rick_v

SmallCap Platinum is a precious metal as well and its fundamentals too are favorable. The issue with platinum is that its not as ubiquitous as gold and its even more scarce so the distribution of the metal is not as robust as that of gold. I see Silver/Platinum/Gold/Copper as all in the same boat. Over time they cannot be manipulated by central banks and they are in constant demand or must be consumed (in the case of copper) by humans. Thus they are really the only true currency. But again I don't advocate buying the ETF's or straight bullion on any of these that is not how I generate alpha. There are better ways to gain long-term exposure!

http://news.yahoo.com/s/ap/20100827/ap_on_he_me/us_med_birth_decline_3

Good points, what many people don't know is that the US has the largest gold hoard out of all the other nations. That is if its all really there :)

I am going to give you all my thoughts on Gold and hopefully this can spark another good debate for the weekend. First let me start by quoting James Grant: What is a dollar? It's a testament to the world's abiding faith in the United States currency. We know what the dollar used to be: It was a legally defined weight of gold. And we know that that is not what it is today. The fact is that, today, the dollar is undefined and, like every other currency, uncollateralized. It is whatever Mr. Market says it is. That this piece of paper, or electronic impulse, of no intrinsic value is accepted the world over as a means of payment and a store of value must stand as one of the greatest and most improbable, monetary achievements of all time. What is the Gold Standard? The essence of the gold standard is the idea that in monetary affairs, too, the rule of law should apply. Money should be lawfully defined. The government that issues it should protect and defend that statutory value. A gold-standard country should balance its external accounts. No nation, however powerful, should be permitted to consume much more than it produces for years, or even decades, on end, as the United States has been privileged to do under the post 1971 non gold standard. Now Here are my thoughts about Gold. Gold is the ULTIMATE Store of value it backs itself. Why? Because we as human beings have been using it as a means of exchange for thousands of years. Why did we humans did decide to do that? Because Gold is one of the rarest natural resources in the world yet is also one of the heaviest and is mallable. Lets discuss the fundamentals of gold as a natural resource (precious metal). 90% of the above ground gold has been mined since 1900 Annual Gold Demand has been steady at 3,500 tons a year yet supply from mines is only 2,500 tons a year which means that about 1,000 tons each year come from central bank sales and scrap recycling (sell your gold to me.com's). A mine which is considered "rich" will yield one ounce of gold from two truckloads of ore. *again this is a rich ore body. Since 1998, as price of gold has quadrupled, annual expenditures of public companies for new mine discoveries has gone up from $800m each year to $3.8B last year. Yet the amount of gold discovered (annual mine discoveries in ounces) has decreased by 74%!!! In 1998 public companies discovered 70m ounces of gold and in 2009 about 15m had been delineated. Cash costs for producing gold have been going up and up and up. In the last 2 years the largest buyers of gold in he world have been China and India as their central banks look to build up their relatively tiny stocks of gold reserve. If you take all the gold in the world that has ever been mined (24K .999 gold) it would fit into a cube which would stretch 18 meters across and 18 meters high. Such cube would easily fit underneath the Eiffel Tower. Annual Gold production at 2,500 tons would fit in a living room of a normal sized house. There are many more facts which you can read up online. So the fundamentals of Gold are VERY bullish. They are more bullish than anything else I can think of in the world today. The question is how to profit from this trend and how to do it using principles of value investing. I personally feel that buying bullion or Gold ETF's is not the way to go and have not deployed my capital that way. I also dislike Gold futures as they require the investor to anticipate the precise timing as to when gold will rise. That being said there are ways to gain leverage to the price of gold while also demanding a margin of safety. Without describing how I do it, I will just say that accounting laws are VERY favorable for investors in this industry. If a mining company spends $25m delineating an ore body that ore body will be carried on its books at $25M. There is no revaluation mechanism unless that ore body is producing and even then it will not reflect total reserves. Savvy investors can look for dislocations in valuations. Many exist!!! I have bought gold companies at $25 per ounce in the ground only to see them rise to $300-700 per ounce. Today the average non-producing company trades at roughly $150 per ounce still providing sufficient leverage to the price of gold, even when including cost of production. This industry is a totally different one from reading vanilla balance sheets and income statements. A whole new set of skills is required. But I can promise you Gold as a commodity/currency/natural resource has fantastic long-term fundamentals. And so the trick is to buy an ounce of gold today at a discount to its intrinsic value in the future. Personally, I believe that Central Banks globally have become irresponsible and that the only true currency left is Gold. Gaining exposure to companies that own significant resources will be the trade of this century. I have no doubt in my mind! T

He was in terms of catching a falling knife, I am sure he built positions personally at higher levels and we know berkshire definitely has a higher cost average. I am not discounting the fact that it was a brilliant investment it was ! Just saying his entry was flawless.

Things bring up another point... If WFC is the stock my calculations lead me towards an average purchase price on WFC of 8.75~ Also this would mean that Munger got extremely lucky timing the bottom of WFC he must have owned a ton personally as well. I know that buffet was buying a ton personally and that in Paulsons book there is a letter from him stating his net worth at about 400-500m$ outside of berkshire. Either way this has to be one of the most brilliant trades inside of a public company ever!

Yup.. thats why the timing is a bit interesting. And actually I think the term he used at the WSC meeting was "cultists" :)

The post about WSC today made me remember something I have been trying to figure out for a bit. Hopefully one of you guys knows the answer to this. During the panic Munger deployed about 15.5m of DJCO cash into some stocks and made about 33m in profits it was really a very cool thing to see in the 10q's of this ordinarily boring company. Did any of you guys pick up on that? If so I have been wondering what stocks he bought a friend mentioned one was WFC... but the positions have not been disclosed! Looking forward to your responses here is a link to the 10K: http://sec.gov/Archives/edgar/data/783412/000119312509253186/d10k.htm

It almost feels disrespectful to speculate about such things , I just can't think why now as opposed to the last few decades...

Great post arbitragr! It sounds like you have been in the market for a while... I personally can't understand emotional investors. If things are so clearly getting worst, than make an investment in THAT direction. We are investors because we all want to make lots of money by generating significant returns. Watsa put on a nice trade to that effect per the WSJ. I assure you that if Graham was alive today he wouldn't be sitting there crying about what may or may not happen he would be seeking a value proposition even in such an environment. Again for the group that feels so strongly about the "day of reckoning" approaching: Why don't you all put on a trade to that extent? A large one too if you are so sure things will unfold this way. Otherwise how can you be so sure that valuations are UN-attractive and as a whole the market is not providing sufficient margin of safety. Also want to apologise if I offended anyone on this board by being a bit aggressive in my responses, I just felt that the other side had been overly negative with a little too much confidence and was also called crazy!!

The saddest thing about this news is that what I consider to be a wonderful agm will no longer exist. I think this probably has to do with Charlie realizing his strength is decreasing? What do you guys think?

“When I first went to China in 1979, we were eating monkeys’ brains, crickets and sea urchins,” Doyle, 60, said in an interview. “Today you go to China and they ask you if you want to split a beef tenderloin.” http://www.bloomberg.com/news/2010-08-25/potash-s-doyle-parlays-monkey-brain-dinner-into-445-million.html

Twacow I just saw your post been at the ball game! 1) Pretty content with 12% , size is 9 figures but we have been pretty lucky this year on some buyouts and preferred stock positions. My bread and butter value plays are cheaper today then they were in January or April, which is why I believe the situation is getting interesting enough to deploy more capital. We are about 30% cash with the remaining equally split between equity positions and fixed income/preferred. I bought a ton of Bank preferred's at issue that have really been kicking ass! Also I should mention that of the roughly 40~ in equities over half can be attributed to companies I have owned for over 5 years and so they are my forever positions. So really we are not heavily positioned for a loss if the "day of reckoning" presents itself. I have just been around long enough to know that betting on the prosperity of humans is more profitable than betting on their demise. I also am a believer in gold which is a whole different story. Johndoe700m also responding to you a bit late: The funny thing is I agree with almost everything Munger is saying I just think he is being super naive assuming that the entire market is mis-priced or that as a whole stocks are not providing a sufficient margin of safety based on a theory of future macro events unfolding exactly how they did in Japan. I also have not heard one rebuttal for you Japan-phobes which basically is this: Money supply in Japan did contract but the value of the yen has expanded at roughly the same rate to the upside (if not more and please don't hold me to the exact numbers on all this macro crap). So really the purchasing power of the japanese on a global basis has been increasing even though the amount of actual money in their system has been decreasing per say. I also have a huge problem with many of the guys here who read about Buffet situations and assume that just because Mr. Buffet exuded so much confidence in his positions at the time of buying them that it was SO obvious to the rest of the world. I have bought positions that went against me -20,-30,40-70% yes even -70% only to end up returning me several times the investment amount and at any time during the acquisition of these stakes I would have written up a storm about how confident I was while the world believed the opposite. Buffet is an incredible investor for a reason, he sticks to his guns regardless of the market quote. And just because one reads about it decades later doesn't mean situations will present themselves EXACTLY the same way. I can flip your WPO situation beautifully if I wanted to and I can assure that there were other reasons at play. The market has been pretty sophisticated since the late 30's there was never a time where everyone was just totally oblivious to valuations. Valuations would become attractive based on grahamian principles because the world was too busy being focused on other BS so the grahamites filtered that stuff and say well who cares what can happen one or two years down the line things are pretty cheap here lets buy some! And it works plain and simple, it also has to do with the deployment of permanent capital with no exit strategy. If you can do that you are at a huge advantage with ANY type of investment. Maybe I just don't invest in as many billion dollar+ companies as you all do but in the world of 50-500m companies there are have been great bargains over the past year and they continue to get better. What will happen if the so called "day of reckoning" will just involve some type of a restructuring with China? What happens if the RMB appreciates? What happens if the IMF introduces a global currency? What happens if off-balance sheet assets are brought to the table? (yes those exist too). There are just too many variables to deal with, its much easier focusing on whether company a will continue to make money and if they make a little bit less for a while they can still be attractive. But a cash and go investment strategy is not a good one it just doesn't work with a substantial amount of capital. I would rather hear investment ideas of how to profit from such crazy theories than debating their potential and how and why we shouldn't invest in stocks because of such potential. Thanks Just thought about something for fun, going to run a bloomberg screen tomorrow on japanese components of the nikkei aggregate net earnings average from their "day of reckoning" until today but adjusting the value of the yen to US Dollars. It will be interesting to see if my theory is right, that even though the amount of yens they earned decrease the amount of USD went up. If that is the case it could end a lot of this argument. You see this ties into the belief that only one central bank regulates the flow of GLOBAL CURRENCIES and in today's globalized economy that just isn't so.

You guys should all read a book by Freeman Tilden titled: A World in Debt It was published in 1935 and is probably one of the single best pieces of literature out there about this topic.

Added to APP Position today, very difficult to get filled... Looking forward to some type of update in the coming weeks.

You know Munger I just went back to one of your first posts relating to Schiff and inflation. And again the funny thing is I couldn't agree with you more I just can't bring myself to understand how you believe that over a long period of time the money supply can mathematically contract and if we establish that as a fact, how you can bring yourself to make macro-trades through investing in equity securities? Because basically you are saying that by and large the entire market is NOT attractive at this point in time because of the macro issues. And as a result you will NOT invest in equities until such time as the macro issues are cleared? To me that just indicates you are trying to time the market one way or another. And btw you do realize you are paying about 20x for Ebay right? Also this day of reckoning bs is a little dramatic! To be successful you need to be a little more optimistic!

In the interest of conserving your time I will make this short as well. 1) Putting your explanation of basic economic definitions aside, you have disregarded the fact that over time there is more money in the system which affects everything. 2) Hate to burst your bubble but you are not Charlie Munger, so saying my statement was crazy is not a sufficient answer. The bottom line is enterprises earning decent returns on capital deployed will always earn more money. And when central banks print more money the first ones to benefit are such businesses. 3) Again, making me feel that you are running a paper portfolio. In the real world when deploying a significant amount of capital you must actually get filled on your order. So when building a position it is imperative to get a "feel" for the stock and see if you can accumulate a decent position. Unless you are just trading multi-billion dollar companies in which case I don't see where the alpha is coming from. I did not get a response to the most important talking point which was the fact that your basis for valuations and "blood on the streets" is based on the reading of historical material which may or may not put everything in context. Very disappointed with your response! I thought it would have more meat on it. The funniest thing is, that I agree with the idea that prospects are grim but I have also been deploying capital for decades and know that it is quite frankly a terrible time right now in the world. Not saying things won't get worst, but they are definitely not good, or great... They are bad. And so naturally there are some good opportunities presenting themselves. Good Luck to you too! We are up 12% on the year!

They control Heelys which I own, I wish they would sell their position! I looked at them once but felt there wasn't a tremendous amount of upside but truly don't know enough to comment. I look for either sure things, or great risk/reward scenarios where the upside is clearly over 100% if it comes.

Munger, I have a little bit of a problem with some of your points. Most importantly you are miscalculating in my view what an absolute basis is for attractive valuations. Please keep in mind that regardless what any of you have said here relating to deflation and economic uncertainty at the end of each year we have more fiat currency in the system. This is just how it is, and so regardless of interest rates there is more money supply in the economy. Now the strongest most perfectly positioned franchises that have built their moats over decades are so well connected into the main artery of the economy so that they are able to grow the amount of currency they bring in year over year. Regardless of spending habits, over time mathematically there is more and more money in the system so naturally shares in enterprises earning a decent return of capital will always gravitate towards higher lows. What I think many of you are misconstruing is the ability to deploy permanent capital in solid positions and then disregard what the market quote is for them. I manage a large amount of capital a majority of which is permanent. And so when investing for long time horizons it makes absolutely no sense to trade in and out of positions in companies I feel are attractive. Will they get more attractive? Maybe, great! I will buy more and average down. But to time a value play is impossible in my view. And my best purchases over my career have been the hardest ones to stomach. So what I like to do is construct my portfolio in a fashion that allows me to double or triple down on positions where I feel the gap between the market value and intrinsic value has widened. Another point of yours which I have a problem is when you compare to Europe and Japan. Again please understand how global money supply works. If we debase our currency so will they and so there will just be more money in the world and so I truly see all of this as a type of shadow inflation which will kick in a few years down the road. But in terms of positioning I don't see a problem with today's valuations. And to me we are in a terrible time, and there is blood on the streets. None of us have really lived through the great depression. I assure you it was not as bad as people make it out to be. Humans still laughed and smiled, and took long walks. People still played music and had parties. Economically, there was a vibrant wealthy class and a strong middle-class. This thought process that everyone must suffer is a little naive, it just can't be so economically as capitalism provides an atmosphere for zero sum gains. Some win and some lose. Today on average mostly everyone is losing and so I would say this is a good environment to invest. It may get better, but the points you have made on this board lead me to believe that you are either not managing a permanent base of capital or that its pretty small because over a long period of time you cannot successfully invest in scale and generate outsized returns with that type of thinking. Also, when I find a value play I always start buying it early because I want to get a feel for the stock, So its hard to imagine say a stock you like today at 5 or 6 which you anticipate going to say 2-3 not being attractive enough to start building a position just in case you are wrong, especially if your time horizon is many years. Finally, I would like to say that Macro-Economically it is very clear that globally central banks have thrown out every shred of responsibility when it comes to monetary policy. They will keep expanding their monetary base until things get better. And those who bet on that side will be the winners coming out of this. Looking forward to your response, I know you will have one!

In and out has a great feeling whenever I get down there I love getting those burgers. I also like the Apple pan which is a great spot in Los Angeles as well. Toronto has some great burgers too! G*Star,Licks, and Notta Bene on Queen Street has an immaculate burger. I will refrain from providing anymore as it may jeopardize my anonymity.

In and out has incredible burgers...

The term liquidity trap is used in Keynesian economics to refer to a situation where monetary policy is unable to stimulate an economy, either through lowering interest rates or increasing the money supply. In its original conception, a liquidity trap resulted when demand for money becomes infinitely elastic (i.e. where the demand curve for money is horizontal) so that further injections of money into the economy will not serve to further lower interest rates. Under the narrow version of Keynesian theory in which this arises, it is specified that monetary policy affects the economy only through its effect on interest rates. Thus, if an economy enters a liquidity trap, further increases in the money stock will fail to further lower interest rates and, therefore, fail to stimulate.

Parsad, did you two just happen to cross paths at the 2000 AGM or did you meet online prior and plan to meet ? Because i have been going to the AGM for about that long as well and while I met a lot of people just seems like a crazy coincidence lol given the thousands that have been coming to cross paths with Sardar out of all the people there. I just don't think anybody really knows this guy with the actions he has taken. Which have been completely focused on lining only his pockets. And given the fact that you did not invest in the Lion Fund I also think you can't vouch for his success as a Fund Manager. I would love to hear from an actual Lion fund Investor about ease of getting redemptions out and actual net returns based on NAV entries and exits not just highly publicized investor letters. It seems like the type of investors he was going for were very unsophisticated people like an Iranian Poker player from LA is one and an older jewish couple. I don't think he had any serious investors even on a high net worth basis in his fund.

Parsad reading your response I basically feel we are on the same page. I apologize for the error with Friendly's I don't know why I had the number 1.8m in my mind. Nevertheless just look at the fund that bought them not much more to say. I have another question, how did you meet him 10 years ago? And did you ever invest in the Lion Fund?

This is a perfect example of how I feel about Biglari right now: http://classic.cnbc.com/id/15840232?video=1497317094&play=1 This is a link to an interview with his buddy (well we don't know anymore they aren't friends? they are? they used to be?) Do you see the intelligence oozing out of his ears? This is a guy many would assume is an incredible investor. Yet he knows little to nothing about his target company absolute BS