merkhet

Yes, it does. I would suggest that if you can't parse the statute and/or the legal documents, then you should not invest in this. There are plenty of non-legal-based investment ideas out there. Yes. Fannie & Freddie are not the only financial companies to have ever come under conservatorship.

The terms of the conservatorship are that the conservator has to protect the assets of the company, with the goal of becoming profitable and returning the company to the shareholders once that happens. Sweeping most of the assets to Treasury is the opposite of that. Furthermore, they claim the net worth sweep was in fact in the best interest of the shareholders because the company was in a state of perpetual borrowing to pay back the dividend, due to continuous losses. However, the sweep was enacted right after the GSEs started reporting profits again, which makes it hard to prove that it was necessary (not that it makes sense anyway), particularly given the huge valuation allowance for the DTA that was present on the balance sheet at the time. Can you provide some docs for that? My impression was the conservators goal was not to protect the assets of the company, but rather serve the interests of the government, which in this case are one and same with the senior pref holder. Additionally I was under the impression that other than the act of entering into conservatorship itself the conservators decisions were not subject to judicial review, nor did they have any fiduciary responsibility to the capital holders. Not only that but the conservator has the ability to unilaterally abrogate any contracts the pre-conservator entities entered into. The issue for me is purely legalistic. The other stuff doesn't matter if the conservator can't be challenged. Part of your answer is here (http://www.law.cornell.edu/uscode/text/12/4617) and part of your answer is in the case law cited by both plaintiffs & defendants in their respective briefs, so fire up PACER.

This is the part that really struck me while I was sitting in the courtroom. From Judge Sweeney:

I wonder how much of that is just sour grapes in that Buffett called him out pretty harshly during the Annual Meeting this year.

It turns out, someone has already made this into a meme. http://www.quickmeme.com/img/70/7038c6b355e9a725b5a6411618bf17e4ce8a46b8b560c90031aaa051febf027c.jpg

Destroying evidence is unlikely, IMO -- they would have to coordinate a complete destruction of evidence at FHFA and evidence at Treasury. I suspect that getting one agency to do this well would be a gargantuan task but two agencies in coordination? Damn near impossible. Additionally, given that their response to plaintiffs has not been that there are not any documents that are responsive to their claims re documents between FHFA & Treasury, it would then probably be somewhat ridiculous for them to come forth and say that there is now suddenly nothing responsive to the discovery request establishing jurisdiction. Besides, the important thing for them is to provide evidence once jurisdiction is established. The government needs to provide the initial burden of proof that the FHFA had any rational reason for the enactment of the "net worth sweep." In theory, they have said that it was because they were worried that the GSEs couldn't pay them back, right? So then they need to provide the documents that prove that. This would usually be pretty easy... ...except...the FHFA has not bothered to maintain an administrative record of the considerations it made prior to enacting the 2012 Amendment. Instead, the FHFA provided a compilation of documents, after the fact, to support its decision to enact the 2012 Amendment. (This is in the 2014-06-02 Olson Reply.)

(1) I suspect that destroying documents puts you in hotter water than losing the case, but, yes, they could do that. (2) The Protective Order is there to protect the defendants. Again, I suspect that getting away with this would be difficult and would put you in hotter water than losing the case.

Great color Merkhet, thank you for sharing your thoughts. I will provide a link to the transcript when available. The harder the government digs in, the more I am convinced of the weakness of their case. I believe that the government is going to great lengths not only to avoid producing documents that hurt their case, but also to keep the original authorizing source for the confiscation out of the public eye. I have no doubt that the genesis of this entire mess comes from the occupant of an office without corners. It's funny that you should say that, but Judge Sweeney mentioned something along those lines as well. I can't remember the exact quote, but she said that she didn't care if a directive came from Treasury or the White House re the 2012 Amendment. It sounded accusatory to me, and I only noted it because it sounded weird. I'm sure that will make its way to the transcript, but you lose some of the context when it's reduced to just words on a page.

If anyone is thinking about attending the next joint status conference (all open to the public), I think it would be very much worth your time. Also, we should be expecting briefs (in the next week) on the issue about producing documents relevant to whether the FHFA was directed by Treasury or other governmental agencies to enter into the 2012 Amendment -- as best as I understood the exchange, the government is claiming that it doesn't have to produce the documents because they might implicate other documents that were excluded by the compromise re privileged documents that came out a few weeks ago. Again, it seems that the government has produced zero documents relating to this issue -- though it is, noticeably, not claiming that such documents do not exist. We'll know more when the briefs are filed though.

I recently moved to Washington, DC, so I was able to sit in the joint status conference in Judge Sweeney's courtroom today. A few things struck me as interesting: Judge Sweeney seems to be trying her best to be fair to all parties. Charles Cooper is a far better attorney than (I think it was) Gregg Schwind. Judge Sweeney mentioned the possibility of sanctions on the government for non-production. The government has refused to produce documents relating to whether the FHFA was directed to enter into the 2012 Amendment at the behest of Treasury or other governmental branches. At the end of the conference, Judge Sweeney directly addressed the government by saying that, while she knows all the government attorneys have the upmost integrity and would never do this, they would do well to inform their clients that they had better not refuse to disclose documents that were detrimental to the government's case. It does not look like the government attorneys are winning themselves any friends by dragging on production.

Every time someone tries to compare InvestorX to InvestorY and argue which one was better, all I hear in my head is "Girls. Girls. You're both pretty. Can I go home now?" https://www.youtube.com/watch?v=xmFXEcI_AA4 Am I the only one?

This is kind of how I feel as well. Not only the message he sent to others, but like anyone who does this, it is a selfish act completely disregarding the effect it will have on those who are closest to him and care most about him. Even thought the suicide rate isn't as high in the US as it is in some other countries, there are now more suicide deaths than traffic deaths in this country, it is just sad all around. I suspect that the effect on others was not exactly at the forefront of his mind.

You're probably not going to find a lot of people on this board who are on board with WACC calculations.

http://fortune.com/2014/07/24/t-j-maxx-the-best-retail-store/ I wasn't able to find a TJX thread anywhere, which strikes me as odd.

The Force/bullshit is weak with this one. Explain to me how that was a general scenario rather than a complete recantation of what you previously said. Again "indisputable" and "good chance" are not the same. See, when adults make mistakes, they try to admit it. See my previous post on how I shouldn't have written the words "prove out the strength of [the investment case]."

Wrong again. If I am invested in, say, Fannie Mae, because I believe that the court will reverse the 2012 Amendment that sweeps away all of their capital -- explain to me how there is "no way to definitively prove" whether I was right or wrong. Why would the actual result of the litigation not "prove out the strength of [the investment case]"? Oh...all this time you spent telling me that using results was the wrong method. But I guess that you're getting around to my view. If you believe that the litigation will go one way or another, then the actual result of that litigation will tell you whether you were right or wrong. If, however, you believe that the litigation will go one way or another, the investment results of the underlying security do not necessarily tell you anything. I suppose I have made things confusing by quoting "prove out the strength of [the investment case]" as opposed to saying that there is, in fact, a determinant outcome that comes out of the end of the litigation case (or the Tesla case). The former is actually not the same as the latter, and I should have written the latter. It doesn't tell you whether you were correct in forming that belief in the first place or the probabilities that you placed on it happening. On that part, we happen to agree. Though I suspect you have stumbled into it through no fault of your own. I don't know how many times I've mentioned at this point that I don't have a disdain for buying TSLA or AMZN. I would try pointing you to the places on this thread where I've made this clear, but something tells me that it wouldn't matter much to you. We are not betting against one another. I am not on the other side of the AMZN investment -- I have no idea why you would think that this is so. Unless you happen to be crazy. (I'm trying not to rule anything out at the moment.) Btw, I love how you drop all sorts of points once you been proven to be wrong -- like going from "indisputable" to "very likely." That's cool though. That will serve you well in life.

Wrong again. If I am invested in, say, Fannie Mae, because I believe that the court will reverse the 2012 Amendment that sweeps away all of their capital -- explain to me how there is "no way to definitively prove" whether I was right or wrong. Why would the actual result of the litigation not "prove out the strength of [the investment case]"? Alternatively, if I am invested in, say, Tesla, and I believe that unit volume growth and margin expansion as a result of hitting economies of scale will provide me a good return -- explain to me how, a few years from now, I can't just look at the annual report and say "Oh, yea, they really did/didn't hit 1,000,000 cars a year at a 15% net margin." The above...is not the same as the below... QED. Palantir, I used to be a lawyer, so I'll leave you with another pig quote. "Never wrestle in the mud with a pig. You'll both get dirty, but the pig will like it." As I said before, happy to go more rounds with you when you get the time. sys, I agree with you that the market tends to correct towards more accurate prices over the long-term. My disagreement with Palantir was that the market is necessarily correct merely because a long time has passed.

I commented to another user via PM that I should do better to remember my Robert Heinlein quote on singing, but I suppose I might as well continue as this is a slow weekend and I have the time to waste. I understand completely the point that you made. I just happen to disagree. Vehemently. Again, I feel the need to point out that reading comprehension is an important skill for life. I did not say that YOU said the market is always right. Read what I wrote again. I said that "the market is not always right" and then provided instances in which using market returns to judge investment decisions might not have been the best. This was meant to show you that the market gets things wrong -- ergo, using the market return on Amazon as the determinant of whether an investment was correct or not is the wrong course of action. And I think you need to remember that probabilities are important. This is the point of the lottery example that I mentioned. I can buy a random lottery ticket and make a fortune. It doesn't mean that it was a bright move just because it happened to work out -- why? Because the odds are terrible. Now, you've brought up TWICE now that you can find an edge in a lottery ticket. Well, congrats, but the point isn't that no one can make money in lottery tickets. The point is that buying a lottery ticket, and implicitly sticking with the original lottery ticket odds, has the possibility of making a lot of money but is still a pretty bad capital allocation decision. I thought this concept was rather simple. writser brought up CYNK earlier. If someone had a legitimate basis for investing in CYNK and got out before it was suspended on the market, then did they "indisputably [make] the correct decision"? Alternatively, we can go down the following path. If you have a legitimate basis for investing in Amazon, that is the only criteria that matters. In other words, if you have a legitimate basis for investing in Amazon, and the operations eventually bear out that legitimate basis, then that is all that matters. The market return may follow or it may not. However, merely looking at the market return is flawed. I believe that the vast majority of the people on this thread have tried to explain just this point to you multiple times -- and, apparently, failed. You are free to use whatever methodology you want in valuing AMZN. However, that does not mean that the answer you get is correct, nor does it mean that the market price is wrong. All valuation methodologies are based on assumptions which drive the end result, and are therefore opinions, and educated guesses, not fact. Try to understand this point - this means that you cannot definitively prove that the market is "wrong" and your valuation calculation is "right". There is no feedback mechanism that determines the correct answer. As for the market, I do not believe the market is "always right", and in this case I believe the market is wrong because I think it is undervalued, however, the market has done a FAR better job of understanding AMZN than either you or Warren Buffett. Once again, I am going to point out to you that reading comprehension skills are important in life. It would be a mistake for you to think that I don't understand AMZN as I have in fact done a considerable amount of research on the company. More importantly, though, and this goes to my reading comprehension skills point, nowhere in this thread have I weighed in one way or another as to whether AMZN is overvalued, fairly valued or undervalued. All I have done is try to show that merely saying, "well you could have made 800% since 200X" is a terribly ass-backward way of trying to figure out whether you made the right decision or not. Again, think about CYNK or maybe even a company whose only holding is a lottery ticket (without an edge). If you purchase a share of that company for a market cap of $1 million and the company ends up being worth $10 million because the lottery ticket paid off, you could have made 1000% and still have been an idiot. Yes we have spoken about lottery tickets before, however if you can find a way to predict lottery results and profit off those, then your result is not the result of chance. The more subtle point I am trying to make is that investing in AMZN is not investing in a set of truly random outcomes - there is a legitimate investment case for AMZN and people have been making it, and profiting off of it for years. If you do not understand this case, then simply put it into your "too hard" pile, and move on instead of critcizing those investors as "investing in lottery tickets". I feel like I've mentioned reading comprehension so many times that I might as well create an internet meme and just re-post it here every time I need to say it. Reading comprehension is important. I am going to make this as clear as possible. I do not care about the actual investment case of AMZN. The only thing that I have tried to make clear is that merely looking at investment performance and then declaring victory is a terribly illogical way to go about it. When I talk about lottery tickets, I am not saying that investing in AMZN is the same thing as investing in a lottery ticket. What I am saying is that you could use your metric of "market returns" justifying investment decisions similarly to say that lottery ticket winnings justify the purchase of that lottery ticket. And that would be madness. The burden of proof is always on the investor to show why you believe the market, which is composed of thousands or millions of investors is wrong whether you are making a long case or a short case. I asked why is the burden of proof not on you to prove that the market is right. Your response basically reduces to repeating your statement and/or "because." Good one. This is a pretty poor straw man, but whatever floats your boat. Not a straw man. Reading comprehension. Etc. We may have to agree to disagree here -- but I'm more than happy to go as many rounds with you as you'd like.

It all depends on who you are... for some people, blindly following Buffett is going to be their optimal strategy because, on their own, they're bad at investing. So it's possible for some that it's better than their alternatives (day-trading, trading on "hot tips," etc.)

For the sake of argument, what if you had bought all of amazon for $20bn in 2004 and sold it to a private buyer in 2014. How much do you think they'd be ready to pay for it? What if you had bought it all in 2004 for $20bn and had stopped all investments in growth and just tried to maximize FCF as fast as possible. How much money do you think you could have taken out of it in 10 years? One step further: In scenario 2, let's say that after maximizing FCF instead of growth for 10 years you sold it all to a private buyer. How much do you think they'd be willing to pay for it, and is that more than what they'd pay in scenario 1? I have no idea how to answer these questions, but if I was trying to value the company, I'd be thinking about that kind of stuff and not just how much actual FCF they actually made in the past 10 years and putting a multiple on that. I don't disagree with you even a little, and yet I think you are missing the forest for the trees. I gave a simplistic answer to Palantir in response to his theory that "the market has AMZN right" purely because the stock has gone up 800%. I was not giving an answer as to how to actually value Amazon. If I wanted to value it thoroughly, I would do everything that you've listed here. Importantly, it wouldn't matter to me one whit whether the stock price had gone up 800% in the last decade or fallen by 80% in the last decade. The movement of the stock price is irrelevant.

I'm using earnings growth as a proxy for owner's earnings or free cash flow. I am using owner's earnings or free cash flow as a variable for the implicit DCF that goes into a valuation. I am using John Burr Williams' "The Theory of Investment Value" as the "correct" formula for valuation. What part of that line of reasoning do you find objectionable? We've spoken about lottery tickets before (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/what-are-your-least-favorite-investing-quotes/msg182034/#msg182034) Just because something randomly drops a bunch of money in your lap doesn't make your decision to invest in it correct. The question is a priori decision-making not post-hoc rationalization. Also, for some reason beyond my comprehension, you seem to think the burden of proof is on me to prove that the market is wrong. Why is the burden of proof not on you to prove that the market is right? And how would you go about doing so? The market is not always right. See The Dot-Com Bubble, The Ensuing Crash from the Dot-Com Bubble, The Run-Up to the Financial Crisis, the Ensuing Crash from the Financial Crisis. Etc.

Good lord, what part of back-of-the-envelope calculation has managed to fly over your head? Or perhaps you completely missed the following language from the same post you conveniently truncated: Reading comprehension is important. Especially if you're going to try to question someone's literacy, no?

Untrue. On the other hand if you had bought its stock, your return would be 800%. An accounting construction like arnings is a very poor measure of your investment. I can't tell if you actually don't understand or if you're trolling at this point.

I pass by a lot of people that hang out on street corners in DC who "[do] their own thinking," but that doesn't necessarily mean that their thinking is correct. (Or maybe the statute in Washington Circle really is following that dude around... who knows.) Buffett's not always right (he mentioned he should have bought the common stock of Harley-Davidson, for instance, rather than lend them money at a fixed percentage) but he's more often right than wrong. That's not being a "Buffet[t]Bitch" -- it's just playing the odds. I guess what I'm trying to say is that it's not a false dichotomy here. It's not "do your own thinking" or "be a sheep." There are grays in-between.

You said, "The fact that a stock goes up after you decline to buy it doesn't mean your analysis was wrong". Ok, then what shows this analysis is wrong or right? Your actual return. Think about it this way. In 2004, Amazon was worth $20 billion. Let's assume that you bought the entire company for $20 billion. Over the course of the decade, you would have pocketed something along the order of $5 billion -- so a quick back of the envelope calculation shows that you would have earned a compounded at around 2.5% over the course of the decade. The fact that the company is currently trading at 8x what it was trading in 2004 is because people are looking at Amazon the same way they look at Renoirs. They are not looking at it as a business. Yes, there are various arguments that Amazon is masking its profits, etc., etc. but from a very simple point of view, this would be how you can view whether your analysis on a company was right or wrong. If you owned the whole damn thing, how would you have done?