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

Sorry don't know any sources for Canadian court filings. wabuffo

what's the company name? wabuffo

Get a PACER account. You can access court dockets for the US Federal Court system (though you sometimes pay a per-page download fee). Its vital if you are following companies in Chapter 11 or even locating civil cases (ie, lawsuits). For example, one of my micro-caps (ECRO) was involved in a lawsuit with Bear Stearns but issued very little info via their financials. With PACER, I could follow the cases via the ongoing legal filings and judges' rulings over time. (the good news is that ECRO won a 15-cent per share cash settlement and are distributing 12-cents this month -- not bad for a 4-5 cent stock!) http://pacer.psc.uscourts.gov/ wabuffo

The Wilshire Equal-Weight 5000 index was up 15.8% in September and 36.0% in Q3. This is an equal-weight index of ~7000 public stocks that gets re-weighted monthly IIRC -- so its an indicator of how the average stock is performing. Since most stocks are small caps/microcaps/nanocaps -- I use it as a short-hand indicator of how one would do just throwing proverbial darts at the stock pages. (ie, the famous Forbes magazine dart-throwing monkeys from the late 60s). http://www.wilshire.com/Indexes/calculator/ Year-to-date this index is up a whopping 83%. From March thru Sept, the average stock as measured by this index is up 113.1%. If you exclude the top 500 mkt cap stocks (via the Wilshire Equal Weight 4500 Index) -- you're looking at +120% from March to Sept 2009. So anyone who basically went all in with a basket of 8-10 micro-caps during the early March lows is probably showing 90-130% y-t-d returns and is thinking they're a stock market genius when in reality they're just a dart-throwing monkey. ;D In reality, most small caps got crushed in the credit panic of late 2008 and thus were the ones mostly like to bounce back strongly once that credit crunch eased. I think these results just show that most investors who panicked in late 2008 or late Feb/early March 2009 did exactly the wrong thing by getting out. Those investors who stayed the course are now glad they did -- and any investors who were fortunate and wise enough to put money to work in the early part of this year are really glad they did! wabuffo

Actually it looks like he bought WFC during the early March lows (Buffett was also quoted on CNBC that if he could have put 100% of his money on one stock it would have been WFC at that point in time). Cost basis.........$15,501 m (intra-quarter) Mar 31 mark......$24,713 m (+59% gain from cost) Jun 30 mark.......$41,126 m (+66% gain from end of Q1) WFC at $ 9.00 in early March bank stock panic WFC at $14.24 at the end of Q1 (+58% from $9) WFC at $24.26 at the end of Q2 (+70% from end of Q1) I've run screens and can't find any stocks that would match both the Q1 intra-quarter gain from the low for each stock in Q1 PLUS the Q1 to Q2 gain. No way of knowing for sure until DJCO discloses what it owns, but it sure looks like it could be that Munger loaded the boat on WFC at the March lows. If true, then there's a further 12% gain in this Q so far at current prices for WFC. wabuffo

I think this book provides a good history of Singleton/Teledyne: http://www.amazon.com/Distant-Force-Teledyne-Corporation-Created/dp/097913630X/ref=sr_1_1?ie=UTF8&s=books&qid=1240868683&sr=8-1 IMHO, one of the greatest titans of American business (yet least well-known) was Henry Singleton of Teledyne. He was an engineer by training and had several patents so he was self-taught when it came to business and capital allocation. Growing up he won the 1939 Putnam Intercollegiate Mathematics Competition Award (folks who win this thing are off the charts in terms of IQ and smarts). What made his operating style exceptional was that he ran hundreds of companies under the Teledyne conglomerate structure -- many of which were industrial companies -- yet Teledyne was extremely stingy with capital spending. His approach was to tax subsidiaries for their capital at high rates. Yet Singleton's industrial group often earned 60-90% returns on net assets employed. I truly believe this operating model can be very successful and yet is almost completely ignored in the corporate world. From what I've seen the impulse/desire to grow is too strong to be overcome by business managers (no matter how poor the returns delivered on incremental capital spending turn out to be). Buffett admired him a lot and declared that Singleton had the best operating record in American business at the time. Its unfortunate that Henry Singleton is so misunderstood, is not followed widely and the only reference in modern business literature is in the "Good to Great" book as an example of "bad business leadership" due to the issues Teledyne had after Singleton stepped down. Not only was Singleton an excellent operational executive, he was a self-taught capital allocator (Buffett's methods weren't widely known and he hadn't started to write his letters to shareholders). He wisely used his high-flying stock in the go-go sixties as currency to make hundreds of acquisitions before turning around in the 1970s and buying insurance companies for their investable float (sound familiar?). When conglomerates like his sold at a huge discount to tangible equity value, he dumped bonds from his insurance companies and tendered multiple times to buyback his stock. I can't remember the exact percentage but I think he bought back something like 80% of Teledyne's common stock outstanding from 1974 through the mid-1980s via serial share repurchases/tenders often borrowing money when the tenders to sell to him were oversubscribed heavily. I wish business schools would study Henry Singleton a lot more and Jack Welch a lot less.... wabuffo

Go back further -- Teledyne's Henry Singleton had one of the very best capital allocation/operating records in American business history in the 1960s, 1970s and 1980s with the stock price appreciation to go with it. Like Berkshire, Singleton's Teledyne was a comglomerate of hundreds of operating businesses. Teledyne also had several big insurance operations at its hub providing float for Singleton's passive investments in other stocks. And it also could not survive when Singleton stepped down and ultimately broke apart. Harold Geneen and ITT may be a similar example though I'm not as familiar with that one. This is not a prediction about Berkshire, post-Buffett, but the history here of success beyond an iconic leader for comglomerates is not great. wabuffo