alwaysinvert

I am currently struggling a bit with the decision of either going to school (late, I'm in my mid 20s) or just keep on managing the money I have earned over the last few years (+$1.5m, mainly through online poker, so I am no stranger to mentally strenous work with volatility and a fair amount of lonely work). The only thing I am truly interested in pursuing at this point in time is investing. I have had pretty good, market-beating, results over the last few years but am of course a novice compared to most of you. Sadly, at this point there is pretty much no possibility legally to try my hand at managing other peoples' money. I am asking to get some wisdom about the obstacles and routines of only investing for a living from some more experienced people on the board. Do you have an office away from home? Regular work hours? Are there some people who have had to go back to regular work because it was too taxing? All input is welcome.

Scania, Sweden

I think South Park called the top last night :D

I actually started rereading it again today for the umpteenth time. Can't remember the 2-week call option thing, though, so will have to get back on that. It's no daring guess that the competition has increased in spinoff situations, not as much because of Greenblatt's book as because of the rise of hedge funds. More money with fewer restrictions inhibits the institutional aspect of his argument for spinoff investing, which is the most important one. More of it may still hold true for spinoffs in smaller firms though, even if index fund selling is a non-issue in those cases. I have bought two spinoffs in the last two years. On one I made 50% in 6 months and on the other, which after almost a year still is in my portfolio, I am about break-even. I was a bit too eager to get in and missed the best bargain that the institutional selloff (micro cap company, spun off from a significantly less 'boring' parent) created. One of my other current holdings actually announced that they where considering spinning off a division which has triggered me into considering increasing my position. Maybe it's a bit speculative, but I'm pretty confident that the market will value them higher separately than it's doing now - and to me the stock is clearly undervalued. A more confined timeline for the possible unlocking of value can hardly be a negative. And spinoffs are, if nothing else, in many cases a sign that management is shareholder friendly. The stock trades at a p/e of 8 with a capital intensive but very high-growth business that has only just turned profitable for them (server hosting, managed services etc) and the other as an ISP and telecom provider for SME, which is a huge cash-cow but low to now growth, although there has been considerable margin expansion in the last few years. The telecom side is about 3.5x bigger than the hosting business at this moment. My view is that the telecom business is probably worth about 10-12 times earnings and the hosting business could be possibly be worth, considering they have made signficant investments in new servers which are to be opened very soon, a lot more than that. It may experience both growth and heavy margin expansion due to only now operating the current locations without considerable vacancies and still having depressed earnings in the reporting. Oh, and despite the company plowing some money into the server business, the dividend yield sits at 6.2% this year (net debt of a litte above half of 2011 earnings). I veered off quite a bit. Anyhow, this book is one of my favourites and probably the one I read most times, partly because it's such an easy read.

Maybe someone had the good sense to buy Scania, I know I sure didn't :D Valuations is starting to get a bit frothy up in Sweden at this point, so I am looking a bit at the continent atm. I don't usually delve into the large caps but doesn't it look like Telefonicá and Vivendi could be good values? They are both so diversified...

http://zimmer.csufresno.edu/~conniec/GroupThink.gif

If my nest egg was as small as his from the beginning I might have used some leverage, but never to that extent and obviously not borrowing from loan sharks. At least his gambling is rational in the sense that he cares about the odds, as opposed to the regular Averages Joes that are betting at the latest biotech craze or whatever. His risk of ruin has obviously been sky high, though.

I don't think anyone is questioning this, surely no one is saying anything else than that Apple will continue to grow in the short to medium term. For me this boils down to one question: which one is more likely, that Apple has changed the economics of the tech business for the forseeable future or that their current earnings is an anomaly and will revert back to the mean? As long as I don't see a significant moat that will change the product cycle of cell phones, computers and tablets, I have no way of knowing that Apple's revenues will be at the same level in 10 years and much less their earnings. Thus, I can only have the standpoint that the top dog in the hardware tech business will continue to change every few years.

I don't know if you are familiar with it, but the settlement in the EU antitrust case against Coke forced them, among other concessions, to make space for rival sodas in their own fridges in the supermarkets. That's actually a very fitting analogy :)

Same thing in Sweden, huge banks compared to GDP. Norway's bubble is perhaps the biggest of all. Last week, I attended an event in Stockholm where Robert Shiller to some extent talked about the housing bubbles of Scandinavia. Can be viewed here: http://storm.zoomvisionmamato.com/player/skagenfonder/objects/45caxywq/ Interesting enough even if you don't give a rat's ass about us Scandis :) Should be pointed out that Shiller only uses official government data for Sweden, which is a bit slower, and that the bubble may have popped now with price declines of ~10% in the last year, so about the same pattern as the graph of the different areas of Denmark in the link in OP.

Although all of the larger chain stores in the hifi and white goods segments seem to be struggling, at least some locally owned alternatives that have outsourced warehousing and distribution still seem to be hanging on (sometimes under franchised names) - despite higher prices than their megachain and internet counterparts. The numbers up until this point seem fine on some investment opportunities and people seem to appreciate the extra service, such as free installation, so I am beginning to wonder if there is something that I'm missing. I want to minimize my time browsing in stores and having to deal with salesmen and try and do as much shopping online as possible. Because of this my instinct is that they are near death even though they maybe haven't all started bleeding yet. So what do you think, will their time be up when the less computer savvy people get old and stop buying new LED TV's or do they actually fill some sort of purpose even for the younger generations (me being something of an outlier)? Is their added service enough to keep them going as customers such as companies need that? What am I missing here that actually allows these locally owned stores to live on?

My portfolio: -1.7% Index (SIXPRX): -13,6%

For an 8 year old, I'd probably say Wii. My brother's kid is 6 and loves Lego Batman and those kind of titles on the Wii (even if he is a bit young to handle all the puzzles). I think most good exclusive titles on Xbox and PS3 are generally too advanced (and bloody, if that's an issue) for a pre-teen kid and the Wii is cheaper. The Wiimote thing seems to be very engaging for kids, but if you are looking for deeper gaming experiences it's an unnecessary gimick imo. If sports games are the big thing then I would recommend Xbox because the controllers are better suited for that and the EA Sports titles are optimized for Xbox/PS3 and not for Wii. Online gaming has taken sports titles to a new level as far as I'm concerned. In that respect PS3 has an edge on Xbox since the online play is free. Super Mario Galaxy and New Super Mario Bros on the Wii are awesome titles for any age, though. I was 10 when i played Zelda for the first time but I reckon an 8 year old could handle that decently too. Haven't played the latest Zelda, though. I'm a huge former Nintendo nerd but only play Fifa on my PS3 and the occasional RPG on computer these days, fwiw.

Snowball, p. 343 As he had promised - but on a scale that might have staggered his partners, had they known - Buffett used the cash he got from the partnership to buy still more Berkshire and Diversified for his own account. p. 395 While he was buying, however, most of the stocks that Buffett had accumulated were faltering. As 1974 began, stocks for which he had paid $50 million had lost a quarter of their value. Berkshire, too, started to slide, down to $64 per share. Some of the former partners who had kept the stock began to worry about whether they had made a mistake. Buffett saw it just the opposite way. He wanted to buy more Berkshire and Blue Chip. But "I'd run out of gas. I had used all the $16 million of cash I got out of the partnership to buy stock in Berkshire and Blue Chip. So all of a sudden I woke up one day and had no money at all. I was getting $50.000 a year salary from Berkshire Hathaway and some fees from FMC. But I had to start my personal net worth over again from zero." He was now very, very rich but cash-poor. The companies he controlled, especially Berkshire Hathaway, had cash to buy stocks however.

I agree with that if the choice is either or. And I agree that it is folly for one to hold gold instead of stocks, generally - if you know what you are doing (that is indexing or have real skill). If you don't, I'm not sure the answer is as clear-cut. I think you will find that there actually are quite a few people who have been hoarding gold for 40 years plus, sometimes without even realizing it. Considerably more people than those who bought MCD or even a mutual fund 40 years ago and held. And considering the average investor has a markedly lower return than the market averages over that time, they haven't been doing too shabby compared to the best somewhat probable alternative (which in my mind is a closet-index fund with 1-1.5% fee). My parents found out after a burglary that their jewellery gold was worth tens of thousands, and they are middle-class public sector workers so that is real money for them. I don't think they are unique in that sense.

Right, so how many people bought those stocks 40 years ago and held? Even Buffett, the best of all time, wasn't able to hold on to GEICO and Disney for all that time, so why would we posit that an individual part-time investor could find some of the most outstanding companies of the century, deploy all their networth in them and be able to hold for 40 years? If that isn't hindsight bias, nothing is.

Obviously: http://www.youtube.com/user/SecretMillionaires

Like Greenblatt says, if value investing never underperformed there would be no outperforming over time. The fact that you could argue that it has underperformed in these last few years (although it certainly does not show in my portfolio) is no positive evidence that it is moot at this point. We all know how it all went down last time value was argued to be outdated and many switched to 'growth'. Macro is interesting but unknowable and now that everyones' heads are turned to it I find absolutely no reason to focus on it, just like I won't try and outguess the market on Apple's next quarterly earnings.

Over half my portfolio in sub-$50m market caps and over 2/3 in sub- $1b but I also own some BRK and another large cap. If I could allocate it totally freely today and had no liquidity constraints, I would be likely be more weighted towards large caps. But selling in the miniscule increments that you can get at this moment in time would probably not make much sense. High friction costs and I don't think the value difference is THAT big. Time will tell, maybe I'm rationalizing :)

It might might come in handy in the event of a future Burlington.

Absolutely agree. His original philosophy was right, his picks were wrong. Too many cyclicals and small caps in his portfolio in his portfolio. Wipeouts are the consequence of bad picking not diversification. I run a hugely concentrated portfolio myself, but I have to say that I find that a gross oversimplification. The size of the graveyard is unknown.

I seem to remember reading this too, but could you or anyone else point to what year?

No matter what angle I try to take, I always come to the conclusion that the multiples of Apple vs Microsoft should be switched between them. A multiple in the teens for a company with Apple's history is absolutely horrible and I really don't get what Einhorn et al. are thinking. I don't normally go short but buying long-running puts on Apple seems like a pretty decent bet to me, especially if you are already worried about hedging for deflation.

I'll heed Krugman's advice and beware of him.

The economies in North America are relatively good considering the trauma they've been through in the last three years. As I've stated for the last few months, North America is not going to see a double-dip...we are in recovery, albeit a modest one. The only risk is stupidity from Europe. If they do anything where they plunge into a severe recession, or worse depression, then that will drag everyone down a degree or more. But otherwise, as Buffett stated..."The natural juices of capitalism will do their magic!" Cheers! The only risk? I don't think there is a finite set of risks, to be fair. If there was, economic predictions would actually have some real value.