Best investment adviser Richard Losch's blog

Long Term Greedy

As long as there are markets, there will be bubbles; and all bubbles end with a crash. Economics is the study of human behavior and markets are a product of that behavior. So, Markets are not efficient and often not very rational. In October of 2007, the Dow and the S&P were making all time highs at a point when disaster was inevitable.

Goldman Sachs

Lewis thinks that Goldman Sachs should be broken up and that it’s high risk businesses sold to hedge funds. Lewis thinks that compensation plans for traders need to reflect the risks the traders are taking. He says that high-risk trades belong in a partnership because then the people taking the risk have all of their own skin in the game. Losch Investment Management Company do not know if this is realistic but have to admit it sounds like a good idea. It would be similar to Buffett’s idea that CEOs of busted banks should end up broke. But Lewis’s solution would be more effective because this way all of the big players — not just the CEOs — would end up broke.

Berkadia and Leucadia

At the end of 2009, we became a 50% owner of Berkadia Commercial Mortgage (formerly known as Capmark), the country’s third-largest servicer of commercial mortgages. In addition to servicing a $235 billion portfolio, the company is an important originator of mortgages, having 25 offices spread around the country. Though commercial real estate will face major problems in the next few years, long-term opportunities for Berkadia are significant.

USG corporation

Based on recent earnings reports, USG corporation could be classified a “dead man walking”. In 2008 the USG Corporation reported a loss of $4.67 per share. Then for 2009 they followed with a loss of $7.93 per share, and the casual observer might be justified in their belief that USG corporation had so much fun in bankruptcy that they have decided to try it again. However the negative earnings were mostly the result of non cash restricting charges and a look at the company’s balance sheet gives us a somewhat different picture.

Berkshire Hathaway 2009 2010

Whitney Tilson estimates that Index funds will purchase $38 billion of Berkshire Hathaway’s stock when it enters the index. This is much larger than Buffett’s estimate of $9 billion, and S&P’s estimate of $12 – $14 billion (see the enclosed article) obviously the stocks entry into average could have a big impact on the stock price. How much of that impact has already been incorporated into the stock’s price is hard to estimate, but in any event February 12th could be an interesting day.

Why Capitalism Works

If I, as investment manager, were writing a story about Minsky’s theory, my slant would be a little different. The title of the essay would be “Why Capitalism Works”, for it is my belief that the business cycle, and the hard lessons that trail in the wake of the economy that has gone off a cliff, are what make capitalism work. A crash provides a nice ego haircut for those egos most in need of a trim, and also provides a reliable antidote to the terminal arrogance that is a part of the human condition at the top of the market.

The Lords of Finance

It should be on the must read list of anyone interested in understanding this particular economic collapse and macro economic cycles in general. More than this, the narrative suggests some very interesting parallels to events going on today. This book offers a perspective that is new and many ways quite different than most of what has been written previously.

Berkshire Hathaway - The $44 Billion Dollar Train Set

Berkshire Hathaway’s 3rd Quarter. Newly arrived in Omaha, 73 years late, but just in time for Christmas a shiny, but not exactly new train set. There may be a bit of a problem placing this package under the Christmas tree because it comes complete with 6,500 locomotives 83,000 freight cars and approximately $2.1 billion in net income.

Berkshire Hathaway's 3rd Quarter 2009

If the quarterly figure for reported earnings does come in around $4.0 billion (compared to $1.0 billion for the third quarter of 2008) it should provide Mr. Market with an incentive to mark up his price. In March of 2000, when Buffett offered to purchase Berkshire Hathaway for $45,000 per A share, the PE would have been 20.6 if calculated on the same basis, with look-through earnings included. If we ignore investment gains in both years, Berkshire Hathaway’s PE would be 15 now and was 23.4 then.

Career Risk of Investment Manager

Most investors focus on short term results. They do not have patience that is required to outperform the market in the long term. In the media managers are compared using quarterly, monthly, or even daily returns, this creates pressure on managers to focus on short term performance. As Seth Klarman said in a recent interview; "Managers who do well in the short term are rewarded with more assets," he said. "Those who do not do well in the short term often don't survive to see the long term."


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