RRJ

Fairfax is doing a lot of acquisitions of tuck in international insurance operations. Growing the float is undoubtedly a good thing, and I suspect the international markets are fair less fully valued than domestic insurers, with more room to run as more Asian economies grow and need more insurance. So seems great to me if they can get the underwriting profit where they need it, and they appear to be doing much better at that as well. But what are the added risks in buying international insurers over domestic ones? There has to be incremental risk to this above what Berkshire faced earlier on in the float growth stage, though it ended up huge in international insurance obviously.

I'll ring in just to say I agree with everything cardboard has said on this thread. I think it is very arrogant to think that such a large number of your countrymen have no point and must be morons, and leave that as your explanation. It takes a real intellectual snob not to at least see some reason behind the big swells of public opinion. No one is so smart or so stupid as to be 100% right or 100% wrong all of the time. Ask yourself, what need of the body politic is being filled by the Trump phenomenon? It may not be your cup of tea, and it might not be pretty, and it might have no class, but it is reality and it is big, and if you add Sanders' votes to it, it is about double that number that are sick of the status quo, but who are more PC minded. People are sick of the existing political elite shoving how they are supposed to think down their throats, on both sides. Another way to put it: we have a jury system that empanels 12 people to come to very difficult decisions. It's imperfect, and it's often ugly, and often seems not to make sense, but if you know enough about what went on in the jury room, usually the jury has a valid reason for what they do. A presidential election is in effect a jury of a hundred and fifty million people. There is a deeper wisdom that, while not apparent to me, is there by its very nature. This should not be dismissed or ignored. To get back to value investing, that would be like ignoring the reality when your stock thesis turns out to have been wrong. It never ends well for you. Better to find out what element you are ignoring and face up to it and admit it too has some merit that you should have considered.

I agree with this and think there is something off about all this. I've been wondering if OPEC's announcement is a policy that Saudi Arabia dictated, or one that was putting a good look on a de factor policy because the other OPEC members (Venezuela, Nigeria) were basically up front telling the Saudis they were not going to curtail output. In other words, was this a strategic decision by the Saudis and OPEC members, or just making the fact that they can no longer exert control over their members look better by making it "our policy." Has anyone got any insight into this possibility and what it would mean if OPEC were losing control of its members (assuming it has not already)? I apologize if this has been covered already on this strand.

Interest rates were also significantly higher in the 70's and early 80's. Interest rates are at the lowest levels today since the 1930's. Your alternatives to GIC's, treasuries and corporate debt is equities whose annual dividend yields are twice as high, while actual yield on investment is more than triple what fixed income would get. Very big difference than equities trading at 3-4 times earnings in the 70's, but interest rates were at 6-7% or higher. Cheers! But this is why I am so cautious now. Interest rates ar at historic lows, and central banks are printing money, undermining the currency and ultimately ensuring that folks will demand higher interest to buy our bonds, eventually (who knows when). So if interest rates will have to go up sometime, and it will be the bond market that starts the process, doesn't that mean that equities will be worth less when that happens, along with every other cash flow stream? After all, interest rates were one of the reasons stocks got to 3 and 4 times earnings in that period of the 70s and early 80s.

I've been meaning to post this question for a while. I am wondering if the CPI linked derivatives are the best protection against deflation risk, since the governments control the CPI numbers. I remember Prem at the annual meeting saying that Japan experienced 14% cumulative deflation over the past 15 years, as did the U.S. in the 1930s Depression. However, I have seen figures that Japan's CPI deflation was actually quite mild, and the U.S. In the 1930S was tied to the gold standard and so might not be a good model for what would happen in a fiat currency deleveraging. Isn't it more likely that we will have asset price deflation in certain classes, and currency devaluation in nominal terms? Bernanke was very approving of the 40% currency devaluation that Roosevelt's administration caused to occur in the 1933-1935 time frame. I believe he would love to do that here, and has been reading from his 2002 playbook straight down the line. Given this, would't we have both deflation and inflation in the sense of currency devaluation, which the CPI linked derivatives would not really defend against too well?

Then why would you fall for the pitfall of trying to time such an event? It's just silly and not very value like imo. Timing seems hot lately, both for individuals stocks and the macro situation, and I don't get it. What if Buffett is at the helm for another 5 years or longer and IV nearly doubles before the stock takes a hit from this event? It's just not a valid argument imo. If we do drop 10-20% because Buffett suddenly resigns then I'll just sell some common and start buying long dated calls because it would imply BRK is trading at 50-55c on the dollar based on my estimates. Look what Apple's stock did after Jobs' resignation. I bet plenty of people thought it would go down as well and the MOS and general quality of the company is a lot less than Berkshire's at the moment. The longer it takes for Buffett to resign, the smaller the eventual opportunity loss will be in terms of performance as Buffett's extremely rare qualities will have lesser effect each passing year. And if you did a poll on the board some months ago I bet at least 50% would have believed Buffett would never buy back shares. If he's there 5 more years and the stock doubles, then my already substantial position will do just. As for "silly", I guess I'm just darn lucky I don't have to answer to you as to whether I'm a "good" value investor. Funny how the world works out that way. Jeez.

I'm a buyer of BRK at these prices, in addition to what I already hold. However, it occurs to me that something like this might be a preparation for a soon to be announced reduction in Buffett's responsibilities at Berkshire. At this point, with Buffett's retirement at least partially priced in, a removal of that uncertainty might well help the price, but I would still bet on a further drop in price if and when he reduces his responsibilities. I guess I'm just mentally holding some cash in preparation for that further opportunity to up my BRKB holdings to what I consider the full holding. Of course, pretty much everyone on this board knows that a reduction in Buffett's managerial duties (as opposed to capital allocation duties) would be pretty much meaningless to the company except for symbolic.

Could not agree more. It is staggering how much this has cost savers.

I found this far less good than Poor Charlie's Almanack. Not bad, just less good. It's kind of a compendium of Munger and others' theories, interspersed with educational vignettes from the author summarizing points. Not necessarily the most fluid book either. Kind of jumps around in my opinion. Still, interesting and worth reading for the review of Mungers' principles and those of others.

Do any of you more knowledgeable folks have the feeling that the fed could be buying stocks or futures directly as a way to bolster the market? This would ostensibly be to increase the wealth effect and consumer confidence, to help stave off deflation. I realize this would be somewhat unprecedented, but Bernanke at least hinted at such "other tools" in his 2002 speech, and Einhorn has repeatedly stated that the fed is "obsessed with the stock market" (see Charlie Rose interview).

Yeah,I think they did not catch this reference to another complaint they recently filed. Be careful using forms. Boy that looks bad to a law clerk reviewing the complaint. Cookie cutter class action.

It seems to me that anyone who posts things out of consensus on any blog is usually labelled "a troll" and dismissed out of hand. This strikes me as a form of confirmation bias and exclusion of anything other than the groupthink. It can, on occasion, be seen as an ad hominem attack rather than a legitimate willingness to debate the points raised. I could be wrong -- I'm certain there are trolls around. I just don't think I've seen one posting here lately. I don't see any ill will on either side here, just honest disagreement and a feeling of not being heard properly and struggling to get one's point across. If it's annoying posts you object to, aren't there always going to be those, depending on your position, and how to draw the line? One man's annoyance is another man's confirmation that at least he is not alone in a world that stopped making much fiscal sense a long time ago. My opinion.

This is a very good point. There is no way these two areas could continue to raise prices like they have if they were not subsidized so heavily. It seems like most things government touches end up like this. It's the law of unintended consequences on steroids. Politicians try to " help" a bad situation and it always makes it worse. Yo now have a whole generation of college and grad school graduates who have leveraged their future with student loans that are subsidized by the government, and the schools were therefore able to keep raising tuition FAR in excess of the rate of inflation.

Just so we all know how "crazy" and "irresponsible" and "uncompromising" all the House Republicans are, here is Harry Reid talking in 2006. President Obama said the same exact thing. http://www.youtube.com/watch?v=ELkbDdPeL7I&feature=youtu.be Where you sit depends entirely on where you stand I guess.

I do not like to talk politics on this board, because I do not see that as its primary function, and I do not see people swayed by each other much on political issues -- they convince themselves or they do not get convinced, so why poison the debate. That said, political and macro issues today are very important for investing -- 2008 proved that to even the most hardened bottom up investors. I have noticed though that whenever anyone espouses anything remotely conservative on this board, there is a pretty much uniform gang up from the other side, with a few of them adding that the poster should not post political commentary. That seems like being a bit of a last word freak to me, and not wanting opposing viewpoints to be heard. I'm conservative fiscally, but I always start from the premise that 50% of my fellow citizens cannot be completely without a point. I would hope others would give the same courtesy to Southern Yangee, and Myth, and all the other viewpoints espoused. If you don't want political thoughts on this board, just don't read them. As long as people are courteous, I for one see no reason to shut down opposing viewpoints.

I'm a bit confused. The Barron's article and others talk about their trouble in getting the shares issued, and having to raise less than they wanted to, but then you read that the issue was 21 times oversubscribed. Huh? http://www.bloomberg.com/news/2011-06-23/buffett-backed-byd-online-offering-21-times-oversubscribed-1-.html What kind of gamesmanship is going on with this? What does this mean for the Shenzen market as a whole? Here is one interesting article that really does start to get to the heart of the questions needing answering in order to find the likely winners in the competitive battery space: http://autonews.gasgoo.com/commentary/a-battery-of-questions-for-electric-vehicle-invest-110621.shtml On reading that article, and trying hard to be fair-minded, I do see BYD as doing pretty well on that list of requirements, and the list makes sense to me. They are one of the few battery makers working hard on all those categories, and making progress to prove their technology. This keeps me intrigued, but picking one of the winners in a crowded field has always been at best intelligent speculation to me. We holders have had our asses handed to us in BYD this year. But then shares are up 10% over past 2 days. I'm starting to think this is "Welcome to Investing in China." Reading "Mr. China", and I am becoming even more aware that Westerners have no real clue about the Middle Kingdom. Disclosure: Long BYD, but with awareness that this is beyond my circle of competence.

Agree with Kraven on this. One counterpoint would be to think about what his analysis would do if a parcel of real property were owned by 1,000,000 different people, who then delegated management of the parcel to a board of managers. Under his analysis, he'd get the same diluted ownership results -- that is, the ownership itself is diluted, but the ultimate incidents of ownership still adhere to the 1,000,000 owners. They've just opted to delegate certain of those rights in order to make the thing work. So, is he really suggesting that no one owns anything? If I time share my car with 20 other folks, do we no longer own it because we lose certain exclusive rights to administer a numerous ownership structure? This professor is pretty obviously bending concepts to meet his preconceived agenda. There is a name for that -- bad scholarship.

Well said. That about sums it up. I just keep reminding myself as it trends down and I nibble a bit more that this is a bet on Wang and his vision. At these prices, the bet is a good one, but it is still a bet on him and his abilities as a manager. I don't know anyone that's got a stronger record of judging people as Munger - notwithstanding the recent Sokol debacle. He could be wrong but he's not out in left field judging by Wang's track record. I do agree though -- the multiple here is very reasonable for a company with a strong track record of understanding the Chinese market as well as foreign markets. You're getting all the more risky future businesses more or less for free or very little, as the conventional car and handset parts supply businesses come darn close to justifying the current price. I like those odds. This is a mispriced horse with a 1 in 2 shot of coming out with a win, place or show, and with odds marked at like 5 to 1. Wonder if Sokol will buy in personally now that he's not constrained by all those pesky no-trade lists. He knows the company better than most having been on the board and done Berkshire's diligence.

Famous Milton Friedman story: "At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.” Original source for quote is here. http://tutor2u.net/blog/index.php/economics/comments/fantastic-video-clip-on-the-ideas-of-politicians-vs-economists/

I use that term because I see risks beyond what I normally require for sound investment and want to keep the holding separate in my mind as a more aggressive holding: (1) political risk (though I believe BYD is by far on right side of the political equation for Beijing, and in fact the Chinese government's policies are far more likely to help them than hurt them, there is still heightened political risk here. I do note however, that the confiscation due to land zoning violations turned out as I suspected it would -- the government ended up returning the land and factories, rezoned for commercial factory use, with a $9,000,000 fine. That speaks volumes.); (2) country risk (China could be in bubble territory that could crimp domestic demand for consumer products (but here BYD's low cost structure ameliorates that risk in my mind as well); (3) technology risk -- technology changes. The biggest risk is that you are attempting to pick a winner with a relatively short term track record in a fast-changing industry(ies). I think given their low cost business model, and focus on building brand is where the moat will be eventually, but that is more risky than buying a business with a well established moat that has been in existence for 20 years already and evidenced by ROE above 25% for that whole period. Greater risk, potentially greater reward, with some risk of permanent capital loss. Intelligent speculation at these prices, but still speculation.

JNJ below 60 - currently available. PEP a bit lower from here.

Oh and anders, thanks for your analysis of current multiple, which I think is approximately right and insightful. It is a fair price for the current business, which is growing at a strong clip even now, not even counting the many far-reaching businesses that Wang has on the drawing board. To me, that's the downside protection - current price is justified by cell phone and conventional car businesses. You get all the solar and wind storage utility battery business, appliance businesses (whatever those turn out to be) and electric car business for free essentially in my mind. Any one of those could be a home run. And it's nice to have a stock that is not very correlated to the US and Western markets. Well -- it's nice unless the Western markets are going up and BYD isn't!

Nonprofit corporations are creatures of state law. Most model act states will have similiar nonprofit corporation statutes but California probably is not one -- it still probably follows the pattern. Basically, the nonprofit statute will provide for where the assets can be distributed upon liquidation. Usually the list is narrow -- to another nonprofit entity, sometimes limited to another nonprofit with the same or substantially similar eleemosynary purpose. Here, a hospital nonprofit would first pay off all liabilities, and then would probably need to find a suitable entity to distribute its leftover "equity" assets to. Probably another nonprofit hospital in the area. This is a highly simplistic analysis, and a lot depends on how the funds are held -- in restricted endowments? in general accounts? Also, nonprofit hospitals have stretched over the past 20 years into many areas of for profit behavior that are related to their mission, and many of these assets can be or even must be separated out from the true nonprofit assets. Finally, note that an entity can be a nonprofit under state law, which means it is not taxed on its income for state law purposes, but this does not guarantee at all charitable status under US federal law, which requires that you qualify as a 501c3 entity in order to get the doubly good tax treatment of not only not being taxed on income, but also allowing donors to deduct contributions. A nonprofit hospital would almost certainly qualify as a 501c3 though, so this is probably not an issue. UBTI -- Unrelated Business Taxable Income, will also be an issue here -- the business subsidiaries and related affiliates that do business in fields unrelated to the primary field will be subjected to UB taxes. Hope this helps some.

I think the unusually high number of investments made in 2010 also hurt profits but will allow for future growth and vertical integration that will ultimately help margins return to previous levels. I think this company is valued as a conventional car company, when it is so much more. Wang refers to conventional cars as essentially lawn mowers with a bench attached. That's just a means to get into car business because to wait until electric cars are viable it would be too late. This is just a stepping stone phase. Beijing just exempted electric cars from the lottery system required to get a license plate there (instituted earlier this year). Beijingers will be forced to buy electric vehicles in droves. Only a few companies are truly ready to supply those and BYD is one of the few domestic companies able to do it. I can't see how this won't help them move the e6. Wang Chuanfu has said that the main driver of China's need for electric vehicles is allevation of reliance on foreign oil. It is a national security issue for them, as well as a pollution one. So it takes 9 guys sitting around a table in Beijing to force the changes necessary to fix this problem as opposed to several election cycles and changes in attitude in the West. I believe strongly that electric cars will truly take off first in China and that the Beijing government will ensure that domestic companies are given advantages. Wang's reasoning for getting into US now is also interesting -- the main reason they want a US presence in the near term is to increase credibility with Chinese consumers back home, who want to buy cars that meet US standards. Finally, BYD is attempting to create products for the new middle class -- this is creating new markets, not just vying for market share in the old markets. He is focused on the consumers that now do not buy things like cars and appliances but want to. They can't spend $700 for a notebook, but can spend $300. Can't spend $600 for an air conditioner, but can spend $200, especially one powered by solar in part or fully. Low cost with respectable quality. This I think is how you build a respected brand in China that has real loyalty among consumers. Long-term strategy a la Phil Fisher. Still speculative, but I think highly intelligent speculation with very high upside and little downside at these prices.

According to "There's Always Something to Do" about Peter Cundill, which I recommend to people (as others have), Peter Cundill struggled with the sell strategy for quite a while in managing funds. He finally settled on a rule that the fund would sell half of a position whenever it doubled, essentially leaving the remaining half at the discretion of the fund manager / main proponent of the investment. In this way, they took the easy and quickest money off the table, increased cash position for next round and left discretion in the manager's hands to let the winner run if they thought it worth the continued risk. This is similar to something I believe Longleaf does, which they referred to in a recent annual report as "the quaint old school idea of selling half the position to take some chips off the table" or something similar. I think that was Longleaf. Perhaps Southeastern. There would be exceptions -- the truly forever type buy and holds perhaps. Also, might depend on the approach. Cundill was running a deep value approach fund, so he was not investing in the high ROE compounding machines. Also probably depends on whether funds are held in tax-advantaged accounts vs. taxable to a high degree. I've taken to using this approach for the underpriced but mediocre businesses, and using my Roth or regular IRA for those, while using a taxable account for the truly long, long term buy and hold compounders.