wabuffo

A preference for buying back A-shares? It definitely would be easier to spot the volume increase if that's what he targets. wabuffo

If Canada dismantled its supply management system, wouldn't the center of gravity of dairy production move west where dairy farming would be lower cost due to land availability/herd size scale advantages? I think this as much an East/West issue as a North/South issue. My own 2-cents is that Canada would be world-competitive in dairy production but it would become an BC/Alberta/Sask. industry and not a Quebec/Eastern Ontario industry anymore. Much like the US where California/Idaho dairy farms are lower cost milk producers vs Wisconsin/upstate NY. Of course, its never gonna happen in our lifetime. wabuffo

I think its important to distinguish between owners & business models that show zero/negative GAAP profit and zero Taxable profit (from an IRS POV) but generate large amounts of positive Operating Cash Flow during their rapid expansionary growth phase. Bezos/Amazon (large positive cash inflows from working capital) and Malone/TCI (positive cash flow used to finance cable company acquisitions for additive synergies) are good examples that are/were both misunderstood because of this focus on GAAP profits by traditional analysts. These both had inherently profitable core businesses but felt the opportunity to grow rapidly was more important strategically than showing a GAAP profit and paying taxes. A business that loses money but also shows large cash outflows on an operating basis is still a bad business and can only expand to the extent that debt/capital markets remain open to it. That's not to say it can't work, but the failure rate is much, much higher than companies with "profit-less", positive cash flows. wabuffo

Summary: 1) Buffett issued (ie, sold) overvalued BRK shares (instead of selling overvalued KO, G) to buy fair-valued Gen Re (an insurer with basically a big bond portfolio). 2) After the Gen Re purchase, Buffett had exchanged overvalued assets for fair-valued ones and reduced equity % of BRK's portfolio from 80% to 60%, IIRC. He didn't sell his overvalued KO, G stock directly, but reduced his exposure to them in a tax-free, value-added way (though Gen Re did end up creating some headaches for him down the road). wabuffo

Where are you seeing that? wabuffo

Thanks Gamecock! wabuffo

DJCO 10-Q is out: Confirms that Munger sold 54,900 PKX ADR shares for $4.044 million (@ $73.72 per share). He also spent $10.977 million on one or more common stocks. Since the 13F-HR did not show any other position changes (besides PKX) reported to the SEC - and Charlie didn't receive confidentiality for any new positions -- it's obviously shares purchased on a foreign exchange. wabuffo

BTW - its a small position, but based on the new 13F-HR out today, it looks like Charlie sold 85% of Daily Journal's Posco ADR holdings duriing the most recent Q ending 12/31. wabuffo

I think you also need to adjust for taxes on the appreciation of the common stocks and bond of $49 million. Based on your calculations, EV of the core biz would be closer to 150 million. wabuffo

Munger's doing nearly 40% returns (~37-38% CAGRs) with small sums (>$50 million of cost basis) at the Daily Journal since changing the investment strategy in early 2009. And he's not buying small caps ("Fortune 100 companies", etc). It has been a good period to own stocks but even so, he's beaten the broad averages handily (S&P 500 Total Return, Russell 2000). Imagine if he wasn't a billionaire and was a little hungrier.... wabuffo

I doubt it since Munger spent $11.1m buying them. ;D wabuffo

I think this it. From the 2005 y-e 10-K (end of Note 6): http://www.sec.gov/Archives/edgar/data/1310067/000104746906003414/a2168332z10-k.htm and in the next year's 10-K, a new subsidiary appears (KCD IP, LLC) and this additional disclosure: http://www.sec.gov/Archives/edgar/data/1310067/000119312507066067/d10k.htm I believe this section has been in every 10-K since. wabuffo

FWIW - you can also isolate Wesco holdings (ie, Munger). If you mark up the holdings that are keyed as "4, 3, 17, 19, 20, 21" - those are the WSC/Munger holdings. I've verified this by adding up the market values and compared them with WSC's disclosures and they cross-check. Basically Munger holds a concentrated portfolio at WSC of WFC, USB, KFT KO, PG, AXP, JNJ and GS warrants. So there you go! You can now update the article and show Simpson, Munger and Buffett side-by-side-by-side! wabuffo

Berkshire's book value grew because of the acquisition of Burlington Northern and the $14.8 billion of goodwill added to its balance sheet -- rather than due to its stock portfolio during the six month period you cite. A big acquisition tends to make BRK's book value appear to grow rapidly during the period that the acquisition is added to the balance sheet. This is because BRK issued shares at way above book value to pay for it and the value of these new shares were added to shareholders' equity. When you issue new shares at multiples of book, book value per share increases but economic value may not have. (even Buffett has said that he paid a full price for BNSF -- though of course Buffett's track record says that he gave up less value than he got.) wabuffo

I like it because of its rapidly growing stored value/open-loop prepaid card business. Open-loop prepaid is basically a debit card that can run on the VISA/MasterCard network or at ATM's. But unlike traditional debit cards, its pre-loaded and is not tied to a bank account. There are many uses for it and its the fastest-growing segment in the bank payments sector (though from a small base). Its a very speculative pick and I wouldn't recommend it unless you are comfortable analyzing banks. wabuffo

Well unlike Japan - much lending was done, not by banks, but the shadow banking system via securitizations and captive/non-captive finance subsidiaries of manufacturers/retailers. Much of that has disappeared -- eg, mortgage, home equity, new auto loans, used auto loans, student loans, jumbo mortgages, mezzanine financing, DIP financing, etc.... Plus -- two of the biggest banks (Wamu, Wachovia) disappeared -- not many big Japanese banks folded, IIRC. I actually think its quite the opposite -- big banks is where you want to be in 2010. wabuffo

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/14128 You can view the idea under guest access (since the writeup is over 90 days old). wabuffo

I thought this was a pretty good article that describes the problems with health care - to wit, any system where the consumer isn't the one buying the service directly always has trouble with high cost, poor quality and poor service -- whether its a private insurance paid market or govt-paid market. wabuffo Some excerpts: http://www.theatlantic.com/doc/200909/health-care/2 And...

Its not recurring income -- the MSR fair value goes up and down depending on interest rates, prepayment speeds, etc. As stated WFC hedges some of that (primarily with interest rate swaps/caps). You can find the last 5 quarters data on p. 42 of their earnings release. https://www.wellsfargo.com/pdf/press/3q09pr.pdf For the latest four quarters the net change in market-related valuation changes to the MSRs + economic hedges was: 1,527 1,031 875 (346) ------ 3,087 So roughly $3B on a rolling 4 quarters basis. MSR accounting is tricky because the value of the fees that WFC receives as servicer are capitalized over the life of the mortgage. A lot of assumptions go into deriving that value. One thing I look at is the run rate of actual servicing fees (from the same table I referred to above) which in WFC's case for the last 4 quarters is $3.9B. The total value of the MSR at the end of the Q was $14.5B -- so the avg life of these mortgages is assumed to be 14.5/3.8 = 3.7 years duration which seems ok to me. The other way I look at it is to factor out the non-service fee portion and look at what all of these valuation changes/hedges/other accounting adjustments/amortization are worth. Total rolling 4 quarter servicing income, net for WFC was $3.429 B -- that includes all of the fair value/hedging/amortization adjustments. Compare that to actual 4-quarter servicing income of $3.897 B -- that means all of the accounting for fair value/hedging/etc was a negative $468m to PPPT. $468m on a total PPPT of $40B isn't worth worrying about. That's not to say the adjustments aren't something to think about. If rates rise and originations fall, then its likely WFC will see losses from its hedges -- but then prepayments will slow, avg duration of mortgages will stretch out and the accounting value of the MSRs will go up. Still overall, I don't think there's any mischief here in the MSR accounting. wabuffo

I think Bove was confused with his claim that WFC made $3.6B due to a hedging profit on the mortgage servicing portfolio. Yes WFC booked a $3.6B gain from their MSR hedges but that gain has to be looked at as an offset to their $2.1B decrease in the value of their MSRs. So there was a gain, but it was a net gain of only $1.5B gain -- not $3.6B as Bove claimed. You need to look at both halves together as WFC hedges their MSRs primarily against changes in interest rates. https://www.wellsfargo.com/pdf/press/3q09pr.pdf p.7: In the context of a quarter where PPPT was $10.8B, you have to put that $1.5B in context. wabuffo

Well sentiment is just another way of saying "Mr. Market". In other words, gold's price is a real-time market assessment of the value of currencies in relation to gold. Market pricing, to be sure, can get out of whack occasionally, but I believe its generally efficient. i.e, in the short run the market is a voting maching, in the long run its a weighing machine and all that.... I think you have to believe that like the stock market, Mr. Market occasionally gets it wrong but generally gets it roughly right. Gold's key attribute is its absolute stability relative to almost any other commodity (whose inventory reflects consumption levels that keep the annual supply/above ground inventory ratios at much, much higher ratios than gold's ratios -- eg 1-2% for gold vs say petroleum which is often much higher than 100%). Gold's stability is what enables its virtue as a store of value relative to currencies. I do agree that gold's supply is probably not keeping up with world GDP -- so its price should rise slightly over time (perhaps 1% per year) relative to a theoretically perfectly stable currency to reflect its inventory growth being slightly less than long-term world economic growth. Again - I'm not saying gold is perfect, but its better than comparing currencies to one another since they are all depreciating now -- just at different rates. But very smart investors with good long-term track records like Paulson and Einhorn are buying gold these days so it depends how you feel about their "voting records" as a measure of their "sentiment". I think its generally a problem for the world when money moves from productive capital investment to gold (which is about as unproductive an investment as one can imagine). Its not healthy but its a signal that historically cannot be ignored. For example, gold moved out of its historical range of $275-$400 per oz where it had stayed range-bound from 1982-2004 in late 2004, early 2005. It quickly doubled at a time (2004-2007) when housing prices in the US boomed and CPI seemed to stay low. And yet that "sentiment" pouring into gold was a foreshadowing of problems ahead. As it turned out, US dollar liquidity pouring out of the US domestic market into foreign hands (Middle East, China) combined with investment banks getting the SEC to loosen their leverage constraints (via the SEC's re-write of the 2004 net capital rules) created an environment where that liquidity poured into US house prices. Gold's price rise from $350 to $800 during that same period was a huge move and showed that gold was indeed very sensitive to changes, not in its own supply/demand characteristics, but changes in the supply/demand of the US dollar in which gold's price was being quoted. None of the traditional measures (CPI, Treasury market yields) signalled this -- but gold did. After the turmoil of last fall and the epic battle between the Fed, Treasury and the emergent debt deflation during the summer of 2008 in which gold fell from $1000 at the time of the Bear Stearns debacle to the low $700s in November (signalling indeed a deflationary spiral was beginning) -- gold is now firmly on the upward march again. That is signalling surging liquidity again -- where is that liquidity going to show up (besides in gold's price), I have no idea. But my guess would be that it's not good news and that we are going to get reacquainted with the misery index again. wabuffo

Because the total above-ground inventory of all gold ever mined is around 158,000 tonnes. As you can see from this graph, total annual output from mining activities is 2000-2500 tons and is steadily rising (but no big spikes in new mine output). As such the annual supply of new gold is only around 1-2% of total above-ground inventory. http://upload.wikimedia.org/wikipedia/commons/a/aa/Gold_-_world_production_trend.svg Demand for gold is about the same. That's why gold's value is so stable relative to any other commodities. Its because gold's annual new supply/total inventory ratio is the lowest of almost any other metal or commodity. Its always possible that in the short term, gold's price could also be volatile as could happen in any market where short-term prices reflect the market as a voting machine. If gold supply is rising about 1-2% per year and world GDP is rising 2-3% per year, then gold's price should rise a bit every year due to its relatively scarcity in comparison to the size of the world economy. So probably a bit of gold's price rise over the last 10-15 years is due to its growing scarcity -- and not -- currency debasement. But in that case, gold should be at maybe $450-$500 USD per oz. FWIW -- its an imperfect measuring stick in an imperfect world, but gold is the best measuring stick we got. wabuffo

Best way to value a currency is in relation to how many ounces of gold it will buy. Gold isn't perfect but its own supply/demand characteristics are so stable that any change in gold's price is more a function of changes in the underlying value of the currency gold's price is quoted in than changes to the demand/supply of gold itself. A corollary to this point is that if you take currency out of the equation -- you can also get an insight into the "barter" price of other commodities in relation to gold. For example, the relationship of a barrel of oil to an ounce of gold has been more stable (with some volatility) than the price of oil expressed in US dollars. This helps one to understand how much of oil's rise in the last decade has been to a fall in the value of the US dollar than to any increasing scarcity in the supply of oil. (hint -- mostly due to the fall of the US dollar). Again -- measuring stuff by using gold as a "currency" isn't perfect and you have to look at longer-term trends rather than daily or monthly relationships. Gold is as close to a North Star as you can get in this imperfect world, though even the North Star has a "wiggle" in its position in the sky. A final point about taking the US dollar out of the equation. Another interesting viewpoint is measuring the price of "stuff" not by the price measured in a particular currency, but rather than a unit of labor (eg, what an hour of labor will buy). By this measure, you can get a sense of the growing standard of living over time that becomes obvious when you measure what an hour of labor buys these days vs 20, 50 years ago. It'll be interesting to see if this trend continues or not in the future. I sure hope it does. http://www.dallasfed.org/fed/annual/1999p/ar97.pdf wabuffo

In the grand scheme of things, having to pay capital gains taxes is what I would consider a high quality problem to have.... wabuffo

2008 -- up +10% 2009 -- up +95% thru Sept q-end. I'm more proud of 2008 than my 2009 returns (see my dart-throwing monkey comment in the Pabrai thread about the avg stock in 2009 being up 80-100% give or take thru Sept). I don't short and generally stay long with maybe 10% or so in cash (this year that 10% is in GLD). What I do is make sure 25-50% of my portfolio is long in special situations -- (liquidations mostly whose performance is independent of the market). In 2008 I had maybe 40-50% of my portfolio in FTAR, ECRO, MAIR (all liquidations in some form) plus BUD (which I added to in October when its arb spread blew out). While the general portion of my portfolio did about as well as the S&P, my special situation portion outperformed and allowed my total portfolio returns to stay positive. wabuffo