Liberty

Words of wisdom. Thanks Parsad!

http://www.bloomberg.com/news/2011-10-14/eu-may-impose-rules-to-limit-commodity-derivatives-high-frequency-traders.html

Well, back then he did buy Gen Re using stock, so he kind of did benefit from that overvaluation of many of Berkshire's stocks :) I think our difference might be semantics, so I'll reformulate what I said: Sometimes it is possible to look at a business that appears fairly valued on a purely quantitative level, and some people might say that it should be sold, but some investors might see a significant margin of safety remaining in more qualitative attributes (moat, growth potential, management's quality, etc), and so they continue holding it. It is also possible that to some investors certain attributes are worth more than to others, so for example you might not want to sell the safest and most predictable business in the world and replace it with a much less safe and predictable business just because it's X% cheaper; to you, that safety and predictability might be worth a lot more than the difference over the long-term.. This is why what is "fairly valued" to one can be "under valued" to someone else. Sorry if I wasn't clear the first time. But this applies more to something close to "fair" value than "insanely overvalued", obviously...

It depends on your style and what kind of companies you are interested in. Someone like Buffett will hold KO at full value, or even above, because to him the margin of safety comes from the moat and the future growth, and because if he sold he might not find a better business to invest in. So what you said definitely applies to cigar butts, but not necessarily to good businesses. IMHO.

That part sounded very Keynesian to me. Reminded me of the famous quote about putting money in empty bottles, burying them in an old mine, and having people dig them up as a way to create jobs...

All that matters to me is what kind of return I'm getting on incremental dollars earned. For big mature businesses, it might make sense to pay out a dividend because reinvestment opportunities are mediocre, but for businesses that still have much room to grow and reinvest, it can be much better to retain earnings (more tax efficient too). Money productively retained in a businesses will be recognized by the 'weighting' function of the market over time, so dividends aren't intrinsically superior. Money that comes out of the business reduces the market valuation over time. If you really need x% of your portfolio to live on each year, you could just as easily sell part of it. I also think that looking at dividend yield based on initial money invested doesn't make much sense, unless you start to look at everything like that (ie. I bought stock X ten years ago and now it's worth 10x what I paid for, and it grew book value by 10% this year, or 100% of my original investment! Wow!).

http://www.bloomberg.com/news/2011-10-13/loews-seeks-hotel-unit-ceo-as-tisch-cedes-role-adler-departs.html

I like the doom analogy. Brings back memories :) Technically, the original doom had a type of connection that meant that everybody was synchronized and nobody was lagging more than the others. But Quake had a client-host model where lag was very important. It's possible that later versions of Doom based on the open-sourced code use a similar model, though..

Also feel free to PM me at anytime. That goes for anyone else who doesn't want to ask something publicly. I'm no wise old-timer, but I'm more than happy to share the little that I know. And I promise that if I don't know the answer to a question, I'll say so. I feel that's a good start :)

It's always the same, isn't it? Most of his current investors probably jumped in after his funds went up a zillion percent, and now they're wanting to get out after a massive drop. Buy high, sell low...

Even the idea for Paulson's CDS trade came from one of his analysts, not him. Now, it took lots of determination and some vision to see it through and make it happen, but one brilliant move doesn't make a track record, so I agree that we're going to see a reversion to the mean even if IMO now is too soon to tell (one bad year doesn't mean much).

Are you so sure that this is the case? I've read that most of the emerging countries that are doing so well because they have low debt were forced in that position because their credit was so bad they couldn't borrow. And on the individual level, savings are very high because there's basically no safety net. This obviously had tremendous benefit to them, but who's to say that under different circumstances they won't fall into the same traps as other countries... Some people seem to attribute superhuman powers to the Chinese government, but people are people and we're all vulnerable to the same problems... This time is probably not different.

I've put a hold on "Extraordinary Popular Delusions and the Madness of Crowds" at the public library. Thanks for the suggestion.

Thanks!

Looks like the backlash about the backlash has begun: http://i.imgur.com/4FRxU.png

Looks like I was guessing right: http://www.bloomberg.com/news/2011-10-10/alibaba-said-to-seek-financing-from-temasek-to-buy-back-stake-from-yahoo.html

Interesting profile of Steve Jobs's biological father: http://online.wsj.com/article/SB10001424052970203499704576620911395191694.html

Good post. Close to my thinking. There's way too much pessimism. Pretty much everything that has made the US work over the past decades is still there - in fact, some problems have been removed or lessened - while most of what causes it problems right now is solvable. I think Buffett, as usual, got to the heart of the matter. When excess housing gets mopped up by the formation of new households and construction gets going going again, a lot will change. China is doing great, mostly because they are catching up to where they would have been if they hadn't been held back by Maoism, but at some point they're going to hit a significant bump in the road and the flaws in their system that people are willing to tolerate in good times won't seem as acceptable when things are going wrong. IMHO.

1) Isn't the chinese government a total control freak? The last thing they want is to completely lose control of their currency by tying it to gold. 2) China has a lot of US dollar debt, and making the US dollar lose value would hurt them a lot, so it's not in their interest.

Tesla's strategy makes a lot of sense to me (if the goal is to make electric cars more mainstream -- I'm not sure if it'll be a good business for the shareholders). When they began a few years ago, electric cars were 1) very expensive and 2) seen as unattractive glorified golf carts. Obviously you can't sell a golf cart at a high price. So they changed the image of the electric car in the popular mind to show that it can be fast and sexy and attractive. This meant that enough rich early adopters were ready to pay for their first car, though the 2008-2009 recession put a serious dent in that plan. But even Bob Lutz of GM has said that it was Tesla that changed his mind about electric cars and that the Volt wouldn't have happened without Tesla. And now Ford, Nissan, etc, are coming out with EVs. Their goal is to start upmarket, and as costs go down and the technology improves, to progressively go downmarket. So their first car is 100k+ and very niche. Their second car, the Model S, is closer to 50k and more attractive to a larger audience (a more practical sedan). They'll also make a Model X Crossover SUV on the Model S platform. Their third platform should be around 30k, which is very inexpensive if you factor in lower fuel costs and potential tax rebates. Like cell phones and computers and all kinds of other technologies, at first it's expensive and doesn't quite have all the features people want, and as time goes on the price drops and the performance increases. I can't think of a better business model for a startup electric car company (and at the time they started, no big car company was planning to commercialize EVs)... Personally, I don't really see a parallel between Musk and Jobs. But I think he could turn out to be a kind of Tesla or Edison (especially if SpaceX keeps going on the way it's going right now -- I mean, he's the lead designer on space rockets!).

Two points: 1) It's not because something happens in a system that works that the result is good. Natural selection makes us die of the diseases of old age because these happen in an evolutionary blind spot (for most of humanity's existence, people didn't live that old, so there was no selective pressure). In the same way, if capitalism allocates resources to unproductive areas, that doesn't make it good. 2) What we have is a man-made system, not some platonic ideal of capitalism. In an alternate history where there were slightly different rules for the markets and for businesses, the current bloated financial sector that doesn't produce much value and attracts a lot of our best brains wouldn't be the same at all, so it's not like it's an untouchable edifice carved in stone. I'm no expert in those areas, but let's say that the rules said that a lot more collateral was required for most derivatives, and that HFT funds had to pay X cents per share that they hold for less than Y amount of time, a lot of things would change, and our civilization would probably do better, not worse.

Good points, and I don't know enough about Ackman to know how he's 'wired' and what his skills are, but I know that a lot of people with physics and advanced math backgrounds end up in finance, devising complex derivatives and programming quant software... To me that's mostly a waste for our civilization. Buffett is a good example of someone who's pretty specialized in capital allocation, but many other extremely smart people could just as easily have studied engineering or biology at MIT.

Did he work for CNN? afaik he's retired..

I don't know much about MBIA, but I'll check it out. The man seems brilliant, and if I only get one good idea out of it, it'll be worth it. The only thing that makes me sad is that our civilization creates so much incentives for people as smart as Ackman is to become hedge fund managers rather than cancer researchers or engineers working on ultracapacitors or whatever. The world would be a better place if more brainiacs worked in science rather than finance...

If you're interested by Elon Musk you gotta watch this: He responded to a couple dozens of questions from the reddit.com crowd. Very interesting stuff. He's a real renaissance man. Edit: Bloomberg also had a good profile of Musk: http://www.bloomberg.com/video/73460184/