jtvalue

This is a great discussion topic and I've been thinking about it a lot lately. My #1 choice would be MKL. It's a 9 bil market cap today and if they compound at 15% for 20 years it would be a $138 bil market cap. This article is a little outdated (year 2007) but it contains the 25 best performing stocks over a 25 year period. http://usatoday30.usatoday.com/money/top25-stocks.htm

I recently subscribed to ValueLine and I was curious - how many board members on here subscribe to the service and what do you like best about it? I follow the markets as a full-time professional and in the first few days of using ValueLine I find it to be an incredibly differentiated and valuable source of information

I would like to start this topic up again. I've been thinking about using a small amount of margin and would be interested in hearing the experiences of others. I'm fully aware that market valuations including the Shiller PE are at historically high levels. However: 1)I would use the margin interest for tax purposes to offset dividend income that I reinvest anyway 2) I have no debt otherwise (I rent my apartment) 3) The pre-tax cost of funds is only 1.5-2% I also began thinking about this more after reading the "Buffett's Alpha" paper (link below). It stated that a big source of his returns was leverage of 1.6x assets to equity. http://www.econ.yale.edu/~af227/pdf/Buffett's%20Alpha%20-%20Frazzini,%20Kabiller%20and%20Pedersen.pdf I also remember a quote from Munger along the lines of "Berkshire's success can be attributed to borrowing at 3% and investing at 13%?" I realize margin is different than insurance float, but if used intelligently at a low cost it seems to me it could enhance after-tax returns on a long-term basis? Thoughts?

Bill Stiritz, one of the CEO's mentioned in the book, makes a big bet on Herbalife with his personal money http://www.bloomberg.com/news/2013-09-18/stiritz-sides-with-icahn-for-22-surge-in-herbalife-bet-retail.html

I found this stat to be particularly interesting:"in all but 9 months of the last 22 years the ratio (Shiller PE) has been above it's long-term average." http://www.ft.com/intl/cms/s/0/496a3844-0013-11e3-9c40-00144feab7de.html#axzz2cVjrYPTd

This is one of my all-time favorite books. Reading about inefficiencies in professional sports is one of my favorite past times because a) I love sports - especially basketball b) I find a lot of similarities between the human biases/mistakes in sports and the stock market. If you're interested in the topic here are a few other books I would recommend in order of preference: The Extra 2% - by Jonah Keri http://www.amazon.com/The-Extra-2-Strategies-Baseball/dp/1611203090 The Mind of Bill James http://www.amazon.com/Mind-Bill-James-Complete-Outsider/dp/0385514646/ref=sr_1_1?s=books&ie=UTF8&qid=1370975791&sr=1-1&keywords=the+mind+of+bill+james War Room: The Leagacy of Bill Belichick - by Michael Holley http://www.amazon.com/War-Room-Belichick-Building-Perfect/dp/006208240X/ref=sr_1_1?s=books&ie=UTF8&qid=1370975956&sr=1-1&keywords=war+room Stumbling on Wins by Dave Berri http://www.amazon.com/Stumbling-Wins-Economists-Pitfalls-Professional/dp/013235778X/ref=sr_1_1?s=books&ie=UTF8&qid=1370975893&sr=1-1&keywords=stumbling+on+wins Game Plan: A Radical Approach to Decision Making in the National Football League - by Frank Dupont http://www.amazon.com/Game-Plan-Approach-Decision-ebook/dp/B007SBHUHA/ref=sr_1_1?s=books&ie=UTF8&qid=1370975741&sr=1-1&keywords=Game+Plan%3A+A+Radical+Approach+to+Decision+Making+in+the+National+Football+League I would be interested to hear if people have other recommendations as well.

Let me preface this by saying I'm as big of a Buffett admirer as anybody. However, I think buy and hold is a bad idea if you know what you are doing, like most of the people on this board. In the 1998 annual report Buffett's equity portfolio looked like this: 36% KO 14% AXP 12% Gillette 10.4% Freddie Mac 6.8% WFC 2.7% Washington Post 18% Other And here are the subsequent 15-year annualized returns for these stocks and the S&P 500 per Morningstar: S&P 500: +4.59% KO: +1.79% AXP: 6.86% Gillette (I'm using PG which I know isn't 100% accurate): +5.86% Freddie Mac: -98% since 1998 WFC: +6.5% WPO: +0.4% BRK.A: +5.87% Now would anybody on this board be happy having 36% of their portfolio in a stock with a 1.79% annualized return over 15 years? Or have their best performing position be 6.86% over 15 years? I completely understand why Buffett buy and holds (Berkshire culture, taxes, friendly acquirer), but it doesn't mean that its right for everybody.

Apparently Charlie Munger enthusiastically recommended "Outsiders" by Thorndike at his Daily Journal shareholder meeting

[amazonsearch]Outsiders - Eight Unconventional CEO's[/amazonsearch] The book is by William Thorndike of the Harvard Business Review and is essentially case studies on 8 successful CEO’s: 1) Tom Murphy Capital Cities 2) Henry Singleton Teledyne 3) Bill Anders General Dynamics 4) John Malone TCI 5) Katherine Graham Washington Post 6) Bill Stiritz Ralston Purina 7) Dick Smith General Cinema 8) Warren Buffett Berkshire Hathaway According to the author, over a 25 year period, $1 invested in this group of CEO’s would be worth $30 compared to $5 for the S&P 500. The basic premise of the book is that not only did these CEO’s run their operations efficiently, but they were also master allocators of capital and that’s what allowed them to achieve this superior performance. Here are a few excerpts to give you a sense of the book: “Basically, CEOs have five essential choices for deploying capital— investing in existing operations, acquiring other businesses, issuing dividends, paying down debt, or repurchasing stock— and three alternatives for raising it— tapping internal cash flow, issuing debt, or raising equity. Think of these options collectively as a tool kit. Over the long term, returns for shareholders will be determined largely by the decisions a CEO makes in choosing which tools to use (and which to avoid) among these various options. Stated simply, two companies with identical operating results and different approaches to allocating capital will derive two very different long-term outcomes for shareholders. Essentially, capital allocation is investment, and as a result all CEOs are both capital allocators and investors. In fact, this role just might be the most important responsibility any CEO has, and yet despite its importance, there are no courses on capital allocation at the top business schools. As Warren Buffett has observed, very few CEOs come prepared for this critical task: The heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they have excelled in an area such as marketing, production, engineering, administration, or sometimes, institutional politics. Once they become CEOs, they now must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered. To stretch the point, it’s as if the final step for a highly talented musician was not to perform at Carnegie Hall, but instead, to be named Chairman of the Federal Reserve. 1 This inexperience has a direct and significant impact on investor returns. Buffett stressed the potential impact of this skill gap, pointing out that “after ten years on the job, a CEO whose company annually retains earnings equal to 10 percent of net worth will have been responsible for the deployment of more than 60 percent of all the capital at work in the business.” “The metric that the press usually focuses on is growth in revenues and profits. It’s the increase in a company’s per share value, however, not growth in sales or earnings or employees, that offers the ultimate barometer of a CEO’s greatness. It’s as if Sports Illustrated put only the tallest pitchers and widest goalies on its cover. In assessing performance, what matters isn’t the absolute rate of return but the return relative to peers and the market. You really only need to know three things to evaluate a CEO’s greatness: the compound annual return to shareholders during his or her tenure and the return over the same period for peer companies and for the broader market (usually measured by the S& P 500).” “They seemed to operate in a parallel universe, one defined by devotion to a shared set of principles, a worldview, which gave them citizenship in a tiny intellectual village. A very select group of men and women who understood, among other things, that: • Capital allocation is a CEO’s most important job. • What counts in the long run is the increase in per share value, not overall growth or size. • Cash flow, not reported earnings, is what determines longterm value. • Decentralized organizations release entrepreneurial energy and keep both costs and “rancor” down. • Independent thinking is essential to long-term success, and interactions with outside advisers (Wall Street, the press, etc.) can be distracting and time-consuming. • Sometimes the best investment opportunity is your own stock. • With acquisitions, patience is a virtue . . . as is occasional boldness.”

Hi maxprogram - if you don't mind my asking where did you find that data about Buffett's holdings in the 1950's? Thanks

AIG up to 18% of Fairholme Fund, Cash down to 4.5% http://www.fairholmefunds.com/pdf/AnnualReport.pdf

I understand your concerns as a FAIRX shareholder and have to admit that I share them as well. However, I also agree with Bruce that the large cap banks are where the opportunity lies today and he could easily put his $20 bil to work in the likes of a BAC, C, GS, etc. Looking at BAC's analyst day comments today, the share look to be trading at 5-6x normalized earnings with signficant excess capital to boot. Once the large cap banks become more fairly valued he will have a big problem of where to re-invest the proceeds but I believe we are a long ways off from that.