merkhet

It doesn't bother me at all -- it's fine on the iPad. Plus, the banner ads can provide some revenue to offset the costs of running the forum. It can't be cheap to run this thing...

I get the impression that you are confusing actual "cloning" with idea sourcing. That is, copying what someone else does vs using what others do as a source for potential ideas. Why in the world would anyone want to pay someone else to clone? Why not just go to the original? I can't speak for anyone else, but for those who have invested in SHLD it would NOT be cloning Berkowitz unless they bought just because he did. You're talking about investing in things because others have, but confirming the data. There is a big difference between doing that and simply saying here is a list of 50 ideas that have been obtained from various sources. You have backtracked a little bit on your level of confidence. That's fine. You are clearly young and confidence comes with experience. For your own sanity and preservation, I believe you should not invest anyone else's money until you truly feel confident that any investment you make is a good one and not just because Pabrai or Berkowitz has made it. If you have doubts, then it won't be a pleasant time for you. Managing money is stressful enough. Add in a lack of confidence and the stress could be unbearable. +1 This was exactly what I was going to say. Mr. Buffett & Mr. Munger say there are no points for difficulty. I would add that there are no points for originality in sourcing. Even Mr. Buffett has "cloned" before -- think about what he did with Jay Pritzker and the cocoa beans.

Annually or startup fees? Start up

In my experience, your legal costs will run somewhere in the range of $20,000.

We are at 25% cash right now -- as others have said, not a market call but rather a function of having sold a few things that have approached intrinsic value.

Perhaps the full quote would be more instructive. http://www.nytimes.com/2010/11/17/opinion/17buffett.html If Mr. Buffett was using "might" in the way you guys are suggesting, then he would have written "would have provided" as opposed to just "provided."

Don't disagree -- the complaint you referenced is nonsense, and I think the court will probably rule that way. My sense is that the Perry Capital & Fairholme Fund complaints, however, are not nonsense. And, in fact, they have made a good amount of money per quarter in the quarters following. Think of it this way -- let's say you plant some orange trees in a grove. The trees have been planted but have not borne fruit. The government takes your land -- should they pay you the timber value of your trees? or should they pay you for the loss of your yearly crop? I would say that common sense indicates the latter. Same concept here. The legal aspect makes things complicated for sure -- and provides a bit of a competitive advantage for some of us. As a taxpayer and an American, I would root for Fannie & Freddie to pay back the borrowed capital as quickly as possible but without granting the government too much of a right to get away with exercising eminent domain w/o providing just payment.

The government was issued Government Preferred Shares. Perry Capital and Fairholme Fund own Private Sector Preferred Stock. You and I don't disagree that the government provided aid to the companies in 2008 -- the point is that they were provided with compensation for that aid via the Government Preferred Shares and Government Warrants (amounting to 79.9% of the company's common stock). In 2012, Fannie & Freddie were both solvent & had a combined net income of $27 billion -- that amount being more than enough to pay the 10% dividend on the liquidation preference of the Government Preferred Stock. (Correct me if I'm wrong, but I think the liquidation preference is something like $188 billion.) Based on the capital structure, it would seem like the residual would cause the Private Sector Preferred Stock to be worth a positive number that I'm going to say might even approach par. I think that particular lawsuit has very little substance to it -- read the complaints for Perry Capital and Fairholme Fund -- those have to do with the amendment to sweep 100% of profits.

constructive, I've read both pleadings (posted here) and if memory serves me correctly, they are only arguing as to the legality of the amendment for the sweep. Perry is arguing lack of exceeding administrative legal powers and Berkowitz is arguing Takings. Those two are different. I don't understand why you think that the [preferred] shares are worth less in 2012 than in 2008. The company is much more profitable now than in 2008. Can you clarify?

constructive, The argument isn't that The Takings Clause was implicated when the government placed the companies into conservatorship -- the argument is that The Takings Clause was implicated when the government amended the agreement to sweep the entire amount of the preferred stock's value.

Mr. Buffett once said that he believes part of his outperformance can be attributed to not having lived through the Great Depression. Specifically not having invested during that time. It changes a man. I wonder how much of the macro tourism that we see currently from self-avowed value investors is attributed to the simple fact that living and investing through the 2008-2009 correction has a serious psychological effect on some people. (Not directed at anyone in particular. Just an observation.)

You're assuming that the short position "functions as expected." That seems, to me, no different than holding Fairfax and expecting it to "function as expected."

I have a question for the other lawyers on the board. As I understand it, Berkowitz bought the preferred shares after the sweep amendment. Does he have standing?

Glad to see them going with the Takings Clause. It's what I would've done. Also, I have to say that, on a personal note, I'm really quite happy that my legal education wasn't completely useless in my new life as an investor. :)

For me, IV is a bit like Schrodinger's Cat.

valuecfa, what do you think about the recently filed litigation by Perry Capital? I think it has merit. With the prefs currently at 17 cents on the dollar, i think the market is mispricing the probability of success. I doubt the courts will end up being the deciding factor in the investment, but if they are, then this could take some time (recall mbia) I'm on the sidelines but becoming more interested every day. I've often wondered over the last two days or so where the free-market conservatives are -- shouldn't they be shouting bloody murder with the de facto nationalization of Fannie & Freddie? It's an interesting story if only from a political angle. If you don't mind me asking, did you buy a particular series or just a basket?

valuecfa, what do you think about the recently filed litigation by Perry Capital?

Can anyone else access the article in the OP? I can't seem to find it...

That's great -- I hope he updates the iPad app soon as well.

My top 5 ideas are usually 80% of the portfolio.

Yes but how will they sell mobile ads on yogurt cups? :P

Thanks ragu. I supposed that makes my point for me. If "the market" is "pricing in" a higher interest rate than what currently existed, then perhaps the interest rates going up shouldn't be a huge drag on the market. After all, the market has "forgotten," in a sense, that they priced in something higher than what currently exists. If we move the interest rate up and the market levels still, at some indeterminate point between where we are now w/ rates and, say, 10% on the 10-year Treasury, we would have the market at "fair value." Of course, markets being what they are, the market is likely to overshoot on the downside as rates move up. So, then my question is -- is it smarter to guess that interest rates are going to go up than it is to say that the market is going to go down? Or are they essentially the flip side of the same coin? And perhaps prognosticating on one is no different than predicting the other? (i.e. - folly in both cases)

Hi Merkhet. This is a good book about the interaction of rates, inflation and multiples. http://www.amazon.com/Unexpected-Returns-Understanding-Secular-Market/dp/1879384620 Thanks!

I agree with the title, but I wonder as to its application. I hear a lot of people talk about how the S&P 500 and/or various securities are only at their current valuations because of the extremely low interest rates. Okay, that makes sense. Interest rates really do act like gravity on the pricing of all assets. However, I wonder if anyone has gone beyond the aphorism and gone to the application. Let's say that the 10-year rate over the last decade was about 5% -- has anyone gone and run the numbers on where assets should priced be now that rates are at significantly lower values? Does the asset valuation of the market as a whole or individual securities actually reflect the extremely low interest rates via the discount rate for a DCF? I ask this because many people say that "interest rates act like gravity" but there is no follow up on the "implied interest rate" in valuations today. If the implied interest rate is 3% and interest rates go to 2%, does that mean the price of assets will drop? (In the short-term, probably, because it's a knee-jerk reaction. In the long-term, maybe not?) Just a thought experiment.

I seem to recall that Mohnish was invested in the preferred shares a while back and exited. Does anyone remember why?