Value Investing Hooligans!

[vikx01]

Great notes brker_guy and cubsfan. Your efforts and contributions are much appreciated.

[Liberty]

Thanks for the notes!

[bennycx]

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.

 

I have a feeling diversified retailing may refer to Tesco. Could that be possible?

[ExpectedValue]

No, Diversified Retailing was an actual company. He's not using that to refer to Tesco

[bennycx]

Haha okay. Somehow I felt that Tesco's moat is not as strong as I once thought.

[claphands22]

Munger's Missed Multi Bagger

 

"After protracted proceedings, the IRS allowed a charitable deduction to Mrs. Buck’s estate in the amount of approximately $11.7 million for her 69,156 shares of Belridge Oil stock.  This represented a price of about $170 per share.  It had been trading OTC in a range of $85 to $126 per share.  In 1979, the stock was sold to Shell Oil Company for $3,665 per share, making the Buck Trust holdings worth $253,456,740. "

 

http://www.nyu.edu/projects/hdale/buck%20Trust%20Article%20by%20HPD%20(1987).doc

 

[netnet]

10 people from the board and not a soul posted on the Events board.  (Grumble, Grumble, i would have gone had I remembered. my bad.  Next year I'll be there!)

[Parsad]

They aren't posting because they don't want more people there! ;D  Selfish pricks!  Cheers!

[brker_guy]

Actually, Sanjeev, before the meeting, we all stood around and thought to ourselves about how thin the audience was.  Someone  whom I have never met before said that they didn't want this meeting to be broadcast because he was tired of being force-fed the VIC before the meeting like it was during the time at Wesco Annual Meeting.  We all chuckled...  :D

 

Besides, you guys wouldn't go to DJCO's HQ anyway.  It's not like Pasadena where Wesco had its annual meeting.  DJCO's HQ is literally next to East LA...  Do you want to go to East LA?

[berkshiremystery]

Actually, Sanjeev, before the meeting, we all stood around and thought to ourselves about how thin the audience was.  Someone  whom I have never met before said that they didn't want this meeting to be broadcast because he was tired of being force-fed the VIC before the meeting like it was during the time at Wesco Annual Meeting.  We all chuckled...  :D

 

Besides, you guys wouldn't go to DJCO's HQ anyway.  It's not like Pasadena where Wesco had its annual meeting.  DJCO's HQ is literally next to East LA...  Do you want to go to East LA?

 

Lol,...

 

seems to me that the DJCO HQ's are only some footprints away from L.A. UnionStation,...

 

 

 

http://s18.postimage.org/ml12ye43t/image.jpg

 

http://s9.postimage.org/dajmucahr/image.jpg

[jeeman]

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]

 

I am the guy on the far right...

 

Jeeman

[ageofsocrates]

Got this frm whitney tilson's email. Its taken from another message board.

 

Author: RoughlyRight   

Number: of 198479

Subject: DJCO 2013  Date: 2/7/2013 12:50 AM

 

I attended the Daily Journal meeting with Charlie Munger today. Charlie is 89 now, but he doesn’t seem much different to me then when I first started attended such meetings (WSCO, BRK) 18 years ago. The meeting was in L.A. My 19-year-old son lives in L.A. as he’s a freshman biomedical engineering student at USC. At my encouragement, he skipped his Calculus class today and caught about 2/3’s of the meeting (it lasted over two hours). My son quickly typed up his notes based on points he thought worth writing down; there was a lot more covered. I’m posting his notes. It’s likely someone will have more complete notes to post.

 

My son’s notes come from the perspective of someone not interested in investments. He’s a fairly worldly 19-year-old, but he is just 19. I’m excited that was able to learn from Charlie.

 

Daily Journal Meeting Notes – February 6, 2013

 

1. Public notice business–previously highly lucrative, but now being downsized by technology

2. Charlie has not seen a housing bust like the one in recent years at any prior time in his life

3. After the Japanese bombed Pearl Harbor, one congressperson voted against war (used to illustrate the fact that we can never get unanimity)

4. Daily Journal was never used to spew a political ideology

a. Charlie thinks this was the best business policy, makes the Daily Journal a trusted source

5. Charlie doesn’t believe in a “master plan” but rather just reacting to the current needs of the marketplace/society

6. Charlie has never taken a penny out of the Journal

a. Charlie and his colleagues sincerely want people they barely know (that own stock in the DJ) to turn out alright

b. They don’t mind putting these people through a little hell along the way (chuckles)

7. Amazon takes territory from incumbents by brute force

8. The housing bust was created by people who blindly believed mathematical formulas over common sense; made the US pay a dear price for this

9. A good way to think: articulate those things that you do not want (i.e., things you’d like to avoid) and live a life that avoids such things. It seems simple, but many people don’t live their lives this way.

10. Why should criminal law dictate our behavior? We would never behave this way in a relationship, yet it’s common to behave this way in business.

11. Charlie doesn’t think society will function well if a bunch of people are making money simply by being clever (and then get “soft, white, wrinkly” hands)

12. There should always be a category in your mind that reads “this is too tough for me to fix.”

13. The method of corporate acquisitions in America usually hurts the shareholder

a. Berkshire seems to be an exception

14. “If you get pancreatic cancer, are you going to buy your way out of cancer? I don’t think so.”

15. If your product becomes a by-product of another company’s main product (e.g., Microsoft packaging a free encyclopedia in Windows) you’ve now acquired pancreatic cancer…but worse.

16. During the construction of the transcontinental railroad, some congresspersons took bribes from people like Huntington and Stanford

17. Charlie likes to live a life that has some fun in it (not all sure things)

18. The wealth of the country is based on the productivity of the country

a. Right now, we aren’t a very productive country, so this is bad for our overall welfare

19. If you want to get rich:

a. Have a few decent ideas

b. Have a lot of knowledge about them

c. Stick with it through the ups and downs

20. Charlie never paid attention to the “stupid” things taught in business classes

21. Department stores may not have the world’s greatest future; they realized this upon purchasing one

22. Charlie worst investment decision: he didn’t borrow money for buying stock in Bellridge Oil, and it soon sold out for over 35x what he was going to pay for it

a. You’ll only get a few risk-free opportunities in your life to make an investment/decision. Charlie regrets not having made this investment.

[biaggio]

ageofsocrates, that was good, thanks for posting

 

Interesting to get view from a 19 year old.

 

I am taking my 2 boys (20 + 18) to the BRK meeting this year- my eldest really enjoyed it last year, even though he had no interest in investing. It was my first visit as well.

 

I hoping my kids are smarter then me, and that goes with what they do with their money as well. Less problems for me later.

[Parsad]

RoughlyRight's son takes great notes.  Thanks for posting!  Cheers!

[Charlie]

Some other good notes from RoughlyRight.

 

My favourite: "Not surprised that stocks are going up with interest rates low. That’s why we own stocks."

 

Enjoy  :)

 

 

Author: RoughlyRight

Subject: DJCO 2013 Meeting Revisited

I just typed up my notes from the meeting. I like to just jot down things.

 

Daily Journal Meeting, February 6, 2013

In WWII, one member of Congress voted against going to war with Japan—shows how difficult unanimity is.

Foreclosure boom. Boom for us (DJCO). Biggest in the history of the world. Made an unholy amount of money.

Something about being reminded of the sword of Damocles hanging over one’s head.

The 50-year future of newspapers is not good.

Local newspaper used to be the 4th estate. The 4th part of government. Civic minded. Honest. We’re losing something.

DJCO didn’t take a position ever on politics. Half the readers would agree; half would not.

Several monopoly newspapers borrowed money, bought others, went bankrupt.

DJCO bought up small papers. The paper came with a free option related to the public notice business. Made 1000’s of percent in foreclosure boom.

Like a funeral parlor owner in a plague.

Best to live by reacting right to what comes; difficulties, etc. Not by seeing well in the distance. No master plan. React to opportunities and hazards. Enlightened opportunism. Fix problems as quick as you can when they come up.

Want DJCO shareholders to do well. Owner operation. Would feel terrible if we had done what GM did to its shareholders.

DJCO’s doubling down on software. Like the people. Could be a bonanza.

In a lawsuit that DJCO lost. We lost unfairly, but that happens.

Ratings agencies. Admitted to serious mistakes in judgment. Charlie doesn’t think they were consciously lying. They were stupid. Sure there may be some embarrassing emails.

Sol Price. Success in business came from what he would be better off without.

Leave money that is tainted. Do without that. Warren at Solomon. Wanted a list of things that were turned down that were just legal. Don’t think he ever got that. Criminal law should not be the standard. Don’t behave in relationships that way.

The miscreants have no shame.

Soft white hands. Doing well at poker or in the securities markets.

2008. Circumstances different. Something changes. Act differently. Behave sensibly; reacted to opportunities.

GM’s point of view: someone else’s fault. Their prosperity made them weak.

Why do BRK acquisitions work? Buy in many fields, not one. Don’t pour endless treasure into losing hands. With World Book, just got out of the business. Some business owners will only sell to BRK.

Charlie about attendees at the meeting. We’re addicts. Meeting was being held in the original part of L.A.

BRK has two reasonable options at all times: buy companies; buy stocks.

CEO for 5 years. Can’t change a company in 5 years. Thinks CEOs should have a long run.

Government. There have been crazy kings. Ben Franklin: When you can vote yourself money instead of working, …

Consultants (pension funds). Monthly returns. Hard to change. People profiting from it, like it. Worse than problems in government. Way too short term.

Do we want everything taken over by Carl Icahn? Would that be good for the country? I think don’t think so.

Not surprised that stocks are going up with interest rates low. That’s why we own stocks.

Money management. Hire smart guys, study industries, etc. Problem is that it doesn’t work.

Munger approach is to just find a few great ideas.

Munger had zero transactions in his accounts last year. Owns BRK, COST, and Asian securities through “a guy like him, but much younger” (Li Lu).

Charlie’s way is right; others are wrong.

Only a few decent ideas.

Keep your head down when all others are losing theirs. 

They teach diversification, rotation. Blow up whole profession.

When Charlie had a good idea, he went in heavily

Diversified Retailing. Big mistake, got out. Took the $6 million and bought stocks that were cheap.

Rub your nose in failure. Not going to get many really good investment ideas. Don’t blow it. Go with courage. Borrow. Intelligence and gumption. Charlie likes the word gumption.

BYD. Unusually talented group of people. For 15 years, grew 75% per year. Started with little capital. Have had problems over the last three years. Li Lu thinks they have been solved. CEO Wang Chuanfu is a very talented human being.

Kipling: Treat those two imposters the same: success and failure.

Tragedy in life is if you don’t play so hard that you don’t have some reverses.

Newspapers: Decent investments, but not going to make tons of money (I think he was referring to newspapers recently bought by BRK)

DJCO investments: probably WFC and BYD

CA politics. Driving out elderly rich is bad policy. They aren’t going to schools. Their healthcare is paid for. Many are self-centered. They take actions like moving to another state. Charlie: I’m not going anywhere; won’t move across the street to save his kids $50 million.

He said for most in the room today, the biggest problem with their children will be making their lives too easy, not too hard.

Book recommendations. Charlie is reading an astrophysics book, “A Universe from Nothing: Why There Is Something Rather than Nothing.” Author: Lawrence Krauss

Printing money instead of taxing. Will be a big backlash. Just don’t know when.

Retailing. Tougher and tougher. COST a winner.

Peter Kaufman book suggestion of Buffett’s: The Outsiders. Author : William Thorndike.

Charlie. It took some gumption to buy See’s Candies. Got free pricing power as an option. This is a model that Charlie was into today. Something might be fine at present, but there also may be a free option buried into the investment. Because of See’s, got into Coca-Cola earlier as a result.

Reminded us attendees again that we were groupies.

The meeting lasted for slightly over 2 hours. Charlie recognizes that some have come a long way for the meeting. Charlie is 89 now, but seemed similar to how I remember him when I first started going to BRK and Wesco meetings when he was about 72. Charlie seemed to enjoy the meeting and we all look forward to more such meetings. One attendee stated that there is a difference between knowledge and wisdom, and we come to such meetings for wisdom. The person went on to say that it was like recognizing that a tomato is a fruit, but you know to not put tomatoes into a fruit salad. Frankly, I think Charlie laughed harder at this joke than anything I’ve seen him laugh at before.

 

RoughlyRight

[Palantir]

Did CM comment on succession planning or what they plan on doing with their portfolio? AKA are they just going to invest and grow it or return to shareholders?

[matjone]

Thanks for the notes.  I am not sure that being impartial is the best business move any more.  These days it seems like news organizations are making their money by figuring out what their audience wants to hear and then saying it.

[Charlie]

Palantir, it seems so that Munger didn´t talk about your questions. The portfolio will probably not change much.

[rmitz]

Thanks for the notes.  I am not sure that being impartial is the best business move any more.  These days it seems like news organizations are making their money by figuring out what their audience wants to hear and then saying it.

 

The best business move does not necessarily equal the business move worth the most money.  There is a moral equation here.

[Kiltacular]

Was just reading some newly posted notes on TMF brk board.  This person's recap. of the lessons Munger learned due to his "regret" over not taking a bigger position in Belridge Oil struck me as matching the playbook of our very own Ericopoly.  Given the board's anniversary, I thought they should get a mention:

 

Lessons:

 

1. Don't blow opportunities

 

2. Don't be too timid when you really have a cinch

 

3. Intelligence and gumption count for a lot

 

I've learned a lot from many of you here and seeing this playbook in action, in real time, has been very beneficial.  Thanks to others here that have contributed a lot about their methods, styles, approaches and reasoning over the years.