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The Stock Market This Week
Yet the more money that gets locked into long term buying and holding of index funds, the less there is left to support the trading of stocks in the open stock market.
Behavioral Investing
Behavioral investing is a complicated process. From an intellectual standpoint, investing does require some study of company’s history and financial statements.
Trumped
Trump attitude – “we can hurt you more than you can hurt us”, might be technically correct but is hardly the best way to deal with a country who will someday be your biggest customer.
Warren Buffett vs Wall Street
Warren Buffett and Charlie Munger disagree with Modern Portfolio Theory.
First Quarter Letter: Globalism, 1982 to 2000 Bull Market, Global Middle-Class Growth
First Quarter Letter: Globalism, 1982 to 2000 Bull Market, Global Middle-Class Growth, Focus on the present.
Third Quarter Letter: Volatility Underlying a Calm Market, Middle Class Growth 2015-2030, Brookings Institution’s Estimates, LKQ Corporation
Third Quarter Letter: Volatility Underlying a Calm Market, Middle Class Growth 2015-2030, Brookings Institution’s Estimates, LKQ Corporation.
What’s new with CB&I?
With much chatter over the last six months anticipating an ambiguous or unfavorable Delaware Supreme Court ruling, CB&I’s share price plummeted more than 60%.
Passive Investing
The trend to passive investing (investing in an index funds or ETFs based on an index such as the S&P 500) has accelerated in the last to few years to the point where we have to wonder how much longer this trend can go on. Last year, American investors plowed a record $504.8 billion into passive funds.
First Quarter Letter: Economic Cycles, Hindsight Bias, Effect of Tax CUT on Berkshire
The best investment philosophy understands the cyclical nature of our economy, using these economic cycles rather than getting used by them.
Current Stock Market 2017 Comment
The FED indicates it might raise interest rates three time and stock market 2017 gets upset. Stock market 2017 will decline, from what point?
Global Plastics Summit Highlights
The Global Plastics Summit was produced by IHS and presented in Chicago. After declining for the last thirty years, the domestic petrochemical industry is experiencing new life thanks to the shale revolution.
Value Investing vs Index Investing
The task of the value investing is to make as intelligent an estimate as possible of company's potential future cash flows.
How to Play an Index Bubble
With the SP 500 trading at 17.2 times forward earning and the CAPE over 27 times earnings the market is clearly index bubble by historical standards.
Successful Investors
Three synchronized elements to form the foundation of successful investors: time, technique, temperment.
Is the Market Overvalued?
Market overvalued is concentrated in a small number of very large capitalization and/or dividend paying stocks.
Operating Earnings
Operating earnings are the way Buffett prefers compare the growth within the various segments of the company because GAAP reported earnings are distorted.
Article by investment manager in Bay Hill Living
Article investment manager Richard Losch about building a foundation in investment in "Bay Hill Living" magazine.
Building Foundation
In this way corrections building foundation for the next leg of a long bull market.
3G Culture - Dream Big
“Dream Big” is a history of the 3G culture partners from their days a Garantia Bank in the 1970’s up though the Imbev’s purchase of Anheuser-Busch in 2008.
Myopic Loss Aversion
The investor’s goal should be to buy low and sell high, but myopic loss aversion causes us to do the opposite, remember about the myopic loss aversion.
CBI Nuclear Energy
At first glance, the CBI's nuclear energy business appears to have generated more problems than it is worth. The problem - construction the nuclear energy reactors in the US.
2nd Quarter Letter - St Joe Company
The St Joe Company management announced that its long term master plan for Bay and Walton Counties was approved recently by Bay and Walton Counties and the State of Florida.
What’s in a Word? Plastics.
Plastics can be made in other countries where crude oil is available, the production cost when using naphtha is significantly higher than when starting with ethane, even with the decline in oil prices.
Are Bonds Safer Than Stocks?
Importantly, even with this dramatic interest rate decline, bonds still lagged stocks in preserving and growing investors’ purchasing power.
Chicago Bridge and Iron
Berkshire Hathaway is the largest shareholder of Chicago Bridge and Iron, currently holding 9.8% of the company’s outstanding stock.
CAMEX 2014
CAMEX 2014 at the Orlando convention center, this is a new trade show put on by the Composite Industry. The visitor gets the impression that everything made out of plastics.
Global Economy October 27, 2014
The world economy is weak. China growth is down, Russian economy is weak, the US recovery has been the product of of the Federal Reserve Board.
Fluor Corporation
Fluor corporation is the largest construction and engineering company in the United States. It has offices in 25 countries with major operations in Canada, Middle East and Australia.
Interesting Quotes from Daily Journal Annual Meeting
Interesting and Intriguing Quotes from Daily Journal Annual Meeting 2014 from Charlie Munger.
The Daily Journal Annual Meeting
The Daily Journal Annual Meeting. Charlie Munger answer questions from the audience, expound on his philosophy of the stock market and about everything else.
Albemarle Corporation
Albemarle Corporation is a developer, manufacturer and marketer of specialty chemicals. Company has a long history of steady earnings growth.
Triumph Group
Triumph Group started out as an MRO company in 1994, but since then has expanded to a much broader footprint in Aerospace through acquisitions.
The American Energy Revolution
All of the existing assumptions that have governed the energy business are beginning to change. We are see the potential of deficit energy - tight oil and gas.
Singapore
Singapore is an important location for companies doing MRO business in Asia. Singapore has very stable government that create a favorable business climate.
St Joe Company Update
St Joe Company has announced the sale of about two thirds of its land holdings in the Florida Panhandle. The sale is for 387,000 acres for $565 million.
Hedge Fund Market Wizards
Jack D. Schwager’s new book "Hedge Fund Market Wizards" is series of interviews with twelve hedge fund managers. This managers all have in common - is a great record.
Triumph Group Inc.
Triumph Group Inc. is a broad based federation of highly specialized suppliers to the aerospace industry. In the last 15 years the company has increased its annual revenue.
Bitter Brew
I recommend both books "Bitter Brew" by William Knoedelseder, and "Dethroning the King" by Julie MacIntosh to anyone with an interest in investment business studies.
An Antifragile Portfolio
Nassim Nicholas Taleb’s "Antifragile" is an important work. This book a must read for anyone with skin in this game of investing.
Leucadia National Corporation
Leucadia National Corporation and Jefferies Group, Inc. announced that the companies have approved an all stock merger agreement. Leucadia National will issue 133.2 million common shares.
This Time it is Different
The book “This Time it is Different”, contains a huge database of 800 years of country defaults, banking crises, and currency debasements.
Successful traders psychology
An efficient market should reflect this steady growth in earnings, but the actual market does nothing of the kind, but a good deal of successful traders psychology.
St Joe Company
The St Joe Company has a long history in Florida. It was started by Alfred Irenee Dupont and his bother-in-law Ed Ball in the early 1930’s to benefit from the havoc created by the great depression.
Learning from Pain
Free markets generate cycles, and the down cycles bring pain and suffering. Pain is an important part of the corrective process.
Long Cycles - Part II
The long cycles bring into question the efficiency and rationality of publicly traded asset prices, since there is no long term relationship between those long cycles and corporate profits.
Long Cycle
We have a bull long cycle where PE ratios expand till they grow bubbles, and a bear long cycle where PEs shrink down to single digits.
Nasty Month for Market
For the nasty month of August, the S&P 500 average was down 5.7%, and the NASDAQ was down 6.4%.
More than One Way to Make a Buck with Fortescue
Yet, Jeremy Grantham says that commodities have entered a “new normal” and if he is correct, any successful investment program will need an effective way to hedge the rise in commodity prices. With Fortescue Metals, it seems that Leucadia does indeed own a successful commodity hedge.
Berkshire Hathaway’s Look-through Earnings 2010
Attached is a table of Berkshire Hathaway’s look-through earnings 2010 year. The total was $1,680 per “A” share for 2010 that is up from $1,130 in 2009, or about 49%.
St Joe Company Inc
This story begins last October when David Einhorn of Greenlight Capital recommended the short of St Joe Company at the Value Investing Congress in New York.
Successful Investment Management
What are the skills that will enable the investor or successful investment management to outperform the market? This is my attempt to summarize some of Klarman’s thoughts and add a few of my own.
A Look Into Latin American Market
Latin American market outperformed important emerging market indexes during the last 10 and 15 years. Selective stock picking will have an important role for managers.
The Mother of all Quarters
Whitney Tilson says that Berkshire Hathaway’s fourth quarter could be "the mother of all quarters". He offers no estimate of 4th quarter Berkshire Hathaway.
2010 Investment year results
2010 Investment year results: the average annual return for Losch Asset Management Company taxable accounts was a little less than 22%.
Fault Lines
“Fault Lines” by professor Raghuram Rajan is an important book and it adds a good deal to our understanding of the causes of the “Great Recession”.
US Market 2010
An interesting chart shows that the US market has been getting cheaper since 2002, and that the emerging markets now have about the same PE as US market.
Berkshire Hathaway Third Quarter 2010
The Berkshire Hathaway Third Quarter 2010 will just about reverse the loss shown in the Second Quarter, the Third Quarter will show a $2 billion dollar gain.
The Stock Market 2010
There are two elements that govern the stock market price of any common stock or other security at any given time. One is mathematical (earnings, revenues, assets and liabilities) the other is emotional (greed, fear, etc.). The relative importance of either of these components varies. The emotional component of security prices is always present, but seldom as strongly felt as it is currently.
Berkshire Hathaway Second Quarter 2010
Berkshire Hathaway Second Quarter 2010 Net Earnings were $1.968 billion down from $3.295 billion for the same period last year. For six months, earnings were $5.601 billion up from $1.761 billion.
Berkshire Hathaway Performance
In view of the fact that the recent rally is not based only on earnings improvement, and that the hurricane season has not generally been a strong period for the stock, it is likely this rally will be temporary. We reduced our overweight position in Berkshire Hathaway for two reasons. First, the recent correction in the overall stock market has left us with a lot of good quality stocks that are currently selling at attractive prices, and second, the prospect of a bad hurricane season, and/or a lot of petroleum sloshing around in the Gulf of Mexico may provide us with an attractive re-entry price for Berkshire Hathaway.
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
Will Goldman Sachs return to the glory of its recent past or has its business model been blown? Michael Lewis thinks that Goldman Sachs should be broken up.
Berkadia and Leucadia
In December 2009, Berkadia, a joint venture between Berkshire Hathaway and the Leucadia, acquired the North American commercial mortgage origination and servicing business of Capmark.
USG corporation
USG Corporation formerly US Gypsum Co. is the country’s largest producer of wallboard used in residential and commercial construction. In 2006 the stock traded as high as $120.
Berkshire Hathaway 2009 2010
Berkshire Hathaway 2009 2010 "B" shares were up 2%, after split 50 for 1 and the stock was up 16.3%. Today BRK offers a better risk, return combination.
Why Capitalism Works
The title of the essay would be “Why Capitalism Works”, for it is my belief that the business cycle, and the hard lessons, are what make capitalism work.
The Lords of Finance
The “Lords of Finance” offers a perspective that is new and many ways quite different than most of what has been written previously. The “Lords of Finance” - Business Book of the Year.
Berkshire Hathaway - The $44 Billion Dollar Train Set
Newly arrived in Omaha, 73 years late, but just in time for Christmas a shiny, but not exactly new Billion Dollar Train Set.
Berkshire Hathaway 3rd Quarter 2009
Ravi Nagarajan estimates Berkshire Hathaway 3rd quarter 2009 net earnings from operations will be somewhere between $1.7 billion and 2.1 billion.
Career Risk of Investment Manager
Career Risk Investment Manager has a huge impact on financial markets worldwide.
Berkshire Hathaway financial statements
Berkshire Hathaway financial statements: equity purchases and sales, earnings from operations and capital gains, pre-tax operating earnings, acquisitions.
Berkshire Hathaway Preferred Stock
The table lists The Berkshire Hathaway Preferred Stock Holdings as of December 31, 2008. This list does not include any of convertible Berkshire Hathaway preferred stock, except in the total shown at the bottom of the last column.
Learning Things the Hard Way IV - Moral Hazard
Gain a better understanding of the term "moral hazard" by the study of the Long Term Capital Management bailout. The unintended consequence of this kind of intervention is what we call a moral hazard.
Learning Things The Hard Way III - Credit Default Swap
Regulation of credit default swap should be easy; after all they are just a form of insurance. Insurance companies have been highly and more or less successfully regulated for more than a century.
Learning Things the Hard Way II - The Shadow Banking System
The "Shadow Banking System" includes hedge funds, private equity, and structured investment vehicles and depending on whose definition you accept investment banks.
Learning Things the Hard Way
The miracle of Capitalism is that it works at all. Its main virtue, we have been told, is that it is better than the alternatives. To the extent that it does work it is because of its ability to adapt and change, whereas competing ideologies are so dependent on dogma that they become fossilized shortly after conception. Important as this ability to chance is, it does not come easy. Capitalism is no pushover; it is more like a very stubborn mule, so for progress to continue the occasional application of a very large 2x4 is necessary.
Our C-System
To get your C-system in control it is time focus only on the value of the individual stocks you own or would like to own. Ignoring the noise is easy to talk about, but hard to do; and the longer the bear market lasts the louder the noise.
2008 Investment year results
It will not come as a shock that 2008 was not a good year in investment. Unfortunately the fact that we have been predicting this sort of market for a few years does not seem to eliminate the pain from watching asset values decline. While it was easy to see the accident about to happen we were still surprised by its magnitude. For the year our average long term account was down about 23% – 25% and the average short term account down somewhat less. This compares to a 37% decline in the S&P 500 Average, a 40% decline in the NASDAQ Composite, a 45% decline in international markets and a 55% decline in emerging market equities.
Investment Risk
So as panic grips the market place we are getting paid a lot more to take on investment risk at a time when the actual risk that we face is lower than it has been for a long time.
Bear Markets
There were three more bear markets to come but in each case the low in the market was higher than the previous low, and each high was above the previous one.
Generational Events
Currently there has been a lot of talk in the media referring to the current market gymnastics as a generational events.
Orange sheets - Money is doing better
The orange sheets in your packet show the performance of your portfolio, the double digit gains have brought our portfolios back close to their all time highs.
Inflation Not The Problem
I wrote about the possibility that we are facing a prolonged deep world wide recession. Since then I have run across the article "Inflation Not The Problem".
Tipping Point
The inflation bulls tipping point to Money supply growth around the world as evidence inflation will continue. Buffett just ignores the tipping point question.
Long Term Capital Management
If the Long Term Capital Management positions had just returned to the prices prior to the crisis this profit could have amounted to as much as $4 billion.
Financial Insurance
The puts are essentially financial insurance contacts that will pay only if the stock averages are lower when the contact matures than they were when the contract was written.
Western Refining Inc
Western Refining Inc is an independent crude oil refiner and marketer of refined products. It also operates service stations and convenience stores. The Western Refining owns and operates four refineries with a total crude oil capacity of approximately 234,000 barrels per day.
Berkshire Hathaway Year To Date
In the year to date, Berkshire Hathaway has continued to power our portfolios to a strong level of out-performance. Our result up 2.0% compared the S&P 500.
Berkshire Hathaway Cash Flow
The Berkshire Hathaway cash flow from this float would have paid for all of the company’s cash business acquisitions with $18 billion left over.
2007 Investment year results
2007 investment year results: Losch Asset Management Company's accounts with over $1 million showed a gain of 19.92%, less than $1 million gained on 23.15%.
Investment results 4th Quarter 2007
Investment results 4th Quarter 2007 was another good month with Losch Asset Management Company's accounts up 3% – 4% while the S&P 500 was off 4.4%.
Greenspan on Inflation
Greenspan view of the future course of inflation in this country and the rest of the world is anything but rosy.
Berkshire Hathaway Third Quarter 2007
Berkshire Hathaway Third Quarter 2007: company filed seven separate disclosures of sales of PetroChina H Shares during the this quarter. These sales will have a substantial impact on 3rd quarter earnings.
Berkshire Hathaway Operating income 2007
Berkshire Hathaway operating income is sometimes a better indication of value, than PE, because it is not as effected by one-time items and other games.
Berkshire Hathaway Hedge Fund
The main reason we have such a large position in Berkshire Hathaway is for protection in a down market so at least for the moment Berkshire Hathaway hedge fund is working.
Leveraged Buyouts
The current buyout bubble is making a lot Private Equity managers and corporate executives a lot of money, but is also creating a debt bomb that sooner later will blow up.
Stability Unstable
Hyman Minsky an economist popular in the 1970s postulated, "stability unstable" this economic paradox exists, Minsky explained because long periods of stability lure investors, bankers, and businessmen into taking on progressively more risk.
Weak Dollar
In a new world with a weak dollar, mediocre domestic growth; and a strong international economy, this group easily out-perform the average domestic portfolio.
Berkshire Hathaway Chairman’s Letter
This year’s Berkshire Hathaway Chairman’s Letter is enclosed. Berkshire Hathaway’s 2006 earnings were spectacular. My estimate (which I considered overly optimistic) for the fourth quarter, was for net of $3.2 billion, but the earnings actually came in at $3.6 billion.
Steel Dynamics
Steel Dynamics is an eleven year old company that claims to have the most modern steel operation in the United States. Until last year’s acquisition of West Virginia Steel (part of Roanoke Electric) was completely non-union.
Breakwater Resources
Breakwater Resources’s trailing PE based the last 12 months earnings is 4.4; Breakwater Resources has 71.6 million in cash and short term investments, and 1.1 million in long term debt.
2006 Investment year results
2006 Investment year results for Losch Asset Management Company - average account was up 16.9%, this was almost exactly 3% better than the Wilshire 5000 index average account was up 16.9%, this was almost exactly 1.3% better than the S&P 500 index.
New Investment Stocks
These are new investment stocks that will benefit from weakness in the dollar, either because they are basic materials stocks, or because they are companies that manufacture things in the United States.
Equitas
Also helping to push Berkshire Hathaway’s stock north was the recent announcement of a $15 billion deal with Equitas a trust formed by Lloyds of London to handle their asbestos and environment liabilities.
Berkshire Hathaway Third Quarter 2006
The most interesting thing about Berkshire Hathaway Third Quarter 2006 earnings will be the underwriting gain of its insurance companies and their unearned premiums.
Hurricane Synergy
This I suspect is part of what we will call Buffett's hurricane synergy, the idea that if Berkshire Hathaway can buy enough companies in the building materials, construction, and a manufactured housing industries.
Berkshire Hathaway Second Quarter 2006
The most interesting thing about the Berkshire Hathaway second quarter 2006 report was that there were practically no lumps. This is about as close to core earnings as you are ever going to see on a Berkshire Hathaway 10Q.
Fat Pitch
With rates approaching low earth orbit and risk coverage down dramatically it would seem like this would be a market Warren Buffett would love, it looks like a big high floater hung out over the center of the plate. Think junk bonds in 2001.
Perfectly Obvious
"We’re not saying that we do things better, but rather that this is us. We want people with a lifetime commitment to their business. To underscore the values that we have, everything we do is consistent with Berkshire Hathaway’s culture. Everything they see hear, and read from the company should be consistent ... Homes have cultures. Companies have cultures. Countries have Cultures at Berkshire Hathaway's people buy into it and see that it works. This kind of thing doesn’t require mentoring. Managers see consistency in how Charlie and I act." Warren Buffett.
Berkshire Hathaway Growth Rate
My thinking at the time was that Berkshire Hathaway’s intrinsic value growth rate must have been 10% to 12%; otherwise Berkshire Hathaway would have been buying back stock.
Berkshire Hathaway First Quarter 2006
The Berkshire Hathaway First Quarter 2006 was Hurricane free, but underwriting results in the first quarter are always a good deal less than the fourth quarter of the previous year.
Berkshire Hathaway Annual Report 2006
The Berkshire Hathaway annual report 2006 lists equity positions of $46.721 billion, whereas the total listed on the last 13F was $42.664 billion.
Inflation Is
Today our government is the biggest debtor in the world and inflation is the only way that it ever has paid down its debt. No big deal, inflation is under control.
2005 Investment year results
2005 Investment year results: this year was a pretty dull year for Losch Asset Management Company's accounts and the market as a whole. The composite of company's accounts up 2.18%.
Exogenous Events
Bill Seidman was on CNBC last week and when asked how the market was going to do next year he replied that baring any exogenous events it will probably do alright.
The Price of Easy Money
The problem is that prolonged comfort has conditioned financial institutions globally to price their financial contracts with inadequate risk premiums. If pain is the mother of wisdom, does not comfort make us stupid?
Berkshire Hathaway Look-Through Earnings 2005
This would mean that per-share earnings growth for the seven year period was equal to 15.2% on an annual basis for the period that includes both the purchase of General Re and 9/11. During the same period, GE has grown its per-share earnings at an annual rate of 9.8%, and Microsoft at 15.8%.
Bill Gates purchased Berkshire Hathaway
During the week of September 5 to September 9, Bill Gates purchased 260 shares of Berkshire Hathaway Class A stock.
Unintended Consequences
Expansionary monetary policy promotes growth, prosperity, and full employment, but as always there are unintended consequences and when the medicine is applied to an economy too liberally for too long, money becomes so easy that the games begin. Huge sums are available to managements whose main imperative is self enrichment. Equity bubbles expand, companies like Enron appear, flourish, and spread their lust for fast, conspicuous wealth as if it where a communicable disease.
Rydex Ursa Fund
Rydex Ursa fund tracks the SP 500 index in reverse. In other words if the SP 500 goes Down 1% in a given day the Rydex Usra fund will go up by 1%.
The Warren Buffett Premium
We have been hearing so long about this Warren Buffett premium and the universal assumption has always been that there will be stock decline when he leaves. I, as investment manager, would like to suggest, just for the sake of being argumentative, the possibility of a Warren Buffett discount and propose a scenario where the stock price will increase in his absence.
Private Equity, Hedge Funds, Value Investing
There is one thing I have learned through 38 years of investing: the market will always do what it has to do to prove the majority wrong. Or as Warren Buffett says, you pay a high price for a cheery consensus. This is not because the market is perverse, but because the market is a zero-sum game and frictional costs mean that there will always be more losers than winners.
Building a Latticework of Mental Models
Charlie Munger that Uses the Best Models Wins. A transcript of a speech given by Charlie Munger in 1994. It is in my, as investment manager, opinion a masterpiece of simple logic as developed by a very complex intellect. The basic premise is that a person's ability to deal successfully with life is based the investment models that they use to interpret events.
Warren Buffett's Lackluster Performance
In just the last two years Warren Buffett has realized gains of $8.2 billion in his bond and FOREX trading. Add in another $1.9 billion of unrealized gains in the junk bonds he still holds and maybe $200 to $300 million per year in interest income, and it is apparent that the chairman has enriched shareholders by about $10.5 billion with his trading skills in two years. This definitely does not meet my, as investment manager, definition of "lackluster performance".
2004 Investment year results
Losch Investment Management Company's basic market strategy evolves a large position in Berkshire Hathaway because Berkshire Hathaway is reasonably priced at present levels and with very solid long-term prospects. But more than this, it offers a hedge against a substantial market decline. With its huge cash positions and with Warren Buffett to make the investment decisions, Berkshire Hathaway is one stock that will get more valuable if the market declines.
Professor Smith's Second Bubble
After a bubble appeared in a trading series there would be a correction and then after the first correction, the bubble would usually reappear. The bubble starts to re-inflate, but this time the participants, burned by their previous experience are more cautious and the values do not become as extreme.
Hedging a Currency Disaster
More remarkable still is the fact that this is the latest in a series of large macro bets: the purchase of S&P puts, junk bonds purchases, and fixed-income sales; actions so wonderfully out of character for the world's greatest value investor as to suggest that by some mysterious process Kiewit Plaza had been magically transported to Lower Manhattan and George Soros has taken possession of the Oracle's body.
Some Thoughts on Investment Risk
There is no such thing as a risk free investment all investments carry some risk ... A good investment is one minimizes the risk that the investor faces, and that pays you well for taking the risk. All investments decisions should start with measuring risk.
Too Many Bears
The excesses of our recent tech bubble were so extreme that one three-year bear market is simply not enough to cleanse Mr. Market's Soul of his predilection to party on.
The Chinese Century?
If 2003 trends quoted in the paragraph above from the Worldfact Book where to continue for the next twenty years, several interesting things would happen: 1) The world GDP would double by 2022. 2) China's GDP would be larger than ours by 2013 and be twice as big as the US by 2025. 3) India's GDP would pass us in 2035.
Patterned Irrationality
I believe that markets are usually inefficiently priced, both in detail and in aggregate, and that they are driven by very fallible, emotional investors who have neither the mathematical nor the psychological means to process data efficiently. Jeremy Grantham.
Timber
The trade deficit can not expand forever, and with three billion people in Asia experiencing a rapid expansion of personal income, prices of the basic things like oil, gas, wood, and paper are likely to increase faster than they have for the last twenty or thirty years.
Costco's Cash
A check of Costco's balance sheet at the end of the 2nd quarter of 2004 shows that the retailer is accumulating cash at a rapid rate. Interestingly enough they are accumulation cash faster that they are earning it.
Physics Envy by Charlie Munger
In October of 2003 Charlie Munger gave a lecture to the economics students at the University of California at Santa Barbara in which he discussed problems with the way that economics is taught in universities. One of the problems he described was based on what he called "Physics Envy". This Charlie says is "the craving for a false precision. The wanting of a formula ..."
Asset Allocation at Berkshire Hathaway
I, as investment manager, have taken his table and added a couple of columns on the left side to cover the period that included the 1996 acquisition of GEICO. The result is a dramatic representation of Warren Buffett's move away from the equity market. The move is very Warren Buffett in that the shift is massive, but it was handled in such a way that unless you are really paying attention you would not notice. This table tells us better than mere words what is going on in Warren Buffett's mind.
The Balance of Payments
The trade deficit exists because of the power of the American consumer, and while it is likely that currency markets will remain volatile, and may even perhaps get violently more so in the near term, the underlying factors that are the cause of this overvaluation of the dollar are not likely to change in our lifetime.
2003 Investment year results
A summary of the composite results for Losch Investment Management Company for the investment year 2003. And a somewhat cloudy look ahead. " ... You can also expect more sell tickets than buy tickets as we position your portfolios for another down market. Exactly when the bear will re-emerge we can only guess. But sooner or later he will reappear."
Hedge Funds
The one unbroken rule on Wall Street is that easy equity and cheap leverage inevitably attract those species most dangerous to investment capital: mediocre talent with no comprehension of the limits of their talent, and intelligent people who are ethically challenged.
The trade deficit is not debt
It has always been my view that trade deficit is more a refection of the worlds desire to hold dollars than it is anything else. The current account (trade and services) is in deficit because there is a Capital account surplus, not the other way around.
Secular Bear Market
In 1966 the market entered a secular correction phase that may or may not prove similar to today’s market. The market did not move straight down to its eventual low and recover steadily from that low. From 1966 to 1982 the Dow was stuck in a trading range between 577 and 1000. This may not sound so bad but for those of us that were participating, it was a series of dull, slow, bull markets that always petered out at around one thousand on the Dow. These bull markets were separated by grinding gut-wrenching bear markets.
Which Index Fund?
There are hundreds (maybe thousands) of index funds and they are all basically sector funds. Some of these indexes will return something close to the returns of the S&P 500 during the twentieth Century, some will do better, some will do worse, but if you know which is which, you are a lot smarter than I am.
A Different Drummer
John Bogle says that during the greatest bull market in history the average equity fund investor has received just 2.7% per year return. In other words after taxes and inflation the average John that had his money in mutual funds for the last eighteen years is probably in the hole. This is indeed something to ponder. At first it does not seem possible, but mindless pursuit of performance gets the crowd to always buy last years winners and we all know how that turns out.
Costco's Float
For instance, the Costco's companies total reported earnings for the period was $481.5 million; this is about the same as the net increase in cash as shown on the Balance Sheet ($483.9 million). Total cash on hand at the end of the period was $1.289 billion or about the same as the companies total debt level. Market Comment. The second Quarter has ended on a positive note with the composite of all Losch Investment Management Company's accounts up 12.21% for the first half, vs. a gain of 10.7% for the S&P. For the last three years our composite has shown a positive return of 15.82% per year, compared to a negative 12.50% per year for the S&P.
The Power of Float
If the present trend continues Berkshire Hathaway’s after tax income this year would equal $6.9 billion up from $407 million in 1992. This means for the last 11 years Berkshire Hathaway’s after tax earnings have grown at an average annual rate of 29%.
Berkshire Hathaway Annual Meeting 2003
Saturday May 3, 2003 the Annual General Meeting of Berkshire Hathaway.
Charlie Munger. The Psychology of Human Misjudgment.
From a Charlie Munger speech at Harvard Law School. "Although I am very interested in the subject of human misjudgment - and lord knows I've created a good bit of it – I don't think I've created my full statistical share, and I think that one of the reasons was I tried to do something about this terrible ignorance I left the Harvard Law School with. When I saw this patterned irrationality, which was so extreme, and I had no theory or anything to deal with it, but I could see that it was extreme, and I could see that it was patterned, I just started to create my own system of psychology, partly by casual reading, but largely from personal experience, and I used that pattern to help me get through life."
Sitting on the Sidelines
Sitting on the sidelines may be no fun, but it is hardly an accurate description of what has been going on at 1440 Kiewit Plaza for the last year. I, as investment manager, have revised my table of recent acquisition activity to include figures for junk bond purchases and activity in the equity market (see below). If activity is the definition of fun, then Warren Buffett has been having a ball. Reading the first couple of pages of the chairman's letter I get the impression he is tap-dancing like crazy. Certainly 72 years has not dulled his sense of humor.
Berkshire Hathaway Growth in intrinsic Value
Warren Buffett's $45,000 offer in 2000 was an important marker for intrinsic value, because we know that his figure must have represented a substantial discount to the intrinsic value of the stock at the time it was made. This is an attempt to adjust that price for the growth of the last three years.
2002 Investment year results
A summary of the composite results for Losch Investment Management Company for the year 2002. Also includes tables for relative performance over five, ten, and fifteen years.
"I would consider a year in which we declined 15% and the Average 30% to be much superior to a year when both we and the Average advanced 20%." – Warren Buffett.
Insurance company Moats
Warren Buffett’s Management style is firmly grounded in things like large margins of safety, and the acceptance of short term pain in exchange of long term gain. For insurance companies this is a very different management imperative that GE’s belief that the road to heaven is paved with smooth and ascending earnings reports.
Bond Bubble
About bubbles, the money supply, shorting Treasury Bonds, and the direction of the economy for the rest of 2002. "So is flight to fixed income a rational refection of the economic conditions we can expect in the near future, or is it just Mr. Market scared to death by what he sees in the rear view mirror."
Berkshire Hathaway Cash Flow 2002
This is my, as investment manager, attempt to rearrange the numbers published in Berkshire Hathaway’s Annual Reports for the last ten years. The numbers are the same but hopefully they are presented here in a fashion that provides some new insight into value of the Berkshire Hathaway.
Behavioral Economics and Educated Capital Markets
While Conventional economic theory says the economy and the markets are always rational. Professor Kaheman and Professor Smith, say "not necessarily."
The Bear Market 2002
Over the course of this bear market, all you had to do, was to be willing to move in the opposite direction of the big money, and listen to Warren and Charlie.
"Greenspan Put" Floats Charlie's Ducks
The "Greenspan Put" kept the rain falling, and the water kept rising. All the ducks thought they were getting smarter and smarter. The gap between what the ducks thought and reality became so wide that it fostered acts of superhuman stupidity. One example is all that is necessary to understand the enormity of this gap. Bernie Ebbers borrowed $400 million to buy stock in his company. That's 400 with six zero's ... for an equity position that is probably worth about $45.00 in today's market. What the hell was running though his duck brain? Clearly the water in the pond was going to keep going up forever. Sadly I fear this duck will soon receive the world's largest margin call from a bankruptcy court.
Second Quarter Cash Flow at Berkshire Hathaway
Owner Earnings, Cash Flow and Berkshire Hathaway - "I have no clear idea how to value the float when computing intrinsic value, but I am fairly confident of two things: 1. money is going to keep pouring into Omaha, and 2. I am not sure that any future attempt to value Berkshire based solely on reported earnings will be satisfactory for me."
Berkshire Hathaway Annual Meeting 2002
Links to the best Internet postings of Berkshire Hathaway's 2002 annual meeting, notes and pictures from Omaha.
Red Wire - Green Wire
The market organism also changes constantly because the emotional status of the participants changes. People react to events in ways that are both rational and emotional. So a change in the market price may be caused by new information about the stock or it may just as easily be caused by the level of fear or greed prevalent among the participants.
Stupid FED Tricks
"What if" questions for the FED. What if there had been a recession in 1994? What if there had been no drop interest rates in October 1998? "The whole idea that we can hire some politicians to turn a knob here and change a little policy there, and presto, no more human grief, is not just naive it is dangerous, but that is what we are dealing with here. The notion that economic cycles are bad because they cause pain, and that we can fix this by adjusting a few monetary levers, has always been a foolish notion."
The Bottom Line
All the major events of the last year are now playing into Berkshire Hathaway's strengths: premiums written by Berkshire Hathaway's insurance subsidiaries should increase rapidly in 2002. Barring a major catastrophe, profits should follow in 2003.
2001 Investment year results
A summary of the composite results for Losch Investment Management Company for the year 2001. The Value of a investment manager is measured by relative performance.
Don’t Fight the FED
It has been eleven months now, since the Federal Reserve Board started to pull back on the stick, but the economy still has not been able to get off the ground. Every recession since the end of World War II has ended as soon as the FED stated to ease. Is it going to be different this time?
Buy and Hold? - It all Depends
It all Depends Bull markets are great for investors that like to buy and hold but bull markets do not last forever.
Ben Laden and Berkshire Hathaway
What happens to the intrinsic value of an insurance company when it has to pay 2.2 billion in claims?
The Dinosaurs Dance
This article talks more about moats. Deswell Industries is a company incorporated in the British Virgin Islands with operating subsidiaries headquartered in Hong Kong and all its production facilities located in mainland China.
Costco's Moat
In other words Costco can show the same profit on 10.4% markup as Dillard's can on a mark up of 32.3%. For a watch that manufactures sells for $100. Dillard's would have to sell it for $132.30 to make the same profit that Costco would make by selling the same piece for $110.40 (this percentage is actually based on a markdown not a markup so the real prices would be higher, but you get the idea.) Wal-Mart is bringing 1.5% more down to the bottom line so they would price the watch at $124.5 ($123 + $1.50). Low margins and fast turn over can help to create a respectable moat for a retail powerhouse.
Bubble Watching
Will the FED be able to avoid Bubble Number two? As far as the recovery is concerned fast is bad slow is good.
Sit on your Ass investing
Charlie Munger introduced the concept of "Sit on your ass investing" at the Berkshire Hathaway Annual meeting. This is a new investment theory.
Berkshire Hathaway Annual Meeting 2001 Highlights
The last week in April 2001 is the time to be in Omaha. Highlights of the Berkshire Hathaway annual meeting.
Carnival Cruise Lines
Carnival Cruise Lines was built with acquisitions and includes in addition to the Carnival brand, The Holland America Line, Seabourn Cruise Line, Windstar Cruises, Costa Cruises, and the Cunard Line.
450000 Square Ft Furniture Store
The 450,000 Square Feet Furniture Store - this is No ordinary store. If you have never been inside the Nebraska Furniture Market it is easy to underestimate its significance. It is not that one furniture store will have much impact on a company the size of Berkshire Hathaway, but a visit to the Omaha store speaks volumes about Warren Buffett's business philosophy, and particularly it helps the visitor understand how he has built a huge moat around this furniture business. If I were teaching a class in a business school about moat construction for a retail business I would start the class out with a trip to Omaha or about the Nebraska Furniture Market and what it tells about the management philosophy at Berkshire Hathaway. What does the "Principle of Intermediate Fragmentation" have to do with selling home furnishings?
Lunch Money Indicators - Annual report
Actions speak loader than words (or sometimes numbers). What are the deeds that speak about the integrity of a company's management?
Other People's Money
More about the evils of cheap capital and why tight money is good for investors. "There is no better way to make managers understand how valuable capital is, than to charge them for it," ... Warren Buffett.
Bear Tracks
The bear may be loose but the fun has only begun. "The good news is that there are many old economy stocks that are attractively priced. When you look at your December statements you will begin to see some new names there. This does not necessarily mean that I, as investment manager, think the market as a whole has bottomed. It means that I, as investment manager, am finding good companies at attractive prices, and that I am afraid that they may not get much cheaper even if the rest of the market turns back down."
Build It and Money Will Come
Why cheap money is bad for the stock market, and why corporate CEO's think that if they are smart enough to get their hands on large piles of cash they must be smart enough to spend it.
Efficient Stock Market
How rational are stock market values: tech stocks in the stratosphere in March, but 80% less in October.
Style Drift
What happens when mutual fund managers chase Performance at the expense of investor suitability rules.
Lunch Money Indicators - Options
Discusses the effect of stock options on the behavior of corporate managers, and how this behavior may differ from managers who actually own a substantial position in the stock of the company. This can be hazardous to the financial health of shareholders.
Identifying Problems
How Higher interest rates and a slowing economy effect tech stocks. And why a little pain is good for the economy.
Small Retail Stocks
A comparison of four retail specialty companies. Abercrombie & Fitch, American Eagle Outfitters, Buckle, and Pacific Sunwear.
Charlie Munger's Rules
Charlie Munger's Rules - This is perfectly obvious, but very little understood. Quote from Charlie Munger at the 2000 Berkshire Hathaway annual meeting.
Big Al and the Bubble Machine
Big Al and the Baseball Bat - (It is time to turn off the bubble machine). A comment on Fed policy in the spring of 2000, and impact of its policy on the stock market and the nation's economy. Will a soft landing really work?
Berkshire Hathaway is Cheap
Berkshire Hathaway stock comment. This Stock's price offers a compelling value at today's prices. Buy now. This is one decision that will last for Ten years.
Index Funds
Index Funds - a wonderful new vehicle? So says Tom Gardiner. But money has been pouring into Index funds for the last ten years. Now this flow of money has created distortions in the capital markets and threatens to make passive management pases.
John Templeton's 16 rules for investment success
Sixteen simple rules by John Templeton that will help any investor be successful. In no way, do any of these rules conflict with anything taught by Warren Buffett and Charlie Munger.
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