Mephistopheles

Why only 9.1%? The prefs are trading at an average of like 11% of par. And of course if you add in the time value, the number should be a bit above 11%, depending on how long it takes to break or make it.

So the GoodHaven guys left Fairholme, created a new mutual fund, and bought SHLD there? That doesn't seem to be logical to me. Maybe they disagreed on topics other than SHLD? As per the Barron's article posted above, they disagreed on Charlie Fernandez.

One positive is that after seeing all the documents thus far in Discovery, Berkowitz did buy more, and apparently got back into the common as well.

I think it's different with good value investors who have the experience, temperament, and discipline to look at the downside. Berkowitz has been at this a long time and if his hiring of consultants to kill the idea was biased in confirmation, he wouldn't have made it this far in terms of market outperformance. That is not to say that I agree with the SHLD thesis. I was an investor a year and two ago, but now it's in my too hard pile. Maybe he's right on SHLD, maybe he's wrong, but if he's wrong I wouldn't attribute it to a power dynamic between him and his consultants. I would think that he is well aware of a mental trap as such, as opposed to CEOs in the corporate world.

what does this mean in english? Seems like the Judge dismissed it because Continental Western is a subsidiary of Berkley Regional Insurance co., which was one of the Plaintiffs in the District Court case that was dismissed last Fall. I think the Judge is saying they are the same entities for all intents and purposes, therefore they can't have two cases in two different courts with identical complaints. Merkhet would probably be able to give a more eloquent answer.

I assumed the cash earned 0% for two reasons: 1) Since the cash needed to be available to be deployed, I did not have it get invested in bonds, as I did not want to expose the study to interest rate risk; and 2) I was mostly doing the study for myself, and I don't invest cash in bonds when not invested to ensure its availability. I also assume this is generally the case among most investors here, but perhaps I'm wrong on that. I'll PM you. Hi race, I just read your paper and think it's very well thought out and written. Would you mind PMing me your calculations as well? Thanks for sharing!

I don't know anything about ZTS, but for CP, the reason he was able to make changes and massively improve results was because it was very inefficiently managed compared to competitors. So if the company were to simply become an average railroad, it would mean a massive improvement, and that was the margin of safety. The risk was that the board won in the fight against him.

Interesting about the tobin ratio, I had never heard of it before.

I'm not sure how it is in other states, but in NJ, you can charge performance fees to unaccredited investors as long as you don't register with the state as a broker. And as far as I know there isn't much of a purpose to registering with the state besides being able to go around saying that you're "registered in NJ". Nevertheless, my original dilemma is not in regards to performance fee or not, or how to align incentives. It's simply trying to figure what sort of structure is fairest to the client so that you don't rip them off. Is any price okay as long as you can beat the market after fees? Or should it be comparable to what some of the great low cost value investors charge?

Which is completely misleading since there is an estate tax over a certain amount. So really, it's not a loophole for the people, but just for the government to double tax us. I hate war mongering gun slingers, but I'm voting Republican next year.

Makes sense. I think a lockup is beneficial not only to the manager, but to the client as well in that it protects the client from himself in times of market turmoil. It can absolutely make a difference. Is the manager generating enough fees in a base case that he is reasonably satisfied? In a downside case that runs several years is he making enough to cover his normal living expenses? You want the manager managing your assets and not taking too much time worrying about raising capital. That's true. But this is assuming all else is equal (which may not be the case for the reason you point out). Maybe I'm thinking too much into it, but it's difficult for me to reconcile charging more than a super investor like Bruce or Francis. Perhaps I am sensitive to this because it will be all family and friends for me in the beginning.

There are great investors who charge fees on all parts of the spectrum. There is Francis Chou and Bruce Berkowitz who charge only 1% in their mutual funds, and obviously no lockup. In the middle of the spectrum there is Pabrai and Buffett in his early days who charge 25% on anything over 6%, with a 1 year lockup. And on the other end there is 2/20, which I believe Ackman and Einhorn charge (though I'm not positive). I've talked with some wonderful, talented fund managers on this board who also charge fees on all parts of the spectrum. I understand that there is no one right answer as to what is fairest, and it may vary depending on other factors such as the AUM, etc. For example, someone who is starting out managing, with less than $1 million may find it necessary to charge heftier fees to support himself in the beginning. Then there are those who work with $100 million or more, who can live a life of luxury simply from a 2% management fee. As you can see, it varies from the perspective of the fund manager. But what about from the perspective of the client? Does it really matter to a client if a manager has $1 million or $100 million in AUM? Probably not so much. I bring up this topic because I dream about all aspects of starting my own fund some day, and I would like to charge a fee that is fair to the client so I can feel satisfied in earning it, and a lockup agreement that allows me to think long term while allowing investors to have access to their money within reasonable time limits.

+1, thank you merkhet!

Where can you get updates and access to new transcripts/reports from the court cases? Also, yes seems unlikely she'll stop discovery, but it's odd that she's taking so long if this truly were the case. Anyway, I'm excited yet nervous that discovery is about to end any day now.

(2) As I stated before, the Takings Clause discussion in the Lamberth opinion was dicta, and Fairholme rightly points out that there's no reason to give it any weight. (3) There is, suspiciously, some pretty material evidence that has not been turned over. I wonder how Judge Sweeney is going to decide on the Government's motion, now given that Discovery is presumably almost finished. Common sense makes it seem highly unlikely to me now that she would grant the motion at this point. Merkhet, any thoughts?

Thanks! Looks interesting from your comments.

^ I believe Buffett was even more concentrated than that in AXP - about 75% of either his portfolio or partnership, if I recall correctly.

Hi yadayada, I can't seem to find the company MCR. Would you mind sharing the ticker?

Of course, nobody can calculate with precision, but if two companies have a significant difference in undervaluation, it may be advantageous to bet more on one than the other. The difference may not be so obvious between your best and second best ideas, but perhaps between your best and sixth best ideas. And sure, less undervalued companies may outperform more undervalued ones in the short term. But then again, even overvalued companies can outperform undervalued ones. It's not so possible to predict the behavior in the short term, so might as well bet on what's more undervalued. Allow yourself a margin of safety. So if you think one idea is 40% of iv and another is 45%, then obviously you shouldn't go all in on the first.

GM and BAC Although, both are very popular in the value crowd. I get more satisfaction in owning stocks that have a temporarily inflated P/E rather than stocks where the numbers all look good. I find the latter a bit boring.

Whether or not Berkshire is the only company that can be put on autopilot, I don't know, as I've heard good things about others such as Prem Watsa. If not, I'm happy to invest in mutual funds. I'm sure there are some mutual fund managers that can outperform ETFs. I'm aware that investing requires analysis of the financials, but as with everything, there can be exceptions. That's all I was looking for.

The $257 billion is the Buffett premium.

In my opinion, and I've mentioned this on the board before, concentration is not as aggressive as it looks on paper, depending on your age. I don't look at my portfolio or net worth as the dollar value of my account. Instead I see it just as I see the value of a stock: as the present value of all of my future cash flows, which in my case is far more dependent on my career than on my portfolio, at this point in time. Which means that even if I bet 100% on one stock and lose it all, my intrinsic net worth isn't affected by nearly that much. (I'm currently in my mid to late twenties)

Thanks everyone for your replies and advice, as always it is much appreciated! I should have been more clearer in regards to the type of stocks/funds that I am looking for. I want ones that I don't have to pay attention to, but that also have good capital allocators at the helm. The obvious one is Berkshire that I mentioned, for which I own a large stake in for my folks. Of course, I wouldn't just blindly buy anything, even a mutual fund. I would read up on it enough to make sure I am comfortable trusting that manager with my money. ie, Even though I have barely ever touched Berkshire's financials, I've read much about Buffett and his shareholder letters and probably know just as much about him as the average poster here. In regards to beating the market without doing any work, aka having a free lunch: We've owned Berkshire for many years and it has done just that, and like I said, I have never seriously looked through the 10-k. This is not to say that the future will necessarily be like the past, but I am confident enough in Warren Buffett's abilities from everything that I've learned from him. Thanks again everyone, I will look at all of your suggestions; especially for the mutual funds, as this is an area I know very little about.

Well, I'd still like to beat the market, even if by a small margin like with BRK. Actually they don't have an affinity for any stock, as I'm the one who takes care of their portfolio lol. But I've realized I don't have enough time nowadays to follow 10 different stocks. I won't be blindly putting the money into anything, of course. I don't mind learning more about Fairfax/Markel through shareholder letters and earnings releases. But I'd rather not worry about doing a deep dive of the financials.