JSArbitrage

I've always thought this was a smart way for funds to outsource some of their research while people with smaller portfolios actually get a large payoff relative to their portfolio. For example, I love to scour nanos and micros and I love to do special situation investing. However, it's a lot a brain damage for a small gain. When you have a 5 or 6 figure personal portfolio, making a 50% return on a 10% position sounds great until you realize you could have made more money per hour of effort by working at McDonalds. But if you could find a fund willing to pay you, say $10K-$25K flat for each idea that the fund decides to use, it suddenly makes economic sense for a young analyst who has a full-time job outside of investing. And for a $50M fund, a 50% return on 10% of the portfolio, a $10K or $25K cost of an idea is small. It's a win-win for both parties from a cost perspective. It's like someone offering to sell your widgets on a pure commission basis; no fixed costs. If you put a website up and have a $25,000 grand prize for the best idea (as defined by you), you'd probably have dozens of admissions.

I am hoping you learned your lesson from this. The government will sing whatever siren's song it needs to sing to get oversight over your wealth. If the world plays out the way Prem, or heaven forbid, Bass thinks it will play out, this small tweak is the least of your worries. Think Cypress-like decisions in G7 countries. Remember, last time the US paid down a debt to GDP ratio of this magnitude, it required marginal tax rates of 90%. You could wake up tomorrow with the announcement that all 401K/IRA accounts are subject to a 5% tax, effective immediately.

That's what he was saying. My personal belief is that if Buffett decided to start over with $1M today, he wouldn't be doing great business, fair price nor would he be doing a pure Graham. He'd be trolling derivative markets where he wouldn't be required to put almost any capital up. The modern Buffett is a brilliant insurance/derivatives calculator. I think he'd be making those 50% returns that way.

I wouldn't like Seth buying directly from an unsophisticated Madoff victim and making a profit. But this was a feeder fund managed by a sophisticated investor. I am fine with it.

Probably something in home healthcare whether it be HH, hospice, telehealth, in-house PA's, medical machine leasing, etc. If you aren't opposed to provide service to those with bad credit, pawn shops, leasing cars, etc. I think a software company would be difficult. There are tons of software engineers that do freelance work for pretty cheap all over the world. You aren't competing against the local operator, you are competing against a Ph.D in India.

Dimon is too political to be in Treasury IMO. And I certainly don't want a pure banker to be in Treasury during a crisis. Remember Paulson's one-page "I can do whatever I want with all the money and a court can't supervise me" plan?

How anyone can support a tax scheme where the wealthiest pay less tax relative to their income than the middle class is beyond me. You can argue until you are blue in the face but it defies logic. Buffett is right: we need some kind of minimum tax for incomes over a million dollars. I don't know if that's 30% or 50% or whatever but it needs to be done.

I've always thought hedge fund job job postings where pretty funny sometimes. You'll see analyst positions with a requirement that you generate your own successful investment ideas. If I could pull successful investment ideas out of a hat, why would I want to be your analyst? You become an analyst to move up the ladder in hopes that one day you can LEARN to generate your own investment ideas. It'd be like saying, "Investment banking analyst position opening. Must bring a large book of business." If I have a large book of iBanking business, why the hell would I be an analyst?

I don't know how you can claim a HFT algo won't cause a six-sigma event; they already have. It's just the exchanges and US regulators keep coming through and fixing the outcome. If two algos go crazy and trade Apple to each other for 1 penny, the exchanges and regulators basically show up and say they weren't real trades. Let those trades stick and I promise a six-sigma event would have happened by now. I wish I were allowed to cancel my bad trades.

I agree both of you that MSFT has hardly had a lost decade. They've had tremendous success over the last 10 years. But let me also point out that MSFT has a near monopoly on the OS used by businesses (and let's throw Office in there as well.) So much so that even Vista (which by any real measurement was a disaster) couldn't undo their strangehold. Let us also not forget that, depending on the metric, 30-40% of PC users still use Windows XP (software from 11 years ago.) So, in my opinion, you essentially have a company that is coasting on a multi-decade monopoly. And by almost every objective measure, arguably even including XBOX 360, non-WinCo MSFT has been a massive failure. I include XBOX360 because it eeks out sub $50M in profits and Lord knows how much R&D was put into it. They'll probably never make their money back. So, you are right that the House of Gates has built a franchise so strong that marketplace momentum alone all but guarantees another decade of monopolistic profitability. But the problem is that the House of Ballmer is slowly but surely eating the House of Gates from the ground up. They recently wrote down a $6.2B acquisition. That's $6.2 BILLION. Or, to put it another way, 124 years of XBox 360 profits (assuming current profit levels.) I think it's important to be objective here. You can praise the Xbox360's marketshare all you want, but being the best console in the industry is like being the tallest midget in the circus. MSFT nor Sony makes any real money on consoles. My fear is that all those 30-40% of Windows XP users are going to have to upgrade one day and, according to current numbers, they are more likely to use a non-Windows PC more than any time in the last 30 years. So the House of Ballmer may be overpowering the House of Gates faster than you think.

Not to hijack the thread but the Nokia Lumia 900 is a great phone as well. I use it for my work phone and the Outlook integration and speed is ridiculous.

Just an FYI, barely manipulating something isn't some legal threshold that bestows immunity. And it's funny you said "if banks...," What? Is your browser broken? Can't read the emails yourself? Don't trust the Bank of England's own testimony?

As an aside, I won't comment on whether MST can execute but I like their direction here with combining the hardware/software design. I have always been concerned with their WP7 strategy of just making the software; I don't think that's the future of portable hardware. I think the Apple model is best for small consumer electronics. So here's hoping that MSFT continues the trend and buys Nokia like Google bought Motorola. Nokia is one of the best hardware makers on the planet; they'd really be pulling of a coup at these levels. I think EV is sub- $3B right now for Nokia. I think Google paid almost 4X that for Motorola and NOK is a much better company.

I don't really understand the laptop versus tablet debate. I think you have two converging form factors: the "ultrabook" and the tablet. Processors are getting so small, powerful and energy efficient that eventually we will have a single form factor that is an ultrabook/tablet hybrid. We are almost there as it is. For example, I have an iPad 2 and Macbook Air. The only difference is screen size, OS and keyboard. Eventually, there will probably be an OS that bridges the gap, screen size will increase when weight comes down and it seems MSFT is making fast headway on a tablet/ultrabook keyboard hybrid. So right now it's like old debate: will phones get mp3 players or will someone stick an mp3 player in a phone? It's just going to be a hybrid like the iPhone was.

A NOK purchase would be a stroke of genius with NOK at these levels. I still believe NOK makes the best cell phone hardware in the world (including Apple.) MSFT is at a major inflection point, strategically speaking. They either (a) have the belief that regardless of Apple's success, it will always have low single digits of the PC market or (b) they consider Apple a very serious threat to the PC market. If it is (a), then just stop these money losing attempts to half-ass compete entirely and save the shareholder money. If it is (b), then MSFT has to make serious moves. Putting out a random tablet or licensing the phone software to outsiders will never work with Google willing to do so for free. They need a NOK (not a RIM) to go head-to-head with Apple. They don't the talent in-house to compete on phones and tablets with Apple.

So Apple put a MacBook Pro into an ultrabook frame, added the best display of any laptop on the market BY FAR, upgraded CPU, RAM, HD, etc. and it's a "yawn?" Did you want it to drive you to work too? I understand the price point argument completely (you can get like 3 DELLs for the price of the new MBP) but to say it's a "yawn" is a huge stretch.

If you put it back in the context of Munger and what he meant, I don't think it was a "bonehead" comment. I'm sure Munger would agree that some gold can be useful to bribe a border guard or whatever, especially in unstable parts of the world.. I think he was referring to investors like Paulson who will buy billions of the stuff and sit on it hoping to sell it back to someone else at a higher price later (more or less the definition of speculation). Munger said: "I don’t see how you become rational hoarding gold. Even if it works, you’re a jerk." I believe he was implying that allocating capital to good businesses "helps the civilization", as he would say, and that working hard to understand what makes a good business and how the productive economy works is a valuable skill to have. But that hoarding tons of gold and sitting on it waiting for someone else to pay more is not "helping the civilization" and kind of a waste of talent and resources. But that's just my mental model of how Munger thinks based on his speeches and interviews... I was referring to this quote of his: "...gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939 but civilized people don't buy gold - they invest in productive businesses." Maybe I am interpreting it wrong but he is basically making fun of people who buy gold thinking the shit will hit the fan (hence the holocaust reference.)

This is how I view gold as well. Buffett/Munger have had a tremendous advantage: their entire lives they've been able to sit in a comfy office chair and play the market. They've never had to live through (a) government collapse, (B) currency collapse, © outright confiscation of personal wealth, and live in the United States (our currency has been the "gold standard" for their entire lives.) The wealthiest person I know personally is from China. He is probably in his mid-60's. He wears a hideous gold necklace all the time. I asked him once why he wears such an odd necklace. He said when his family was trying to escape China, his mother gave it to him. She said to never take it off because, no matter where he ended up if they couldn't make it together, he could trade it for food, clothing, temporary housing, etc. Gold is the universal store of value. It's held more value than almost every other currency and you could take a time machine back 1000 years and it'd still be a form of payment. That being said, assuming the US is a relatively stable place over the next 100 years, productive assets will probably destroy the returns of gold many, many times over. It's a "if shit hits the fan" investment, nothing more. But that doesn't mean it doesn't belong in someone's portfolio at some percentage. And it doesn't certainly mean only uncivilized people buy it (per Munger - total bonehead comment on his part.) But it is funny to me that hedge fund managers buy it for their fund. If shit really does hit the fan, am I going to go to New York and get it from Einhorn? Or am I going to trade my account statement on the black market? If his view is on massive inflation, why not just buy an instrument directly tied to inflation?

I really feel bad for Byrne, and to some extent Prem, because they fight on the assumption that the truth will win the day. The unfortunate reality is that the regulators just don't care. Byrne could find an email that says, "I, Lloyd Blankfein, am approving of this highly illegal naked shorting process in order to destory OSTK..." and nothing would happen to him or Goldman.

Ugh. This is why we can't have nice things.

Not trying to be political (because it just fact) but I don't think any private citizens or fund's trades can compare to those of the traders/executives at money-center banks because they sit on completely asymmetrical trades. Government will literally bailout other foreign nations with tax money to save the banks within their borders. Paul Volcker is on record saying US banks have been insolvent several times over the last 30 years and they were bailout out in secret. Richard Koo remarked that, during his time at the Fed, they did "everything legal, para-legal and quasi-legal" to ensure that US banks don't take loses. Not even Warren can boast that an entity with secrecy and a printing press engage in "quasi-legal" actions to ensure he makes a gain.

Texas

I also recently read an article about how analyst applied the recent US stress to European banks and European banks passed as well. So I am always take stress test results with a grain of salt.

Think it just a rumor; I doubt it is true. The consensus seems to be that it will have a 4" screen (up from 3.5" now.) I love large screen phones. I had an HTC EVO phone and I LOVED the size (it had a 4.5" screen.) However, the battery life was so bad it was useless and Android was really buggy. I don't know if Ice Cream Sandwich is better though. I think I had Froyo OS.

That's a good question. We do know Ben didn't believe a housing bubble existed. It's hard to argue that they knew a crisis would occur when they thought economic fundamentals were so strong that a bubble didn't exist. http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html Also, if they knew it as far back as 2007, then we really can't excuse their heavy-handedness on the bailout; they would have had two years to prepare. It really changes how one interprets their beheavior during the crisis if they knew it was coming for many years. I would also like to note that Buffett said that sub-prime would be contained at the same time and he openly admits he didn't see such a massive crisis coming. He still says that now.