kevin4u2

The only one that is cheap is LTS. It also happens to the be the crappiest company on your list. I would short SGY and possibly LEG.

Rising rates means higher profits. Banks make money of the yield curve. I find it amazing how the news spins the interest rate question. Supposedly it was bad for the banks to have falling interest rates and now with rising interest rates it is still bad. You can't have it both ways. Overall it will be a net positive as rates normalize.

Banks are still cheaper than the banks in Canada and Australia. I would be worried about the loan books of those banks than the US banks. US banks are still under earning their potential. I own WFC BAC and JPM. All excellent banks and the profit tap is just beginning to open up again. When I purchased my WFC I knew they could earn $4 per share and dividend over $2 per share. The dividend yield will be 8-9% (on purchase price) and I plan on using that steady stream of income to pay the bills for decades to come. The best is yet to come. That was a punch card opportunity and it will be the gift that keeps giving. It was what I like to call value in plain sight. The question is whether or not the banks are still cheap? I'm holding because I have made my bets. The dollar bills have been picked up but I believe there are still 50 cent pieces laying around.

All good posts. I would recommend reading about the different parts of the brain and what the different elements are responsible for. For example our limbic system is responsible for the emotional part of your thinking, fear included. This part of the brain is responsible for self preservation, fight or flight tendencies, and emotional hijacking. "Does it eat me or do I eat it?" is what this part of the brain processes, and we should be thankful it is located at the base of spinal cord. This allows for a quick response. Today most threats are not physical threats but psychological threats however this part of the brain is unable to distinguish between the two. This part of the brain also becomes fused at the age of two and stops developing. That is. Why you can be 2, 42, or 82 and still have an emotional meltdown. If the fight or flight response is strong enough it will result in an emotional hijacking in which the cortex is flooded with hormones and the rational portion of our thinking is rendered useless. This happens countless times in the workplace and the home when someone threatens our ego. Often it isn't till after the chemical response has subsided that you will be able to think rationally and reflect on how irrational your behavior was. The consequences to investing is numerous, however patience and emotional intelligence/awareness are key. There are numerous books these subjects for those interested. Just remember emotions are not tools of cognition, but they likewise shouldn't be repressed. I believe people are "wired" differently and thus WEB is an anomaly. That said, new neural connections can always be made in the brain, however one needs to greatly develop their critical thinking ability.

Take a look at their financials Flat and falling profits. Margins dripping hard in a very competitive industry. Living off the coattails and products of Steve Jobs. Stock has been hammered as a result... 300 million will do. I'll tell you what it would take for me to be interested in Apple. Instead of the usually conference call where the CEO talks about how awesome the company is he starts talking about reality and finally admits "Houston we have a problem"..."but we are focusing on the major headwinds by x,y and z strategies." Nobody is buying the stock today because Cook is in detail of reality.

Just how much value has he added since becoming CEO?

Thiel funds some very forward looking people, like the SENS Research Foundation (the only charity I donate to). I think he's just trying to bring some attention to the real problem of not enough smart people going into more productive fields, and encourage people to get off their butts and help move us forward, which is not a bad thing -- all this innovation doesn't just happen by itself. But it still doesn't make the general claim that there's been no innovation in decades true. Munger is also in the camp that hates seeing smart people getting into stupid fields like financial engineering. I'd like to see innovations that bring about paradigm shifts like - People work for 2 to 3 hours per day versus 8-10+ - Work for 20 years versus 40+ - Live completely healthy lives to 100+ by addressing adult health issues, (much of longevity increase in the last 100 years has been the result of the largescale elimination of childhood diseases) Basically to achieve your paradigm shift we need to increase GDP by 5x and keep consuming at the same rate. Sorry man but that's not going to happen anytime soon. One could only work 1.5 days per week if they so choose, but your standard of living would be equivalent to those of the 1940's in terms of consumption. Secondly, work seems to be a burden not a joy to you. That is another paradigm that perhaps needs to be address. Productive work, overcoming adversity and the building of character go hand in hand (no matter what economic level you are at). Sitting around sounds like a burden to me. Don't get me wrong, I do enjoy leisure but I have too much curiosity and I have so much I want to learn.

Your rule of thumb is not true. If a company can buy another that has reserves worth $1 billion but only paid $500 million to develop those reserves will be worth more than the value on the books, period. The problem is rarely does many oil and gas firms earn high returns on capital to generate goodwill. I don't think you quite understand purchase accounting. If Company X buys Company Y for $1B in total consideration, the only way goodwill exists is if there is not enough identifiable assets (tang/intang) to allocate to the purchase price. In oil and gas, almost all the major accounting firms hold the opinion that goodwill almost never exists in an E&P acquisition. Therefore, the value of the oil and gas properties becomes the plug value. They literally back into the value of the O&G properties. They use DCF and market approach and pulls the levers as needed to ensure that goodwill no longer exists in the allocation. The only way accounting goodwill exists in an E&P transaction is that the price paid was so high that levers can't be pulled any more. So accounting firms will start pushing the discount rate down. 10% discount rate results in goodwill? Try 9%? Still goodwill? Try 8%. Still goodwill? Start moving reserve adjustment factors. Put 100 percent good for all proved. Still goodwill? Start increasing percent good on the probables. Etc. etc. Historical development costs are basically irrelevant to purchase accounting because reserves are adjusted to fair value at the closing date. If it costs $100M to drill and you have $1B worth of reserves, it's booked at $1B. No goodwill. So that's why I say be careful if E&P companies have a history of booking goodwill on acquisitions. It usually means that every rosy possibility was considered in valuing the reserves and goodwill somehow still existed (which it shouldn't.) Gotcha, I stand corrected.

Your rule of thumb is not true. If a company can buy another that has reserves worth $1 billion but only paid $500 million to develop those reserves will be worth more than the value on the books, period. The problem is rarely does many oil and gas firms earn high returns on capital to generate goodwill. Secondly, if one company can acquire another one for book value and then shortly there after commodity prices fall say in half, the acquirer will have to write down the acquisition, period. Book value has no meaning. In other words, once the costs have been spent, the value of the oil or gas asset is purely a function of prices times expected production (which is a function of reserves). I can also say this from experience, because as an investor I have only invested in one oil and gas firm and have always pay more than book value, so I as an investor am paying up for "investor goodwill". Why is that? Because over the full cycle the company I have invested in has generated about $2.5 in asset value for every $1 in capital spent. As the other poster said, return on capital is return on capital, regardless of the industry. Oil and gas included.

Have you ever attended an industry oil and gas conference where every single company can drill 100% IRR wells? If you haven't go attend one. The problem with all the promotional crap in the oil and gas industry is that it is exactly that, crap. If you don't believe me, I urge you to show me a company with 50% IRR's that also has 50% return on capital coming out the back end of the company, that being the financial statements. Not going to find it. 50% IRR = smoke and mirrors.

Why not Google "oil and gas reserve estimation" and come to your own conclusions? Or try this Wikipedia page for a start: https://en.wikipedia.org/wiki/Oil_reserves I am very aware of how oil and gas reserves are estimated. Having worked in the industry I hear these comments all the time but rarely do most investors understand the dynamics at play. I was interested in how you believe they inflate reserves because you made the statement. The problem with PV-10 estimates is that nobody uses them although they are often the best engineering estimate of the reserve value based on current prices (if evaluated by an independent firm). As the other poster said the issues is with the price deck used in the PV-10 calculations. That is impossible to estimate.

What are the ways to inflate/deflate PV-10? Are you saying that independent reserve evaluators are paid off to inflate reserves? Why did contango have to restate their reserves? I am not familiar with this situation but often it is require because of technical or economic reasons but not from fudging the reserves.

Sounds like someone should read Buffet's talk at Sun Valley in 2002 on investing in the rear view mirror.

This is from the annual report (pg. 97). The exposure to the largest single issuer of common stock held at Dec 31, 2012 was $604.7 (million), which represented 2.3% of the total investment portfolio. Hardly something to lose sleep over and thus I wouldn't consider them "heavily into RIMM". I would add that it's not like BBRY is in rough shape at all. They have nearly $3 billion in cash and no debt. They have higher gross margins that AAPL. The smartphone market is still in it's infancy. BBRY just released new products. Prem presents his rationale quite clearly in the annual report.

How do you come up with your multiples? You seem to pull some of them out of thin air. Is their any reason why brk's insurance companies are worth 2x book while the rest of the industry trades at a discount to book. I would add that insurance valuations are quite reasonable given the state of the fixed income market today. What I'm trying to say is why do you use comparables in some instances and not others? Thanks.

Is this true? Everyone throws around these huge liabilities as if they are fact. The government does not have liabilities like you or me. IF the money isn't there, the money will not be paid. It's as simple as that. They can change the rules however they like, unlike the rest of us. That is what this thread is all about. So much for freedom... in order to have freedom (and liberty) you need personal responsibility. Personal Responsibility is something the government, schools, and the socialist are committed to eliminating.

I think many here already own two very good insurance companies in FFH and BRK. Secondly, the secular tailwind of the bond market is coming to an end. At the end of the day AIG is predominately an insurer and I fail to see why AIG will sell above book value any time soon. They have cleaned up the company quite well and the level of disclosure in the 2011 annual report was quite good.

Interesting thoughts, here are some of mine. First, you may be under obligation but I am not. Christians are under no obligation either. God loves a cheerful giver, not a resentful giver. Another problem with giving out of obligation is that you are doing it for egocentric (selfish) reasons. Isn’t that ironic. Some may do it to look good for others, peer pressure, for respect, to earn someone’s favor, or perhaps to bribe God. That is why I am under no such obligation. Another key question is why are people suffering? Why not deal with the root cause of the suffering, which is a lack of personal freedom and education. Arguments of intimidation, such as “only someone heartless would not help the poor” doesn’t work. Such arguments are why socialism is so appealing because no one wants to be seen as heartless. It’s a subtle way to control people. What is ironic is that the poor look at the rich and they call the rich selfish. Now by poor, I mean the poor in North America. However in order to become rich you need to deny yourself, save and compound your capital. The poor, on the other hand, doesn’t deny himself anything and doesn’t save any capital. He then has the audacity to call the other guy selfish. If you think I’m kidding, just look at the most successful business people in the US. Often they are immigrants, many from Asia, who start with absolutely nothing except freedom and opportunity. Take for instance this thought experiment… If you took all the wealth in the USA and equally distributed it among everyone, what would happen in 5-10 years? For the most part things would be back to exactly how they were before the wealth distribution. Why is that? (This also explains why those who win the lottery are often no further ahead 5 years after their big win) The real source of wealth is in the ability to produce wealth not in the wealth itself. The wealth itself is a byproduct of the character and beliefs of the person. I hope these ideas make sense because they definitely are not common. I know your comments were more related to those who are suffering (the real poor), not the rich spoiled poor people in North America. Many of whom do don't realize that if you make an average wage (~40K/yr) in North America you are in the top 4% of the world.

That's the risk with LEAPs...there is always a time arbitrage involved and hell of a lot shorter than the warrants. Do you still hold any common or warrants? Or did you switch it all to LEAPs? Cheers! Sanjeev, Do you concur with Eric's assessment that tarp warrants in longer run (yr 3 to 6) are losers game? And, what are your view on bac warrants going forward ? Thanks. I know the question wasn't ask to me, but I am very comfortable with the warrants. Eric is a smart guy but options are not for the faint of heart. I believe many on this board may be following him out of greed and do not understand the risks involved. IMO, the TARP warrants offer excellent returns if held to maturity and the economy resembles any sense of normalcy. Six years is an eternity for some investors. Judging by the low expectations on the other thread regarding the share price in 2019, the ultimate return on the BAC warrants may surprise many on this board.

On the contrary! Imo, they should be praised for taking a defensive approach! Anyway, let’s put opinions aside for a moment. What really matters is they have the strength to behave like anyone should behave, except that no one else has the strength required to do so... It is anyone’s duty to assess risk, and to choose the proper course of action accordingly. When your judgment hints at a “high risk environment”, you must accept a 6.5% return, and not reach for yield, or try to outperform the market. It really doesn’t matter all that much if your judgment will be proven right or wrong. Because, most probably, sometimes it will be proven right, and sometimes it will be proven wrong. It is the discipline that matters. And we all know that, but we all experience great difficulties going from theory to practice… well, the best practitioner I know of is, without any doubt, Mr. Watsa! :) giofranchi Well said Gio. Prem is intelligent and rational while others only wish they were.

That adds zero value (be it one of faith or not) to either of them. There are plenty of people, both of faith and athiests, who do very stupid and unethical things. I would not allocate faith with any sort of value as a manager. Cheers! I would add that Buffett's character and values are beyond what many people of "faith" profess. Character should be evaluated person by person. In the sake of full disclosure I am a Christian but often like to distance myself for many other so called Christians who walk around like they are better than everyone else. I would recommend Dan Ariely's "The honest truth about dishonesty" if you want to read about what makes more or less honest. I did not find it ironic that during research cheating stopped when he had people swear on a bible or recite the ten commandments for both atheists and people of faith. Without the moral reminder, cheating was the same for both groups.

WEB has just shy of 70% in his top 4 positions KO, WFC, IBM, & AXP (in that order)

The short answer is yes... go pick up "the wealth of nations" by adam smith from your local library (you seem to understand this, but it's still a good read). Once done read FA Hayek's "the road to serfdom."

Once in a while, I will have those go big or go home moments. Mostly end up going home because of my optimistic mindset.. The one I am currently looking at is FTP.TO. Like a moth to a flame...

Goodwill should play no part in a valuation exercise. Like Buffett says, calculate the return on unlevered tangible assets to determine how good the business is. Goodwill or no goodwill I just look at the INVESTOR RETURN on CAPITAL. That is, at the current price what is a reasonable return I can expect to earn on my capital. Goodwill or no goodwill, if you buy a stock for over book value you are ascribing INVESTOR goodwill to the business. It is no different than one business buying another for over book value. It is likely the business is earning high returns on equity and capital if you are willing to pay such an amount. I own a couple stocks that have outstanding businesses that have grown organically (hence no goodwill on the balance sheet). I have always purchased at above book value because the economic goodwill is definitely there (very high returns on equity and capital). One test I often ask myself to see if a company has a moat or competitive advantage is "Do the customers advertise for them?" Are the customers devoutely loyal? Is the company logo displayed on vehicles, jackets, hats, etc by the customers. Often when this is the case the company has an entrenched competitive advantage, it is earning high returns on capital (as a result), and the company likely has economic goodwill.