Kraven

What? For that, you just lost a point on the good trade you made. Not like Rush? I can't believe what I'm hearing. That's crazy talk.

What a great band. Favorite line is from Limelight - "I can't pretend a stranger is a long awaited friend." Used to always write their logo (the boxes with little lines to say "RUSH") on those old yellow Pee Chee folders, the ones with the different sports on them.

I think it's a workable idea. I worked with many people that I rarely saw, if ever, and it was fine. It all comes down to how you work and what your expectations are. That is, are you the type of person or organization that expects everyone to get into a conference room and hash things out? Or is most communication done by email and phone anyway? There are some people who are uncomfortable reviewing things and having discussions other than face to face. There are some cultural aspects to this as well, although that probably matters less here. It also depends on what kind of workproduct you look for. Do you just want a memo or bullet points or something, or do you want a presentation with power points and lunch served? Finally, the last thing that comes to mind is time differences. That can be a pain sometimes. If everyone is always say 12 hours ahead or behind, then sometimes it can be hard to set things up, but that goes back to workproduct. If you're just looking for a memo or something, it doesn't really matter. I think in the right situation it works very well for all parties.

I would disagree with this. While some of the CDS were on individual corporate names, the vast majority of the "bet" was on MBS and various other structured products (ABS CDOs, etc.). It was a macro bet on housing and thus in some ways the economy as a whole.

I honestly have no clue about things like this and would have no idea how to even begin to categorize investments in this manner. Perhaps I am missing something obvious. What are some examples of things that would be in some of these categories, particularly the latter ones? I hadn't really thought about things this way until I saw Pabrai's video either. What I had noticed is that when I was investing, I treated the first 50% fairly similar to the last 10%, which I realized was probably not correct. Said another way, the money should become more and more dear until you are only willing to invest the last 5 or 10% if we are truly at a crazy market low (e.g., 2008 or near-abouts) in order to have money at the opportune time. This seems to make sense to me, as otherwise you are unlikely to have cash at the right time, without having some macro forecasting going on. For him, he would not consider investing unless it was a double in 2-3 years, and the latter categories are copies of his. I modified it to fit more in line with my thinking. Here's my thinking for each category section (and again, I'm trying to modify how I'd been approaching it, so this is still somewhat squishy and changing in my mind): Category 1: I think reasonable expectations of 15% annual returns in investments is the lowest I'm willing to sign up for--or said another way, 10% with a large margin of safety. Examples here might be FFH/MKL/BRK/LUK ~book value. Other investments over shorter periods also make some sense in this category, perhaps moderately undervalued moat companies that you expect mean reversion over time (maybe WFC at P/E of 8 with expectations of acceptable growth). Categories 2 and 3: We've moved up in the chain, so this will probably be shorter term and not buy and hold as much (e.g., strong mean reversion). Or perhaps, when they mean revert, we end up with category 1 companies if we held them. Examples may be something like AIG/BAC at the current prices. Category 4: BAC at 7 perhaps? Category 5: BAC at 5 perhaps? Categories 6 and 7: Various good companies at the bottom of 2008? Good explanation. I can understand the valuation aspect of it, but have no idea how one would know the timing. Obviously everything is about expectations and expectations can go awry, but still it seems hard for me to contemplate putting a timing aspect on things. Using BAC as an example, I feel as good as anyone that it will be worth around BV and more one of these days, but when? I have no idea. So I don't know how I would fit it into this.

I honestly have no clue about things like this and would have no idea how to even begin to categorize investments in this manner. Perhaps I am missing something obvious. What are some examples of things that would be in some of these categories, particularly the latter ones?

Looks like it was a series of great events and helped out a great cause. Will need to try and make it there one of these years.

I agree, but I don't hold it against the book. Most of the important things in investing are really obvious ("simple, but hard to do", as Munger would say), so after a while, it seems like everything I read is kind of redundant. But I still feel like I get value out of it because it reinforces what I already know and keeps me on the right path (at least, I hope). It's a bit like Free Capital. Another book of profiles that I quite enjoyed, but if you're looking for lots of non-obvious investing concepts, probably not the place to look. I disagree with nothing you said. I did enjoy the book and think people will get something out of it and enjoy it. I just don't think it's a "best" book. Agreed that it's like Free Capital. All these books of profiles are similar. Nothing wrong with that. I did think that the chapter on Buffett was gratuitous and after some pretty good profiles seemed to be thrown together at the last minute to attach his name to it.

I read this recently and while I did enjoy it very much, I am not sure it's in the category of "best" books. Don't get me wrong, it's very entertaining and worth reading, but it's essentially just a collection of profiles of the type one would see in Fortune or Forbes or something when they do a long article. Nothing wrong with that, but there's nothing ground breaking about anything here. It's a good and quick read and does provide good background on some interesting people, but I don't think it does much more than that.

I'm attacking you? I thought it was called a debate on topics of mutual interest. How responding to a post is tailing, I am not sure. What you have stated is fairly common, but you state it in a more pejorative way than most. How you could believe that discount to intrinsic value is of limited importance is interesting. Both Graham and Buffett are looking for discounts to intrinsic value, it's just that the methods of determination differ. You show absolutely no sign of having read Graham. Nothing personal.

Good lord. Let me translate your post: buying moat firms is good, buying cheap and "praying" it works out is bad. The pejorative tone you use to describe a method of investing that has worked through every kind of market since the Great Depression shows an ignorance on your part that is startling. Please read something - anything - from Graham.

"Always bet on black." -Passenger 57 circa 1992

I think you're right. At this point, the focus is getting *into* the industry. Not getting the perfect job. That can come later, once I can show people that I really know my stuff. And once I really do know my stuff, of course. Thanks Kraven. Sure. It isn't easy to get one of these positions. Holding out makes no sense to me. That being said all the negatives about the job are spot on. You'll be a yes man. You'll be a grunt. The job will suck. Know what that's called? Being the junior guy. It's no different anywhere. All junior jobs suck. Gotta start somewhere.

Sometimes I think that people don't live in the real world. Of course in a perfect world you should hold out for a better job or the job of your dreams. But very few people live in a perfect world. Take the bird in the hand and learn what you can from it. Make some money. Make some contacts. While doing all of this keep your line in the water and keep fishing for a position you would like better. I don't care which shop you would be at. Almost always better to land a new spot while employed than not. You can always tell the buy side that after X years on the sell side you are certain it makes sense for you to switch over and you would be seen as knowing what you're talking about. Just my 2 cents.

I have no idea how this would be implemented. There are a lot of details which would make it difficult. What if you own stock that is volatile and one day it's worth $2.9 mil, the next day it's $3.1 mil, then $2.9 mil and so on? This would add a big expense to the brokerage industry to monitor. Given that it can't be done on a second by second basis, it would have to be as some measuring point like the end of the month or a given date in the year. It would lead to much gamesmanship as assets got shuffled around. I suspect this can't pass right now and will be viewed as a huge negative for the markets. It's all about posturing and setting up negotiating points that are easy to give up for something more important.

--Chaz Ebert (Mr. Ebert’s wife) I don’t remember a single movie rated 4 stars by Mr. Ebert that I didn’t like. I think he was among the very best movie critics and his departure is a great loss for everyone who loves cinema and its history. giofranchi +1

Gio, thanks for the recommendation. I for one think a thread about non finance/investment related books would be good. I like fiction that like Gio says can take you away from the daily routine and maybe even take you to a different place. I'll throw one out there I recently read for those who like post apocalyptic or disaster fiction - Flood by Stephen Baxter. Very interesting premise. Water overtakes the earth and the novel spans many years as people deal with the ramifications. There is a sequel as well, Ark, that was ok, but I didn't think as good.

I have a suggestion. I think this thread needs a little more religion and politics thrown in to really round things out. It just feels like the topic isn't otherwise being fully explored.

Fair points. I would agree that the very large banks aren't really suitable to be analyzed in the same way that a smaller bank is. For me, that's why an investment in them (which I do own) would be sized accordingly. But I think a lot of the concern about bank's balance sheets, especially smaller banks, is misplaced (not saying by you, just in general). Sure, we can't analyze their loans and even if we could it wouldn't really be practical to look at hundreds of loans in depth prior to making an investment. Even if we had access, it would take too long and take too many resources. But I would say that any insurance company that is capable of being taken down by a catastrophe or a retailer that is capable of being taken down by changes in fashion aren't in so different a position really.

Kraven, here is what I wrote to Christopher1 just yesterday: Have you ever made a comparison between BNP Paribas (or any other large bank) and Fairfax? BNP Paribas has a ratio total assets vs. tangible equity of 26, for Fairfax that ratio is 3.4. It means that BNP Paribas has put to risk $26 for each $1 it owns, while Fairfax has put to risk $3.4 for each $1 it owns. Moreover Fairfax has put those $3.4 to risk through HWIC, which is a very small corporation, and therefore very easy to manage and control. Doesn’t it strike you as a comparison between two utterly different risk profiles? I also tend to compare the equity of an insurance company to the equity of a bank corporation, the float of an insurance company to the deposits of a bank corporation (though their costs are demonstrably different), and the debt of an insurance company to the debt of a bank corporation. And that is because both float and deposits are liabilities whose risk profile is much safer than long-term debt. Now, please consider, for Fairfax total assets are funded this way: 29.3% equity, 60.8% float, 9.9% debt. Instead, for BNP Paribas total assets are funded this way: 3.8% equity, 29% deposits, 67.2% debt. If Fairfax and BNP Paribas are both black boxes, they certainly are two very different black boxes! :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes Gio, your points are well taken, but it's a bit of a strawman argument. BNP is a weaker bank, so you've compared two things are extremes. I could say look at VERF compared to FFH. VERF is a tiny community bank with about $4 of tangible assets for each dollar of tangible equity. It is almost completely funded with deposits and only $5 mil in debt. Of course it's impossible to buy. I am not saying banks and insurance companies or FFH, in particular, are identical investments. But my point stands. If a bank is a black box, so is an insurance company. It doesn't matter to me that one might be more leveraged than another. Balance a bowling ball on a pin and some level it doesn't matter how thick that pin is (unless it is not really a pin at all but something else with a point on the end). So BNP and FFH may be different kinds of black boxes, but at the end of the day one still has to rely on the numbers as they stated in the financials. Nothing more or less.

This is a point I never understand, at least as it relates to community banks. A community bank has 2 basic assets - loans and securities. It has one main liability - deposits. No, we can't see any of these and examine them so we essentially need to assume that the values being placed on them by management are correct or haircut them in some generic way we find appropriate. But how is this different than really any company? Is FFH not a black box? BRK? Why is an insurance company not a black box? Seems kind of the same at a macro level to me. And take any other kind of company. Is a retailer that says it has $50 mil in inventory not a black box? Can we examine the inventory and make our own determination of it's value? We don't even know what it is. Is it blue jeans that are "classic" and will always be able to be sold or is it a warehouse full of "Frankie Says Relax" t-shirts?

0.3% rank for your write-up on SumZero... It's hard to believe hedgies would take such offense. Hedgies are a very sensitive bunch. Even talk about taking away their livelihood and you might as well be declaring models and bottles a sin and crime against humanity.

I used to always chuckle about the Mutual Fund Store. It's a store of . . . mutual funds! The founder, Adam Bold I think his name is, used to do a radio show. Maybe he still does. It used to kill me. People would call in and ask him about various funds. He'd clearly look it up on Yahoo Finance or something and say "uh . . . uh . . . looks like it's near it's 52 week high . . ." They do have a radio commercial with Joe Theismann I liked. It went along the lines of Adam Bold asking Theismann if when he played football they ever did it without a plan. Theismann scoffed "no, no, that would be crazy". And likewise, just as in football one needs a plan in investing. Who knew?

I didn't like this as much as others because I don't think the lesson should be do not try too hard. The lesson I got was don't try to predict what is going to happen. Don't listen to "experts," forecasters, etc. That has nothing to do with the due diligence you need to invest. Look at the most successful investors: Warren, Klarman, Einhorn, Ackman, Bruce, etc. All of these investors dedicate 100s of hours to investment ideas. Klarman had one analyst whose 9 to 5 job was to unravel Enron for like 1 to 3 years. Warren reads annual reports of companies he isn't even interested in buying under any circumstance. The most successful people in almost every field are those who commit their lives to their craft. With that being said, investing isn't a "hard skill" that needs practice. I think you can do fine buying a diversified group of cheap securities. But if I am a professional and want to be the best the investor I could be, I would want to commit most of time to investing. The message should be focus on the right questions (e.g. "What is the competitive landscape?') vs. the wrong ones ("What will earnings be next quarter? What are interest rates going to be next year?"). I didn't take from this that by not trying too hard he means to go drink umbrella drinks on the beach. I think his point is that people try too hard doing the wrong things. They come up with a 50 page treatise describing an investment idea when the thesis can be described best in a sentence. They get agitated trying to figure out what the cost of postage will be in 2015 so they can plug it into their model. What did Peter Lynch say? Something to the effect that an investment idea that can't be written up quickly in crayon aren't worth doing. I think that is the point, not to spend less time in the aggregate.

No, they were not. While CLOs have existed in some form since around 1997 it was a tiny part of the market. Old high yield bond CBOs did contribute in some respects to the telecom meltdown as they all owned tons of Worldcom, Global Crossing, etc. The first CBOs were done by Drexel and First Boston (both claim first deal) and were done in the late 1980s. They did not cause anything then but were rather a response to the junk bond meltdown and a way to get inventory off the books. I would not say CLOs themselves led to the 2007 crisis. I would say that honor is reserved more for ABS CDOs. They did not cause it but rather were the gasoline thrown on the fire. If not for the virtually unlimited appetite in that space the drive for mortgages of any kind would not have occurred.