Eric50

In depth analysis of NFLX from Whitney Tilson and why he is short. By far the best analysis I've seen so far. Lots of things might happen in 2011; it's going to be a very interesting year. Eric http://seekingalpha.com/article/242320-whitney-tilson-why-were-short-netflix

Now is the time to short Netflix. It's way way overvalued. And the quietness on this thread confirms that...

It's always the same story with Overstock. They have a couple of good quarters and you think they are resuming growth and profitability and then bingo it's another poor quarter with lower growth or lower margins... I think they are still struggling to be disciplined operators.... Having said that under $13, it is very cheap.... Especially with the historical volatility of that stock. Sanjeev, do you still have a position?

Central Fund of Canada (CEF) that holds gold and silver is taxed at the long term rate if hold more than a year.

I've lived in Singapore for a couple and since I've been fascinated with Lee Kuan Yew. Sadly his wife passed away recently. Here is his farewell to her. Very touching but also full of life's lessons. http://news.asiaone.com/News/AsiaOne%2BNews/Singapore/Story/A1Story20101006-240957.html

Interesting comments from Rogoff in this Spiegel article on the IMF. http://www.spiegel.de/international/world/0,1518,721158-7,00.html

Why retire if you like what you do?

Article in the NYT today on NFLX facing more competition online. http://www.nytimes.com/2010/09/27/technology/27netflix.html

There is a really good book that was published in 1999 called the “The Gorilla Game: Picking Winners in High Technology” by G. Moore – I just reread some sections of that book. The main thesis is that one can make a lot of money investing in hi-tech companies that dominate their segment. Their architecture/model becomes the standard and they exploit this standardization, the network effect and the high switching cost to grow quickly, increase their market share and dominate their industry. These companies are the gorillas and they have huge growth potential for investors. I think Netflix might be such a gorilla. They are exploiting the streaming/subscription model and pushing aggressively in order to dominate their growing market. Some on this board have mentioned low switching costs and I disagree with that. Once people are used to get a decent (and increasing) choice of streaming videos, they are unlikely to change providers. I have four children and they watch all their kids’ shows on streaming with a Roku. We are not going to switch anywhere else in the near future: there is no good alternative for the same price and the switching costs are high (unhappy kids…). We are also in a Bernanke put area with super low interest rates that are feeding the speculation… Remember amazon and Henry Blodget in the late 90s.

I just read the below on Netflix. It's a really good analysis of its business model and the dangers it faces. At 62 times earnings, it might be time to start a short/put option position.... Eric http://seekingalpha.com/article/226299-netflix-this-stock-s-story-is-over

I've noticed that some of this board use Google trends. Here is an interesting article on its significance. http://www.ritholtz.com/blog/2010/08/google-trends-a-fresh-look-at-search-frequency/

Here is a quote from the real Munger: "Spend no time arguing with people whose idea you know to be stupid." Thanks Parsad for organizing this board and for sharing your opinions. There is incredible value here. Eric

I have four children so I'm pretty a family man. :-) I'm surprised few people have mentioned their families here. BTW, I just discovered a great site for teaching maths, science, history and pretty everything else on the internet. My oldest child already loves it and so do I. Here is the link to the story of its founder - a must read. http://money.cnn.com/2010/08/23/technology/sal_khan_academy.fortune/index.htm and the site is http://www.khanacademy.org/

Another good article on gold in the Financial Times. What I find interesting is that China is now the largest producer of gold and it quietly buys all the gold that it produces. Rogoff mentioned for this article that "Emerging market central banks will probably want to raise the share of gold in their foreign exchange reserves, bringing them closer in line with advanced country central banks." http://www.ft.com/cms/s/2/e9378c6c-b0b8-11df-8c04-00144feabdc0,dwp_uuid=a712eb94-dc2b-11da-890d-0000779e2340.html

I have a small put position since mid-July. You might also want to look at Lululemon, another fad that is less overvalued though.

Parsad, I'm surprised the WSJ is not in your list. Is that intentional?

Thanks. This is a very interesting video. Well worth watching.

There is a huge difference of perception between the Great Depression in the US and the Weimar inflation in Germany. I grew up in France and have many German friends (I also spoke a decent German 20 years ago): the Germans still think that Hitler's election and rise was a consequence of the Weimar hyper-inflation in the 1920s. There is still a huge trauma in Germany about WWII - not fun to be the heirs of such a fascist regime - and they just don't want that kind of situation to ever happen again. I don't see here in the US the same knowledge/sensibility about the Great Depression. Maybe there is less emphasis on history in the education system here and/or the consequences of the war and depression were less dramatic here. In any case, I think that's the main reason why Europeans, and Germans in particular, are much more worried about inflation than the Americans are.

I think all investors have to read (or re-read) Bernanke's 2002 speech called "Deflation: Making Sure "It" Doesn't Happen Here". It's a crucial reading to understand what might happen next, a blueprint of Bernanke's thinking. Key extract: "the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." I suspect QE2 will start soon... http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

As a Frenchman I would rather not have seen that World Cup and the farce that was the French team... But on the other end, I'm also a BRK shareholder... :-)

Remember Buffett: “I don’t read any analyst reports. If I read one, it’s because the funny pages weren’t available. I don’t know why anyone does it.”

I like the work-out reason to explain Buffett's relative better performance in a down market. In my personal case, I tend to own lots of businesses that have very P/B ratios so that could also be the net-net explanation. I also buy put options when I see very overvalued stocks. Re Monish, I haven't looked in details to his holdings but I thought he weighted his portfolio to more commodity-related businesses at the bottom of the market. So that could explain his huge upside last year. But I thought he also had a few low P/B holdings in his portfolio. Hyten - S&P rose 3.5% in 2007 (w/ decrease at the end of that year), decreased 38% in 2008 and rose 23% last year and is flat so far this year. I'm just comparing on a year over year basis. As an aside, I think we are in a long term bear market that started in 2000. It's likely to last another 5-10 years but I can't say for sure (especially with the Fed/government interventions). I see that secular bear market as similar to the trend in 1966-1981 when the DJIA did nothing ($100 invested on 12/31/1966 was worth $100 on 12/31/1981 with annual inflation at 7% during that period...). Last year increase might just have been a rally within that long term bear market. Yes, Buffett in his letters to partners written in the 50s and 60s mentions several times that he tends to perform better, relatively to the market, when the market is down or flattish (hence the 2007 & 2008 comparison).

I just reread Buffett's partnership letters and noticed that he repeated many times that he expected his fund to perform better, relatively, in a bear market than in a bull market. Several times in his letters, he forecasts that his results would be well above average in a declining or stagnant market, while he'd lucky if he beats a bull market. And that was his experience. This was quite reassuring to me as I had noticed a similar pattern in my performance: while I was barely above major market indexes last year, I did much better than them in 2008 and 2007. I also did much better than the markets over the last couple of months. However I've noticed that several value investors had a performance the other way around over the past 3 years: they did much worse than major indexes when the markets declined, but they beat them handily when they bounced back. A typical example is Monish Pabrai - his performance was abyssal in 2007 and 2008 but then he had an incredible 2009. I was wondering if any of you had any ideas/ insights why people like Monish had such a "reverse pattern" in their performance. Eric

Interesting comments from Ken Peak, CEO of Contango Oil (he is one of my favorite CEO): “The question on many minds these days is the impact of the Gulf of Mexico oil spill on the industry and in our case, Contango specifically. Obviously no one knows, but I will venture an opinion since it goes to the core of our business model and future. I am certain we will face increased regulatory and permitting costs and scrutiny. I believe we can deal with these challenges. I am certain we will face an increased emphasis on safety, and in particular, redundancy in “fail safes”. I welcome these new standards, but believe everything we are currently doing already meets a very high threshold of safety adherence. Hopefully, it is recognized and understood that no human endeavor is ever, and can never be made to be, absolutely, totally and flawlessly 100% fail safe. “There are two areas that give me great concern. The first is the concept of unlimited environmental liability for a spill, or a limit so high that a debt-free company with an approximate $1.0 billion market cap like Contango is in essence, asked to “bet the Company” every time we drill a well. The move in recent days by some in Congress to retroactively change the law regarding environmental liability does not give me great confidence in our government. Nor do comments about “boots on throats”. The second area that causes great concern is the thought of going to jail for a judgment error or equipment failure – especially if the MMS approved the procedures that were being followed." http://www.contango.com/investor/news/pr202_061010.pdf

I think you are making good points that in the long term Microsoft's moat will be shrinking. I frankly don't know what kind of sustainable competitive advantage Miscrosoft will have in 10 years. However, what I see know is that one can buy a dominant business with a lot of short term momentum (next 3-4 years) for 11-12 times earnings and a super strong balance sheet: - MSFT is still the dominant OS for PCs and corporations and we are at the beginning of an upgrade cycle. A report from Forrester Research mentioned that less than 10% of corporate PCs had upgraded to Vista two years after its release. There is a huge potential there for Windows 7. I'm sure people who are still using Windows XP are dying to get an upgrade to Win7. I don't know any other reasonable alternative; - Office is also still dominant. While I agree that products like Google spreadsheets have a long term potential for disruption, they are currently far inferior to what MSFT offers. I worked as a financial controller in a large corporation and I was using Excel extensively. I doubt corporate users will switch soon to Google Spreadsheet... - Windows 7 and Office are - by far -the largest cash flow contributors. I don't see any short term danger to their moat; - Mobile and smart phones are clearly an issue. MSFT has missed the boat so far. The little I've read on their new phone OS (Windows Phone 7) is quite encouraging but they've already lost a lot of market share. This is frankly a concern; - We might have a good surprise with SharePoint 2010 that is released this quarter and with the SQL Server Database. Both have good reviews. Overall I think the downside risk (at $25) is quite limited and there is a good upside potential. I don't intend to buy and hold forever but the odds are quite in my favor at that price. For the record i had a position last year, buying stocks and calls at $20 in the spring and selling at $30 in December. I like the business more now than I liked it then (and it's safer in the current environment).