LC

Hilarious, writser. You're almost killing me. I don't think that I have deserved that treatment, I always - at least try to - repsond politely to your post here on CoBF. It was kind of funny though :D I think it was meant in a light-hearted manner :P Your options are to sell the stock and buy a call; buy a put ; or sell the stock because you know it is overvalued. Your knowledge is worth the cost of maintaining the hedge. Myself, I always went with this final route.

Jurgis did you rattle that off the top of your head? Impressive! Do you have any good links for Clayton Homes - was discussed in the past. Support of huge payouts (salaries/bonuses) to CEOs while calling it a problem. I remember hearing some stuff re: Clayton but I never dove into it. ____ Ultimately though one can accuse any (successful) company of evil deeds. If you invest, you have to accept that as a reality and just live with it. Berkshire is still better in social/environmental/financial aspects than a lot of other companies. So. Yeah so, this is part of what I am interested in talking about. I mean, where is the line? And at what point does it become too much? I get that everyone will have their own personal line to draw, but there's got to be some weighing factor, no? Like, "well ok, NV Energy screwed 17K people in Nevada, but XYZ corp. is helping 34k people over in this state, so on the balance...". You mention Berkshire is better socially/environmentally/etc...how do you that calculation. The problem I have is the whole "bury my head in the sand and just collect my paycheck" aspect. At some point that becomes unhealthy IMHO. Take a cigarette company (nowadays). I'm comfortable investing in Altria for example because people know cigarettes can kill you. Hell, I occasionally smoke myself. So there's a level of personal responsibility. So you can't really blame the company for people's individual choices, when those people were fully aware of the consequences. With the NV Energy issue, that doesn't quite seem to be the case. I also think this is part of the reason Buffett likes his "de-centralized" organization. It also de-centralizes him from any responsibility. He can always claim some level of plausible deniability. We are all shades of grey but some are certainly a little darker grey than others.

I was hoping to start a thread listing the business practices that Berkshire and its subsidiaries engage in which you may not agree with. I realize in a forum filled with Berkshire fans and shareholders, maybe it will be a bit controversial (or maybe not). But with all the good business results we hear about from Berkshire, perhaps that is all the more reason to have the discussion and try and counterbalance the echo chamber. I should also say BRK has been at least a 10% position for me since I began investing (~8 years). So there is definitely some cognitive dissonance here on my part, which I think is worth exploring. The question is, what does Berkshire do that you personally would not? The idea for this thread was inspired by a post Cardboard made: On this issue, here is a good critique: https://www.theguardian.com/environment/2016/jan/13/solar-panel-energy-power-company-nevada Essentially the state government encouraged citizens to invest in solar panels. At the time, it made a lot of sense due to the pricing and savings these customers would receive by (1) generating their own energy, and (2) selling surplus energy back to the state regulated utility (Buffett's NV Energy). So people took out loans or paid outright to set up a residential solar system. Some time later, the state changed these regulations. NV Energy can impose a much higher fixed-fee on customers using residential solar, and NV Energy can purchase the surplus energy back from these customers at ~25-30% of market price. All the residential solar companies (solarcity etc.) have since pulled out of the state. This is essentially the outcome of the whole situation: “If they start giving us only 2.8 cents a kilowatt versus the 13 cents they charge us, I will never break even on my investment,” Matz said. “Not only that, if they are going to give us 2.8 cents a kilowatt and then sell it for 13 cents, basically 17,000 Nevada homeowners built a solar farm for Nevada power. I don’t think that can be right.” So I don't know what inspired the Nevada public utility commission (PUC) to change their regulations.. And I think the majority of the blame (if one were to assign blame) would fall on the PUC. But let's be honest here: NV Energy certainly is not feeling the pain which their customers are. And there are accusations of lobbying/corruption, but these things are hard to prove even if they are true Solar advocates have also accused the energy commission of coordinating with utility company lobbyists. Checks and Balances Project, a nonprofit group that investigates corporate influence on clean energy policy, filed a public records request for correspondences between the PUC commissioner, NV Energy and industry trade group Edison Electric Institute. PUC, too, has denied access to messages made on personal devices and accounts. “The story here is one of political corruption,” Miller said. “Brian Sandoval pulled a bait-and-switch on consumers to protect NV Energy’s monopoly profits.” The reality is at the end of the day it seems like a bait-and-switch, and to say NV Energy was just some independent party in the entire affair seems naive. I know I would not like to be treated this way as a customer. ___ So I am hoping this thread provides a discussion on specific issues such as the one above, or the broader topic of, "should shareholder agree with the business practices of their investments", or where that line/balance is.

outstanding investors digest

yes bizbuysell and other business brokers are available, but most businesses being sold are being sold for a reason. so just think about that. at that age, if they just want to keep busy, there are hobby-ish businesses that don't really make a great profit but are essentially jobs...things like a flower shop/nursery garden, neighborhood cafe, these types of community job things.

20x future earnings (which may or a not materialize) for a single fast food location? Way too rich.

It's like you summed up every interaction I've had with people asking for investing advice....

No problemo. enjoy! :D

Here's ROE http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/roe.html Here's net margins http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html EBIT/EBITDA Multiples http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/vebitda.html I mean u can just go here: http://people.stern.nyu.edu/adamodar/New_Home_Page/datacurrent.html#multiples And click the ones "by Industry"

I agree with this, but with a caveat: In my experience, transparency works best when it's actually transparent in all factors, not just work. Let's say your coworker is missing some deadlines, you notice it for a bit and in the spirit of transparency, you mention it. In the same spirit, he says that he's going thru a breakup, has a new baby, or what have you, and therefore his mind has been elsewhere. A fully transparent relationship is when you already know your coworker is on the rocks with his girlfriend, or his wife is expecting, or whatnot, because you share these things. And so you may preemptively re-allocate resources to avoid the situation entirely.

Yea I agree cubfan. Either (1) he's lying which is what i suspect, or (2) he allowed processes in place to allow one person to allow such a huge breach

@BG2008 - Thanks for replying. I was looking for a little confirmation because the principle makes a lot of sense yet nobody mentions it. Everyone just takes 6% because that's what Buffett used 50 years ago. As you mention, 6% was the average risk free rate back when Buffett was setting up his partnerships. @Rod - I'm not sure I agree with that idea. I don't think economically it makes sense. It assumes that the client would be earning the index rate of return without the fund manager. Empirically that assumption has been shown to be false. Individual investors are pretty good at buying/selling the index at the wrong times.

Ok but, why 6%? Why not 5% or 7%? In Buffett's time, 6% was the 30 year coupon.The idea (as I understood it) was that managers are paid in excess of the risk-free rate. Clients moving outside of t-bills are assuming risk. They can either pay themselves for that risk, or pay someone else, presumably a professional. The real question is, why are value fund managers stuck on 6%, versus payment for the intelligent assumption of risk above the risk-free rate? Note: I think his actual fee structure for the multiple partnerships varied: 33% above 6% 25% above 4% 16.6% above 3% But (1) he provided liquidity back to his clients from the fund at 6% (again, the risk-free rate), and (2) I think when he combined all the various partnerships, he adopted 6% as the rate.

Buffett was writing back in the 60s that the money managers job was to beat the index. The concept of risk adjusted return is imho used too much as a method to rationalize underperformance.

I completely agree. And you know, IIRC the reason Buffett chose a 6% hurdle was because that was the average 30? year treasury rate at the time. What are your thoughts on that? Or even a floating annual hurdle rate that mimics the 30 year?

The answer to that is totally dependent on who is asking the question :)

I don't follow them closely but if we assume there is no fraud, then to get from the 13F analysis (which shows much more modest performance) to their claimed performance, they would have to be using leverage or derivative strategies like you mention. Not that there's anything wrong with that, I sell puts to initiate or add to positions and sometimes sell covered calls. But a good general question: what isn't required to be reported on 13Fs. Edit: 13F list here: https://www.sec.gov/divisions/investment/13flists.htm

Seems silly to me...removing the most popular part of the product? True genius. Next thing the email feature of Gmail will be replaced with an interactive game of telephone.

Which is why you would use Kelly's. 8) I hate that damn formula! :D Just because it is precise, does not mean it is accurate. It fools people in that way. In reality, we are all probably not-so-great at determining exact probabilities and expected outcomes. Take the common-sense lesson from the kelly formula: safer stocks with higher potential outcomes deserve more of your investment dollar than risky stocks with lower potential outcomes. But most people don't need a formula to tell them that...

Could you elaborate? Yeah, so usually the idea is saying, well OK I think the value of this company is $100 (EV = 100), but I can buy it at P=75 and sell somewhere around $100. In this case the ceiling is 100, and you buy below that. But take the same example. What's the worst case scenario, tail risk, etc.? Your $100 EV is just the average of a bunch of probabilities. How does that distribution look? In other words, the EV = 100 but P1=0 and P2=200 is much different investment than EV=100, P1=95, P2=105. For the second, your floor is essentially 95. For the first, your floor is bankruptcy. But same EV.

On second thought I'd go with the first option. It's all about expected value, but I think your example is a bit extreme to illustrate it. 1) and 3) look like the same thing to me. I'd also think about expected loss as a floor vs. expected value used as a ceiling. The second option is how you run into value traps.

I would say the second. 1 and 3 require repeated tries to reach expected value. You might hit zero in your first four tries and now are bankrupt and can't continue.

I voted Sanjeev. Bezos would be my other choice but I have never interacted with him. Honesty and integrity are characteristics at the top of the list of what i would be looking for...I just don't have the ability to pick the next maniac-level uber-investor like Buffett.

That's true they have drastically shrunk their retail presence globally. I do think their consumer business is more sensitive. We're slowly coming out of a super low interest rate environment, consumer credit could be slowing down going forward. That's the risk I see - but there are also implications for ICG as well

Good interview, thanks for posting John. Citi is a strongly consumer driven business.