MrB

I just used those companies as an example of the structure. I'm looking at a much smaller company and in a valuation report the cap head office costs actually end up being 10% of the EV. However, I am not sold on the logic of the idea, which is what my questions are aimed at.

Analysis question. If you did a sum of the parts analysis for a co like Berkshire, Fairfax, etc. Would you then capitalize head office cost? If so then at what rate and why?

Anybody has some good research supporting valuations for asset/fund managers please? Percentage of AUM, multiple of revenues, EBITDA and the supporting data please? Much obliged.

The Charity http://www.facinghistory.org/

Who made the introduction? Mauboussin?

http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

People like Rogers, Chanos, etc are very worried about the impact a hard landing will have on the global economy. These days there are frequent items in the press that can be considered bad news. See Liberty's recent link http://www.bloomberg.com/news/2011-11-23/china-central-bank-lowers-reserve-ratio-for-some-banks-by-50-basis-points.html Bass, Henry, etc are again very worried about the impact the Japanese debt load can have on the global economy. This morning it was reported that S&P "May Be" close to a downgrage http://www.bloomberg.com/news/2011-11-24/s-p-says-may-be-right-it-s-closer-to-japan-downgrade-as-finances-worsen.html Should an investor be worried or are these non events? Please vote

OMV, What exactly do you mean by "you leaver that up two times"?

Ok thanks. One more. What is your tax rate on dividends, please?

A few years back, when Tesco anounced it was returning GBP 1Bn to shareholders I asked the CFO to run me through their decision tree when deciding on how to return funds to shareholders. His response, Mumble, mumble, mumble. I then asked how price futures in their thinking when considering a buy back. His response, Mumble, mumble, mumble. I then said, "Let me put it this way. If you buy back your stock, is there any price you will not pay for your shares?" His response, "No"! Now appreciate this. This fella was a cracker jack, certainly a brilliant CFO. Tesco is a top notch company with some of the best managements in the world. However, most managements and capital allocators have a blind spot just as many on this board will argue that the vast majority of investors just don't get it. The problem is that we don't realize how few people think like us. Only 0.5% of fund managers beat the market by more than 3% over the long run and most of them seem to be value investors. So my point is that to expect sensible buy backs...well, it is a tall order. Conversely, don't underestimate the risk in capital allocation. It sometimes takes these companies a decade to build the value in a firm and they can destroy half that value with one decision, be it a buy back or takeover at the wrong price. This usually happens within 12 months of me buying the stock! ::)

Ericopoly, a) Do companies in the US buy back stock with pretax or after tax earnings? Put another way, does the money a company use to buy back stock reduce its taxable earnings? b) What is the rate at which capital gains get taxed in the US? c) Does it make a difference to the rate capital gains are taxed at whether you sell say after one year or 5 years? Thanks in advance.

Absolutely agree. His original philosophy was right, his picks were wrong. Too many cyclicals and small caps in his portfolio in his portfolio. Wipeouts are the consequence of bad picking not diversification. I run a hugely concentrated portfolio myself, but I have to say that I find that a gross oversimplification. The size of the graveyard is unknown. At the risk of misinterpreting what you said, my point about knowing your hit rate underscores that your hit rate should be known. In other words, you should know the bodies in your graveyard and how they got there. You can then also assume that I do think picking is more important than diversification and with picking downside is more important than upside. When I looked at the stocks PM listed my initial reaction was to recognize a mistake that I've made; getting seduced by the upside at the expense of not focusing enough on the downside. Not being intimately aware of the downside has led to two mistakes for me in the past; I either got killed or got shaken out when the stock got hammered.

Inflation, future v present value and accounting/political games obfuscate issues. However, if we assume for a moment that we are only talking about real numbers then I would venture the following. Real debt can only be paid off by real cash flows, produced by real assets. So when your current real cash flows and future discounted real cash flows are less than your debt or at an unsustainable level then the only solution is to write down the debt. For example, if you are my creditor and I owe you $10 then you can do whatever you like, but if I only have $5 then it is impossible for you to get paid back in full, immediately. You can wait many years and hope I outpace your increase in real debt (say 5% a year) by my real growth in the asset (say 10% per year). If I have $10 or even $20 then it might be possible, but impractical if say I am your only customer. So you can get paid back, but you will be putting your only customer out of business. The predicament captured by the above example also sits at the heart of the global debt problem. Please verify the numbers, but off the top of my head the global public debt is $43T, global assets $140-$150T and global GDP about $50T. Let's assume for a moment you agree with me that the debt is too high then the only two solutions are to write down the debt our hope the real growth in assets outpace the real growth in debt. If you study historical write downs of public debt then in modern times the average Debt/GDP ratio AFTER write down is 55%, which puts the country on a stable path over the medium term, but some of those countries defaulted again. The important relationship is between the tax revenues and cost of debt (interest and reduction of debt), but Debt/GDP is a crude way of capturing that relationship. With global public debt at an unsustainable level the only way out is for real debt to be cut in half. In my view, you cannot just go ahead and write off the debt due to the imbalances it would create, so the best way, which historically has also been the most popular way is to reduce real debt over a long period with a combination of write downs and inflation. So what we see today is what the next 5-10 years will look like. Global Japan with a lot of hiccups along the way. That is why your Daddy told you; "Stay away from debt"!! Thank goodness mine did.

Forgive me. Always behind the curve!

Agh, the problems that come with success! Where are you going with this Sanjeev? A dinner with 1,000 people? You realize it is only a matter of time, right? Sooner or later you will have to make a call on what the dinner should look like in its final form, because you will not be able to always accommodate everyone. Why not have a word with Vinodh or FC? Might be a good idea to start coordinating all the events. I know Bob Miles' interest has also been piqued. I thought I will just put it out there; will always support you in this whatever your decision.

Biaggio, May I suggest that in its simplest form I would just calculate the hit rate using 1 and 0. If you only had one purchase and it was out of the money then your hit rate was 0, not -1 (or -100%). Once you have played around with the basic numbers you can start using -1 etc. Also, I prefer to use only my initial purchase, because it then enables me to figure out whether I went in to early. That is also what your numbers seem to indicate. If your short term numbers are worse than the long term it seems to indicate you are going in way early. If you refine the numbers you can actually work out your average time frame for going in early and it almost looks like it might be a year or so in your case. I had a similar issue and one of the benefits in my case was as soon as I faced the facts of my own numbers it immediately had an effect on my behavior. I found it a lot easier to just hold off, do more work and put off the initial buy decision. It almost sounds like you are already feeling the benefit of the process. As I said before. I think any serious investor should know their number. Not knowing your hit rate is like playing golf and not wanting to know your handicap. Makes no sense to me.

Biaggio, I missed your earlier question. In my experience very few investors measure/calculate it and not that many professional fund managers either, which is in my humble opinion a big mistake. I have also not met anyone that measures it that did not find it to be extremely revealing about their strengths and weaknesses and had a significant impact on their investment behavior. I do measure it annually and have done so for many years. You need several years of data (minimum of 3), simply because if you are an investor you will have 3-5 years as a holding period. As someone alluded to earlier. On average we all think we are better than average drivers, but the numbers don't lie.

Biaggio, You hit the nail on the head. I could not have said it better myself.

Ditto. Have you ever heard of an actual number for either Charlie or Warren? Would like to know what their actual hit rates are; apparently they do actively measure it.

Biaggio, Consider the possibility that it is a very personal matter and is not the same for any two investors. The critical factor is your hit rate (also called strike or success rate) and any serious investors should have a good grasp of what their rate is. Note: For those who are not familiar with the concept of a hit rate, in its basic form, it is how many times your stock picks turn out to be correct. So, say you invested in 10 stocks then are they worth more or less 3 years later and God forbid any bombed. If all 10 are worth more then your hit rate is 100%, only 5 then 50%, etc. I have it on good (not absolute) authority that Munger's (and Buffett's) is in the high 90's. So if you have a very high rate you can concentrate more and conversely you should be a 5 percenter if you hug the 50's. Most importantly; if you err, err on the downside because that is what will kill you. Not making us much as you could have is painful, but never lethal. Just something to consider.

Still, is it my imagination or is he drifting back towards a 10 stock portfolio? http://www.gurufocus.com/news/118805/pabrai-funds-09-annual-meeting-transcript--munger-told-him-less-not-more-diversification "The second point is about concentration. In fact, I brought this issue up at a lunch I had with Charlie Munger a few months ago, and I started to tell Charlie how I had moved away from ten positions to more diversified 20 positions. So before I could even finish the sentence, he said to me, "You are thinking in a manner that is completely opposed to the way I think." He said, "You know that I'm not going to be giving you any type of support on this movement towards more diversity." And he went on to say that his own assets, obviously, are very concentrated at Berkshire and two or three other places. So I told him, "Charlie, the thing is that there's a difference between running your own money and running other people's money. When I'm running other people's money and I have very high volatility and the money leaves, I have no opportunity to ever make the money back for the investors. That's a permanent loss. In fact last year 15 percent of our assets left. We are up more than 100 percent since then, but we have no opportunity to make it up to those investors that left." So I was surprised when Charlie changed his perspective and said, "You know, if you examine Berkshire Hathaway, and if you think of all the positions, like See's Candies or NetJets, as bets, by the time you get to the 20th bet, you'll be at about 80 percent of the assets. And so he said, effectively, "We, at Berkshire, are about that level of diversification." So he seemed to be okay with the notion of a less concentrated approach with other people's money or temporary capital. This whole thought started with Seth Klarman. Seth gave a talk about a year ago in which he discussed how he typically makes three to five percent bets. And he said in about 26 or 27 years in business, they've only had about a dozen or so 10 percent bets -- about one every two years or so. And I could clearly see that there have been many instances with Pabrai Funds in which we've made large bets, and we were wrong. When we were wrong, we did not use the Kelly odds properly. If you look at Sears, for example, the value was much higher. I exited at a loss, so whatever number I used in the Kelly formula was wrong. The Kelly formula is great, if you have your numbers down right and you have your probabilities down right. If the probabilities are wrong, then you're off. So that's why with the Kelly formula, you're better off always under-betting the Kelly, probably under-betting it quite substantially. So my take is that even with a ten-by-ten portfolio, we were under-betting the Kelly. With the 20-position portfolio, we will probably under-bet it even more and that's okay"

How accurate is that data? $245m total holding and essentially 10 core holdings. I thought he is running a larger portfolio and have 20 holdings/5% each?

Please read my post carefully, because I was not saying it is not a fraud. I have no opinion on that point. As an aside: The question is always what was in the price at the time and some people obviously thought "what you could get your hands on" was in the price. I don't think it is a coincidence that Chandler saw value; he is originally from New Zealand. For valuation purposes I assumed it was a fraud, but coming from the bond side could not get the numbers to what I require. It was ballpark, but provided no margin of safety. The number I may have been missing was the cash. I could not locate where it was sitting "legally", which was very likely a consequence of resources. However, Fairfax and Chandler, might have been able to add in that number which would have firmed up the investment case. To tie a ribbon around it: It is plausible that there was a point where you could have established a margin of safety, even it was/is a fraud.

Panel refutes Sino-Forest fraud claims...and...Sino-Forest Says Probe Finds Muddy Waters’ Allegations of Fraud Incorrect http://www.ft.com/intl/cms/s/0/9de9db0a-0f3c-11e1-b585-00144feabdc0.html#axzz1ddkGVMh6?ftcamp=crm/email/20111115/nbe/BreakingNews1/product http://www.bloomberg.com/news/2011-11-15/sino-forest-says-probe-finds-muddy-waters-allegations-of-fraud-incorrect.html It's NOT a fraud....It's a fraud...No, it's not...yada, yada, yada. Looks like Fairfax is in the money on its Sino-Forest investment....

It will be a big mistake to let Berlusconi resign. On a serious note; look at Italy's political history pre-Berlusconi. On a facetious note; He is by far the most experienced crisis manager in Europe. Nobody has seen more busts than Berlusconi.