Liberty

Apparently, he didn't think that was enough for him. I think at most companies, it would be more than you can be expected. But Berkshire has cultivated a certain shareholder culture over decades ("we're partners", "We'll give you the information that we wish we had if we were in your place",etc), and this seems consistent with that.

I think he obviously did it because he felt bad buying from his shareholders without giving them all the warnings possible that they were selling cheap. Just another way that he's trying to look out for all his shareholders, even those who want to sell.

Interesting that Greenblatt found the same thing with his first formula funds. People that had forgotten about them and just held their stocks did best. This makes a lot of sense. Look at any long-term, multi-decade chart of the market (at least in the US) and it's clear that things are generally moving up at a pretty good clip. Hence Buffett's advice that most regular people should hold a low-cost index fund. It's psychological forces that make people sell at the bottom and buy at the top.

Except thats not how he invested in his partnerships. People need to stop taking what Buffett and Munger say as the gospel truth, and look at what they actually DO. It doesn't mean it's not good advice, though. Especially for people who aren't a young Munger or Buffett (which is almost everybody who will hear what they say)... Most people are probably best following the advice that they give. But if you want something harder to pull off that could potentially give higher returns, then it's fine to go to the next level and read 10Ks from company A to company Z for 90 hours a week. Finding companies worth holding forever isn't exactly a walk in the park either. And its exceedingly rare. Nobody said it was easy, especially not Munger. But I think it's more attainable for most investors than to do what a young Buffett did, especially if you coattail other great investors and clone their ideas. And I don't think forever means forever anyway. It's shorthand, but in reality, it's 'hold a truly great business until the story changes'. You can buy Berkshire with the intention to hold it forever, but if Buffett goes away and you see all his succession plans falling apart (Ted and Todd start sucking, the culture changes, the businesses become badly managed and perform badly, etc), you aren't supposed to hold it just because someone used the word "forever". Munger would certainly agree with that and probably be displeased at anyone who took his advice too literally.

Except thats not how he invested in his partnerships. People need to stop taking what Buffett and Munger say as the gospel truth, and look at what they actually DO. It doesn't mean it's not good advice, though. Especially for people who aren't a young Munger or Buffett (which is almost everybody who will hear what they say)... Most people are probably best following the advice that they give. But if you want something harder to pull off that could potentially give higher returns, then it's fine to go to the next level and read 10Ks from company A to company Z for 90 hours a week.

http://www.quora.com/What-is-it-like-to-work-with-Elon-Musk

Some nice charts via Ben Rabidoux on twitter:

Reviving this thread with a speech that he gave at the CFA institute: http://new.livestream.com/livecfa/marks2014

http://www.philosophicaleconomics.com/2014/11/not-everyone-sucks-at-investing/

I think the problem for power utilities isn't that the grid won't be needed all of a sudden. It's that their most profitable sales will be shaved off by solar (ie. solar produces lots of power during the day when utilities make moost of their money, and none at night when spot rates are super low). This is already happening in some parts of Australia where solar rooftop PV has boomed in the past few years. Can't imagine what it'll be in a decade when solar is much cheaper, with all the capacity installed in between being cumulative.

Looks like SUBC is down about 40% since it was presented at the diner. Have no opinion on it either way, was just noticing this now while looking through a pile of PDFs which contained this presentation.

I haven't succeeded in reaching this level of zen detachment yet, but have you tried not looking at the market as much? Or at least, cutting out almost all financial news. Guy Spier has some interesting ideas on this (shutting down his bloomberg terminal and keeping it in a different room, only looking at prices when the market is closed, only looking once a week or whatever, etc)? Maybe this can help with all those problems, even without going as far as someone like Spier.

Cycling like a boss!

I can't speak for Racemize, but the way I understood it, some people target a certain % of cash "just in case" some big huge fat pitch comes along, because they believe that having the cash to jump on these infrequent opportunities makes up for the drag that the cash creates the rest of the time. So they might have a hurdle of 15% and invest in whatever they can find that meets that, but they keep an extra 20% cash on hand waiting for "blood in the streets" scenarios, even if they could use that 20% to just buy more of what they have in the other 80% of their portfolio, or similar things.

Wouldn't this be mostly a problem for people buying regardless of valuation? If you do the bottoms up work and only buy things that you find attractive enough, it seems like it should mitigate that risk. But if you just lever up to lever up and end up buying indexes at the top of the dot com bubble or whatever, then that obviously could cut the wrong way pretty deeply... If you lever up to, say, 1.3x, it would take something pretty fierce to make you a forced seller. And over 30-40 years, if you can pick good businesses and if history is any guide, there will be a lot more good years than bad, so having extra exposure to good businesses certainly seems like a good thing, especially in light of the premise of the paper about lifecycle balancing (people invest fewer dollars when young, at the time when compounding would be most powerful for them). I didn't know there was a book. Is this the one? http://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/0465018297/ Interesting, the top review is by Robert Schiller: "I have been getting flak for endorsing the Ayres and Nalebuff book (see above on Amazon.com), just as the authors are for writing it. People are thinking it certainly sounds reckless for young people to leverage two to one into stocks. For some young people, it certainly is. Those who do this with their personal savings and are contemplating buying a house soon could lose their down payment, and thus be unable to buy. This factor is increasingly important after the subprime crisis since no-down-payment mortgages are hard to find now. But Ayres and Nalebuff are advocating such aggressive stock market investing only for retirement portfolios. Most young people could survive an annihilation of their retirement savings; they still have plenty of time to rebuild it later and it may generally be a good bet to take just such a risk. This is the basic point that Ayres and Nalebuff make, and it is right. I worry that this book in the wrong hands (of people with a gambling impulse or who are really more precarious in their financial situation) the book could encourage irresponsible investing. At the present time, the stock market looks rather pricey, and I am less optimistic about young people leveraging stock market investments right now. But, as a general, long-haul advice book, for savvy people who can judge their situation and not get themselves into a corner, the book is indeed valuable. This is not "Dow 36,000" again, as one reviewer says. This is a book about overcoming standard prejudices about investing, and as such it is an important book. Robert Shiller" For those who haven't read the paper that I linked above (I recommend it), another review has a summary of the general idea: "I believe that this is a ground-breaking book. Here's a summary: 1) Most folks tend to have the overwhelming majority of their exposure to the stock market (i.e., most dollar-years of stock market exposure) during a one-to-two decade period late in life (e.g., perhaps during their 50s). The reason for this is that folks tend to accumulate wealth exponentially -- they save exponentially and their investments tend to grow exponentially. 2) This generally works fine UNLESS they are unlucky and the stock market suffers through a bad decade when they have the most dollars exposed thereto. 3) The main idea here is that you would be better off, conceptually, if it were somehow possible to more evenly spread out your stock market exposure over your entire life. This idea of "time diversification" is quite sound. If you were somehow able to do that, and during the decade of your 50s the stock market goes to h*ll, so what! You've hot lots of other decades of stock market exposure to make up for it! 4) Of course, the devil is in the details. Is it possible to more evenly spread out your stock market exposure through your entire life? Yes."

Thanks Liberty. Regarding leverage, I haven't done a lot of actual testing, but I've been thinking about how it might work, given the testing I've done. And I think the answer is that leverage is generally good to use, but you can't ever get margin called, as that is highly destructive. So, it will come down to how volatile your portfolio is (which is similar to what this essay comes down to). Thus, if you are very volatile, no leverage is likely best (and perhaps holding cash routinely as well). But if you are less volatile, then some leverage is good. So I tend to think that some leverage is probably warranted for the best long term results, assuming a long-enough time period. Again though, I haven't done a lot of testing to be sure about that line of thinking. Perhaps I should make it a follow-on essay... That makes a lot of sense. If I was routinely sitting on uninvested cash, your essay would definitely make me rethink my approach. But when I read the paper I linked above last year, I did a lot of thinking about it and ended up starting to use some margin. I'm 32, and it makes a lot of sense to me that I'll benefit more from compounding (as long as I don't have to be a forced seller at exactly the wrong time, which is why I'm not using a lot of margin capacity) by having more dollars invested in the early years of my life than I would without margin. The unused margin capacity can also acts like cash would in extraordinary situations. If there's a fat pitch coming my way, I can always jump on it with margin and then delever later back to my target multiple. I know that in some ways it's not as conservative as not using any debt, but if you take the longer view, I think it's in some ways riskier to not use at least some small amount of margin (especially at the 1.5% that I'm paying at IB); I feel that I have a higher chance of being poorer in 30 years if I don't use it than if I do. Sure there might be another 2008-2009 crisis where everything is correlated and goes down 50% and I become a forced seller. But what if there's a 20-30 year stretch without any crisis bigger than I can absorb without forced selling at my relatively conservative level of margin use? I think the benefits during the good times would likely outweigh the negative impact during the really bad times.

Just finished it. Good job! Obviously a lot of work went into this, you should be proud of the result. One question: Have you looked at leverage? The next logical step, IMO, is to look at what'st he optimal level of leverage (as long as cost of leverage is below expected returns by a big enough amount that you have a margin of safety, and that the level of leverage is low enough that you can go through most downturns without being a forced seller. ie. maybe 1.3-1.4xx gives the best results over the long term and you would only delever a few times when interest rates spike up..?). Just curious to know if you've looked into this. Thanks again for sharing your work! Update: kind of thinking of this paper: http://islandia.law.yale.edu/ayres/Life-Cycle%20Investing%20Working%20Paper.pdf

Awesome, thank you! Looking forward to reading it 8)

Thanks. It was good, though it's mostly the stuff that we here already all know about. Nothing really new.

Exactly! Imo debt is very useful, until it gets to be harmful… And those instances when debt gets harmful don’t happen very often, but when they do, they tend to be very detrimental to your net worth… Two such instances might be enough to mar a lifetime of successful investing… Therefore, either you partner with people who shun debt altogether, like Buffett and Watsa, or you partner with people who make use of debt, but have a long enough track record to show they had been able to weather comfortably enough hard times in the past. Liberty Media has returned 15% annual from 2002 to 2013 with 2008-2009 in between: volatility YES, overall bad results NO. Here is something important for me: I have not said “permanent loss of capital NO”, meaning that I am not only looking for evidence of an effective enough protection of capital, but that I want to see a track record of very satisfactory returns over a long period of time through good environments and bad. What you say about Transdigm might be very correct. So, let me clear this a bit: I suffer from a sort of inertia that makes me stay with or even add to businesses that I already own and know very well, instead of buying new businesses that I don’t know as well. Therefore, for me to make a new investment, it is not enough “a great entrepreneur, a good business, and a good price”… Probably I need “a great entrepreneur, a good business, and a great price”… Surely a far better price than the one a business I already own is offered for at the moment! And right now Transdigm seems to me more pricy than Liberty Media, not less… Therefore, I concentrate my funds in Liberty Media, instead of splitting them between Liberty and Transdigm. Maybe this has nothing to do with debt, but I wouldn’t be so sure: if Transdigm had less debt, I would feel more secure about investing in it… therefore, the price I’d require would probably be less “great”… Though I don’t know if this is clear or makes any sense at all… ??? Gio Thanks Gio.

Hi Gio, If I may, I'm curious to know how you think about Malone's use of debt. He uses lots of it, and even seems to use margin in his own portfolio (was a forced seller during the crisis, afaik). Are you comfortable with it because he has a longer track record? Valeant might be more recent - the 2008-2009 crisis was a nice real-world stress test, though they were much earlier in their transformation at that point - but Transdigm has been using the same model pretty much for 20+ years. Of course, they use more debt than Malone (or at least, their peaks are higher, they tend to delever quickly and then lever back up), and I don't think they'll ever have low debt (that's how they optimize their capital structure), but you also have to look at their business. They basically have a bunch of high-margin annuities that even 9/11 and the GFC barely affected. If you don't lever that up, especially when the credit market is so accommodating, you're leaving a lot of money on the table.. And most of their debt is pretty low-cost and on matures in 5+ years. Anyway, just curious about your thought process on use of debt. Cheers.

Munger: 'I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, “My God, they’re purple and green. Do fish really take these lures?” And he said, “Mister, I don’t sell to fish.”' z/h is just looking for readers...

And if you go back hundreds of years it goes up most of the time too. How embarrassing. ::)

I know that. I meant that in general terms, the commodity bulls always find a reason why price of their favorite thing has to go a certain way, but reality often finds ways of making it go otherwise. Obviously the specific dynamics will be different for oil and gold and potash and natural gas and nickel and copper and uranium and wheat and pork bellies and gravel...

Didn't they say the same thing about gold?