ScottHall

Hi Kyle, First of all, I'd like to say that I liked your analysis. I do want to say I apologize if I offended you in asking for it - the other document you linked to said to feel free to, so I thought it was alright. I have a few questions about Liberator, and we can take them up offline or here. It does not really matter to me. I kind of view this business as a subscription business, so I think it makes sense to look at it from that perspective. Do you have an idea about the LTV per subscriber and how that compares to Liberator's subscriber acquisition cost? I'm assuming that you do, because you point out what you anticipate the company's advertising spend will be going forward and forecast its sales growth rate on the same page. The reason I ask this is because in your write-up, you seem to indicate that you think this market is potentially very lucrative, yet Liberator is planning on pulling in the reins on its ad spend. Is this because the market is tapped out, because SAC has otherwise increased, or just because the company wants to focus on generating positive cash flow? If it is the latter, and it's not based on the economics of the advertisements, that would seem myopic to me and ultimately counterproductive. I like businesses that have, as Tom Russo would say, the "capacity to suffer," and are willing face short-term headwinds for greater cash flows over time. I'm not saying that is what's happening here, because all I've looked at in regards to this business is the report you graciously shared with us. The other question is that you say this business benefits substantially from economies of scale. I think that's probably true, to an extent, but you also mentioned that the #2 player in this field was recently acquired and has much higher EBITDA margins than Liberator does despite its smaller size. Do you know why that would be? All else being equal, I would assume the bigger guy would have fatter margins. Anyway, welcome to the board. We're always happy to have more intelligent people to share ideas with. :) Best wishes, Scott

Hi Kyle, I want to see the 20+ page report on Liberator. Are you willing to post it here for us to enjoy?

I haven't looked in depth at Alleghany, but one thing I'll note is that when comparing book values of insurers, it's important to remember that not all book values are created equally. Markel's has a lot of intangibles, but its reserving has been nothing short of phenomenal - Markel has, as of FY 2011, released 19.5% of initial 2002 accident year loss reserves, 37% of initial 2003 accident year loss reserves, 35% of 2004's, 23% of 2005's, 24% of 2006's, etc. I don't know how Alleghany stacks up compared to that, but it'd be interesting to check out to see if its book value is as substantially understated as Markel's is, or if the discount is justified from a history of inadequate reserving.

I wonder how many such people actually exist. I'd be interested in meeting them if I found any. I dropped out of the 4th grade, myself, and have found that most people who have done similar things are not worth my time.

I think this says a lot. Anyone who has significant exposure to long duration bonds at current interest rates is probably going to lose a lot of money. The article didn't specify, but hopefully people aren't purchasing these in any significant quantity. Relative to interest rates, I think stocks are generally a good buy at current levels. An interesting thought, for anyone who cares about such things: the equity risk premium is currently at about 6% - near the highest in history. If interest rates were to move substantially higher, do you think that the equity risk premium would compress, or do you think the premium would remain the same?

I've always been a fan of Pabrai. The interviewer, Morgan Housel, frequently puts out interesting articles on macroeconomic topics as well. I wish I could see this interview all in one piece.

Scott, I am not sure whether the above is addressed to me or not. Assuming it is, I actually don't filter out people "automatically." What I want is to have "evidence" that my potential hires are self-motivated and have basic skills to be trained in reasonable time to contribute in their jobs. I have also found that "top-ranked" graduates from second-tier schools often are every bit as smart but "harder working" than average graduates from the first tier school. Many chose the so called "second-tier" schools for family or financial reasons. Many of my fellow managers would go for the top-tier school graduates. The way I do it, I actually get to choose people without so much competition. I think that, for most people, the advantage of working for a "master" is that it orients you towards going after important problems and also let you see in real life how a "master" operate. For this reason, it does increase one's chance for successes. An example is that so many people worked for Ben Graham ended up being successful investors. Some of them are very smart and formally educated as Buffett and Tom Knapp but others being of reasonable intelligence are also quite successful such as Schloss. Having a degree from a prestigious institution, like you said, does open certain doors for you. However, once you get into the "door" you still have to deliver. I have seen my shares of Ivy League PhDs fell flat on their faces after they "got into the door," so to speak. I also agree with you that for truly great people, with their determination to be successful, they will be successful anyway in whatever they choose to do. A good example is Ted Williams, the baseball player. Everyone knows that he is a baseball all-time great. I read his book about hitting. Judging by the way he approaches hitting, I am quite sure if he wants to be an engineer, he would be a truly great one. Oh, he was also a fighter pilot during Korean war and was the wing man of John Glenn, the astronaut. Just my 2 cents.... Hi Zippy, Great thoughts. I'm not in a position to hire anyone right now, but I suspect I would filter out a ton of people based largely on attributes such as formal education. That is somewhat hypocritical of me, considering the same thing happened to me twice - I only managed to get a job where I work now after three applications, with the benefit of knowing a guy who worked at the company the third time. The first two times I didn't even get interviewed. I wouldn't filter people out because of a lack of intelligence, necessarily. It'd mostly be because of time constraints. I know that, many times, several hundred people apply for a few positions at the company I'm at now. Considering there are only a few hundred people who work at the entire company, there needs to be some sort of screen because it's probably not practical to end up interviewing thousands of people a year. I guess you could consider that placer mining, if you want to use the terminology of Charlie Munger. Evaluating people is something that interests me a great deal, but I am not interested in most people. I like to associate with people who love what they do and are not afraid of sharing their knowledge with others. People who work for the sake of getting a paycheck are not people I'm generally interested in, because I think that passion for what you do is very important as it related to continual self-improvement. Generally, if people are unwilling to stay up past the middle of the night to learn new things without being asked to do so - whether they're fields of study of new techniques in things they already know a lot about - it is difficult for me to stay interested in them for long. I spend most of my time researching more about business and investing, personally, but I have little doubt you could do the same thing with a variety of subjects. I also enjoy forums like this one, where knowledgeable people get together to share ideas and concepts. I've learned a lot from this site, and I wish I was aware of more like it regarding other fields. The nice thing about specialized sites like this is that it only attracts people who are very interested in the subject matter. This site has done a great job at not turning into the Yahoo! message boards, and hopefully that will continue to be the case going forward. Best wishes, Scott

How do you define intelligence? I think that's a pretty important consideration. Is it based on the level of education the person has completed? If so, you'd be excluding many of the greatest business leaders of all time, as many of them didn't bother completing their formal education because they thought they could get by without it. I've seen an argument made that having a degree from a prestigious institution is more of a way to signal potential employers that a candidate is both bright enough and dedicated enough to complete the program, but that those same people probably would succeed anyway exactly because of how driven and intelligent they are. It makes intuitive sense to me, but I am biased. I suppose it could be useful as a filter. Acknowledging that there are probably worthwhile people without extensive formal education and then not searching for them anyway as a way to cut out time wasted on evaluating average people makes sense from a resource management perspective. Why bother searching for the absolute best when there's a high probability those people will make it through your filter anyway and, even if not, you're reasonably certain to find plenty of desirable candidates anyway? Just random thoughts. I'm in no way questioning your judgment when it comes to evaluating people - I'm just curious.

Hi everyone, I found this a few weeks ago and read it in one night. It gives a pretty comprehensive overview of the insurance industry, and I picked up a few tricks from reading it. Perhaps you will find it as enjoyable as I have. Best wishes, Scott http://www.columbia.edu/~dn75/Analysis%20and%20Valuation%20of%20Insurance%20Companies%20-%20Final.pdf

I can't say that I blame them. I went to college - briefly - but didn't stick around, largely because my accounting professor was a fool who said that the cash flow statement is irrelevant. I wondered what other nonsense I may have been being taught in fields I didn't understand.

I think it's worth noting that every study I've seen on the matter indicates that women, on average, are better investors than men despite not knowing as much about investing. The level of knowledge about investing is very low across the board, admittedly, but most of women's outperformance comes from temperament. They're generally not as sure of themselves, and they don't trade as frequently (so they have lower frictional costs). If anyone is interested, I'll see if I can find the study I'm thinking of.

I will second that. This is an excellent book and a great read. The chapters on Singleton and especially Malone are by themselves worth the price.

Care to elaborate on this? There are many legitimate companies on the pinks, contrary to popular opinion, and I'm wondering if you had a run in with one of the frauds.

Hi everyone, Just want to let you know that I've been talking with Nate off-and-on for about a year, and he's really taken this and run with it. His site is pretty cool so far and a good way to get in to this very under researched market. I have shares of a handful of OTC companies as well. Unfortunately, there's some overlap with Nate's holdings, so I can't contribute a ton more than is already there, but I have a few that aren't listed yet. If you have any annual reports that aren't there, I'd encourage you to share them. It's hard to get information on a lot of these companies and I think a cooperative effort to do so would be very useful for everyone involved.

One thing to consider is that facts aren't copyrightable. For example, a company's financial statements are fair game, while letters to the shareholders probably aren't. The expression of facts can be copyrightable, but the facts themselves never are. I was looking in to this a while ago for certain reasons, and I think it's worth mentioning. Admittedly I am not a lawyer, so take the value of my thoughts for what I'm charging for them.

I would have voted for the winners in that order, too. Some of those presentations were train wrecks. I imagine a lot of the students were nervous; I probably would be.

Do you know the extent of Google's involvement here? I'm pretty sure I read that Google doesn't charge phone manufacturers to license its Android platform, and don't receive any of the money from the sales of the phones themselves. Is this different than the others?

Good enough for me; it' not my place to judge what you find moral or not, I just wanted to see if you found stealing golf balls, etc. relevant. I don't personally care, because there's a lot that can be learned about business and investing from studying Buffett, but it wouldn't surprise me if a lot of people would care. That's certainly their prerogative. Personal morals are something each man and woman needs to figure out for themselves, in my opinion.

I think you're giving politicians too much credit. I doubt the next president will be able to do much without Americans revolting. It's curious; if you ask them, most citizens appear to want us to reduce the deficit, but if you ask them, they'll also they want to keep all of our entitlement programs and will get quite upset if someone decides to cut or eliminate them. It certainly doesn't help that America can't seem to figure out what it wants. In 2008, the Democrats took control of the White House and increased their majorities in the House and Senate. In 2010, the Republicans took back the House and reduced the Democratic majority in the Senate. In 2012? The Democratic president has a net negative job approval rating of 8.2%, the Congress is almost universally despised, and yet the Democrats have a lead of 1.2% in the generic Congressional poll average. I think the biggest thing is that America needs to decide what it wants and quit playing hot potato with government every few years. That's just in my opinion, of course, and it's not worth much.

I think you're confusing Buffett's personal life for his business life here. If you've read The Snowball, you'd see that Buffett has had a very ... interesting life. He was married, but his wife moved out west and set him up with Astrid Menks while they were still married, who more-or-less acted as his wife except for public ceremonies and the like. He did marry Astrid Menks after his wife died. He used to steal gold balls from department stores when he was a child, and mostly neglected his family until recently because he was so focused on becoming very rich. I don't know if you'd consider that immoral or not, but it's certainly different. I don't really care about his personal morals or anyone else's for that matter. The fact that a person is, for lack of a better word, a jerk in life does not detract from their accomplishments in business. Just look at Steve Jobs for the perfect example of that.

how do you know of it profitability where there are no public reports? News articles, primarily. I haven't contacted the company for an annual report, but that's because I have no interest in investing in the company. I just take the company's word for it. Hi Tim! He's right, by the way. At least with the NFL, it's unlikely that there will ever be a publicly traded team. If you read the Packers document, you'll notice that the NFL has to approve the sale of any ownership interest in any NFL team. The only exceptions are gifts to immediate family or inheritance if the current owner dies. That's not really conducive to a public listing.

Fair points to the both of you. I know of one pure-play publicly traded sports team here in the United States; the Indianapolis Indians. The company is surprisingly profitable. I imagine a lot of that has to do with the fact that the company doesn't pay the salaries of its players. Since it's a farm team for the Pittsburgh Pirates, that team foots the bill. Good luck getting your hands on any shares, though. There are fewer than 800 outstanding, and they trade very infrequently. The company's stock most recently traded in October . . . of last year. The going rate seems to be about $25,000 per share. http://www.otcmarkets.com/stock/INDN/quote

I'm curious why anyone would purchase these securities. Not only is there no potential for profit, but the NFL can apparently fine you up to $500,000 if you're found badmouthing any NFL team. Seems silly.

Donald Keough? Wasn't he the president of Coca-Cola referred to in The Snowball? From what I can recall of it, he sounded as though he was the brightest guy in upper management there at the time. It's nice to see that some people appreciate Berkshire's cheapness at these levels.