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Klarman? founded Baupost in 1982. Worked at Mutual Series (big box?) investor 9: Mohnish Pabrai? Don't think those are correct. Seth hasn't held Berkshire all those years, nor does he make one decision per year from what I can tell. I don't think Mohnish has a law degree or founded an online retailer (could be wrong though.)

Anyone have an idea about investor 7?

My only general commentary on the research-light, coattail approach -- and this is not a criticism, you're doing what seems to work for you and that's most important -- is that I'm not sure how I'd feel when times got tough. I'll use Moody's as an example. Let's say you bought it when Buffett bought it, and you knew enough to know that Moody's is an oligopolistic business, with inflation-protected pricing power, and an unlevered balance sheet; and more than anyone in the world, Warren Buffett was an expert in judging its valuation. He buys, you buy. For a while, it looks like a brilliant move, and you are happy with your approach. Fast forward to today. How are you feeling about Moody's? There are all kinds of guru-type investors short the stock, lawsuits are circling the company, its business model might be impaired, and Buffett has sold some, but not all, of his position. How about Berkowitz and Pfizer? Same deal - it was a huge position for him, he's holding joint conference calls with the CEO, and a year later, with the story basically unchanged (remember, he was publicly A-OK with the Wyeth deal), it's gone. What do you do when you wake up to that? How do you choose which stocks to coattail? What if you coattail their mistakes instead of their successes? The difference between having Warren as an analyst and coat-tailing his public moves is that, when something unexpected happens, you can't ask him what to do. The initial selection may be entirely correct, but as the timeline stretches, trying to get in and out of it at the right time can be difficult... I'm just not sure I could control my emotions if I didn't have the facts. But again, that's not really a criticism of the approach, but why I'm wary of it personally. Those of you who use it successfully may well have figured out how to avoid these types of issues.

Thanks for the info on H-W Sanjeev. I'm not surprised those guys are thorough - it's the thread I see holding together all great analysts and investors. Regarding trade journals, I find them useful. Nowadays, it's all on the web, too. For example, I get a daily and weekly e-mail from Insurance Journal that keeps us up to date on insurance goings-on. Dealbook from NYT is another great one - anything deal-related going on is usually covered. Offshore Mag for drillers, O&G Financial Journal for energy, etc. Another easy thing to do is go to Yahoo! Finance and subscribe to the RSS Feed of incoming headlines for companies you're interested and their competitors - it'll help you keep up on the major industry developments. Let me pitch in another underrated source: blogs. An example I'll use is, we were doing some research into the medical device industry and I came across a few blogs written by doctors and healthcare IT professionals that were quite useful. There are dozens, probably hundreds of them out there. You can pick up scuttlebutt this way. The same applies for retail, energy, you name it...industry followers and professionals often have blogs with good links, commentary, etc. that you might not find on your own.

Again, as you say, I wouldn't recommend a non-professional attempt that, but I wanted to illustrate what really thorough analysis looks like and why he does it. There's a quote from Confidence Game (about the battle between Ackman and MBIA) that was something like "Bill did what he always does on vacation...read financial statements." I would be curious to spend a week in Prem's (or anyone from H-W's) shoes to see his/their process.

Thought a few quotes from Bill Ackman would be pertinent here, given his reputation as a very thorough analyst. These come from testimony he gave regarding Farmer Mac and MBIA. Clearly, he is a professional, so I wouldn't recommend anyone who is basically doing stock analysis on the side try to emulate him, but I found it interesting and thought you all might as well. Apologize for the formatting, it's from legal testimony. (re: MBIA) Q. What did you do next, if 24 anything, to learn about MBIA? 25 A. I called the company. And I 2 asked them to send me the annual reports 3 from the time they became a public 4 company. Plus any other information I 5 thought they would find useful. 6 Q. Did they? 7 A. Yes. 8 Q. What did they send you other 9 than annual reports? 10 A. It was primarily annual reports 11 and there was a folder with an operating 12 supplement, some press releases. Maybe 13 some -- may be a one-page summary of the 14 company. 15 Q. How did you identify yourself to 16 them? 17 A. By my name and company. I may 18 not have actually spoken to someone. I 19 think they may have had a voice mail where 20 you leave your address if you want annual 21 reports. 22 Q. I assume you read the annual 23 reports? 24 A. Yes. 25 Q. What next did you do? 1 W. Ackman 2 A. I read everything I could find 3 on the company. I did a Lexis, L-E-X-I-S, 4 dash Nexis, N-E-X-I-S, search. And I 5 generated a lot of articles that had been 6 written about the company. 7 I did a search on Google on the 8 internet. I went to the MBIA website 9 where they have a lot of ancillary 10 materials, they have analysts reports 11 written about the industry. I went to the 12 Moody's website. I took a trial 13 subscription at Moody's, and I read pretty 14 much everything they had on structured 15 finance, which was not an area that I had 16 much familiarity with prior to my looking 17 at the company. I looked at Standard & 18 Poor's website. Fitch, F-I-T-C-H, 19 website. 20 I basically tried to gather as 21 much information as I could about the 22 industry generally and then structured 23 finance, and then the company in 24 particular. 25 Q. After you read these materials, 1 W. Ackman 2 what did you do next? 3 A. I talked about the investment 4 with my partner David Berkowitz. 5 Q. About what period was this? 6 A. I think it was either -- 7 sometime in June or possibly early July. 8 Q. And what was the substance of 9 your conversation with Mr. Berkowitz? 10 A. I explained to him why I thought 11 this was an interesting short sale 12 candidate. And an interesting company, on 13 which we could purchase credit defaults. 14 Q. What was his view? 15 A. He agreed with my analysis. 16 Q. All right, this analysis was 17 done on the basis of the annual reports? 18 A. Yes. 19 Q. You read the Moody's report on them? 21 A. I read probably, you know, 50 22 Moody's reports. There's one specific one 23 on the company. But there are lots of 24 other related reports on different 25 segments of not -- not specifically MBIA 2 but specific to the industry. *** Q. Okay. Anything else? 17 A. Yes. Having read all the annual 18 reports from 1986 through until 2001, 19 which I find to be a useful exercise in 20 looking at any company, because you can 21 see gradual changes in a business, and you 22 can see what management said, you know, in 23 one year and what happened in the next 24 year. And what I saw was a company that 25 was gradually what I would call moving out 1 W. Ackman 2 on the risk spectrum. That over time they 3 were expanding the mandate, if you will, 4 in terms of the risks they were willing to 5 accept. And that there had been an 6 acceleration in the risks they had been 7 willing to accept, particularly in the 8 last three or four years. *** (re: Farmer Mac) 11 Q. Tell me what the other reasons 12 are in addition to these twelve? 13 A. I found the disclosure 14 misleading. If you compare - - I 15 read everyone of their financial 16 statements from the beginning of 17 time until today and you can - - 18 when you compare, you know 19 disclosure and how it changes year 20 by year you begin to get a sense 21 that management is trying to create 22 an impression and in my opinion 23 very often not the truth.

With the best healthcare companies in the world, the whole US defense industry, a number of dominant retailers, the dominant players in the tech industry outside of AAPL, all at current FCF yields of 8-12%, along with some of the strongest and most well run insurance companies in the world around book value or less, all with strong balance sheets, many of these companies repurchasing shares or boosting dividends.... I have a hard time thinking the market is in a dangerously overvalued state here. Sure, some stocks and some areas are hot, but there are loads of out of favor companies. I dont mean to say we're at 1974 levels here by any stretch, but the companies we're studying seem to offer enough opportunity to make me somewhat skeptical of the idea that we should be running for the hills. Not a market call, just want to present the other side of the debate. By all means, keep some dry powder around, but market timing based on top down measures is hard (in my opinion).

I don't disagree. I just wanted to explore the scenario where the opposite happens... Interesting perspective from Whitman's book. I suspect Fairfax is better off than most if interest rates go through the roof due to inflation, but it's something to think about. In any commodity industry, a shakeout ultimately benefits the strongest.

It'd be interesting to start a discussion on how severe inflation might affect Fairfax. You have at least a few competing dynamics here - on one hand, they are on the stronger side financially (compared to the industry as a whole), have a lot of capacity to write new premium (extreme inflation would cause rates to rise to compensate, albeit in a delayed fashion), and have several billion in shorter maturities that could be re-deployed as interest rates rose. On the other hand, widespread inflation would also inflate claims costs on the current book, a phenomenon on display in the 1970's which caused insurers to struggle for some time. It'd also hurt their bond portfolio, which I noticed as been somewhat lengthened in maturity this year. So the question is, on balance, is Fairfax a struggling company or a thriving competitor if we see a big bout of inflation? I realize H-W has made a bet in the other direction based on their views of deleveraging and deflation, but it's worth thinking about. Hopefully there are lots of thoughts on both sides.

I would guess the liquidation of GEICO's equity portfolio is a "cleaning the slate for the next guy" type of move as Lou bows out...

I think the more commonly used expression that he's referring to is the "canary in the coal mine." Basically, what are some warning signs of bad things to come? (Miners used to bring the birds down into measure dangerous gas buildups-- if the canary died, they knew gases like CO2 were getting up to dangerous levels and it was time for extreme caution, thus the expression.)

I believe those are for the Fairholme Fund, his mutual fund. But the letter Bargainhunter linked to was to the clients of Fairholme Capital management - his private clients.

Just wanted to add my thanks to BVH. If you have access to any of his other letters to Fairholme clients, I'll second a request for those as well. Thanks again!

How did the DX handle the charts, tables, and graphs in a typical annual report? Did it read generally as smoothly as it would on paper? And, to finish my interrogation, how were the annotation capabilities? Anyone have experience with other e-book readers used for this purpose?

Thanks for this interview dcollon. Gotta say, of all of Jim Grant's risque statements over the years, this one is up there: "I've come to learn that Graham & Dodd value investing is not universally applicable." From a guy who's done what he's done (unsuccessfully, he admits) over the past decade, that's a very interesting statement.

I'd recommend the iPad as well, I do all of my reading on there besides books. An app called iannotate lets you mark up the PDF documents with highlights and so forth, which I'd recommend as well. It's an easy system to read and keep up with your annual reports and so forth, without razing a rainforest.

That's the number of shares. From my calculations, that would be about $1,184,939,436. That's more than twice what the company is worth. that might before the reverse split That certainly make sense to me. I thought it was the dollar amount since there is no way it could be the current share amount with the price where it is currently. If this is before split, it means that he owns about $58 million worth. I think that's also about the size of the Lion fund when I was reading about it. The link that I posted though does have a date of August 2, 2010. It had the reverse split, before that, right? Yikes guys, the link he gave and the share number he quoted (3.6M) are for his ownership stake in Sonic.

The funny thing is, to me, whether or not you think Prem has better investment skills than you do is almost beside the question, though I can see why people do ask themselves that question. You don't have to view Fairfax as a punt on your investment ability...you can view it for what it is, which is a large diversified insurance company that has earned a very high rate on its float over time and is now going down the road of a global insurance juggernaut. It's my humble opinion that Fairfax has entered this "next stage" of growth. Hamblin-Watsa now has the benefit of 25 years of building and gaining experience, and by all indications, Prem is simply in his prime right now. It wasn't easy, but they've built a very stable and diversified (but not swollen) base in which to sorta run this thing up from an $8B enterprise to an $80B enterprise, a $100B enterprise, and so forth. I see no reason this can't happen over the next decade or fifteen years. H-W has been and continues to be masterful and their insurance operations are only improving. The deals he's striking now...I don't think he could have struck them 10 or 15 years ago. So, if I'm given the opportunity to invest in this growth without paying a premium...to me that's a pretty damn good bet. It would not be irrational in any sense to have a huge position in Fairfax, any more than it would have been to buy Berkshire when it was an $8B company (20 years ago). I think this happens in fits and starts...it will not be a smooth upward progression. Insurance is hard. But the pieces are in place. In my opinion.

Wow. See, I was told it is "very easy" to find securities that massively outperform the market. :D

Agree with Sanjeev. Although one thing I think (I think) I remember from the Snowball was that he was running at 60% or something prior to his partnership (in the Columbia/Graham-Newman days).

I agree with you guys, and one thing I would add is to caution against forgetting the "silent evidence" here. Investors we know very well today, we know them because they successfully achieved very high returns early in their careers and continued on by earning still high returns as they grew. That's the only way to even become a Carnegie or a Buffett unless you've inherited a Trump-ian wad of capital. But the risk you take is ignoring the investors we've never heard of who, attempting to earn extremely high returns, fell out of the investing gene pool. It is not easy to earn those kind of returns...if it were, everyone would be doing it. By the way, some people are totally fine assuming extra risk, reasoning that if they lose the money, they are young enough or have enough earning power to start again. I see no problem with that, as long as you're being honest with yourself. The problem I see is gearing up your risks without being aware of it. 50% can be done in a low-risk way, but god would it be hard. I like the point that Buffett has been in the game for 70-years, which helps...

Thanks oec and vinod...I hope to continue posting when I have something useful to say. I just find it incredibly hard to argue with someone who uses statements like "This is a black and white argument" or "There is no room for debate" or "It is simply a fact that..." or "I am 100% certain that..." I don't believe the world of business is that clear-cut. The unfortunate part is that rick_v is clearly an intelligent person and him and I probably agree on a lot more things than we disagree on, but my efforts to provide another side to what is "common wisdom" in value investing circles was met with personal attacks and "my way or the highway" type arguments. Just to make myself clear, because I feel mine and some other posters' arguments were twisted around in an effort to make things black and white, here's the core of our argument: 1. There are plentiful attractive investment ideas in larger companies. One does not need to restrict themselves to small companies to find highly successful investments. I tried to illustrate this point by going through some of Buffett's most successful investments, a number of which were in well-known, but at the time unloved, companies. This was in response to "Seeking out value in your own plays, specifically plays under $250M is the way to go. As you manage more capital you can look at under $1b companies as well. But to truly generate significant alpha you are gonna have to go there." 2. Investment return expectations can get unreasonably high. I presented the track records of the "greats" to illustrate how difficult it would be to earn 30-50% CAGR on any amount of capital. Unfortunately, this was met with a straw man that "8-9% annually simply won't make you rich." Again, I'm against expecting unheard-of returns, not saying you should accept paltry returns and take up golf. This was in response to "And when I say significant alpha I am not even talking about 20-30% per year." and "People like Prem or Buffet didn't get to where they are by being passive investors looking for 8-9% a year." 3. There is no shame in sticking with a few companies you know well. An incredible amount of wealth has built this way by "amateurs" and professionals alike. I used this point to illustrate that there are no "degree-of-difficulty" points in investing. There are so many paths to heaven here. Because this board is centered around Fairfax, I used that as a good illustration of this concept. This was in response to "But if you are a young and passionate value investor or a fiduciary that has represented your skills to partners, it is completely pathetic to buy and hold BRK or FFH and think you are going to generate any alpha, or get RICH for that matter." Well, fortunately for these pathetic people, a lot of "alpha" has been generated holding Fairfax and it's not a $200B company like BRK yet. And apparently Ruane, Cunniff is a pathetic firm for holding BRK from inception until present day. I think Buffett might disagree with that statement. I did not say the following: 1. You should ape Buffett or Hamblin-Watsa's picks and go home. 2. It is "better" to invest in large companies than small ones. 3. There aren't a plethora of opportunities in unknown companies. 3. It's OK to be lazy and accept paltry returns if you're a professional. At the end of the day, I believe open-mindedness is a big asset if you're an investor. This is not physics, there are few absolutes. I also, probably shooting myself in the foot here, need to say that I'm automatically a little skeptical of someone talking about "out of this world alpha generation" and "value type plays." That just struck me as odd, but as I said above, rick_v has been a solid contributor to the board and he, like me, is not a caricature: he seems to have many great ideas and some ideas I totally disagree with.

I don't know what to tell you rick_v. I'm sorry you've made that decision. I'd appreciate you not saying things like "I am 100% certain you are an academic" when you are 100% wrong. At the end of the day, here was your point: "Seeking out value in your own plays, specifically plays under $250M is the way to go. As you manage more capital you can look at under $1b companies as well. But to truly generate significant alpha you are gonna have to go there. And when I say significant alpha I am not even talking about 20-30% per year, I am talking about finding the 10 baggers, the 5 baggers, the 20 baggers. The ones that can be found with a lot of work, permanent capital, and patience." I made a lot of arguments to the contrary, but you ignored all of them in favor of re-affirming your prior belief. Only micro-cap value can generate your "truly significant alpha." The sad part is that I agree with you about generating ones own ideas (and you'll notice I never said anything to the contrary), but you're too high on your horse to read my posts and respond to them.

Sorry, it seems Sanjeev and I responded at similar times and made many similar points. The only area we seem to disagree on is that small investors should focus on small areas. My only point here is that, while that absolutely may be a fruitful area to look, it is certainly not a prerequisite for excellent performance. Buffett and many others have proven (in my eyes) that larger companies ($500M+) provide hordes of opportunities to patient and shrewd investors.

I'd like to respond to a few points. First off, as Parsad said, please stop using the word "alpha." It implies you believe in the tooth-fairy known as "beta." Second, let's knock down this straw-man argument that I'm saying a 8-9% return is OK. I'm not. And I never mentioned that investing in BRK at this point would make anyone rich. The devil is in the details. But you have made the point, several times, that one needs to invest in the "0-250M" area to "get rich" and "generate alpha." You also disparaged investors who own Fairfax rather than "working 16-18 hrs a week" to find obscure ideas. The point I made in my original post was that Buffett and many others have, time and time again, found ideas that compound at 25% P.A.+ in very well known companies - $1B+ (some much larger) market capitalizations. I've yet to hear you respond to that, except to call it an "academic argument." I manage money for a living, so I am not making an "academic argument." I also pointed out that the hall-of-fame investors have generated, on various bases of capital, 20-25% P.A. returns, at best, which says to me that telling some up and comer to shoot higher is an exercise in Type-A masturbation. You keep setting up these ridiculous "black and white" arguments that make you sound like Glenn Beck. Here's one: "So for those that are, I Am simply proving and its black and white, there is no room for debate here: buying BRK or FFH and expecting to generate substantial alpha or to get rich or build a unique track record is simply not going to happen." This is absolutely not "black and white," except for the fact that you're leaving open to interpretation the definition of "significant alpha." Is 5% P.A. better than the index significant. You'd be in the top 1% of money managers. Is 10% better significant? You'd be a hall of famer. Is 15% significant? You'd have beat basically every manager I've heard of or studied. These don't seem to content you....does 40% P.A.? That implies turning $1 into $30 over the next ten years. Who is putting those type of numbers up? What do you consider "significant alpha?" Also, regarding Fairfax specifically. What is keeping it from earning investors 20% P.A. over the next decade? That would make it about 6x as large...about $50B. Why is that impossible given his track record? And if you are willing to accept this, what stock market return are you assuming in which 20% P.A. is not "significant alpha?" Let's also go back to this "unique" argument. What the hell does that have to do with anything? What is a "unique" track record? I'm going to invoke my zamboni argument here...there seems to be this fetish with making money off of obscure ideas rather than mainstream ideas. If someone bought Berkshire in the mid-80's, when it was well-known, are they not unique? Maybe not, but they're probably rich. You want 10-baggers? Let's name a couple from the last decade. Autozone. Penn Gaming. Apple. Are these obscure $100M companies? Freddie Mac was a 20-bagger in the 90's...everyone knew about it. It was just evaluated with the wrong lens. Coke was a 10-bagger. Recently, Petrochina was what a 7-bagger in a few years for Warren? What sucky investments! You're also not providing us with any concrete numbers. You've said that 20-30% annually is not good enough. Really? If I were to turn $1 into $15 over the next 10 years, I'd be earning around 30% annually. What a crappy decade! You're telling the young investors on this board that, unless they are mythically successful and work until they drop, they are doomed to be poor and unknown! This is insane. And this company you admire that Warren owns? Fastenal? Its market cap is $8 billion. Not "0-250M." It's a well known company, not obscure, and it wouldn't take a 100-hour work week to discover it. Also, you've pointed out that Fairfax only returned 9% over the last decade. Do us a favor and extend that out a few more years (before 2000) and see what the CAGR comes to...you're choosing a time period that fits your argument. How convenient to forget its 15 or 20 year CAGR. "With regards to providing examples, I have shared more ideas on this board than I am honestly comfortable with. I am 100% confident they will outperform as a basket FFH." You seem to be highly confident in your skills. I would like to see a long term (10 years or more) track record to back that up. I'd love to see these 50% annual returns that seem to be found very easily. And don't ask me for mine...I'm not claiming to be Warren re-incarnate, I'm trying to talk everyone down from their ridiculous return expectations and making themselves feel bad because they're not "working hard enough" as if investing was like plumbing. In fact, I've looked at a lot of guys who attempt those returns and fall flat because they are speculating on crappy little companies with little investment value. I honestly think you're just spitting out platitudes without any critical thinking behind them. Extremely high returns (which I arbitrarily define as anything above 20% P.A. over time) have been generated in a lot of different ways, including buying one boring old company and sitting on it. There are no extra points for the following: working a lot of hours, looking at small stocks, finding a "new idea," having higher turnover, or emulating Buffett's personal portfolio because it's the cool thing to do. And lastly, before I'm executed for heresy, I'm not disparaging these "nook and cranny" ideas. There are plenty of good ones. I want to find the next NAFI trading at 1x earnings just like ya'll. I've even *gasp* owned some small stocks. But I'm against reducing this whole game to some cut and dry argument that buying stocks below X market cap is somehow "better" (financially, intellectually, sexually) than buying larger ones that people might have heard of (not necessarily mega-caps, I'm talking $500M - $30B in size). Go study Lampert's 13F's from the pre-Sears days and tell me he needed micro-caps to generate the returns he generated. PS someone asked about Guerin and unfortunately no, I have no further info. I'm just going off of the comments from Superinvestors of G&Dville and stuff in other generally available material. He may have made some missteps late in his career, no doubt.