Crip1

"It really disappointed me when they became a bank holding company. Seems like crony capitalism and I wish Buffett had been more vocal about that change." John, can you help me to understand your concerns a little? I am not agreeing or disagreeing, just want to understand, that's all. -Crip

I also agree with much of what Mark Sellers stated in the speech, but not all of it. FWIW, here is my spin on what is needed to be an outstanding investor. Humility – I’ve said it before, but it bears repeating. The vast majority of the postings on this board show a high level of humility, a trait shared by the masters. Consider the Buffetts, Watsa, Templetons and others…they ooze humility. Buffett’s folksy quip of “When you see Ajit Jain, bow deeply” is cute but speaks to Buffett’s freely admitting the expertise of others. I work for a small company which is owned by a VERY smart man who is a terrible investor. Why? Well, there are a few reasons but one of the biggest ones is that he has an undying need to be in control presuming that he can do better than others. This tendency results in his inability to let others, such as his company’s management (including myself) make many decisions. This tendency hurts his ability to invest as he is not able to run the company in which he invests. He automatically assumes that he can make better decisions whereas most of the board members here acknowledge the superiority of Buffett, Prem, Berkowitz, etc. Also, a by-product of humility is constant seeking of knowledge. Realizing one’s limitations compels one to constantly seek to know more…reading and studying…becoming a constant learning machine. Mark’s #3 point parallels this. Analytical Ability – The most often thought of application of analysis is related to numerical analysis of financial statements, but analysis also relates to understanding of how business work, physics, human psychology, etc. I would argue that, while financial numerical analysis is important, that it pales to the ability to analyze facts and figures and separate them into what is important and unimportant. This is key in that for every investment out there, someone can give you 10 reasons to NOT make the investment. Where the successful value investor differs from the non-successful investor is that the former can separate the important from unimportant and assess the relative merits of an investment based on this analysis. Analytics encompass both point 4 and 6 of Mr. Sellers. Emotional Control – Let’s be honest, taking a position and seeing it drop by 20-30-50% is disconcerting at best and scares the living hell out of you at worst. The question is whether or not that emotion causes one to act irrationally. It was instructive to read this board over the past 18 months as the markets have plummeted. Those who had moved into cash calmly deployed when the time was right (give or take a few months) and those who did not move into cash (yours truly) calmly held their undervalued positions and/or re-deployed into more undervalued positions. The key…nobody freaked out. 5 years from now, that emotional control will have shown to pay significant dividends. Emotional control is what really drives the first and final behaviors on Mr. Sellers’ list. Of course, it is worth noting that several board members predicted rain a few years back AND built an ark! Confidence – This is the “table” which is supported by the three legs referenced above (Humility, Analytics and Emotional Control). If one has the first three, then more often than not there is a feeling of confidence. This confidence (not cockiness, but confidence) is key to maintaining the emotional control. See Selles’ point #5. I do disagree with trait #2. While one certainly needs to be focused, there is not a need to be obsessed. Others’ opinions may differ, but obsession is focus taken to an unhealthy level. Now, as this relates to Mr. Seller’s speech, I think he is right that there is a small subset of individuals who posess all of these traits. That is not to say that those who do not are not intelligent or will not be successful. It’s a matter of having the total package which applies to the art and science of investing. -Crip

We have read several rumors about what Berkshire/Buffett is doing or not doing over the years...I cannot recall any of them becoming reality. -Crip

This week, ORH.A Pfd is up close to 6% where the common is down more than 1.5%. Any thoughts as to why this may be? -Crip

Gaf, LVLT did not come up in this regard. Sam's statement's were the result of my question "What have you learned over the past year". His response revolved around making sure that the margin of safety is adhered to from a price perspective, from a "food chain" perspective, and from a financial strength perspective. My speculation here is that the mistakes to which Prem admitted (Abitibi and CanWest) were situations where the margin was not as wide as it needed to be. The one investment which Prem did trumpet, JNJ, does have a quite good margin from a Financial Strength perspective and, thought arguable, from a price perspective (Prem clarly said that JNJ has doubled their earnings in the past 5 years but their stock price has been flat...if that happened again, JNJ woulkd be selling at 6x earnings which he does not see happening). You know, there are more things that pop into my head every now and again....will do my best to consolidate them lest I end up posting 20 times to this thread. -Crip

Prem, when asked about further acquisitions, said that he was not against buying non-insurance companies, but his preference is to buy more float-generating P&C insurance (Packer pointed out Prem's desire to NOT invest in Life companies). This surprised me a little in that I thought that he would expand his universe of companies which would be wholly owned by the holding company. It seems that Polish RE and others like it are in his sweet spot which, upon analysing, makes sense. -Crip

Tariq, If he would have said that the institutional money was out due to economic fundamentals, I would have been fine. But the quote looks to me like they wanted to make sure that the market was going up before investing. The concept makes no sense to me. -Crip

http://finance.yahoo.com/news/NYSE-CEO-says-real-money-rb-14939676.html "The real money investors are still waiting. I think they're waiting, they're watching. They want to make sure that what we saw in March is real," NYSE Chief Executive Duncan Niederauer was cited as saying by the Financial Times newspaper on Thursday. "And I think once they are convinced, you will know it. The market will have a totally different tone to it." So...once the Dow goes up another 500 or 1000 the "real money" will finally buy in? Well, THAT makes sense. No reason to buy a stock at $25 when you can wait a few months and buy it at $30. I guess the people who bought during Q1 only bought with "fake money". Speechless. -Crip

Reflections from my first FFH AGM: First, Sanjeev is a very gracious host and I want to reiterate my appreciation for his making the effort to put on such a great evening on Tuesday. Dinner at Baldali’s was great and the conversation at our table and when Sam, Francis, et al showed up was terrific. It was great to meet several of the folks from the board there such as Al, James, Calonego, etc….wish I had taken a later flight home today so I could have met more after the meeting. The main points that I came away with from the dinner were from Sam. He remarked that the investing landscape had changed dramatically in that when trying to assign an intrinsic value to a company, the possible range of values had expanded dramatically. Example, (my paraphrasing) that if you thought that a specific company’s intrinsic value was, say, $100, you could reasonably presume that the IV was somewhere between $85 and $115. Now, considering the current business environment, the range of IV could vary to a much greater extent, like between $70-$130. What this means is that one needs to look for a greater margin of safety from a pricing perspective now than before. Again, when considering investments, Sam stressed that a strong balance sheet is imperative in this environment. Quality is vital and cannot be compromised upon. Also, echoing a theme from this board, one should move up the corporate food chain, the more senior the better. There are equity-like returns available from bonds but, of course, doing one’s homework is the key to make sure that if you buy a senior bond, for example, that it cannot be made subordinate by further corporate offerings. Regarding Fairfax, Prem indicated what I believe was spoken of on this board. Specifically, FFH’s equity investments are close to the BV, meaning that you are getting (my paraphrasing again) one dollar of a well run mutual fund AND all of the subs underwriting, and all of the other FI investments (Less the incurred corp overhead, debt service, etc) for each dollar of BV one purchases. I remarked to the gentleman next to me that this (FFH) was turning into a machine. Prem also said that while he is not against buying non-insurance companies, a la Berkshire, his preference is buying more float-generating P&C (Not Life) Insurance companies. There is a plethora of other items but those were the big ones in my book…I ask any other attendee to feel free to elaborate and/or correct as they see fit. My final thought on my first visit to the FFH AGM regards the individuals from Fairfax. After hearing Sam, Francis, Brian, Wayne and Prem speak is that these guys are not in any way, shape or form clones of each other. Different backgrounds and definitely different personality types to be sure but they all certainly sing from the same songbook of hard work, thorough analysis, integrity and humility. Everyone was quick to point out the successes of others in the management team rather than themselves. There is a quiet confidence (of course, kicking the market’s butt for the past 18 months may have a way of enabling this) about them which is really refreshing. No arrogance, no cockiness, much humility and a genuine sense of thanksgiving for their success. Oh yeah, the Baked Cheese Tortellini was terrific and I do not think that they bought more WFC -Crip.

Philippe, It is too bad you were unable to attend. I am jotting down some mental notes taken from the dinner/meeteing but in the meantime I do have a story for you. I was sitting across from a gentleman whose name escapes me. He is a lurker on this board who hales from So. California and manages his own money as some funds for others as well. After dinner was over he looked over at my nametag and said "You're Crip?"...apparently he was able to figure out that "Stephen Crispin" is "Crip". Anyhow, after I answered in the affirmitive he remarked "I agree with a lot of what you say. There's another guy, Partner24, who I agree with a lot as well". I resisted the urge to complement him on his character assessment talents and politely thanked him for his nice comments. So, in some small way, you were there in spirit. All the best. -Crip

I distinctly remember my father saying, quite definitively, that "The next car that I buy will be an electric car". That was in 1977! This idea has obviously been long in coming but I know that there is more than one game in town: http://www.teslamotors.com One of our vendors has taken delivery of one of these cars a few months back. He happened to be in town last week and we had a long discussion about it...his impressions: * The acceleration is remarkable...truly 1 to 60 in 4 seconds with little if any noise. He said it was hard to get used to not hearing an engine revving. Think of it like a quiet Golf Cart with substantially more horsepower. * The car itself is not opulent inside, but it is remarkably nice and drives nicely. * The car travels more than 200 miles on single charge before the battery is sufficiently "low" that he would be nervous leaving his home. I cannot recall if this comes with the car, but he has a meter which effectively measures the cost to charge the car. He can go 200 miles on a single charge of less than US$2.00, and this is in Chicago where the cost of electricity is higher than the US average. * There was the need to do some retro-fitting to his electrical box in his house but nothing too costly. * The company is looking to put out a sedan which can seat 5 comfortably. * Bottom line, he loves the car. Partly because he is into the "green" aspect of it, partially because it is new and cool, and partly because the car is simply nice. When we consider that we are really early in the lifecycle of electric cars, it is really exciting to think about what this is all going to look like 5-10 years down the road. New technologies morph and adapt at remarkable speeds (Think computers, mobile phones). The early mass-produced models are good, and it only stands to reason that each new year will bring about significant and positive changes. From the perspectives of technology and the impact on our planet, this is really intriguing. From an investment perspective, though, I am not seeing what Buffett is. I would guess that this is a bet on the jockey because I do not see how this is an unassailable moat by any stretch. We really do not see where this is going, or if some genius in Mongolia or Haiti will improve on what either Tesla or BYD has done. I would have thought that level of uncertainty would have compelled Buffett to pass on the investment. But, far be it for me to question Warren because he obviously sees something that I don’t.

Sanj, No issues getting into the BRK site from my hotel either...perhaps you should move hotels! -Crip

JEast, Any other ideas? I'll be just off of Yonge Street and College Street. Have not been to Toronto for about 20 years but seem to remember a place or two on Yonge Street between my location and the Eaton Centre. If you have any ideas, please reply. If not, we'll just see you at the dinner. -Crip

AC, That is next week... -Crip

JEast, Fairfax and investing talk and pints. Twist my arm why don't you? After flying from Dallas to Toronto via Chicago, I am sure that a Pint will be a welcomed sight. Will see you there. -Crip

The idea of *economic* value seems closer to a fair assessment of value - as long as the holders of these assets don't cheat! That is the point, IMHO, that when the results of "cheating" for senior executives of corporations ends up producing obscenely-sized bonuses, then human nature and history clearly shows that cheating will occur. I remember Warren and Charley talking about derivatives years ago where, due to the complexity, both sides in a transaction could (and did) calculate that they both had unrealized gains on OPPOSING ENDS OF A TRADE. This is completely insane. So, we have to create an imperfect regulation (MTM) in order to stop cheating. You're talking about the bid. A more accurate analogy would be that some wacko owns 10% of your business and decides to sell 1% for $500. At that point MTM would say that the whole business is worth 50k. Oldye, I see your point but I see that as a very remote possibility. What I do see as possible is a friend of your wacko who shorts the hell out of your business (legally or otherwise) and then your wacko does his thing. MTM does allow for that kind of manipulation and likely others. So, how do we dissuade this? Enforcement with some stern-ass penalties would be a good step. Maybe we could create a commission to do this...a commission which would look over securities and exchanges. We could call them the Exchange and Securities Commossion. That would be a great idea. Of course, this commission would need to be above reproach and the individuals working there would need to be first and foremost concerned with the well being of the markets and not the major Wall Street Firms from whom they hope to get jobs in the future. But that would really be cool. It all makes me want to vomit. -Crip

Has anyone received the most recent OID? I've gotten through about a quarter of it and wanted to see if any one else was as impressed as much as I am. -Crip

Al, You very well may be right about this. It is well reported that the market turns before overall ecomomy and that may be what we are seeing. But...I HAVE NO EARTHLY IDEA. There are a plethora of factors at work here and I cannot tell how this will play out. 5-7 years down the road I do feel that things will be certainly bettter and will have returned to a sense of normalcy, but what these next few years look like, market-wise, I have no idea. Interestingly, I have been buying LUK (too early in retrospect in the low to mid 20's) and WFC (Luckily at a price closer to the bottom). -Crip

I loved Munger's response to the following question: Can you comment on EBITDA (earnings before interest, tax, depreciation and amortisation)? Munger: Every time you see the word EBITDA in a presentation, you should replace it with BULLSHIT EARNINGS, because that's what they are! Buffett: Yeah, why not put all expenses in the footnotes and say that "sales equals profits". Depreciation is real and it's the worst kind of expense. They will, as depreciable assets, need to be replaced. I've heard all about how MTM accounting caused in large part the financial turmoil in which we are now embroiled. I would argue that MTM simply enabled us to better see the financial turmoil. -Crip

Fair enough, my friend. All the best. -Crip

P24, Are you going to the FFH Shareholders Dinner week after next? If so, great...I'd like to smack you upside the head for that! Only kidding! ;) Thanks for getting my blood pumping and for helping me to realize how quickly I could calculate that the $250M would have meant roughly $14 per share... -Crip

Besides what has been mentioned above, I would recommend taking a couple of hours and driving out to Boys Town (The drive is rather short, but you will want to spend a couple of hours out there). Many folks have seen the Spencer Tracy / Mickey Rooney movie of the same name, but seeing the real thing tells a completely different story. This was not on our itenerary when we planned last year's trip but we had a couple of hours to kill before our flight and went out there on a whim. When we got home, we talked about Boys Town as much as we talked about the meeting. It is really something to see. We could not help bit draw parallels between Father Flanigan growing his creation and Warren growing his. Certainly different "products", but there are manyh similarities between the men and their vision/execution of that vision. You'll be happy you went. -Crip

"I don't think anyone cares whether he has a lisp or not. I'm pretty certain it doesn't bother Prem or anyone who knows him. Kind of stupid of the writer to say that." For whatever reason, the press likes to play up one's perceived shortcomings, not (IMO) to degrade the person, but to make them seem more human. You are right that I could not care less. As well, perhaps it is a reflection on society, but importance of integrity is minimized constantly in the press. I have seen perhaps 100-fold more references to Buffett's "home spun" nature than his integrity, and I really do not get it. The examples which are rampant today of complete and utter disregard for integrity would seemingly make integrity a more vital trait...apparently it is more important to let the readers know about a messy office. -Crip

I had a couple of questions when looking at this: 1) Were there other instances of massive short selling for firms which did NOT effectively go under? 2) Looking at this as objectively as I can, there is not CONCLUSIVE evidence of cause and effect? Now I would not ever take the side of illegal short sellers (naked short sellers) but can we state with 100% conviction that Bear or Lehman would still be going concerns had the short selling NOT occurred? I do not think we can state this with 100% conviction. The points made in the video are quite legit, but I would like to see this dug into even deeper. If the Hedgies do have the SEC in their pocket (which I believe is true), then it will take either a massive story on 60 Minutes story or a Moore documentary to compel the SEC or other govermental agencies into action. -Crip

My understanding is that AIG is pricing quite aggressively for the bigger books of business, which was their bread and butter in the not too distant past. Still, they are losing business because of it so it would not appear that all of the buyers out there are taking advantage of the fire-sale...they are losing business. My disclaimer is that this is a narrow view and should not be construed to be a universal truth. It would be instructive to get other narrow views on this to see if we can determine a trend. -Crip