oddballstocks

When you form a company I believe it's required to state the number of authorized shares. This is true in PA, and I believe Delaware. A company can't issue more than what is authorized. Now in theory they could continually vote to authorize more shares if they wanted. My guess is if the company were used this might not stand up in court. But the company is betting they won't be used or that anyone will even care.

I remember playing this game with friends in high school where we'd try to assemble the perfect fantasy band by cherry picking members of other bands to be on our dream team. "I'd take the drummer from Rush and the guitarist from Yes.." We'd end up with these weird frankenstein combinations that'd never work in real life. I believe investing is like that as well. You can't just throw some guru names out there with percentages and classify someone as such. Prem was influenced by those individuals I'm sure. But he's also a product of his experiences and those who work around him. It's these factors that are never mentioned.

The problem is it's worse then that. The customer is now HFT. The SEC has a subscription feed where a HFT can buy access to SEC filings 1-2 seconds early. In computer time that's an eternity. A server can parse a filing in well under a second as well as make a buy or sell decision based on that. When I saw the program I believe the SEC was charging $50k a month for this. The SEC is selling their regulatory data to HFT, it's not only legal it's endorsed by the regulatory body! Exchanges make their money selling their data and feeds to HFT firms. Brokerage firms sell customer order flow to HFT firms. HFT is so profitable (how could it not be??) that they are a ready buyer for any and all forms of data and suddenly the companies we trust with our trades and execution and regulation are happy to sell out. HFT to me IS the narrative that Wall Street is screwing average Americans. When I hear Avg Joe or Avg Jane talk about how Wall Street is ripping the guts out of the middle class they aren't talking about high mutual fund fees or boiler room operations. They're talking about the perceived unfairness and edge Wall Street has given itself. This is what people are fuming about. Wall Street is one step ahead and even if they do mess something up they have so much power and clout that their sins are forgiven and all mistakes erased. I was talking to a wealthy individual recently who works in markets and is VERY concerned about this. He said the gap (real or perceived) between the rich and poor is a problem. I guess this had troubled him so much he studied these gaps in history and how big they needed to be before commoners revolted. According to this guys estimation we're beyond the average gap size that's led to revolts in the past. I don't know what that means. I can sense the hostility when talking to non-finance types. This is a random story, but I'm well on my way down the rabbit hole so I might as well continue. I was skiing in Utah recently. I chat with others on the lift, I chat with anyone who has ears..forgive me. Anyways I was talking to a girl who raised money for non-profits. She asked what I do. I discussed a little of my tech company that provides tools to better utilize bank data. I am not a bank, I don't fund banks etc. She flipped from being a nice and well adjusted woman to ranting about how I was helping banks screw over Americans and I should be ashamed of myself. This is not an uncommon attitude. Maybe an hour or two earlier in the day I rode the lift with a Cxx of JEF. The guy tried to hide that he worked in finance. He had told me he lives in West Chester and works in Manhattan, I said "you work in finance?" he dodged the question etc. I said it's what I do as well and boom..suddenly the guy opens up and we had a great conversation. He wasn't out there advertising his title, just the mere mention of finance in NYC elicits the reaction of that girl over and over. I don't blame the guy. I don't know how this ends, but I don't see how it gets fixed.

You said "No" to your wife? How did that go? Do you do that often? Brave man. (Or foolish one) :) Happens all the time, a non-event. Unlike most wives mine respects my opinions and thoughts. I thought it was a bad deal, said no and she was fine with it.

Here's another way to look at it. This is how auto dealerships were viewed classically by founders. You start a dealership in an area. Usually you purchase land on the outskirts of town, you need land for a dealership. The dealer takes a loan on the land. The dealership pays the loan down over 10 years or so maybe longer. The dealership makes fairly poor profits unlevered, nice money levered. Eventually the land is paid off and the owner mortgages it to buy a new dealership. The process starts over. At the end of 30-40 years in the business the owner has a nice stable of dealership properties in ideal locations. The business on top brings in alright money and the land is extremely valuable. The owner then sells the dealerships but retains ownership of the land and leases the land to the new buyer. This lease is their retirement income. Obviously with some extra capital this process could be sped up, and things compound. Some dealers are content to own a location or two and get paid decently. Look at small towns, the car dealer is often the one doing the best. In larger cities dealers needed to scale quickly to stay in business. This is why the survivors have a stable of brands. My buddy in the business is very attuned to costs and where they make their money. In his view if car dealerships weren't levered there would be almost no money to be made in the business. Almost all of the return comes from the leverage. Much like home ownership. Ben, In terms of new car sales I believe the dealer makes a few hundred dollars on the initial sale. Then they get an incentive around $1-3k per car from the manufacturer based on volume. This can't be negotiated at purchase time because it's technically not part of the car's price. It's a separate payment from Honda/Toyota/GM based on the number and types of cars sold in aggregate each month. I don't believe dealers make a lot on financing. It depends on the dealer. Some will add 25 or 50 bps to each loan and make a killing. I talked to a wholesale dealer and they said they make a straight $100 per loan originated. Warranties are a big seller. The dealer tried to sell us on an extended warranty, I believe it was going to cost us $3500 for two years or something. For a high end car with no problems this is a sucker bet. Of course my wife wanted to buy it for the "piece of mind" but I just said no. I'd love to know the commission or markup on the warranties.

Is it going to be the same "screw the customer" experience as in other auto dealerships? I guess I don't understand this purchase. I have a friend who is in car dealerships and he's been saying valuations have been stretched for years. When he and others are thinking of getting out you have Buffett climbing in. The industry has completely changed in the last few years. Previously there was a greater margin on new cars. Now that margin has shrunk and dealers make their money on incentives from the manufacturers. They also make money on service. Used car sales offer some promise. There is a LOT of margin in most sales especially in the $5-15k range. Incentives have changed with online sales. We recently purchased a car from a volume dealer near us. The price changed on a fairly regular basis based on the surrounding market. The dealer didn't actually set the price, they set parameters in the software and let the software set the price. We paid what I'd consider a fair price. The car is in great shape and is somewhat rare. It was cheaper than other cars in the area by a few percentage points. The dealer said the slight discount is how he moves volume. They do 150-200 cars a month and have found for them that's the only way to make money. It's an interesting business model. I ran this by my friend who's in the dealer business, he knew the software immediately and said it's what everyone has moved to. There isn't a guy out there guestimating a value anymore. Part of me thinks Buffett is out of touch on this. He's thinking dealerships are still full of guys in corduroy blazers with elbow patches working customers over for every last cent. With the Internet and mobile I don't think too many customers have patience for that business model anymore. Especially if you can go on TrueCar or a million other sites while at the dealer and see what others have paid.

A few other thoughts. -Japan still hasn't recovered from the highs they talk about in the show. -We still haven't hit the cheapness of the early 1980s that they talk about. I guess technically we're still in a giant bull market? -Boomers didn't believe SSN would be around now, they don't seem to think it'll last. Seems like this prediction has been wrong. -For boomers this is really an incredible market. Since the early 1980s huge gains. Yes there have been crashes but we always recover quickly. If one were to look back I don't see any reason to not invest 100% in stocks, they always go up even over this long period. I wonder if the market will ever get cheap again. I can be persuaded with the globalization argument that now the world can buy the NYSE in a few clicks so there is that much more demand with a smaller supply. But at the same time I can somewhat see this weird Japan type of experience in the future as well. Japan as a country didn't stop functioning, but valuations have just crept down forever. While some say Japan will never recover (I disagree), I can see the same argument applied to the US. The US market will never fall and stay down like Japan. Maybe the end of the video will be a prophecy come true, maybe we'll finally hit that valuation wall and stocks won't recover for the duration of the Boomer retirement. I really don't know.

Really enjoying this. Lynch says some of his best gains came after three years.... rumors have swirled that a majority of his gains were from owning mutual conversions. These are banks that aren't allowed to sell until three years after their IPO, coincidence? He owned something like 350 of 360 over the tenure of his fund. I remember the market in 1996. I went canoeing up in Northern Ontario with some friends and their fathers. Two of the fathers couldn't stop talking about the market and how incredible it was. At the time I would look up quotes from my favorite tech companies in the business section each morning. I remember watching Gateway computer rise like a rocket, it just never stopped going up. My grandfather was heavily invested, he did phenomenal for himself. I wanted to open a brokerage account and get in on the action, my dad didn't ever follow through with that request. It worked either way, my grandfather gifted me some of his stocks to pay for college. I had completed almost all of college by 2002 when things finally crashed, lucky timing..

Yes, I read almost all the popular diet books. The problem with their concepts is that observations are usually based on what happens in a population with a lifestyle and diet that is very different than what our ancestors experienced only a few generations ago. Imagine how erroneous our ideas about mental health would be if those thoughts were formulated by experiences and interventions among the population of an insane asylum. We might conclude that we could all benefit by taking antipsychotic drugs. If one sits all day and eats whole grain bagels made with fine flour with twenty times as much gluten as primative cultivars of wheat had, that would not be healthy. The benefits of eating whole grains are not equivalent to eating many so called whole grain products. Interesting... so what are true whole grain products and where does one buy them?

Just waiting for that special hard core reader to come in here and brag they don't eat any sugar and subsist on rocks and dirt, but pure rocks and diet, none of that processed crap. Anything in excess is bad, food in moderation is fine. But what is moderation? Years ago I lived the classic unhealthy life. I ate too much, sat too much, ate out for lunch and felt like crap even thought I didn't know it at the time. I had a switch in my job where I could work at home. I started to eat less and work out, suddenly I was losing weight. Took about a year and lost 45 lbs that I've kept off. I was skinny and athletic up until I entered an office. I have a natural athletic inclination, I look at my overweight period as the anomaly. Co-workers asked me what my secret was. There is no secret, hundreds of small life changes compounded over a year is the secret. It sucked, but it worked. I went from being hungry at first to being satisfied. I eat a lot less now and am fine. I eat better too, I love veggies and fruit. If I have some desire to pig out I will do it on that. I figure after a run if I eat a bag of radishes or two apples and a head of broccoli that I'm not doing my body much harm. A weird thing happened though. As my body reverted to normal I will now feel terrible if I don't eat properly. If we go out of town for a few days and the host only eats out or has junk in their house I feel miserable by the end of the weekend. My body will get kicked out of line by unhealthy food or too much of it. I still enjoy sweets but after more than a handful of Starburst or some other candy I will have a stomach ache. I don't think that's necessarily a bad thing, just self regulation at work.

Local library? Not sure how Canadian libraries are organized but in Pennsylvania it works like this. There is usually a local library that's part of some county system. The county system is part of a state network. You can request any book at any library across the state to be delivered for free. You read it for free and if you return it in time it costs absolutely nothing. In Pittsburgh there is a "Business Library" downtown with a floor of every business book you could imagine. They have a storage room with annual reports for companies going back to the 1940s. A ton of information, all free. I like to go and spend time there, some unique books.

Here is my summary version. Scott had an unconventional childhood. He dropped out of school in 4th grade to play video games. He eventually landed in investing, goes against the grain and has moved up in the world. He hasn't moved up conventionally, but by blazing his own path. In his view too many clutter their life with material goods of dubious value. His path isn't for everyone, but we would all be better served by thinking and at times acting unconventionally. If you want the same results as everyone else do the same thing as everyone else. If you want different results from the pack you need to be different. Scott's results will be clearly different, I don't know if it's better or worse, but they will be different. As someone who has mostly marched to my own drum through life I can feel for Scott. It sucks he's had to deal with a lot of family hardship, but it sounds like he's made the best of it. We don't get to choose our circumstances in life, but we do decide how to deal with them. Many with Scott's background would be wasting their life away, he's chosen to do something different, something better. I applaud that. It's tough to be vulnerable and introspective. If nothing else I think this thread could be a reminder that not everyone arrives at the same place in life the same way. We're all on this same site but with varying backgrounds and it's worth keeping that in mind.

Scott, Appreciated the post before it was taken down. There's a lot of value in what you've learned. For what it's worth Scott and I had emailed back and forth mid-2011 and he was the only who mentioned the Walkers Manual of Unlisted Stocks to me. From there I ended up deep in the weeds with unknown companies. Those few conversations helped me blaze my own path in the investment world. I doubt that was the intention but that's what happened. Sometimes you plant a seed and it's unknown what type of plant will grow from it. Thanks! Nate

I don't know, I've seen this with a few of my other Japanese net-nets as well. People just warm up to them from time to time I guess. I owned a very small position in KG Intelligence, but sold a few days ago. Meanwhile my net-net screen for Japan is down to a record low number of hits and for the first time in two years I'm actually having some trouble to find good replacements for positions I sold in Japan. Have seen something similar myself. A month or two ago most positions were flat or negative. Suddenly I'm very positive on a few now. I have no idea why, happy with the turn of events. Patience is required with this.

Something else to keep in mind. The agencies are supposed to be wound down by 2018 leaving no one to buy these mortgages. Saw an article recently saying that no bank would hold a 30-yr mortgage on their books. Maybe by 2018 we'll start to see Canadian or European mortgage products. Or a race to the deadline with house sales going like crazy with everyone trying to lock in financing before these mortgages vanish.

My experience has been that people who are destroyed by leverage rarely realize it was the leverage that did them it. To them it was always some "other" external factor that was an issue, and if it weren't for that factor things would have been fine.

I ran some stats on these recently. Banks in general do not own much longer than 10 years on their own balance sheets. I believe the longest products are sold to the government and packaged into securities. Banks might be the buyers of some of those securities, but I don't know who else owns them. Recently I pulled some stats for a Bloomberg article (http://www.bloomberg.com/news/articles/2015-02-23/bofa-leads-charge-into-bonds-as-banks-build-2-trillion-hoard) showing the difference between Treasury and Agency holdings at the largest banks in the US. If anyone's interested I can run another query showing Treasury/Agency (including MBS) at banks, but in short most banks own a LOT of MBS.

In accounting everything is tied together. If you have a company that generates free cash flow and doesn't pay it out as a dividend then book value grows. I like book value for a few reasons. It changes at a much slower rate compared to earnings. If a company hasn't grown book value for years then you have insight into their lack of earning power. If a company is growing book value you know they're growing earnings. Book value is widely used in private market transactions, if it's an important metric for private sales and we're saying that public values should eventually approximate what intelligent private buyers would pay we should consider the value. Book value is an estimate, but earnings are as well. Cash flow supposedly isn't, but there are ways to modify it too. I like to buy companies with great earnings at low multiples, but earnings can be a mirage at times. What if Apple's products suddenly are found to cause cancer and they fall off a cliff. A 10 year extrapolation doesn't cover that. But book value is more tangible, even with estimates. If earnings suddenly falter you are still buying something, even if it's worthless office chairs and cash in a bank, it's something. Neither is a silver bullet, but they are very connected. To look at one metric and forget about the rest is to ignore some of the facets of an investment.

"Oh uh, whoops... I saw the keys sitting there and figured it was part of my bribe..was I not supposed to take it?"

This is a really interesting thread to read. It could be a case study for why companies should remain private. Equity financing isn't ideal, but Prem seems like a standup guy and I don't get the feeling he's trying to pull a quick one on shareholders. This is his company after all. I would prefer a manager who owned shares and paid themselves a dividend verses a crazy pay package or constantly selling down their stake. But I could also see why a manager would want to be private, no message board quarter-backing going on. If a private company wanted to sell shares to a PE firm to invest no one would care, they'd figure the owners were doing the best they could. If a private company paid a dividend vs taking giant salaries no one would complain. I agree with whomever said above that if you don't like what Fairfax is doing then don't invest. There is no mandate to hold FFH in a portfolio.

Cloud, You should talk to the guy who was posting around here recently about putting 100% of their portfolio into one stock. Here's my advice. Stop worrying about the investment returns and get a job and save. The biggest predictor to investment success is consistency of investing process. I'd do a deep look inside and ask yourself if you have it. You said you tried to get a job and gave up. If you give up that easily over a job what will happen to your investing process when it hits a bump in the road?

Not a trader..240 trades a year..!! Fidelity considers anyone with over 120 trades a year an "Active Trader" I don't really know what to say except "It works until it doesn't." Trading often and leverage aren't hallmarks of success, but who knows maybe you'll buck the trend.

benhacker, Yes, that's the post. I believe the tax thing was in an email to me. The link you posted didn't look familiar. On Genius: What is a genius? I'd put this in the same category as "what is smart?" How do you identify someone as "smart"? There is no test for smartness, there's an IQ test, but people routinely will say someone is "smart" and listeners know what it means but there is no solid definition. I think in many ways genius is similar. We know it when we see it, but we can't quantify it. Here's my take on it. To me there's a difference in being successful and having drive and being a genius. Someone who's successful and has that personality will do well in any field. A guy like Jamie Dimon for example, I'm guessing if history took a different path and he got into landscaping he'd own the largest landscaping company in the country. Things work like that. I wouldn't say Sam Walton is a genius, or even Jeff Bezos. They're in the Jamie Dimon camp, exceptional executors and gifted people, but not a genius in the field. Buffett and Graham were groundbreakers. They looked at things differently and acted on those views. I'd put Steve Jobs or Bill Gates into the same category, they all looked at things differently and created something new. Being a genius doesn't require 100% original thinking, at this point almost everything is built on something else. But it's being able to step outside of the norm and blaze a new path. The genius to all of these men is they were able to take a bunch of dots and connect them in a new way. My suspicion is that Buffett knows this, but also knows that he is rarely talented. Many people who discover a new path have a drive to tell the world and publish a book (Graham etc). Buffett has said repeatedly he won't write a book, he'll let someone else tell the story. I find that curious, but I think it's because he realizes he can't quite quantify himself what he has. To use the well worn analogy it's like Michael Jordan trying to write a book on throwing free-throws. He's gifted, he just aims and throws, how do you teach that?

Thanks for the response Nate. I understand your perspective on reactions to Buffett criticisms... I selfishly want to here any and all bad stories I can so I can do more work to see if it changes my opinion on Buffett... hence my harassment. :) Understand that others may reflexively attack negativity (or maybe I do too!). Thanks for spending 30m trying to find, I have searched and found nothing as well... hard to find specific stuff on Buffett since he is so well covered. Yes, any search of Buffett and the word "tax" comes up with thousands of articles and articles referencing articles with his public statements on taxes.

It was one of the KKR guys, as in his last name is one of the initials, don't remember which one. Look, the nature of this board is that Buffett could commit some egregious crime and everyone on here would come up with a way to justify it. I get that, this is his cheering section. Whatever bad things he's done aren't really bad, if someone else did them they'd be terrible, but Buffett makes them good. I spent maybe 30m trying to find the links I'd read without luck. This was probably two years ago when I found this. I seem to remember someone mentioned something in a comment on my blog that tipped me off. At this point though I'm not going to trawl through a few thousand comments looking for it. This is just a general comment (not directed at you Ben, but you mentioned this). I've found in the investing world there is a lot of great information that is passed around via emails and phone calls that never makes it online. Just because there isn't a link doesn't necessarily make something untrue. In the situation I referenced above I read it online, so somewhere out there links exist. But not all information is documented as such.