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Value Investing Hooligans!


Parsad
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Tim McElvaine sent me a photograph today with the caption..."Stumbled across these hooligans!"  Apparently, a mess of our boardmembers were at the Daily Journal Meeting today and Tim was nice enough to snap a photo of the brood.  Thanks Tim!  Cheers!

 

[Click on photo to enlarge]

Daily_Journal_Meeting_-_Tims_Photo_-_February_6_2013.JPG.cb0f0bc4bc476fa70b34ca70e59962ce.JPG

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Wow - sorry I missed you guys. Had no idea there would be others there.

I came in from Chicago - and sat next to a gent from First Pacific Advisors.

 

Enjoyed the meeting. Got to ask Charlie a question near the end of the meeting

about Gov QE support as it's a prop to the market and economy, should it be

withdrawn, and when, etc, etc.

 

Hope to meet some of you next time!

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Wow - sorry I missed you guys. Had no idea there would be others there.

I came in from Chicago - and sat next to a gent from First Pacific Advisors.

 

Enjoyed the meeting. Got to ask Charlie a question near the end of the meeting

about Gov QE support as it's a prop to the market and economy, should it be

withdrawn, and when, etc, etc.

 

Hope to meet some of you next time!

 

Well don't just bait us with that, what did Charlie say!? :)

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Yes, sorry, needed to get on my flight to O'hare. - Regarding the DJCO:

 

Initially Charlie spoke about the Daily Journal and it's transformation of business model.

Newspapers are not a great biz, but foreclosure boom drove DJ revenues to be a very good biz.

Compared it to " The funeral parlor owner during the plague". That got some laughs.

DJ transition from paper to electronic successfully, and service is highly regarded and valued

by judges/lawyers as a "trusted unbiased source". DJ has been rolling up "public notice rags"

cheaply, which gives it a "free call option on growth".  DJ has also bought a software biz

that did 5X their DJ software revenue - feels it will be a reasonable purchase, with some

possibility of being something big. Compared it to "venture capital". I thought this was

very interesting.  This particular newspaper business has a sound base and model

and is preparing for the transition to the future. All this was very interesting, but not

at all why I came to the meeting. But I found it very interesting that this biz was transitioning

into the legal publishing/subscription space of the Duopoly of Read Elsivor (Lexus Nexus), and another name I forgot.

Charlie termed it "as a good gamble with a small chance of being a bonanza".

Mentioned he and Rick Guerin have never sold any shares and don't intend to.

 

 

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Regarding the Q & A:

 

Asked about legal actions against rating agencies.  Response was rating agencies showed very poor judgement,

maybe not illegal, as they were selling Opinions, not Gurantees. But who knows what happens in front of a jury

when damaging emails are presented. Could then have very serious legal issues. Pretty confident that when

millions get spent to comb through years worth of emails - they'll likely come up plenty of emotional

and embarrassing indictments of bad behavior. As a side remark - he couldn't understand young people

leaving a historical record on FB for the world to see - bound to be something they would regret.

He can't imagine if there were a public record of HIS comments over the years - and not having many

he would have regretted.

 

He sooke about investing mistakes. Example 1 - he invested 10% of his net worth ($600K) in Diversified

Retailing - and regretted it very shortly. We got it wrong. "The competition was huge" and

"The business consumed capital like crazy". So we immeadiately stopped investing in it and he

and Warren could not wait to exit it.

 

Example 2 - Not investing enough when you know you have a no brainer. He spoke about his investment

in Bell Ridge Oil, where "the stock price was 20% of the value of the oil in the ground" and he had

a chance to significantly increase his position - and he did not. Subsequently Bell Ridge was a 35X bagger.

Lesson was - he was too timid. He could see not possibility for a loss - and he left many, many millions

on the table. The really no brainers don't come around very often - and you make a mistake by not

hitting them hard.

 

He said - "of course you would show my portfolio to some finance professor - and he would say you

are absolutely crazy, but this is how you get rich".

 

He talked about retail - "it's too tough". Should view every retail investment in light of the

Costco, Walmart, and Amazon steam roller.  His view is we are over retailed anyway - too many stores.

But the private label biz of Costco (Kirkland) is even threatening the dominance of Proctor and Gamble

as Costco continues to roll out Kirkland products.  Be careful with retail investments.

 

"What's the ideal business?" - One where you can raise prices beyond inflation.

Of course he talked about See's and how surprised he and Warren were that they could

raise prices by 25 cents/pound - on an annual basis (like clockwork) - and it had no

impact on sales, but drove up there profits. Said that was a great lesson for he and

Warren. Now See's annual profits are 300% of what they PAID for the entire business.

Without the lesson of See's it's unlikely that they would have been so aggressive with

the Coca Cola investment.

 

At this point - I stopped taking notes, since I was trying to ask a question.

 

Very enjoyable meeting for me.

 

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You guys are welcome, as I've mostly been a lurker and not a poster.

Happy to contribute something for once.

 

I also asked Charlie about Gov QE and it's role in distorting the value of the

economy and stock market. When should it be reduced?

What should government's role be in influencing growth and what should it's

involvement be - and when should it end?

 

I thought he had a very interesting answer: It kind of goes into the

"too hard" pile - no one really knows when you should stop Keynesian stimulus -

obviously it can create more problems down the road.  But he thought

it was more important to err on the side of more to avoid a negative

outcome (recession) - and try to end it a little earlier when the economy

looks like it's truly revived. All in all, a very tough problem with no easy answer.

 

Easy to be swayed by the eloquence of guys like Paul Krugman, etc - but no one really knows.

 

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Meeting length:

 

Started at 10:00 - 10 minutes for business meeting.

10:10 - Charlie spoke for 20-30 minutes about the Daily Journal business and transformation.

Then, roughly another 90 minutes for Q & A - lots of questions.

No breaks. About right in my opinion.

Meeting ended at 12:15.

 

I'd say about 80-100 attendees.

Nice forum, casual group, great feel.

I've been to 5 Wesco meetings, and this felt like a Wesco event.

 

Charlie looked great - and is sharp as ever.

Charlie seemed to enjoy it a lot, and is as funny as ever.

 

Also, Li Lu talked quite a bit about BYD.

 

Maybe someone else can post those notes/updates.

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