savant

Matt - I would be interested in knowing of any previous instances of 'stirring up the apple-cart' in India. The only example I can of in 'recent' past was the takeover bid on GESCO by Sanjay Bakshi. See link below. And even in that case, it was a recently spun-off company with promoter-holding at ~ 15%. http://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/The%20Tug%20of%20War%20over%20Gesco%20Corporation.htm I guess you could consider the lititgation following the FCCB investments that QVT has made in certain Indian cos or the ongoing litigation between bondholders and Wockhardt management but I perceive those as more of an attempt to protect their capital on the part of nvestors as opposed to an iitial investment with the intent to shake-up the management.

Foreign institutional investors are already allowed to invest in India. Infact Fairfax has made some investments in India in the past before they started Fairbridge Capital out here. The govt is also thinking of opening the indian equity markets to freign retail investors. See article below: http://www.dnaindia.com/money/report_govt-mulls-direct-share-buys-by-foreign-retail_1614115

How reliable are the financial statements in India? I have done net nets in india. Financial statements are reasonably reliable ...you may have corporate governance issues in some cases You can find a decent number of net nets as there are 5000+ listed securities. however at the same one can do far better with good companies. also in a lot of net nets the company and management is terrible and that makes your stomach churn I think after doing nets nets for a few years in india, i have found good companies selling at decent valuation to be more profitable and a far more pleasent experience I have done net nets in india. Financial statements are reasonably reliable ...you may have corporate governance issues in some cases You can find a decent number of net nets as there are 5000+ listed securities. however at the same one can do far better with good companies. also in a lot of net nets the company and management is terrible and that makes your stomach churn I think after doing nets nets for a few years in india, i have found good companies selling at decent valuation to be more profitable and a far more pleasent experience Agreed. Also most companies (including net-nets) in India are majority owned by a promoter. So Ben Graham's thesis that a company trading for less than NCAV will eventually be bought out and liquidated doesnot necessarily hold true i.e. the promoter is not inclined to maximize value and the net-net forever remains one thereby becoming a value trap. Most of my successes with net-net investing in India have occurred only when there was an immediate catalyst or significant downside protection via a nice dividend yield.

$200K per year per family member. Higher amounts for NRO / NRI's. You can also start a Company abroad and send over paid-up capital.

People who build houses for a living (and related industries) are unemployed. They go back to work when the housing supply is gobbled up. I think I've read that it's 3 jobs for every house built. So if we build 1.5 million homes again, then it's 3 million more jobs (that's 1 million homes more than we currently build). That alone cuts unemployment by nearly 25%. Then those people spend more and yet more jobs get created. Takes a lot of stress off of government revenues and jobless benefit expenditures as well. 1.5 million was about natural trendline demand -- 1.2 million from household formation, and 300k from destruction. Maybe I am looking at this wrong... so bear with me, working on experiences over the last few years in the Technology field. US companies are outsourcing almost all their technology needs to BRIC countries for several years now. On average 1 programmer in the US can be traded off for 3 - 4 programmers in India. This is part of the reason why profit margins are nice right now for US companies. Now lets say you have 100k programmers that says lets move to the US and buy a house. All of them will require Visa's and will need jobs. Companies that provide Visa workers do not pay on the same scale as regular W2 workers in my experience so a company is either going to hire the Visa worker at the lower rate (layoff the fulltime employee), continue to outsource all their technology needs, or stay the same. I really dont see why a company would hurt their profit margins in order to help correct the housing mess. Basically the way I am looking at it for, every 1 job gained, 1 job is lost as a company is just switching out the workers. Really hasn't been a mass hiring spree in the last few years and by bringing in more people really it would just be adding to the problem. While I understand where your coming from on housing starts and hiring construction workers, it all starts with providing employment for people that can support purchasing a $500k home. With the gut of available houses at this point, I really don't how this would make a meaningful enough impact to spurr new housing developments. For every house that is purchased there would need to be a high income job associated with it and there really are not that many out there that I see. If I am being perfectly honest, after thinking through this, I see this proposal as a way to help the banks get rid of some houses that are a little more difficult to move. Nothing that would actually lead to new housing builds. Justing thinking out loud as this proposal would probably change 20 times over the next year. :-) Mid-level programmers in India make slightly less than $2,000 a month pre-tax. Besides the fact that they can't really afford $500K houses, I don't think they will have the credit history to be able to get a housing loan in the U.S. Essentially, you are targeting people who can put down a large chunk of money upfront without requiring much of a mortgage. People on this board might be surprised by the large number of people in India who have the capacity to actually do this (we are not all programmers) and might be even more surprised by the large number of people who actually WANT to do this (though that cachet is fast fading).

Open a 3-in-1 account with HDFC (bank, trading and demat). I've found their process to be the easiest and fastest and they are willing to negotiate on the transaction fee.

Its good and I'm glad I have it in my library but that's because I'm a huge fan of Mr. Singleton's methods. There are quite a few other books that focus more on the financial / operational methods used by men of means to create wealth.

You can split the book into two parts (not literally but in your head) - one section being about technology and the influence that Teledyne had on this sphere. This part was less interesting to me and I basically sped through the techie sections. The other section is the part that talks about Mr. Singleton's brilliance with corporate finance and his thoughts around spin-offs, buybacks, having an insurance sub to provide funding to your other businesses in a downturn etc.

Actually, Buffett did "sell" large cap stocks like Coke, Amex, and others in 1998 by acquiring Gen Re for all stock transaction when Berkshire shares were trading at a significant premium to book. In other words, he sold ownership in Coke to Gen Re shareholders while receiving their bond portfolio in exchange in a tax free manner. Pure genius! It is the opposite of idiotic Kraft transaction with the Pizza business sale. An unintended consequence however of the Genre transaction is that Berkshire also inherited Genre underwriting problems which were eventually fixed. I believe that is 100% correct. Plus it is pretty obvious that WEB believes in Sloan's philosophy on acquiringa business that provide a reasonable rate of return for the longest period of time as opposed to a higher rate of return for a shorter period.

" - A guy pestered him about his dog-eared page. Munger said that he grew up with the tables and that they haven't changed. The guy persisted - what's the number? 10? 12? Munger shot back that "I want to know the present value of something so I use my table - it's just not complicated. A lot of people DO use complicated stuff - they're the ones who got us into trouble."" FOr those of us who have never had the opportnity to go to a Wesco or DJCO meeting. What is the above referring too? Thanks

Graeme Hart Albert Frere Bernard Arnault etc. etc. In the past we had Floyd Odlum, Gurdon Wattles, Thomas Mellon Evans, Jimmy Goldsmith, Henry Singleton, etc. etc. Though none of them used insurance as a form of leverage the way WEB does.

"There is no such law, of course. On the other hand, corporate America cannot increase earnings by desire or decree. To raise that return on equity, corporations would need at least one of the following: (1) an increase in turnover, i.e., in the ratio between sales and total assets employed in the business; (2) cheaper leverage; (3) more leverage; (4) lower income taxes, (5) wider operating margins on sales." Cheaper leverage is definitely available to American corporations today. Most of the blue-chips can issue long-term debt below dividend yield to buyback equity. Also, from what I can see by comparing balance sheets from today to 3 / 4 years ago - there is definitely more cash on balance sheets and less debt. I'm incapable of predicting where interest rates are going to go in the future and when exactly we can expect taxes to go up. At this point, there are certain companies out there with a reasonable margin of safety. It's not March 2009, which is why I am 30% in cash.

However, it's an asset because you don't ever *need* to maintain exactly the same "quality of life" in exactly the same location. That is a choice as to how you allocate your assets. I absolutely agree. However, I've never known many people to downgrade their quality of life in order to make a 'better' investment. Perhaps in extenuating circumstances. There may be the cases where an individual is strong-minded enough to downgrade current lifestyle to make an investment that will benefit in the future but I believe that to be the exception rather than the norm. You don't own the things - the things own you.

Haha true but assuming he wants to maintain same standard of living in the same city, he will likely purchase another house for the same price. So unless this is his second house, he still needs to cover his basic needs of providing shelter for himself / his family. So if one were conservative, he would consider the first house to be an expense which can be either capitalized upfront or paid for over a lifetime as rent expense but in either case is an expense and not an asset.

A good friend of mine is selling his house and it is on the market for $8.25M. He paid $425k. Just a notional gain? Probably should or shouldn't include the $8M on his personal balance sheet? Why would the interest he paid on his mortgage (he probably never had one) or the taxes he paid go into an asset - liability equation? Let's say he paid $500k in property taxes on his house over the past 20 years, why would he subtract that from his net worth on a net worth statement? He does owe it, he has paid it in the past. You would, of course, subtract past expenses from a net profit calculation...sure. He walks away with $8M in the bank...why would he subtract his interest and taxes from that number to see what he is worth today? He is worth $8M if that is all he has and it is cash sitting in the bank after he sells his house, not $425k and not $8M subtract all the taxes and interest he has paid. This might be a dumb question but where is your friend going to live now?

I own this stock after Buffett mentioned the CEO in an interview once. Truly good managers and have shown tremendous returns. They also have a significant competitive advantage due to the network effect. Out of curiosity rick_v, how do you know that Buffett actually owns this stock?

Thanks. I agree with your points above. But I still don't quite understand your initial statement (which I have pasted below) but lets put the topic to rest as you mentioned. Thanks for taking the time. "if you expect positive GDP growth, the higher the P/E the more of a margin of safety you have [ WEB’s Burlington Rail]

Thanks for the reply SD Recalculating using a 25x multiple I did the following calc: In year 1, Price is $25 and EPS is $1.00 for a multiple of 25x. Assuming 2% inflation and 2% GDP growth, in 12 years price goes to $31.7 and EPS to $1.60 for a multiple of 19.8x which is still a margin of 21% (19.8/25 -1). I think I may be missing something here. Help would be appreciated. Apologies for being so slow on the pick up.

Hi - I'm not quite sure I understand. Are you saying that every thing else being equal it makes more sense to pay 12x instead of 6x for earnings if one expects positive GDP growth? Please could you elaborate as it flies in the face of conventional wisdom that the lower the multiple the more the marign of safety. Thanks in advance for your reply

Hi Sanjeev - I was wondering if this interview ever took place and if you could direct me on where I can find it. Thanks

eh? I don't quite extol banking as a great career option or anything but just as an fyi - The large part of the money made by Goldman is from their trading business - not their investment banking. In trading there are no pitchbooks. If you take the average number of hours spent by an investment banking analyst compared to the the 6 figure sum that they make at the end of the year it comes to about $7 - $10 an hour. Not exactly top pay if you ask me. Whether those hours spent are used in a way to create something valuable for society is a different topic altogether. They dont have algorithms doing the pitchbooks because the only way to learn a sales pitch so that an analyst can get to the sales level of a managing director is to work on the pitch book. Although a sales job at the end of the day, it is slightly more sophisticated and with a different client base. That being said, not all bankers are bad. You simply have 5% of them providing 95% of the value.

110% indian stocks

No sure if this is too late but I have another question for him: 1. What are some of the resources/screens/programs that you use to search for stocks? Is there any source from where one can get historical annual reports of a company - bloomberg only goes back 10 years and the sebi (indian version of the sec) website doesn't work very well (no jokes) 2. Any thoughts on publicly-traded Investment Trusts? There seem to be a couple out there that have been around for years which probably hold significant assets at book value but due to lack of disclosure there seems to be no reliable way to guage valuations Thanks very much

mpauls - I agree with the first part of your reply. I'm just not sure if the equity of the company holding other securities will rise to the value of the underlying securities. I believe this is because the original business is not making much profit and the dividends from the securities are sustaining the management paycheck. As the management is also generally the largest shareholder the market does not see unlocking of value any time soon leading to the stock being a value trap. I guess you could consider them something like a 'Sanborn Map' with the only difference being that the management has majority control so there is no way to actually realize value. On a side note, one of the men who made a fortune during the Depression was Floyd Bostwick Odlum. Apologies if you have come across his name before - a large part of his fortune was made by purchasing majority control of investment companies trading at a discount to their holdings and liquidating them. I mention this because there were numerous Indian investment companies trading at huge discounts to their holdings back in March - unfortunately they all had a promoter with majority control.

Thanks for your response mpauls and appreciate your input. I'm of Indian origin (and nationality) so don't really need to get into a JV. I'm familiar with some of the basic investing rules in the country and invest through my broker in India. I just wasn't sure about shorting / options and arbitrage opportunities. For eg. one of the arb opportunities that were widely available back in the day was buying on the NSE index and selling on the BSE or vice versa which had different closing dates and therefore different settling dates. This particular opportunity doesn't really exist anymore. I ask about control situations because there are plenty of companies that trade significatly below asset value . As I'm sure you are aware, several Indian companies hold equity investments in other companies at book value. If you recalculate book value of their stock holdings at market value there are some real bargains out there. Unfortunately these bargains tend to remain as bargains due to lack of interest from the promoter (majority owner) to liquidate. The general feeling in the market is that these companies that tend to trade at a significant discount to value of their tax-adjusted equity holdings (or sometimes cash on balance sheet) will continue to remain as bargains - a self-fulfilling prophecy.