AZ_Value

http://www.fairfax.ca/news/press-releases/press-release-details/2011/Intention-to-Make-a-Normal-Course-Issuer-Bid1126662/default.aspx

Agreed. Now this is interesting, care to share with us, maybe I can learn something going into the next crisis, which seems to be toying with us and doesn't want to materialize. What in your situation constitutes non callable ST leverage? and what have the last few months of volatility taught you? Thanks.

Alright so I guess it was you who said it then ;D I think this would make actually for an interesting thread/discussion about what we hear are Buffett tenets and what his actions actually tell us, stuff like buy and hold etc... would be fascinating I think.

Lol... It's crazy, we read so much about Buffett that it seems we all suffer from information overload and can no longer exactly recollect where and when we read a specific quote from him. I know I suffer from it, and I blame Alice Schroeder and her 50,0000 pages of nonsense that I read and didn't take away much other than the term "Bathtub memory" that makes up 1/2 of the book; I so wish Lowenstein would update his earlier work and Buffett drops his bias towards pretty blondes and gives him access to his files. ;) Anyways, I think this is an interesting discussion that extends the one board members had about using home equity loans or any leverage against your house and investing in dividend paying stocks because the subject of leverage was also at the center of that one. We've all heard Buffett say things like "if you're smart you don't need it and if you're dumb you shouldn't be using it" when discussing leverage and I can't remember who the board member was that said with Buffett one needs to learn to look at what he does and not necessarily what he says because he tends to speak in "generalities" maybe because he is aware that his audience ranges from big time money managers to regular folks so he maybe feels the need to convey the wisdom that will keep the most people out of trouble, but his mind is full of caveats, and these "ifs" and "buts" usually don't make it into his public statements. To answer Liberty's question earlier in the thread regarding gurus that used leverage, I was going to post "Didn't Buffett himself talk about using leverage to offset partnership funds that were tied-up in what he used to call "work-outs" so that he would still have enough capital to take advantage of opportunities... I can't remember where I read that..." But instead of posting that I decided to do some work and spent some time going through my "Buffett files" and here is a direct quote from his 1962 partnership letter that answers it best: "Over the years, work-outs have provided our second largest category. At any given time, we may be in five to ten of these; some just beginning and others in the late stage of their development. I believe in using borrowed money to offset a portion of our work-out portfolio, since there is a high degree of safety in this category in terms of both eventual results and intermediate market behavior. For instance, you will note when you receive our audit report, that we paid $75,000 of interest to banks and brokers during the year. Since our borrowing was at approximately 5%, this means we had an average of $1,500,000 borrowed from such sources. Since 1962 was a down year in the market, you might think that such borrowing would hurt results. However, all of our loans were to offset work-outs, and this category turned in a good profit for the year. Results, excluding the benefits derived from the use of borrowed money, usually fall in the 10% to 20% per annum range. My self-imposed standard limit regarding borrowing is 25% of partnership net worth, although something extraordinary could result in modifying this for a limited period of time." And he talks about this in many of his partnership letters. So Buffett has always used leverage before and after he started collecting the float that his insurance operations provide him with; the idea is obviously how you use it and if you're smart about it but this goes without saying of course. But we sometimes get so hung up on his direct quotes and forget to look beyond them and look at what he actually did to be so successful. For instance, another thing that I've seen come up, usually when discussing why Watsa uses shorts to hedge his portfolio is that Buffett says that he doesn't short even as a hedge, here's the very next paragraph in the same letter: "You will note on our yearend balance sheet (part of the audit you will receive) securities sold short totaling some $340,000. Most of this occurred in conjunction with a work-out entered into late in the year. In this case, we had very little competition for a period of time and were able to create a 10% or better profit (gross, not annualized) for a few months tie-up of money. The short sales eliminated the general market risk." So it looks like Buffett would short as a hedge to protect his portfolio against general market behavior just like the Fairfax team and maybe the answer is just that given his current position and the kind of balance sheet that BRK has (virtually bulletproof if you ask me), he just doesn't see the need but that doesn't mean that put in a different situation he wouldn't short. This is just an example of us taking his word verbatim, me included, and not thinking about the context that he doesn't expand on.

Lol

Yep... Just slightly... Lol It's Buffett's right to support whomever he thinks is more aligned to his thinking and values. It's not a new thing for him under the Obama administration. He fought against those that were trying to eliminate the estate tax He constantly said that the tax system was unfairly tilted his way throughout the Bush years so all this is not a new thing for him, and I've been happy with what he's done with BRK all along. I think you'd like him to speak up if he happened to agree with your views.

I too cannot wait. I hope my question will be picked.

I couldn't disagree more. Maybe as a young person under 30, my impression of the past is different than those who actually lived it but I see a complete failure of leadership in this country. I was watching the Right Stuff the other day and it made me think: what if the Space Race happened today? There would be no chance we'd win. It makes me laugh that we literally poured hundreds of billions (maybe trillions in total) into what was essentially a pissing contest between world powers. There was no real practical purpose to sending a man into space or the moon. Some might argue the externalities (technology) made it worth it but we probably could have had twice as much innovation if we had just directly invested in innovation instead of just capturing externalities. But when it comes to things like solar, God forbid the government invests a dime. Republicans only support government spending if it makes us better at killing foreigners and Democrats only support it if it benefits unions or the poor. Republicans say billionaires paying 17% income taxes rates are still overtaxed; Democrats claim the unemployed need more than 99 weeks to pick themselves up and the poor need free cellphones. We need leadership that wants to do more to confront our two biggest welfare classes: the poor and the super-rich. Our most notable government-subsidized banker said if he wasn't allowed to take hundreds of trillions in derivative risks, he'd just go to Singapore. Our Treasury Secretary believes that homeowners should be pushed aside for the benefit of the money-center banks. The leader of our Teachers Union once said that he'd put students first as soon as students started paying union dues. A PhD friend of mine who worked for Google was deported because she couldn't renew her work visa but the President wants us to consider amnesty for poor, uneducated illegal immigrants. Republicans tried their best to get America to default, only to then claim the resulting market fear was a message on Obama's economic policies. Our leadership absolutely sucks right now. But only right now. People say our future is a dismal "new normal." That the American Dream is just that: a dream. I say America is massive turnaround situation waiting for the right management. If we, as a country, woke up tomorrow and said we are going to put as much effort into education or alternative energy as we do laser guided bombs, we'd leave everyone in the dust. We have so many levers to pull it's crazy. Just my person opinion. Wow... This had the effect of a heavy dose of sober reality administered straight via IV. Thanks man.

I will just point this sentence out and refer you to the recent debt ceiling comedy (more like a drama actually) that took place in Congress where "rational" meant any sort of compromise was out of question, and also the rationality that took place during the recent GOP candidates debate where they were asked if a debt reduction plan that had a 10 to 1 ratio of spending cuts to tax increase was acceptable or what ratio they'd be willing to accept, and they all (every single one of them) said they would never accept any such deal. And then I'll leave it at that because debating these things non stop has yet to result in anything constructive I think

PDF attached. Bob Rodriguez is a really good investor but I am not sure I like the person that much (just my opinion no need to chastise me) An interesting exercise is to compare his write-up with Marty Whitman's in the thread below: http://www.cornerofberkshireandfairfax.ca/forum/index.php?topic=5202.0 MORE_OF_THE_SAME_Sept_2011.pdf

I think these points by Cardboard are exactly right on. The knee jerk reaction to the article that came from members of this board just has to do with the magnitude of what is being proposed rather than the essence of what is being proposed, i.e. it's the fact of risking the house your family lives in by leveraging it and not the fact of using debt per se. It's about what is reasonable and what is not in the context of your own financial situation. Like Buffett said "Never risk what you have and need trying to get what you don't have and don't need" (I think he said this talking about the LTCM debacle and those geniuses that leveraged their fund to the sky trying to reach of extra yield. As a side note I think it speaks to the quality of the board if so many here have the instinct to back away from a risky advice like this one, even though the math seems to work out in the sense of squeezing out some extra income, that extra income doesn't seem to be worth the risk for many here. I know it's not for me.

http://www.bloomberg.com/news/2011-09-14/cohen-sac-capital-win-bid-to-be-dropped-from-fairfax-suit-over-share-drop.html

You really think that success in the classroom is very different from success in life? Do you really think George W Bush would have gone to Yale and HBS if he had been born as Bill Clinton or Barack Obama? And, I'm sure all of us have come across people who excelled in school despite working less hard than others; and, people who put in intense effort but somehow never seemed to do very well. Success in the classroom is as dependent on luck (innate skills, socioeconomic class, ability to afford tutors, quality of school and teachers etc). I'm all for fairness and progressive taxation. All I am saying is that causes and solutions are more complicated. Hedge fund manager taxation is a great example. Everyone knows it is ridiculous that they pay capital gains tax rates on their carried interest. Why is this allowed to persist? Is the problem with the tax code or is it with the rules on lobbying or campaign finance? As for the benefits that a billionaire hedge fund manager brings to society, the argument is no different for millionaire/billionaire showbiz or sports celebrities. Is it a legislative problem? No. It is simply a reflection of the values of a particular society at a particular time and you cannot legislate that away. I actually agree with a lot of what you say. Nicely said. But to me your last sentence of the second to last paragraph is very key, those at the top can be blamed for exercising their oversized power to keep harmful policies in place at the expense of the rest of the population. It simply makes no sense at all to have Buffett pay the lowest percentage in his office. If the idea is not to help the weak by harming the strong, then at the very least don't harm the weak? Doesn't that make sense, I don't care if the country as a whole decides that revenue collection needs to mirror the 17% that Buffett paid (I would disagree with it but if that's what the people want, fine), then cut spending on everything that is provided to the US population, and have his secretary pay 17% also, but you can't have him pay 17% and his secretary pay 35%, it's just crazy.

That youtube video was a waste of time. Same old tired nonsensical arguments "don't take from me to give to the lazy" Buffett likes to use a boxing analogy when this debate comes up so I'll do the same. I don't know what the actual numbers are but for this coming saturday's fight, I would guess that Floyd Mayweather will make anywhere between $20M and $40M. Now this nonsensical argument will have you believe that he has done it all by himself, but Buffett always says, fighters back in the 60's trained as hard as Mayweather does, and they could also throw mean punches, but the difference is just that back then their reward would be limited to however many people could fit into the Madison Square Garden or wherever the fight took place, on the other hand for Mayweather, America "the Society" has advanced and provided him with HBO so that the audience could be extend by tens of millions, it has provided him with satellites so that they can collect international viewing rights and increase his pay etc... It is a shortsighted idea to say that Mayweather did it all by himself, what part did he play in putting satellites in space or inventing HBO pay per view? So all that Buffett argues is that those that get the most benefit from what America "the Society" provides to its citizens (Yes, he means the wealthy), have the duty to give more, that's all, because if you were to take away what America brings to the table in whatever your success story is, be it a successful boxing career or a successful career as a money manager, I am not so sure you'd still be holding the same "I did it because I worked hard" speech. I am not sure how successful Mayweather would be if you take away what America will bring to the table this Saturday but something tells me that he wouldn't be making $40M in Kazakhstan. And plus, what is this idea that people on the lower end don't work hard? Has anyone ever tried to work as a construction worker building highways under the Phoenix sun and tell me it's not hard work? Whenever I drive past some of those guys I wonder how much you'd need to pay me to do that work. On a different thread I gave the example of a lady that serves lunch at a local restaurant over here who shared her details with me, she works every single day and is raising alone 3 kids on some $25-30K per year. She pays payroll taxes on every paycheck she gets, but she probably pays no income taxes, so she is among what some like to call the lazy free riders that don't pay any income tax at all? Really? what more can she realistically give? Doesn't it just make sense to ask Buffett to pay more than 17% on his $40M of pretax income than to complain about this lady not paying income taxes? Or to ask hedge fund manager to pay taxes like everybody else in the country instead of that carried interest as capital gains BS before we point the finger at her? Has anybody ever asked those that say stuff like that if they'd be willing to switch with her then? I mean, if she's enjoying such a good life free riding on the back of the real hard working people, it should be a no brainer.

Wow... Michael Dell isn't messing around, @ $25B in market cap he's getting ready to take 20% off the table if investors don't want the shares, he'll take them back. If the Fairfax team is still fully behind Dell they're gonna love this.

I am long FTR (and waiting for it to show me some love) but I would think that I'd feel more comfortable long term with the customer base that Telefonica has rather than FTR. But then again I need to review Telefonica in more detail to make any call. But regardless, Moore's point is valid in my opinion, all the doomsday news we wake up to everyday is contributing to drive down prices in European companies that will continue to be around whether Europe is broken up, or it kind of staggers along for a while, or that it recovers miraculously. One just needs to make sure to buy at good prices with a margin of safety. And with prices in Europe going back to March 2009 lows I am starting to get excited.

Moore Thanks for sharing, I do think those are good companies (Telefonica and Carrefour) and I hadn't realized how cheap they were getting, I am definitely making it my next project to review and look to buy. A quick review shows me that Telefonica has barely missed a beat in their operations over the last few years so a person has got to like the idea of getting paid 11% to wait for correct valuation. How many times have we told ourselves that the next time the market would serve us a new Spring 2009 we wouldn't hesitate to swing, and here I am starting to feel like I'm sitting on the sideline again. Ron

LOL

Yeah... Romney is actually an OK conservative but a politician to the core (but then again aren't they all including Obama and the Dems). My issue with him is that he was actually a fairly successful Governor of Massachusetts but once he started running for president he threw out everything he stood for to pander to the far right. He's distancing himself from a pretty successful healthcare plan that he passed in MA; throughout his MA political career he was pro abortion and now he says that he prayed about it and he found out he was wrong so now he is against it. Stuff like that turns me off. Huntsman on the other hand looks like a pretty straight forward fellow that is not willing to sell himself out to please what the fringes want

Huntsman does appear to be far more moderate. "To be clear. I believe in evolution and trust scientists on global warming. Call me crazy," - Ron Huntsman Which explains why he's running at about 1% in the GOP polls right now. :) I think this is the question that Hester was raising. Why is it that one has to adopt extreme right wing ideas to get a shot in the GOP race? Huntsman is someone that I would probably consider voting for but he has no shot and everybody in the Republican camp dismisses him.

I would also like to hear people's thoughts on this. I'm surprised more academic, or just reasonable, conservatives aren't being more vocal about the fact that to get their fiscal conservative ideas represented in government, they have to elect politicians that also oppose science, and/or want to take environmental policy back to the time when we could light our rivers on fire. To get fiscal conservative ideas into the White House you might have to elect someone who also organizes massive public prayers to Jesus for some rain in central Texas, or has a husband who's a professional gay-healer. Again if I was just a fiscal conservative I would be very angry about this. I completely back this. Some of the stuff that we've been witnessing is sheer insanity at best and destructive madness at worst. I really fault conservatives, the reasonable ones, for letting their party be taken over by the crazies. I really cannot wrap my mind around why you need to be far out there to be relevant on the conservative side. I know plenty of fiscal conservatives that would never consider a Palin or Bachman and yet they stay in the ranks and don't speak out to take their party back, those that I know were actually driven to vote for Obama because of the thought of Palin being in the white house. Some things that used to be left to common sense and science are now blatantly and openly disregarded by the far right movement and for some reason those that should keep them in check stay quiet (aside from Charlie Munger of course, nothing can keep him quiet). Since when is it a political position to say I am anti global warming, rather than a looney bin position? I will never forget the day I watched Bachman stand on the Congress floor, the United States F'n Congress Floor, and give a speech for some 30-40 minutes about how CO2 wasn't harmful because it was already naturally found in nature... all along I couldn't help but think, Uranium is also a natural element, how about we lock you up in a room with all the uranium and carbon dioxide we can find and then you'll tell us how you're doing... It used to be that crazy statements like these would get you dismissed but now we reward you by naming you one of the leading candidates to lead the country. It's insane and needs to stop. We really need to find a way to bring common sense back to our politics, unfortunately I don't know how to get from here to there, if those that are voting these people in are fighting to keep "Government out of their Medicare". I guess it starts with fighting for better education and hope that it gets better overtime, but then again half of the Republican vying for the nomination want to eliminate the Department of Education... Oh Boy... I can't remember who the comic was that said that the left had moved to the center, the center to the right, and the right to the looney bin; but I unfortunately feel like he was spot on.

In a relative sense, I'd guess that the prime example of that would be your country, the most successful country in the history of the world. At least historically. As for the perceived over-stubborness of the republicans in congress, that story seems extremely biased to me. Shouldn't their parliamentary strength translate to a much better negotiatory position? The opinion that sacrifices should be made in an equal amount from both sides doesn't seem prudent if adhering to the democratic process is an end in itself. As a foreigner with libertarian leanings (no emotional stake in either party), that argument reeks of smugness to me. For many in the Tea / Republican party the new deal which has been intake for greater than 50 years is too liberal. They seek to dismantle it. I cant think of any modern nation without at least the new deal. Most are farther to the right. I cant think of a country that is based on Libertarian principles. The US has some basic bits of the well fare state which are essentially unpaid for. The right simple wants to dismantle these bits. As I said I cant think of any modern countries without these bits, that I would want to live in. Perhaps you can. We have been quite successful with low taxes and middle of the road benefits, but we can no longer grow our way out of the benefits and nor can we continue to put them on the charge card. We either have to pay via taxation for them or remove them inmo. Americans have to collectively make a choice inmo. The dems should have changed the rules when they had the chance especially regarding the fillibuster. I think the right has a right to abstain from governing. The left should frame it properly and take the case to the people. They have failed at that. I think the differences are too large, and things will be decided in the next election or they wont and this will continue. Personally I think thats a good thing, a definitive choice needs to be made. I really like this post. In my opinion if we could get the extremists and the crazies from both side (but mostly one side to be frank) away from the table some of these answers are actually not that hard to answer. The country needs to make a choice about what it needs, what it wants, and finally what is feasible. But unfortunately in this new age media society we live in, the emphasis is put on those that drive ratings and they're usually the most incendiary ones which leads to a veritable crisis in misinformation that is threatening the country. Statements like "Keep your government hands out of my Medicare" that are uttered at Tea Party rallies show you that they don't really understand what they're fighting for or against, they like their Medicare but don't like the government, somebody please help me square this circle. The best quote I have read so far about the whole debt ceiling craziness we witnessed was from my favorite republican, Charlie Munger: "This raises the question of why the U.S. even has a debt ceiling. No other major nation has one. The popular argument is that a debt ceiling prevents the Treasury from engaging in out-of-control spending. But this is short on logic: The Treasury doesn't spend money. It simply pays the bills Congress racks up." And this ties back into my point that the level of misinformation out there is insane and starting to get dangerous. The simple fact of understanding that the Administration through Tim Geithner and the Treasury Department doesn't go around spending money that Congress hasn't authorized them to spend is long gone. That is why a Budget is passed by Congress every year, it's just a basic fact of our Democracy but it has been lost for years now, if you stop and ask anyone in the Street they'll tell you that Obama is spending. Just like Myth said, I can't see myself opting to live in a society where zero social safety net is offered to its population even though it is a rich and advanced society. Give me Sweden anytime before you give me whatever the opposite is. One of the things that attracted me to Buffett when I started reading about him is just how everything about him is about common sense. I remember hearing him once answer questions about social security and the need to eliminate it altogether and in his own respectful and witty way he pretty much answered "@$#% No!!" and he went on to give his reason which was just so full of common sense it was beautiful in my eyes. He said and I'm paraphrasing (a lot) but the gist is there the two most important things for him that came out of the severe Depression that we went through in the thirties were the securities act that gave us things like the FDIC and the social security act and the two of them served the purpose of settling down our society so that everybody could contribute. The first ensured us that the average American with less than $100K in cash and savings in banks doesn't wake up scared every week and runs to pull out his money from our financial system, we take it for granted 80 years now after it was passed but it is as essential as anything we have going on in the country. And for social security which is one of the things the Tea Party and anti government movement are going after, for him it was quite simple we have a rich market society and we all enjoy what it gives us, but a market system doesn't reward everybody the same, and yet we need everybody to contribute, so for the teachers that prepare our future, the people that build the roads we drive on etc... and yet don't get rewarded like the CEO's are we just going to tell them that we're going to enjoy their contribution for 40+ years and when they've passed their productive years we throw them aside and tell them they're on their own. The 1930's taught us that it doesn't work and we did what a smart and progressive society does, we learned and adapted and put in the necessary safety nets to adapt. As usual he gave stats to back up his point, we've recently been averaging something like 4-5% of GDP spending on Social Security and the projections we have it goes up to like 6%, so can we as a society seriously say that spending 6% of our GDP on our elders that have spent their productive years building our nation, and raising those that we will succeed us, is too much to ask from a rich society like America? That is just the best way to get everybody to stop contributing and not even spend a dime of their money as no one will care for them when they can no longer do it for themselves and you could say goodbye to our rich economy. Of course everything needs rework and tweaking and that's fine with me and conservatives like Munger who keep us in check are perfect for our society I think. For instance Buffett said in his recent Charlie Rose interview that out of his roughly $40M pretax income there was some $30K from social security benefits and he couldn't understand why that money was being sent to him year after year. So I frankly don't understand why things like means testing are not already part of the system, it's crazy. It's just common sense. But the problem is that when extremists dominate the conversation, common sense usually takes the back seat. Somethings just defy any notion of logic and yet we find people fighting for them, how can a congressman go back to his district and explain to teachers, cab drivers, doctors etc. in his community that it makes sense that hedge fund managers get to call income from their labor "carried interest" and it gets taxed at 15% while the teachers and doctors can't do the same on the money they earn from their own labor. How come we can't just come together as a country and agree that it makes no sense at all and get rid of it? And yet when Obama or Buffett talk about this they get called tax and spend socialists. So I definitely agree with Myth, let's agree on what we need, and in my opinion that includes sensible safety nets for our population and then find a way to pay for it without whining and crying murder, I for instance as a young single man making good money and even earning some money from investing don't mind paying more (meaning a higher percentage) than the lady that serves me lunch at a local restaurant in Phoenix who is raising 3 kids alone on $30K a year, the money she pays in payroll taxes is more than enough if you ask me, I don't even know how she does it. And I'm also Ok to looking to cut unnecessary spending, but a line needs to be drawn, we can make food cheaper but eliminating meat inspectors, but is that what we want? If so then I'll start importing my meat from Canada. But unfortunately I don't see how it'll happen as long as crazies, in my opinion, like Bachman and Palin continue to be the voice of the conservative side instead of people like Munger.

No, no, he provided those results long before. His results may be better or worse from then. I don't know what they are like now, and that's why I asked. It was over a very short time period, and from what I saw, systems did not provide any advantage whatsoever. There were also 3 and 5 year lockups. If I had a five year lockup, I could get 18-20% a year for partners. Lockups provide enormous advantages! But I personally would not feel comfortable being locked up with a manager for five years, so that is why we have no lock-up. It's the partner's money and they should have access to it if needed. It just means I have to be that much better at my job, and I can live with that if it gives them more comfort. Cheers! Actually my underlying point was that people on this board are smart enough to know that someone providing results from Spring 2009 through May 2010 is not much different from cab drivers back in 1998 telling you how much their investing acumen allowed them to generate great results by picking great stocks like what-else-is-new.com

Hahaha good one.

Seriously dude, is it because the computers are doing all the work that you have so much time on your hands? And if Sanjeev is right and when everybody asked for your long term results (I'm sorry, I mean your computer's results) you provided him with Aug 2009 through May 2010 returns then I find it pathetic and disingenuous. So why are you trying to sell us on some "system" if yourself don't trust it enough to show us how well it's done for you and your family over the years? This is just crazy. If whatever you say is true you could win this argument in 2 minutes and put it to rest for good instead you chose to make it a recurring theme for your own enjoyment I suppose.