LC

Anecdotal evidence. I've heard stories of people buying guns because, well, they like guns. They collect them. Smith/Wesson & Ruger are storied brands. They're in rap songs. I have no idea whether gun sales are at a peak, or whether this is just the "new normal". I can't predict that, nobody can. The question is, "Would you spend a billion dollars to manufacture guns under the "Ruger" brand to America?"

Good eye, FCharlie. I am curious to see if EL/BB continue buying.

In my view, FCFE is the cut and dry cash in and out of the business. All non-cash expenses are included, including working capital and financing costs. Owner's equity I view as the cash-adjusted Net Income. I will include financing costs if they are necessary to the regular running of the business. That is, it's a real cost to have to pay a $20m financing cost up front. Amortizing it over the life of the debt is not a true cost. I will not include working capital adjustments because the changes in cash there are for the regular running of the business.

Linked is the letter I believe you are referring to: http://www.hoisingtonmgt.com/pdf/HIM2013Q2NP.pdf I'm not sure I buy the low inflation argument. His thesis is that there is no evidence of any forces which could raise inflation. Commodities are cheap and the USD is strong. However these are both backwards looking observations, there is no argument of why commodities will stay cheap and the USD will stay strong. I agree more with his arguments on GDP as the playing field for innovation and GDP drivers increases with each passing day. Somehow I don't buy that the most productive thing society can create these days is iPad apps... Put this together and I have no real thesis on where interest rates will or should be. How much free capital is there in the system, is the real question.

FCharlie, have you been adding some PM at these levels?

If you're looking at a rising interest rate environment...then why?

Dazel, how do you feel about UCP being more of an "obviously undervalued" investment vs PICO? The situation reminds me of Exor vs. Fiat...Exor being the holding company which has a large investment in Fiat and is undervalued on a general level, but Fiat seems easier for the market to understand versus a holding company as a pure-play. If the real estate owned by UCP is on the low end of your range (i.e. 300m)...you're looking at a dollar selling for 80 cents. PICO on the other hand has more uncertainty regarding valuing Vidler's assets & what margins the canola plant(s) will be working with.

That is my thinking as well. Growth seems impractical and simply maintaining these revenues level is a questionable prospect.

Reduced guidance of legacy costs reduction. Still a substantial improvement, but any comments on whether there will be further guidance reduction? Read it again. They are beating their previous guidance. Thanks for the correction, you are right!

From the latest quarterly report: Reduced guidance of legacy costs reduction. Still a substantial improvement, but any comments on whether there will be further guidance reduction?

I order the K's from the company, I never read them on a screen. For the Q's and other filings I use an Ipad. I've tried kindle, computer, laptop, etc...the Ipad with retina display is IMHO the best substitute for paper.

I did work on SWHC. Liked everything I saw but had no insight into the most important factor, which as you say is whether demand has spiked temporarily or is the "new normal". I have no idea, hence the too hard pile. Maybe the way to approach it is to look for a level of downside protection in the assets, normalized earnings (i.e. assuming that current demand is temporary), and brand value. If you value those factors within the current market cap range, that could be a good thesis for a purchase.

If he was straight with us (i.e. spelled-it-out) using words then the stock price wouldn't be as attractive as it is today. WEB has said that he would prefer if the price of his vehicle (BRK) would approximate its intrinsic value. I'm not sure why ESL would want his stock to be grossly undervalued, unless he wants to actively buy from current shareholders at a song. Which is exactly what Michael Dell was/is doing, but he received much worse reception for the same practice.

I would be but not enough ROI to justify tying up 3k+

They're on my "zen" to-do list once I finish "Zen and the Art of Motorcycle Maintenance" ;D

I don't know if you are right or wrong about this statement. But is there evidence to back this up? Quotes? I don't think Buffett would do anything more complicated, like using a spreadsheet, to estimate intrinsic value. He probably takes owners earnings (normalized) and uses a multiple that he finds appropriate. He might compare a business to a 10-year treasury and work from there. Businesses he invests in usually have durable economic advantages and steady cash flow generation, which makes intrinsic value estimation a bit easier. I also read something about a 15% hurdle rate. He might be looking at owners earnings [normalized]/EV. I don't think he is contemplating between a 12 vs 15x multiple. I think he reads everything he can get his hands on about an investment and then makes an intelligent and fair estimate at what it is worth. Discount it for a margin of safety and he has his offer price.

Essentially they are on the lower rung of us operators, and the Canadian ops were the only thing worthwhile. They're the next Supervalu.

Not yet...spoke a bit on PM!

Had a small position in POT that I sold for a loss. Shouldn't really have purchased it in the first place but I was going through a Malthusian period :D Essentially the fundamental investment thesis changed, and I have no idea whether it is a temporary issue or permanent.

I'd recommend reading this speech: http://turnkeyanalyst.com/wp-content/uploads/2013/02/Williams-Trying_too_Hard.pdf Some of my key takeaways (and a humorous line): -Confidence in a forecast (or valuation) comes from the amount of information we put into it. However the accuracy of your forecast/valuation stays the same. -Respect the virtues of a simple investment thesis. Successful investments must have a simple thesis, by nature. -Complication is evidence of a poor thesis Now for the humorous line: "An investor without a forecast is like a fish without a bicycle"

Owners earnings I define the way Buffett does, net income + depreciation/amortization - capex + certain non-cash charges. I don't make an actual calculation in terms of assigning a Growth rate and then picking a discount rate to do a DCF. What I do is figure out the past history of owners earnings, look at that in terms of how much capital is employed to achieve those earnings, and (here's the rub), hope to know enough about the industry to know how certain those owners earnings will be in the future. Whether they will grow (tailwinds or superior moat) or shrink (headwinds, poor operations/management, poor economics vs competitors). And I try to keep I very general. I'm not looking to get so specific. That is, I'd rather be rougly correct than precisely wrong. I think if you know enough about a business and the environment in which it operates, and you have a history of how well the business has done in the last ten years, you can come up with a rough range under which that business would sell on a fair basis. Coke makes about 7-10 billion/ year in owner earnings per anum. It's worth somewhere in the 150 to 225 billion range, at my guess. I dont know whether its 159b or 203b. But in a sale, today, it would fetch somewhere in that range at my best educated guess. And At a price below that range you have the opportunity for exceptional returns, that's all I'm trying to do. Why 150-225b as my valuation? Well, compare the certainty of earnings to a government bond. At 150 billion, that 7b of earnings represents a 4.6pct return. At a 225b valuation, that 7b of earnings is a 3pct return. That equates to slightly higher than a t-bill, which is due to the certainty as a business which those earnings have.

My process is generally this: Read annual reports Try and form a rough understanding on how the business works and where it is going Figure out the last 5-10 years of owners earnings, and what the company has done with those earnings Then I actually write up a conversation between two hypothetical parties, a buyer and seller, for the entire company. I'll start with something like, "I'll offer you 10 dollars for the business" to which the seller will respond, "no way, we earned 30 mil last year! How about you buy it from me for 1 billion?" And then from there I just go back and forth zoning in on a reasonable range of what that transaction would look like. And that is my estimate of "intrinsic value" so to speak. At each price point, I write out what the opposite party would say. Something long the lines of, "okay well 150m is a bit of a lowball bid...we made 30m but we're in a growing market, have 20m of cash, another 50m of ppe and working capital, and no debt." Then I just compare to market prices, if there's a fair enough margin of safety I make a decision from there.

Yep, this has come across my eyes a few times. Solid company, everything you mention is pretty much spot on. How much larger they can get before bumping into the larger branded food companies is the question. Best case scenario is a sale of the company to someone bigger.

I think the problem is Ackman has no idea how to run a retail operation. Hell, he tried to sell the investment community on HLF as a quasi-ponzi scheme and immediate had people coming out of the woodwork to discredit his thesis.

Hey, you're in Brooklyn? Want to meet for a drink and stock talk?