Kraven

This is very cool. Thanks for posting.

This was a good post.

I think that if so that would be the purchase that finally pushes Berkshire over the top and cements the legacy. There is nothing like In and Out. That would be their crown jewel.

About the junk bond bubble - Predators Ball and Barbarians at the Gate are both good.

My recollection is there was a good, but short (few pages or so), description in the Charles Johnson and Joseph McLaughlin Corporate Finance treatise. I am sure it's a very expensive book but perhaps it's available at a library or if you work for a bank or something it might be on site somewhere. In the alternative I would suggest finding the prospectus for a public trups which should provide some good background.

I can't believe I actually know what you are referring to. They don't make them like Jean Claude Van Damme anymore. Don't mess with me, I'm a Kumite champion. Chong Li!! Chong Li!! Chong Li!! The way he gets those pecs flexing with those crazy eyes as he stalks the arena is an amazing piece of acting.

I can't believe I actually know what you are referring to. They don't make them like Jean Claude Van Damme anymore.

I think a lot of it depends on what it means to forecast correctly. Broken clocks and all that. It's pretty easy to forecast certain things if you aren't held to a time frame. I mean I can tell you with certainty there will be a recession, but when is it? If I just say its coming, well, is that a month from now, a year from now, 3 years from now, or when? That's not to say Hussman will or won't be right, but a lot of these guys have been fighting the last war (the financial crisis) since late 2009. Perhaps they will be right someday, but I don't necessarily give them credit for predicting it.

The Madoff family of funds is excellent.

I had a completely different take on this. I don't see anything wrong with it at all. Think about it at the time the deal occurred. The guy was probably half suicidal thinking all his money was going kaput. Someone comes in and says I'll buy it from you which obviously means they think it is worth more. The guy probably told anyone who would listen how lucky he is to get anything out of it and if they were smart they'd do the same. Then it turns out if he had been more patient he would have been able to get more out of it. Seller's remorse indeed. I just don't see it as a "taking advantage of" situation. This is a guy who still got around $75 mil out. More money than 99.999% of people will ever see. This isn't a case of unconscionability to me where someone has no choices in life. This guy could have afforded the best advisors and lawyers. I am not saying it's a happy situation, obviously it isn't, it's awful. But he could have made other decisions and was in a position to have been able to do so.

I'm describing legacy CLO's done at the top of the market in '06-'07, with the tightest collateral, but also tightest liability spreads, AAA locked at L + 25, equity at time of issuance was projected to have IRR in the low teens, but are now yielding 30% (after incentive fee to the manager). New issue CLO's today would come out at low teens (loss adjusted), right on top of new issue whole loan RMBS deals, validating Warrent Buffet's statement in that famous fortune article: the cost of equity across time, across industry, has basically been 15% pretax. Couple of things about CLO very different from an RMBS securitization: CLO's have a 5 year +/- reinvestment period, which provides optionality that doesn't exist with RMBS deals. A properly managed CLO tend to hold defaulted assets until ultimate recovery, which in many cases could be above 100% of original par value. Such dynamics doesn't exist in RMBS, when servicer just kick the foreclosed property to say Ocwen, who goes on to rehabilitates the property, and get the upside on the other side. RMBS buyers just took the loss. If you listen to Michael Milken, he'd tell you corporate credit is better than consumer credit, which in turn, is better than sovereigns. The first statement makes some intuitive sense to me. If a company fires 10% of its workforce, consumer credit at large of the economy would be affected, but the company would still most likely pay back its debt, or at least try very hard to do so. Bank loans, in turn, is arguably the best structured corporate credit. All of this help explain the performance of CLO equities in the last cycle, but none more so than the principal of getting funded with non-recourse debt with no mark to market leverage. Maybe I should learn CLOs a little better but a thought a big problem with them was that spreads got extremely wide and caused OC to collapse. So then triggers were hit and they had to starting paying down principal. Basically selling when things were cheapest. I know the A tranches didn't get touched, but I thought that the mezz and equity got hurt pretty badly. Did this not happen? If spreads stayed very wide for a year or two more, would this have happened? Spread widening and resultant changes in market value have no effect on OC levels in CLO structures. Same for CDOs, CMOs etc. There is no forced selling of assets due to a drop in market value. One caveat - there is forced selling in market value deals (as opposed to the much more popular cash flow deals), but those were much more limited and that's not what the poster was referring to anyway.

I don't know of any real history of CLOs. Not exactly what youre looking for but The Big Short by Michael Lewis has a good description of CDOs and some history. It's not all accurate but close enough.

Not quite 2 guys and a Bloomberg, but I'm seeing something not that far from that getting done. It was never that easy to do that kind of deal, even in the hay days. But clearly today's CLO new issuance market is not constrained by availability of debt capital. I haven't tallied statistics, but there have been a fair amount of first time issuers done this year, albeit mostly by reputable institutions, but there are a couple that at least in my eyes are not that far from 2 guys and a Bloomberg. I'm not close enough to it to know anymore the current state of play on a granular level. I do find it surprising that loan deals are getting done like that though. Interesting that they are. Many many years ago I saw numerous deals that were literally 2-3 guys and a Bloomberg. There was an African debt deal done that was a couple guys in a house in the burbs. Times change.

Actually not that hard if you can put up the equity. Even if you don't have infrastructure, you can put together some sort of partnership with a second tier guy who does, and haven't done a deal in CLO2.0 yet. Let me know if anyone want to explore. Environment has certainly changed since QE3. Don't think CLO equity will do as well as they did in this cycle just past, but they should still be fair. For those who may not be that familiar, the CLO equity that were done at the peak of the cycle 2006-2007 are turning out to be among the best credit instruments ever created, for reasons that are quite obvious in hindsight. I assume GrizzlyRock is talking about being a manager. Without the equity (pay to play) its almost impossible to get started now. Even with the equity could be tough getting the market approval without a long enough history managing a hefty loan book. The days of "2 guys and a Bloomberg" getting a deal are long gone. Agreed on CLO equity. Turned out well.

Really? The argument against diversification is that having too many stocks is like having too many women because its such a negative? Given Buffett's proclivities I doubt he really believes that. Perhaps a better analogy is in order.

This falls in the category of unnecessary worrying.

Good comment Kraven. A good practice is to be skeptical when you're told exactly what you want to hear. And that happens well too often in one-on-ones with management. A good practice in those situations might be to talk very little, question a lot, and set traps. It might be even better to avoid talking to management all together. Instead, conference calls and presentations make easier to detect manipulative behavior that has to adjust to the average investor … so it becomes more obvious for the non-average investor. Very true. I think the concept of "good management" is so fraught with potential for bad data that for me at least it loses its relevance. At best good management is usually seen by a higher stock price. The halo effect and all that. It isn't often you see a stock at a 52 week low but everyone says management is just fab.

This type of thing is why I am always skeptical about how one "knows" management is good and trustworthy. I mean at best what do you have? Some words on a page and maybe some interviews? Even if someone has met the person and talked with them, I don't know what that really tells you. Perhaps people are less cynical than me.

yeah, so I'm pretty suspicious of these do-it-yourself with form kits. I work in the law field, and doing something you don't totally understand without good help can lead to really costly mistakes. The 20-50k is for custom forms with good lawyers, I believe. These types of offers always remind me of Earl Scheib. "I'm Earl Scheib and I'll paint any car, any color for $99.95!"

How would you know this?

The sign of a bull market. Reminds me of articles I remember reading around 1999. There was one in particular that was really good and I kept it for years. It revolved around certain investors who put their life savings in stocks like MSFT, CSCO, etc. I remember one guy in particular. He was in his late 50s at the time and he had put all his money into a few of the tech stocks. The quote under his picture in the magazine was "I think I'm being conservative". I wish I could find that magazine. A few moves and my wife not understanding or appreciating the need to keep an old magazine and poof one day it's disappeared.

Corner Market Capital. Anyone know these guys? I hear they're pretty good. http://www.cornermarketcapital.com

Kraven, congratulations! Fantastic job! I think very few investors on this board can claim to have studied Mr. Graham as extensively as you surely have. Therefore, let me ask you two questions: 1) How do you reconcile Mr. Graham advice that “investing is most intelligent, when it is most businesslike” with the way he actually invested? I really do not know of a single businessman who holds interests in dozens of positions and who sells them as soon as they reach IV… What am I missing here? Was Mr. Graham just advising that investing is no hobby, but serious business? If so, don’t you think that wonderful phrase loses a little bit of its strength and meaning? Isn’t is just obvious that investing is serious business? 2) Is it true that at the end of his career Mr. Graham acknowledged he had made more money investing in Geico, than in all his other positions combined? Or is it just a myth? If it is true, how can this statement be reconciled with the way he invested throughout his whole career? Don’t get me wrong! Your results speak very loudly for themselves! No doubt about it! And congratulations again! You are a much much much better investor than I am! It is just that you wrote your investing idols are Graham and Schloss, so I was curious! Thank you, giofranchi Gio, thanks for the kind words and good questions. Ha ha, I seriously doubt that I am a better investor than you or anyone on this board for that matter. I just do my thing. 1) How do you reconcile Mr. Graham advice that “investing is most intelligent, when it is most businesslike” with the way he actually invested? I really do not know of a single businessman who holds interests in dozens of positions and who sells them as soon as they reach IV… What am I missing here? Was Mr. Graham just advising that investing is no hobby, but serious business? If so, don’t you think that wonderful phrase loses a little bit of its strength and meaning? Isn’t is just obvious that investing is serious business? That line from Graham is one of my favorites. With all due respect, I think you are thinking of being a "businessman" and "businesslike" in too narrow a fashion. It would seem to me that you are equating the terms with running a business. But it's more nuanced than that in my opinion. I think when Graham talked about investing in a businesslike manner he was in the first instance distancing himself from how he saw most people of his day investing. That is, they would buy something on a whim or based on a tip or what their friend or shoeshine guy said. So for Graham, a "businessman" doesn't just jump into an endeavor without analyzing it and making a decision based on the facts. Further, one of Graham's goals was to develop security analysis as a profession. So in that vein he wanted an investment "scheme" to include thoughts about profit and loss and knowledge of own's results. So "businesslike" to me in the broader sense mean being professional about investing. Be serious about it. Treat it in the same manner one would treat any type of work. But you raise an interesting point. I think there are many on the boards who equate "proper" investing with Buffett and Munger. So a focused portfolio that one buys and holds until the earlier of eternity or a reason for the investment thesis changing. That's one way to do it. It's a damn good way if you can do it, but it never made sense to me. I don't want to buy something that's arguably 2% below fair value today and let it compound for years. I can't see the future in that way. I would rather buy something at 50-60 cents on the dollar and let it revert to the mean. Then I sell. Graham also said that he buys his stocks like he buys groceries, not perfume. That was always one of my favorite sayings from him. I have always envisioned myself as running a grocery store or something. My inventory is my stocks. In one aisle you may have the high end filets and lobsters, but in another aisle is the gum and candy and paper plates. To me it's all good. What do I care what someone buys? Come into my store and buy a pack of gum. Sure, I might just make 2 cents on that, but gum sells all day long and it doesn't take a lot of time to determine your gum inventory. You buy it, you stick it on the shelf and someone will buy it from you. It doesn't take long to track it. So for me, businesslike is treating my investing as a business. Our difference, if we actually even have one, is that you are equating each stock you own as if you ran the business while I see it as inventory. While I do fervently believe that each stock I own is an ownership in a business, it is also just a piece of paper. It's both, Graham says that as well. We have the best of both worlds. So I buy thinking of the business, but then put it on the shelf. Everything is for sale! I run things professionally and can't imagine running it in any more businesslike manner. 2) Is it true that at the end of his career Mr. Graham acknowledged he had made more money investing in Geico, than in all his other positions combined? Or is it just a myth? If it is true, how can this statement be reconciled with the way he invested throughout his whole career? I don't recall whether Graham acknowledged it or not, or whether others said that about him after he died. I don't think it's actually true, although someone can correct me if that's wrong. My recollection is that while on paper he did make a ton of money on GEICO, I don't believe he actually sold the stock or all of it anyway and was holding at the time of his death when GEICO was on it's "last legs" and just a buck or 2 a share. Even if we assume for sake of argument that he made most of his money on GEICO (which I don't believe he did as noted above), it wouldn't change my views at all. One, Graham made lots of money by investing in his net nets and so forth. He was a millionaire many times over long before GEICO did anything. Remember that he retired to California in the last 1950s. After that point he taught and dabbled, but didn't really do much. So any profits that came from GEICO were late in life. And whatever he got out of it was really a "mistake". I don't mean a mistake in the sense that he didn't intend to buy it, but he didn't really care about investing all that much after he retired. He held the position but I don't think it was because of the modern "compounding machine" reasons. I think it was in his portfolio, he retired, he kind of forgot about it. So for me, what Graham means to investing has nothing to do with his GEICO investment. His brilliance was out there for the world to see long before GEICO did something or not in his portfolio. Hope I answered your questions.

I assume you don't want me to discuss "teats", although I could give it the old college try. In terms of my "team", it's just me. No team.

These kinds of threads always amuse me. You see the same themes in other threads like the performance ones. It is always stated as "fact" that a concentrated portfolio such as one "WEB" or Munger might have is optimal. Yes, these posters will say, there are those who like smaller positions but that is a crutch for their ignorance and they are most likely investing in disgusting cigar butts anyway so what does it matter. What is never said is that each investor should invest in what they do best, what makes the most sense to that person and makes them the most comfortable. There is more than one way to skin a cat. No way is inherently better than another way. It's all about making money. Make it how you can. Otherwise it's like Miguel Cabrera or Albert Pujols counseling each player that the only real way to play ball is to hit a ton of dingers, otherwise you're not a real ballplayer. Forget that the guy they're telling it to is a little scrappy guy who relies on speed and defense. But guys like Ozzie Smith make it to the HOF too. There's more than one way to get to paradise.