txlaw

This is exactly right. I am sure a lot of the diehards will be offended by this statement as if it was preordained that Munger be in the pantheon of value investing gods. Munger was simply a very very smart guy who knew a good horse to ride in on. I think people forget he was a lawyer making a few extra bucks (or more than a few) on the side doing real estate deals. While I am sure he would have always become wealthy, perhaps very wealthy, he would just have been one of many. Buffett is so special because there is really only one of him. Well, two, if you ask Biglari, but that's another discussion. I disagree. Munger is an extraordinary fellow, and the only reason he was able to hitch his cart to WEB's horse is because of his singularity. I doubt WEB would have allowed that for anyone else. Maybe Gates if he had met him back then (although Gates didn't need WEB's help becoming wealthy). Having said that, I do agree that we would never have heard of Munger if he hadn't met WEB. It was being in the right place at the right time (which is true of WEB as well) that gave him the opportunity to be the guy that a lot of us admire today.

I've been trying to stay out of the political discussions, but come on guys . . . You really think Peter Schiff going out to the DNC convntion, interviewing certain individuals, editing the video, and then posting on YouTube gives an accurate view of the Democratic base? I guaranty you if someone had done that at the GOP convention, you would have gotten just as idiotic responses from some of the individuals there. You know, Randian-type raving. Also, I just have to say that Peter Schiff is an idiot.

U-S-A! U-S-A! U-S-A! . . .

http://www.nytimes.com/2012/09/07/business/global/european-central-bank-leaves-interest-rates-unchanged-at-0-75-percent.html

I miss that guy too . . .

I guess my response is that I don't see the point of buying market protection if you have the ability to pick up 30-cent dollars and can deploy the cash generated from your engineering company on an ongoing basis (unless you're worried about your firm's operating results given the macro environment). As to whether there is a time to lock in "the spread between the great bargains you have purchased and the worst 50 stocks you could find," I suppose it depends on one's goals. I personally am not a big fan of absolute return strategies. My goal is to maximize total return and the only way to do that consistently, I believe, is to accept volatility. If you are managing OPM, though, perhaps that is the best way to keep your own business stable and to allow your investors/clients to sleep at night. Or if you want to lock in a return in order to redeploy capital into purchasing a business that you will control, that might be a good reason to engage in the hedging strategy you're talking about. Or if you are managing an inherently leveraged insurance company that has capital level requirements and insured obligations that it must meet on an ongoing basis, then it isn't necessarily irrational to hedge against a general decline in market price levels, particularly if you do not have a fortress balance sheet. Ultimately, I believe it depends upon knowledge of your abilities, temperament, and the particular situation you are in.

The question is, protection from what? In your Nestle example, Nestle is buying protection on the price of cocoa because it is a material input that will have a direct effect on the cash flows generated from selling products that use cocoa. It is quite different, however, to buy protection (or seek protection in holding cash or gold) against what investors in the secondary market will bid for a cross section of businesses on the secondary market (the S&P 500, for example) at a given point in time. The core tenet of Graham-style "value investing" is that intrinsic value and market price of a publicly traded company are two different things. When you advocate abstaining from purchasing what appears to be 30-cent dollars laying around because you believe the majority of businesses available on the secondary market are priced fairly or even overvalued, you are ignoring the notion that the main risk an investor faces is a permanent loss of capital and not volatility in what the market will pay for shares in the company. Of course, competent "value investors" will take into account macro factors when valuing the investee companies they own. If the US is at risk of deflation, for example, one can expect that NIMs for banks will remain at cyclical lows for a while, and this will materially affect the banking business in the near term. Thus, valuations should take macro factors into account. It is one thing to pay attention to macro in order to assess how the operations of your investee companies are likely to turn out. It is quite another thing to pay attention to macro in order to predict general price levels available on the secondary market in order to time a bargain purchase binge.

http://gigaom.com/2012/08/30/fact-checking-politics-why-we-need-open-journalism-more-than-ever/

It's not WEB's responsibility to call for specific spending cuts. That's Congress' job -- and probably the President's as well, whoever that may be come January. Notably, neither the Romney nor Obama campaign are very specific about their spending cuts, and both resort to magical thinking in their projections. As for tax increases, the consensus appropriately seems to be that no tax increases on the middle class should be implemented until we get closer to full employment and get the economy off of life support. Isn't that what the "fiscal cliff" idea is all about? I do agree that over the long run, effective tax rates for personal income will likely have to go up across the board, either through direct tax or the inflation tax. That wouldn't be such a bad thing if it would improve the US fiscal situation, get us back to full employment, and keep the social safety net strong (which actually makes the US more competitive by unleashing the potential of its people).

http://focusforwardfilms.com/ Very cool.

Halo effect? A lot of wealth these days is in climbing-the-greasy-pole roles (ie: CEOs, asset gatherers, politicians) where authenticity is not part of the work description. And not many are going to shape the rules of their own game as a successful entrepreneur, investor, artist, or sportsman. Those games tend to be highly skewed winner-take-most. Salarymen cannot set their own rules at work. I recognize that success should be measured in many different dimensions but work still takes a lot of people's efforts and time. My personal behavior model is Lord Keynes: I wanted to get rich so I could be independent, and so I could do other things - Charlie Munger Ha, your post is also great food for thought. You're being too rational, though. Sometimes you just gotta succumb to the inspirational. :) Having said that, I tend to gravitate towards the Munger road on wealth and independence in my own life.

Ackman makes it easy being such a powerpoint jockey. Via Marketfolly: http://www.marketfolly.com/2010/06/bill-ackmans-ira-sohn-presentation.html http://www.marketfolly.com/2009/06/pershing-squares-general-growth.html I also enjoyed the "debate" with Hovde Capital: http://articles.businessinsider.com/2010-02-16/wall_street/30090966_1_ggp-commercial-real-estate-gold-mine Will take a look at these again, thanks. At some point, I'd also like to go through the BK docket to understand how this was the most successful reorg ever.

Guy Spier is a cool dude. I liked his bit about Steve Jobs and how when you lead an authentic life, you get better results. Really great food for thought.

Very enjoyable conference call. Thanks for posting.

The actual letter that Ackman wrote is very interesting. http://www.sec.gov/Archives/edgar/data/1336528/000119312512366295/d401719dex994.htm Someday, I would like to find the time to go back and dissect the GGP saga. It would make a fascinating case study.

Let's see what this guy can do: http://www.businessweek.com/articles/2012-08-21/dell-hires-yet-another-superstar-executive-to-save-it

Windows 8 is likely to only make things worse. At best enterprises will take a wait and see approach. At worst, there will be some shift to Mac OSX. Either scenario is going to hurt them. Doesn't Fairfax own Dell? Fairfax owns quite a bit of DELL. Win 8 could make things worse in the short run -- it does appear there is a wait and see approach that will be taken by enterprise, particularly because of the radical redesign. And I don't buy that the Win 7 transition is only half over. I think there could be skipping over Win 7 by a good number of enterprises. On the other hand, in the medium run, if Win 8 is a good product and people like it, then the refresh cycle will help staunch the revenue declines in the declining product biz lines, which will enable DELL to continue to invest in growth biz lines with higher margins, even while continuing to optimize OpEx. And an emerging markets upwards trajectory will restart if Win 8 is a good product that people want to adopt. So we'll see what happens over the next couple of quarters.

But CCC should change going forward due to the shifting business mix, so I wasn't particularly disturbed by that change given the revenue mix percentage changes this quarter. Consumer drop was expected, and I figured there would be holdup due to Win 8 release, but the client device decline was still more than I thought it would be. And while emerging markets weakness was not surprising in light of what's been occurring with economies abroad, it was still a bigger percentage drop than I was expecting. Gross margins were good. Service revenue growth was fine, and I would like to see how that changes after they rework the sales force and after the new HP guy gets integrated, not to mention after the digestion of the recent acquisitions. Nice to see that they have a full product line ready to be rolled out when Win 8 gets introduced, although anecdotally I have not heard much talk about a refresh cycle being spurred by Win 8. The wait and see approach to Win 8 does seem prevalent among the business folk. The radical redesign seems to be giving people pause. Not so sure that Win 7 is only halfway done -- I'm willing to bet that a large part of the 50% remaining will either wait until Win 8 or start exploring alternative solutions (OSX, thin clients, even BYOD for the smaller businesses). Not as bad as I initially thought, but still not a great quarter.

Pretty ugly quarter. In addition to consumers generally cutting back and migrating to non-Windows hardware, looks like businesses are waiting on Win 8. http://content.dell.com/us/en/corp/d/secure/2012-08-q2event.aspx

Fairfax is my largest holding (about 29% as of right now). I have no idea why Prem wants to own even a single share of RIMM. I keep telling myself that he is smarter than I am, which is undoubtedly true, but still... Smart people can make mistakes and fall prey to logical fallacies and inconsistencies in their thinking too. I have this feeling that won't go away that he just likes RIMM because it is a local company, which hires people from a local school that he likes, that he wishes would succeed. Those are definitely not reasons to invest. Hopefully I'm way off base. Then again RIMM could go to zero and it wouldn't put a huge dent in Fairfax, which is why I still hold FFH. To be quite frank, I do think you're way off base. As Uccmal has pointed out before, public statements by Mr. Watsa on individual positions tend to be surface-oriented commentary (see Gurufocus interview). Berkowitz is the same way. He rarely goes into the real detailed analysis behind his investments when speaking to the media. I don't think I've ever seen a recent detailed thesis like the one that he put out there with WFC back in the day. Furthermore, the notion that "Prem has no business being invested in RIM" is wrongheaded, particularly because there is an investment team at FFH, which I am sure has some fairly tech savvy people on board. I highly doubt that HWIC would be so concentrated in RIM without really tearing apart the business and trying to kill the company. There is a tendency to dismiss an investment idea when one doesn't understand it. It's better to either say, I don't get it and wish the investor luck, or actually provide an argument as to why the investment thesis is wrong.

Also, I am way more concentrated in my own portfolio than in the portfolios of my parents and siblings, which have current positions that are not in my own portfolio (for example, TSCO or LVLT).

I was actually starting to think you were somewhat diversified--I kept seeing threads where you said you had a position for many threads, but perhaps I just know all your positions. :P Ha, you probably do know all of my positions. I think I've posted about all of them. I often sell off concentrated positions that are in a loss position to harvest the tax loss and concentrate more into other names, with the intention of buying back and reallocating to the sold position after the wash sale periods are up and other positions have "worked out." So sometimes when I post, I may or may not have a current position. For example, with SHLD, although I continue to post on it, I don't currently have a position. I basically got out of it around $70 when it made the big run from $30 to $80. Or with CLWR and with DELL, I substantially reduced my positions to take losses and go heavy into RIM, although I recently re-concentrated back into CLWR and DELL after some more money came in the door for me and after a run up in my NRG LEAPS (which I'm completely out of at the moment). I probably trade a bit more than I should, mostly to offset capital gains with capital losses, but also because sometimes I can't resist thinking that something will be "dead money" for a while, which will allow me to get back in at a later date.

Hell yeah, I own RIM! Won't disclose percentage of portfolio, but it's enough to be painful if RIM gets wiped off of the face of the earth. I like to concentrate my positions.

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/for-all-of-you-sears-holdings-longs!/msg69125/

Pabrai's letters aren't available on the Interwebs, are they?