AZ_Value

Racemize summarized it well. The free cash flow you should be using to discount is just the cash flow the business generates that belongs to owners, that is all. You need to make an assessment of how management allocates the cash that belongs to you after you've estimated what that cash is and assigned a value to it. There is a cognitive dissonance if you're fundamentally treating differently allocation decisions like buybacks vs dividends because like others have pointed out, they're the same thing except that one party choses to take their distribution in a bigger ownership of the company vs cash. And if your management is using your cash to buy back shares of a significantly overvalued company then do what you do when you want to discount management actions you're not pleased with in your evaluation, and as someone pointed out, should you really be looking at buying a company whose stock is overvalued anyways. But all this is separate from estimating the FCF that the business generated. Your argument about it being a company that has a long history of continuously repurchasing their shares is not valid since repurchases are a distribution to all shareholders just like a dividend, to some in cash to others in % ownership of the business. To be consistent you would have to look at companies like P&G that have continuously paid and raised their dividends for 40+ years non stop and also adjust their FCF by their dividends in your model.

Thanks for posting. Anyone know where I can find more information about Lender A (LEA) that is mentioned in Khrom Capital's letter. Autoinfo is another interesting stock owned by Khrom Capital: http://seekingalpha.com/article/1048651-autoinfo-a-growing-truck-freight-broker-not-priced-like-one Lender a = Finbond group in South Africa Interesting company.

Hahaha

Thanks. I'll check out Plan's blog. I actually retraced Burry's posts a while back thanks to Tariq's blog: http://streetcapitalist.com/2010/03/24/learning-from-michael-burry/ I then spent some time and went over every single one of his posts on Silicon Investor, took me a few days. In case you're wondering, yeah, I'm a big Mike Burry fan. :)

Just saw this on AAOI's blog, so, many thanks to him for posting this. Scion Capital letters: Q3 2006 and Q1 2008. 3 words to describe the 2008 letter: So Effing Good!!! I so wish Mike Burry would come out of retirement and start a fund again. http://www.aboveaverageodds.com/2012/09/27/scion-capital-letters-to-partners-q3-06-q1-08/

One to two years after his death. Sounds about right

Then is it okay to have bigotry that would pass committee? That's the thing about modern civilizations, at least those that some of us are trying to build. We don't leave issues of equality or civil/human rights to popular votes. What would it be like if we had left it to a popular vote in 1950's Alabama to decide whether Blacks had the same rights as everybody else? And a government that represents all of us has a role to play in this in my opinion, like MLK said: "It is true that behavior cannot be legislated, and legislation cannot make you love me, but legislation can restrain you from lynching me, and I think that is kind of important." So whatever your "traditional values" are that make you dislike those that are different from you, it's your problem, the rest of us should make sure you don't treat them as second class citizens based on said "values"

I have made a conscious decision over the last couple of years to stop trying to guess what Lampert's game plan is with the whole Sears thing because I'm just simply not smart enough and he knows more than me but whatever it is that he knows, it's taken an awful long time to transpire I think. I was also looking at this last night trying to make sense out of it. The obvious fact is that the shares were moved from ESL Partnership to Lampert's personal account, but the reason is what we don't know. One can speculate that some people in the ESL partnership wanted out and rather than sell the shares to come up with the liquidity to cash them out, Eddie reached in his own pocket and bought the shares himself. But then again this is nothing but pure speculation on my part but these things happen.

My reply is general to all who think this way. Interesting. You call it tyranny when you disagree with them, but I bet that when you agree (in cases such as murder, rape, incest, theft, etc.) you apparently don't consider it tyranny. Would I be correct in presuming that is because you believe there is an innocent victim, in the above examples, which there is? So are you pro-life? Why not? What about partial birth abortions? If not, can a mother kill her one day old? How about a week old? I'm just wanting to see if your logic is consistent. The consenting adult argument basically says it is okay for consenting adults to do whatever they want and none of the government's (society's) business. That logic would support the legalization of polygamy, prostitution, euthanasia, gambling, drug use, drug sales, drunk driving (as long as no one gets hurt), public drunkenness, indecent exposure (or public nudity), the right to bear arms, duels, elimination of all zoning laws, speeding (as long as no non-consenting adult or his/her property is impacted), etc. It would also logically be more in line with limited government and a head tax (same amount per person). How you can you compel another to pay for someone else's healthcare, education, etc. That logically would be using the power of the state to enforce your morals. Are you Ron Paul? :) Tim, You're really dancing around the discrimination issue here and not offering a rebuttal to Eric. And this is why I find these arguments so hard to carry on in a meaningful way. To use one example, society in general decided that drunk driving is dangerous for everybody because we can tell it kills people so nobody, again nobody, is allowed to drive drunk. That is worlds away, and frankly a different argument, from some people telling other people we are allowed to do this but those of your kind are not allowed to do it because my bible says so. That's when discrimination happens. Instead we're left discussing strawmen arguments like paying for contraception. I don't smoke myself, but I can guarantee you that some of my tax dollars are paying for someone's lung cancer treatment because they smoked their entire life. But that is not the issue, if you want to talk about that then the issue is whether or not we should provide healthcare to that person, not whether I smoke myself. But again this is all just a diversion.

I always promise myself to not jump into these political debates but they're too much fun ;) As I read all this I keep wondering who those fictional Republicans everybody talks about are. Are they the same Republicans that pass deficit and debt busting Medicare Part D and tax cuts laws? Yeah, including the new fiscal hawk darling, Paul Ryan. The same Republicans who start wars without ever planning on how to pay for them? The same Republicans who when asked about a compromise of $1 in revenue raise vs $10 in spending cuts unanimously answer "Over my dead body". Yeah, that's the attitude that will get our fiscal house in order. I don't even want to get into Mitt Romney himself, I know Moore said earlier that there is no dirt about him, clean guy. But to me it depends on how you define dirt. Personally I think he is the phoniest character I've seen in a long while. How does a dude in his 50s or 60s suddenly "discover" what his true beliefs are on pretty much all social issues right around the time it's time for him to start courting voters in Alabama vs Massachusetts. I seriously question his character as a man. Get elected by all means possible is pretty much his motto. The guy just wants to be president so bad he'll take on any view that will get him votes, I'm not even sure he knows what he truly believes in anymore. I can't remember who it was but one comedian a few months ago described it best when Romney pretty much wrapped up the GOP nomination he said "And there you have it, it looks like it's going to be Mitt Romney, a man who has pursued this nomination with the single minded viciousness of an autistic Rottweiler" But at the end of the day I have to side with Ericopoly on this, the GOP will get my attention when they stop espousing agendas that openly discriminate against people. My conscience wouldn't allow it, basic civil and human rights like equality are not something I can compromise on.

I think it was in this interview that Irving told the story about investing in a Japanese company that employed women with big "lungs" who dove in the sea to fish for oysters. :D Who said looking for value was boring?

+1

To me this is just one of those things that people like to complain about. Don't get me wrong, anything that could be done better should be done better, we all agree with that. But that USPS deficit is about 0.003% of US GDP I think, so is it so awful that the country spends that much to maintain a postal system throughout the country that allows all its citizens to keep in touch? Why the hell work so hard to build a rich and powerful country if a higher quality of life isn't one of the goals? And to me this is one of the ways we provide that. Like others have said eventually this will go away and everything will be done electronically, just look at the current younger generations and their usage of regular mail and you'll see that time is not far away. But is it really such a big deal that the country provides this as a service? I'm more pissed at Congress pushing through spending on fighter jets that nobody will ever use just because it's built in some congressman's district. People actually still use this service and however way you want to cut it it'll never be economically cost efficient to deliver an envelope to Hinsdale County, Colorado. Unless you charge them millions. But, personally, us providing that service to people who live there doesn't keep me up at night. The same question can be asked about spending money to build dams to protect the city of New Orleans? Is that really economically meaningful to the US as a whole? How about the money spent preserving our national parks? We complain about plenty of things in our societies but I guarantee you that if you were to take them away many would realize they don't want to live here anymore.

Sometimes I really wish people would explain to me what they mean by "The Downfall of MSFT". Is it just because they're not Apple and they don't have the Iphone? Well, nobody can make that claim! For the moment being Apple is in a league of its own. But all the talk about MSFT's downfall (or a lost decade like the guy in this article) just baffles me. Here's a quick review of what that lost decade (from 2003 to present) and the downfall looked like from where I stand: Revenues went from $32.1B to $70B+ this year. Revenues per share from $3 to $8.35 Net income went from $10.5B to $23.1B EPS from 97 cents to $2.7 Return on equity averaged about 34% Dividends per share increased tenfold from 8 cents in 2003 to 80 cents this year They bought back and retired about 2.4 billion shares (roughly a quarter of the total share count) in that period and they have about $60 billion in cash right now. If this is what is now called a downfall I know many companies that would love to suffer this kind of downfall.

+1

I'm not sure I agree with your last statement about no margin of safety being assumed in your IV calc. When you say: the corollary to that statement is that if you don't have a high degree of certainty about the cash flows and/or the yield you will be getting, you shouldn't invest! So in my opinion the margin of safety principle is inherently embedded in your statement even without adjusting any number (like requiring a higher yield).

1) market price 2) discounted cash flow models I suspect the secret with railroads is the partial moat, and the assets not on the annual filings such as real estate written down decades ago. Rail is the cheapest way to transport bulk goods. I thought he doesn't use DCF? I think that's what Uccmal is saying. He is answering the question "What doesn't Buffett use?" This is the second time in a span of a couple of weeks that I hear someone argue that WEB doesn't use the discounted value of future cash and I'm starting to think that I've missed something. Where are people getting this from? Can someone enlighten me? See this video that I'm sure many of you have seen and fast forward past the usual advice to college kids (work for people you admire, don't be a jerk etc...) all the way until the 20th minute and listen on through the Aesop anecdote. I've always operated under the assumption that WEB's process to compute a company's IV is fairly simple as far as general guidelines: 1) Do you understand the business and its economic characteristics? (industry, competitive advantage etc...) 2) If yes for question 1, do you understand it enough to figure out what cash the business will generate for its owners (and discount it to today)? 3) Depending on questions 1 and 2, introduce the concept of Margin of Safety, the less confident you are about 1 and 2 the bigger the margin of safety you should require before you buy the stock. 4) Now introduce the concept of Mr Market and wait for him to offer you the business at the price you derived in step 3

How does this part make sense? They are competing against Apple and Google aren't they? So are they just going to close shop and call it a day? Any tablet manufacturer out there running Android (pretty much everybody except Apple) is competing against the Motorola Xoom which is a Google brand as far as I'm concerned.

Cool heads fellas... Cool heads! Hester, you shouldn't leave, you do provide a lot of value to the board, at least in my opinion. So yeah, don't go, this too shall pass as they say. I don't think Hester attacked Chou's character at all, if he did then he'd be crazy because you'll have to search long and hard before you find a guy like Francis who voluntarily refuses to take any compensation when he thinks he didn't do well by his investors. However he does invest money on behalf of people and his investments are public so they will be discussed on investment boards, especially one dedicated to value investing. All you have to do is take a look at discussions about Watsa's investments in RIMM or the recent Resolute soap opera to realize that people will question what, why and how these guys are doing what they're doing and buying what they're buying, and not in the most flattering manner oftentimes. This would also apply to WEB himself whenever politics are discussed on the board. It is the nature of the beast, no need to get emotional about it. As for Hester, you've realized that many on the board had a pretty bad experience with how Fairfax and Prem were treated during the short attack so there are certain people that are just disliked but the caveat is there is a story behind and you have to accept it and live with it unfortunately, as you are outnumbered, and so far you've done a good job of that. In summary, Francis is a great guy, and like everybody else he will make mistakes and those mistakes will be discussed on investment boards, and for those who want to defend him, all they need to do is point at his pretty darn good long-term track record, that's all. So, again, cool heads people!

Wait... I want in with the "cool kids crew/world travelers" Bujumbura, Burundi ----> Dallas, TX ----> Phoenix, AZ ----> About to relocate to London, Ontario for Business school (Currently sitting in Amsterdam and beer really does taste better on the old continent)

Dorsia, You can find it here: http://seekingalpha.com/article/268689-mtr-gaming-group-the-money-lever-to-pull-in-this-casino-is-the-hold-percentage But make sure you see the fourth comment (from last May) where Harry exits the position! Priceless!! "I am personally unhappy reading the 10-Q that the cash flow isn't as strong as I would have expected.. I have to move on if the cash flow isn't there. Apologies to my kind readers. I truly believed the cash flow would be stronger. I will revisit this in the coming quarters to see if things change." Wait a minute... What am I missing here? The thesis seems to have been posted on May 9, 2011 on SA and the comment above where he expresses his disappointment and "exits" the position was posted on May 11,2011 I gotta be missing something right? Please tell me I'm missing something...

Amen! JSArbitrage is right IMO. Can we at least spend some time discussing the substance of what that guy wrote and not his rank? Do you guys think that a firm that forgets its duty towards clients needs is bound to auto destroy eventually? Personally, when I read that part where he talks about attending meetings to discuss some derivatives and Goldman's clients were never mentioned, it made me think of an interview with Jamie Dimon (can't remember when or where) where he was discussing SIVs and why JPM never got caught into the SIVs frenzy that came close to sinking Citi completely, and Jamie said he just asked "How are these things serving any clients needs?" and when he figured out that they weren't, he decided that JPM wouldn't get involved.

+1

I've also started looking into nat gas recently. Trying to see what plays are available beyond names like CHK. It seems to be where some of the smart money in the industry like Exxon are positioning themselves. If nat gas is really to be how we power ourselves in the future names like wprt might be interesting. Txlaw, care to share what names you've been buying?

Since we're talking about gay people (or as I like to call them, people!!) getting married and religious beliefs, here's my favorite moment in The West Wing show. Now, this is my kind of president ;):