ERICOPOLY

Yes the key word was selective. At (my prior employer) we interviewed software engineering candidates serially in a loop of about 5 people -- each interviewer had about 45 minutes alone with the candidate, then a brief summary was typed up for the next interviewer in the loop. If the candidate progressed as far as the fifth person, then you could be certain that all the low level competency questions has been asked already. So the fifth person didn't have to ask questions about whether or not the person could implement a searching algorithm -- he could instead focus on probing the candidate for personality, ambition, passion, fit, whatever. I'm saying that I can do the same thing for investments. I can treat potential investments as interview candidates and I can be that fifth person. I won't have to ask the truly low level nuts and bolts questions if I have a great team pre-screening the candidates. So instead of whipping through the financials exhaustively, I can instead think about the macro or whether I like the business, how it makes money (high level explanation) -- often this means pulling the power point presentations off of the company websites rather than wading through their financial reports. That fifth interviewer may not have ever been a competent engineer himself -- more like a career manager in many cases. So he simply would not benefit from doing the entire loop himself -- in fact it would most likely lead to poor results. In my case, I'm not a competent enough screener of the financials to consider another approach (entirely on my own for example). Less mistakes ultimately get made if I stick to that fifth man position. But I only buy if I convince myself that I really understand why the investment kicks ass -- or at least if I'm really convinced. Ultimately, I buy a lot of stuff that I sell soon afterward because once I own a big position I ultimately get nervous and lots of questions hit my mind -- if I can't answer them I sell out until I feel more comfortable (happened a few times this year actually). We still made some bad hires of course (at my previous employer).

Eric, who else beside Berkowitz are you following? Starting my master in January, won't have much time for research anymore so I will have to co-tail the greats. BeerBaron Really just the Fairfax guys, Berkshire, and Berkowitz. As an extreme example (Buffett&Munger), I feel completely free to trade in and out of Wells Fargo without doing any research whatsoever because it has the Buffett&Munger seal of approval. I hope I never convince myself for a moment that I will think clearer than them -- so do I really need to sit down and read every detail in Wells Fargo's annual report looking to uncover the hidden fraud? Mentally I sort of pretend that they are the analysts that work for me -- only they are the best in the world and I conveniently don't have to pay them. They don't even mind that I cheat over their shoulder -- heck, Buffett gets on CNBC and hands out stock tips on WFC and AXP. Put differently, would I not take their advice if I was just a director and they were on my payroll? Perhaps some directors cannot delegate -- to these guys, I don't hesitate to delegate. If Buffett were managing my personal portfolio and allocating my money to stocks that I hadn't researched personally, should I be worried? Every shareholder of Berkshire I suppose has to put up with this "uncertainty" :) I do actually have enough time to do original research, and that sounds exciting in a rugged individualist sort of way, but I instead try to limit it to reading about (to my level of satisfaction) investments that have already been pre-selected by selective investors. I think that they will still make mistakes from time to time, but they'll make less mistakes than I would. This year I violated this winning formula when I bought KSP -- although I will give myself some credit for identifying it from day one as a fairly speculative gamble. I think a lot of people on this board can do much better through independent research -- because you have small funds and can find the larger mispricings in the smaller stocks. My results would likely go down though, due to competency limits. And with that, a couple of words from wiser men : "A man's got to know his limitations" (Harry Callahan). "Only three things to gamblin'," Puggy once said, "knowing the 60/40 end of a proposition, money management and knowing yourself."

It's interesting how much respect Ackman attracts for his rigorous research, while at the same time his largest holding is Citigroup -- a pick that gets little respect from others that do independent research because "it's too much of a black box and can't be understood". A Martian would not be unreasonable to say that Ackman thinks Citigroup is the best financials investment out there (in his weight class) -- why else would he make it his only financial holding? (not that it matters but Citigroup is my #2 holding -- and what I do isn't exactly research... more like selective coat-tailing).

In late 2009 he claimed to have 5 gigs of data from a BofA executive -- said he has the hard drive.

That's pretty much what Jeremy Grantham said -- he just feels like Graham's ideas are a "Duh" (his word). You could summarize The Intelligent Investor as -- "Buy low and sell high". Obviously, that's a "Duh". Graham emphasizes that you must appraise the value of the business in order to have an informed opinion of "high" and "low" -- once gain, "Duh". I know an interesting story from a value investor who once had a ten bagger buying a stock that Ben Graham himself trashed, in his own nice way, in the 1973 edition of The Intelligent Investor. If anyone can guess the name of the stock, I'll tell the story. :) That was the year I was born. Around that time, Graham was telling Davis to buy GEICO -- Graham giving a stock tip! That was a terrible time to recommend GEICO!!!! Right before it collapsed.

I think my taxable accounts are enough to carry me the next 20 years (Plan A). SEPP is my "Plan B", to be tapped as a last resort. It's a good idea if you run out of taxable funds.

That's pretty much what Jeremy Grantham said -- he just feels like Graham's ideas are a "Duh" (his word). You could summarize The Intelligent Investor as -- "Buy low and sell high". Obviously, that's a "Duh". Graham emphasizes that you must appraise the value of the business in order to have an informed opinion of "high" and "low" -- once gain, "Duh".

Isn't it a taxable event to switch from common to TR swaps?

It would wipe 3 months of Citicorp's earnings, and would slow the ongoing de-leveraging perhaps enormously as it would be more painful to move more assets to HFS. People have been focusing on QE2 in terms of how much wealth effect it generates and how much GDP it will translate to. But I don't think that's what QE2 is for -- if you look at what the banks need to sell in order to deleverage (top dollar for low quality bonds) then QE2 begins to make sense -- get the banks deleveraged as fast as possible and we've got a fighting chance (I think that's Ben's mentality). Unless of course one believes it doesn't matter when banks have their capital tied up in illiquid assets. Otherwise, I'm at a loss to understand what the real strategy is.

I was looking at the Citigroup "Special Asset Pool" -- this is where they put their junkiest non-core assets that they are selling and running off. The size of the pool is down to $94.8b in Q3 2010, vs $162.5b in Q3 2009. 38% of the pool is marked-to-market (including the "available for sale"). What's interesting is that tje available for sale assets are marked at 90% of face value, but their held-to-maturity assets are marked at 69% of face value. You are saying that available for sale is marked-to-market -- it just surprises me that market is 90% of face value I guess, whereas the hold-to-maturity is marked much lower. Sort of counterintuitive to me. page 9: http://www.citigroup.com/citi/fin/data/p101022a.pdf?ieNocache=309

We have laws that cleanse the borrower's record after seven years if they default on their loan. Perhaps an exception can be made for strategic defaulters. I would rather start with this before handing out money.

I can't understand why it would make sense for a bank to be required (as some people advocate) to mark their loans to market -- wouldn't that implicitly provide a loss reserve (embedded in the market price). So theoretically wouldn't the bank then be justified to operate without a loss reserve? Just a passing thought. Sometimes these thoughts don't amount to much -- but every now and then I see somebody advocate a mark-to-market model for banks and it makes me think of this double counting of anticipated loss in the loan portfolio.

Microsoft has already "allocated" $100b to non-technology related businesses -- it was the return of capital to shareholders. Berkshire would have decided on your behalf where those funds are best deployed -- Microsoft doesn't make that decision for you, you are on your own. But then Microsoft isn't an investment holding company so it's not their role to be your investment fund manager. Microsoft isn't Berkshire -- just like BNSF isn't Berkshire. BNSF's managers don't allocate capital outside of railroads, and Microsoft's managers don't allocate capital outside of technology. In both cases, they return the excess earnings to the owners and the owners can decide where to invest those earnings. In BNSF's case that owner is Berkshire. I think this is why Gates hasn't directed Microsoft to reinvest earnings outside of technology. Microsoft isn't a holding company, Berkshire is. The whole point of Berkshire is to have Buffett allocate the capital rather than pay it out to shareholders. If you are a Microsoft shareholder, you have your choice of managers to allocate your earnings -- you can reinvest directly in Sanjeev's fund, or in Fairholme, whatever you choose.

Buyback or dividend -- either way there is a smaller amount of net assets. That just leaves the "larger stake" part -- so sell enough of it to bring your ownership level back to where it was before the buyback. Your treasurer doesn't get it.

Bronco, a wise man would just stay out of the shower. (overvalued stock == shower) A court might suggest that you consented.

I'm sort of swinging back to the buybacks are no worse than dividends mentality. If buybacks at a high price increase your ownership by 10%, then just sell an offsetting amount of shares to manufacture a dividend for yourself -- given that dividend and capital gains taxes have been identical, you at least save on taxes through the buyback route as you don't pay tax on your cost basis. So you wind up with more money post-tax via the buyback. And who is complaining anyhow about an overvalued stock -- only people who don't own it. Owners would have sold and become non-owners if they thought the valuations were stupid -- and if they did... they were happy to have a ready buyer.

Looks like Hussman is not buying the inflation talk: "Likewise, we clipped our precious metals holdings to only about 1% of assets on price strength."

I have to say, as a Citigroup shareholder, I appreciate the liquidity -- speeds up the runoff. I don't think that brings any jobs back, but it should increase my future earnings.

From the best I can tell, if one insists on using a printing press analogy, this printing press is using "disappearing ink". The money injected will be removed once the bonds mature. I think they are buying 5 year bonds right? Given that they are Treasury bonds, there is a guarantee that these dollars will indeed make it back to the Fed on schedule. How come it isn't this simple? I can see an argument that if they buy muni bonds or mortgage bonds that these bonds might not be repaid, and to the extent that they suffer losses then that's ink that doesn't disappear. But when buying Treasury bonds, it looks very much like disappearing ink.

Mr. T is a better source of information on gold: http://video.forbes.com/fvn/business/mrt-on-gold

I saw that at Citi in the recent quarterly release -- however, despite a multi-billion dollar loan loss reserve release their reserving as a percentage of total assets actually increased. They reduced Citi Holdings by $40b, which is largely responsible for the math. So you could say their reserves actually increased, relative to their remaining asset size.

Additionally some people on this board hold cash as a percentage of their portfolio. To beat the S&P500 all you had to do was go long SPY with a percentage of your portfolio and hold a reserve of cash with some other percentage -- the more cash you held, the greater your outperformance. There may be less people beating the market during a period where the S&P500 outperforms cash. However I think the majority of people made their money from their picks -- and the S&P500 outperformance was large in most cases... too large to be explained by just cash (my guess).

A lot of my outperformance was due to Fairfax. I give them the credit because they chose the underlying investments (largely the CDS) that went up and delivered gains while the markets tanked. It's a bit like if I'd put a large percentage of my net worth in Paulson's fund -- yes, it would have taken some degree of aptitude to select him, and some nerve to hold on, but can I count the performance as my own? At some point it's the fund manager that really generated the results.

He is right sometimes, but for whatever it's worth he gets it very wrong too. Here is a quote I pulled from The Davis Dynasty -- the book is describing a Barron's Roundtable from 1988 with Jim Rogers making his forecast: "Most stock markets around the world," echoed TV commentator and motorcycle buff Jim Rogers, "are going to go up dramatically ... but no longer than six months, at which point we are going to have a real bear market. I am talking about a bear market that is just going to wipe out most people in the financial community, most investors around the world. And in fact there are many markets I would short but which I will not be short, because I think they will probably close them down." I only bring it up because he gets a lot of mention as a guru, but nowhere in the media do I see them going back to see how full of BS some of his ideas and forecasts turned out to be.

Most of you probably don't have guns and don't think about them much... but I found this out recently and find it rather interesting... in most places right now you can't buy ammo for popular handgun calibers like 38 special and 357 magnum. And it's been that way ever since Obama was elected (I asked at a couple of local places that sell ammo). You can go online and try Cabelas.com and it actually takes months to get 357 magnum -- it's a long backorder. Now, there are a lot of companies producing ammo out there for the retail market, yet they can't keep up with the flow of business. People are hoarding -- for real. There are a lot of flipped out rednecks I suppose, but nonetheless it is interesting to observe this aspect of the people that live around us. I don't know if they are just panicked that society is going to collapse, or rather they simply worry about Obama taking away their right to bear arms. You would be making a lot of money though if you were an ammo manufacturer -- these boxes of ammo (50 rounds) of 357 sell for $26 at Walmart nearby locally, and that's basic target rounds (the cheap stuff). They were sold out so I asked the guy at the sporting goods counter when they were getting their next shipment -- he said he sells 3 to 5 boxes a week (this is for the entire store!). That's only 150 to 250 rounds of target ammo for the entire Kitsap Peninsula here in Washington state (Poulsbo Walmart location). So he said he was expecting to get 2 more boxes that evening -- so I said "2 cases you mean?". "No" he said, "two boxes". Okay, let me get this straight -- this giant Walmart store is only able to procure 2 boxes of ammo -- that's it? That's only 100 rounds. One person can blow through that in 40 minutes of casual shooting at the range. THis is because, even Walmart can't get ammo in sufficient supply -- they are rationing it out to their stores from their warehouse. Anyways, I started target shooting this summer which is how I know this -- because I couldn't find ammo, I started loading my own (buying the shell cases, bullets, primers, and powder separately). So even the unloaded components (the shell cases) are sold out and backordered practically everywhere (takes a couple of months to get them). It might be Obama, it might be the global financial crisis, but something is driving people to hoard ammo right now.