30% range but FCF growth is in the around 6%-7%and it has a high P/B. What makes KO attractive to Buffet? You are always simply trying to buy a discounted $1. Remember Buffett always talks about the cigar butt (horrible, but free puff) and then goes on to saying that it was a mistake. Firstly, it is the obvious and fairly easy thing to do, but creates an ongoing problem, which is you have to consistently look for the next butt as soon as you took the last free puff on the last one or re-investment risk. What is more difficult but the smarter thing to do is to look for a $1 that is generally always being bought and sold at a premium. In the public markets the company with the good franchise will generally always be trading at a premium. So let's say that Coke will generally trade on a PE of 15 v the average drinks company that trades on a PE of 10. Investors are generally prepared to pay up, because of the wide moat around the Castle (the castle is the $1). However, if you were to lose that premium you are in serious trouble, you will lose 33% of your value from the average PE contraction. So the basic point is that you can put value on a high quality franchise, a high quality $1 so to speak. Also, being invested in a high quality $1 reduces your re-investment risk, which you have in a cigar butt $1. It then begs the question of how do you identify a high quality $1? In pure cash flow terms it simply means the company that can increase the value of the $1 the most in a given year, hence return on equity. That will be a result of some kind of moat, but you still need to tie it back to the fact that you returned X on the $1 you started. Finally to tie it in with your example of KO. Please double check the numbers, but as I recall Buffett paid $5.22 for $0.36 in earnings in 1988, which is an initial yield of 6.9% or PE of 14.5 and in 1994 when he bought a few more he paid $21.95 for $0.99 or an initial yield of 4.51% or PE of 22. However, by 1994 the average PE for the previous 10 years was 21, so for his investment in 1988 he got a PE multiple expansion of 51%, but note that the PE really just came back to the average, he did not pay up for the premium that the market ascribed to KO on average over the 10 years. He basically got the premium at a discount. Now the PE is obviously a multiple of the E or earnings, which compounded by 18% from 1988 - 1994 Another way to think about it is that the investment results will be driven by premium expansion/contraction and underlying earnings. So if I buy a stock on a PE of 5 and it grows earnings by 10% and I sell it on a PE of 5 then my investment will return 10%. However, if the same happens but I sell on a PE of 10 then I will return 120%. The last thing to do is now go back and listen to the video/discussion by Buffett mentioned earlier in the thread. However, don't stop listening at Aesop. The Aesop discussion is an important part of the equation. It talks about certainty of getting the two birds and when. In some ways it all relates to ROE, because it speaks to the heart of the matter. The quality of the franchise. The moat around the $1, provides certainty and if the $1 is well protected and ALSO happens to be growing every year then when is less important. With a high ROE company you can afford to wait whereas time with a cigar butt is death by a 1,000 cuts. Whether a cigar butt or a franchise stock it all comes back to understanding the very basics of it all, which is that investment is about buying a company for less than its intrinsic value and that intrinsic value is $1 discounted at your chosen rate.

I'm not sure I agree with your last statement about no margin of safety being assumed in your IV calc. When you say: the corollary to that statement is that if you don't have a high degree of certainty about the cash flows and/or the yield you will be getting, you shouldn't invest! So in my opinion the margin of safety principle is inherently embedded in your statement even without adjusting any number (like requiring a higher yield). You are correct, but to clarify I was merely pointing out that I did not address MOS specifically in the discussion. I was only talking about intrinsic value. I assume you will agree that if using the above example again and if we assume cash flows yield 10% in year one and are exactly the same from year two going forward then I will have no margin of safety?

Intrinsic value is the discounted future cash flows, so knowing the discount rate used is key. Buffett puts a high premium on certainty and since the bulk of your future value is made up of the first 3-4 years, the initial yield is key. So say you want to make 10% then you have to discount at, at least 10% and you don't need a calculator if you simply work along the following formula. Only invest when you get at least a 10% yield in year one and can establish with a high degree of certainty that the cash flows will be higher from year 2 going forward. That is the general concept and does not assume a margin of safety.

slots

Don't think I've seen it being posted here.

The Eurovision Song Contest doesn't get a lot of attention in the United States, but on the Continent it's long been seen as the perfect Euro-metaphor. Years before the euro came along, it was the prototype pan-European institution and predicated on the same assumptions. Eurovision took the national cultures that produced Mozart, Vivaldi and Debussy, and in return gave us "Boom-Bang-A-Bang" (winner, 1969), "Ding-Ding-A-Dong" (winner, 1975) and "Diggi-Loo-Diggi-Ley" (winner, 1984). The euro took the mark, the lira and the franc, and merged them to create the "Boom-Bang-A-Bang" of currencies....continue here http://www.ocregister.com/opinion/years-356908-whether-germans.html

Is it possible to figure out a company/plant's cement capacity from the following? Clinker capacity 900,000 (0.9m tonnes) Milling capacity 1,200,000 (1.2m tonnes)

Thanks for posting this. I hadn't really understood what the underlying issue was in this case up until I read this. The link to the Kleinbard report is in the post linked in the OP. However, Kleinbard makes such a compelling case that I thought it was worth linking to it directly. I wouldn't bet on a favorable ruling for Fairfax here. Best, Ragu Disclosure: No position in Fairfax. I stopped reading here, "I am to be compensated at the rate of $1,000.00/hour for my work; my compensation is not contingent on the outcome of the litigation or the conclusions that I have reached." LOL

http://www.latimes.com/business/money/la-fi-mo-spacex-rocket-elon-musk-20120521,0,5183184.story

Q20 – Cliff Gallant: In this drunken market, have systemic fears ever made you pause? WB: You’ll probably find this interesting. CM and I have never had a discussion on buying or selling a business where we have talked about macro affairs. If we find a business we understand and we like it we buy it.

Sanjeev, that 1% number is actually 0.5% according to Bogle's research where is where it comes from. Malkiel found 85% of professional managers do not beat the market and Bogle that only 0.5% beats by more than 3%. Anyway, the question I have is what percentage of that 0.5% is made up of value investors? That will be interesting to know and kind of keep things in perspective. Many, including me, seem to think value investment is growing by leaps and bounds. However, if you beat the market by more than 3% and are a value investor then you are a subset of 0.5%. That is not even a minority, it's a fringe group!

No. He said $13