Rabbitisrich

Has Buffett ever hinted at his sources on housing? He mentioned, in an interview last year, that he believed that inventory levels were overstated. Tom Lawler puts out some great articles through Calculated Risk, but his discussions about overstated inventory also presaged the downward adjustments to historical existing home sales.

Thanks for the link. I didn't know that Berkowitz had updated his presentation. I think, at this point, the market is looking past non-litigious loss reserves, but there still seems to be excessive penalization for non-interest expenses. The efficiency ratio won't stay at 85% forever.

What I don't understand about Fairholme funds investors is that Berkowitz doesn't take on a lot of leverage so you don't benefit from ultra-low rates; he doesn't focus on exotic securities or high transaction cost investments; and his expected holding period is long enough to simply cherry pick from his investor letters. One major benefit to being a shareholder is that Berkowitz will stomach the volatility and maintain discpline in your stead. So if a shareholder pulls out when NAV implies a reasonable probability of bankruptcies, then what exactly was the point of investing with Berkowitz? It makes no sense!

The National Institute of Population and Social Security Research projects a japanese population of 89.9 M by 2055 compared to about 128 M in 2011. That is borderline Children of Man, and it takes the population back to 1955 levels.

In practice there isn't much distinction between a macro view and a fundamental view, particularly when you talk about giants like WFC with trillion $ assets and 240K+ employees. Buffett's wrong assessment of the housing bubble and consumer spending in 2006 led to purchases of WFC in the mid $30s. His view on the elasticity of oil demand in 2008 resulted in the COP buy. I'm actually fully long with a heavy bias towards financials, but it's important to constantly remind oneself of the downsides, especially when the market is cheering you.

This post too falls under the conjecture bucket for me. Who's to say the day we posted the "What did everyone buy today" thread was not going to be the day stocks bottomed? The fact that stocks panicked further and we had to average down is only a testament to the fact that nobody really knows when the bottom is in. Our jobs are to buy securities when they fall below our assessment of intrinsic value, and historically, the best time to do so are during major down days. Macro should be disregarded, if enough margin of safety is presented by Mr. Market. Maybe there is more pain to come this year, but the fact that in 30 days most equities discussed on this board have risen by 30-50% indicates that they were severely undervalued. There was no conjecture and nothing predicted. My point is to argue against the logic of your last statement, which implies that price movements over a short term "prove" investment theses. That many people on the board have made money does not "prove" diddly about Europe, China, or whatever is the latest macro fear bunny. PlanMaestro and Uccmal noted fundamental improvements in the BAC story, but those improvements have been in process since the 2nd half of 2010 despite volatile swings, which is exactly the point that I seem to be communicating poorly. Higher portfolio values feel better, but they shouldn't be used to validate an investment thesis anymore than the opposite case disproves it.

What makes you say that? If anything loan portfolio developments since 2010 have validated his thesis (so far).

As a cautionary note, I recall the board being rather aggressive during the downturn as demonstrated by the "What Did Everyone Buy Today" thread. Much of the outperformance YTD has to do with averaging down during the panic period, rather than "proving" correct about macro uncertainties.

We still had a chunk of cash, but all the positions we took are up about 18-20%+ since the middle of December. Our financial equity positions have made up for more than the losses on the original warrants we bought earlier in the year. OSTK is the only thing still keeping us from going above our high watermark from June. Hopefully, they've been working on turning around revenues and that changes after the 4th Q and 1st Q reports come out. We have alot of cash from ideas that weren't long-term positions and went up alot. Also, we sold our Winn-Dixie position when it was bought out. I think things will get very choppy again through the year and we have plenty of liquidity. Have not and will not sell a single share in BAC or WFC. Cheers! Agreed on the banks, particularly WFC. The market isn't pricing in the gradual normalization of the payout ratio. Also, NIM contraction is dominating the conversation without actually looking at the difference in volatility between NIMs and ROEs.

Ericopoly, I think the point that you are missing is a critical differentiator between capitalism and other forms of government. Coercion is magic. When a communist government mandates roles via bureaucratic shuffling, coercion spontaneously appears. It evaporates in a free market because a free market is never coercive due to the name by which it is called. So when a young black child grows up in a ghetto and is given certain role models and pushed through certain economies, he is making a choice to develop into whatever he develops into. The same thing happens when a young white child of two PHDs grows up in Los Angeles and attends Harvard Westlake. Choice and free will.

OT, but didn't Buffett have an assistant who left to start a money management firm? I believe that he even registered with the SEC at an Omaha location? Has anyone kept up with his progress?

If you've ever sold real estate, or any other illiquid asset, you would appreciate the value of paper-pushers. Multiple bidders offer something worthwhile, and a seller doesn't care whether the bidders are grimacing or smiling to work.

On the question of corporate culture (including underwriting and risk management) I think that you have to make a sort of top down judgement. The last CEO has been widely lampooned as a doofus, even pilloried by Buffett in the promotion of "Too Big To Fail"; executives were called to congress and fcic meetings; the media scrounged for any sign of excess; Basel III and Dodd-Frank forced profit center managers to avoid risk and volatility; and rules of thumb regarding collateral (housing moves up and doesn't greatly affect CRE collateral) imploded. The recession slapped handcuffs on the optimists.

Yeah, even his screw ups regarding dividend foreshadowing and equity issuances have been satisfactorily explained by increased Fed sentiment re: EZ.

Does anyone know where I can find the percentage of itunes purchases/users on windows?

It's difficult for me to see how it wasn't an insider trade. If the crux of your defense rests upon the notion that the CEO merely suggested the possibility and size of an equity issuance, but didn't commit to an exact date, then you probably did something wrong. Investors can make money from knowing the likely size of dividend/buyback changes before the fact. The fact that the CEO provided the scale of issuance, particularly following concrete action to monetize pubs, suggested that likely=certain.

Okay, and thanks for the link.

Can someone attach a copy of Berkshire's letters in a single pdf? I'm pretty sure that I saw a file that included the 2010 letter. If not, then I would appreciate a recommendation for a pdf joiner.

"We have interviewed the MBIA people up the kazoo and I am convinced they are utterly responsible, diligent underwriters, and the probabilities are they've done a terrific job," Whitman said. http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304 Whitman got the monolines completely wrong as exemplified by the ACA Holdings investment. Keep in mind that, unlike Berkowitz, Whitman's thesis actually relied upon Brown and Dunton being strong financial underwriters. Whitman's responses to Ackman never strayed from ad hominem, and he seemed to treat the idea of ratings downgrades as "poor form". I don't remember him speaking up when Brown tried to keep the proceeds of a 2008 equity raise at the holding company, an action that caused the hapless Eric Dinallo to complain, "I thought that we had an understanding." A lot of big ego talking here too: "The analysts -- Ackman and all the others -- have no background in distressed securities," Whitman said. http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304 Yeah, it was an odd display. If you just read his shareholder letters he is a font of good ideas and sober analysis. Then Ackman challenges his thesis and suddenly he throws his name around.

From a price only perspective of MBIA - this is true. However, I am of the belief that once the lawyers and the judges got involved with MBIA then the law changed which flipped the analysis. In the end, we are in the probability business, not the certainty business. One could fault Whitman on this specific case, but much like John Bogle, he has been a steward of the mutual fund industry. Cheers JEast sorry if you want to be a "steward" you better have lower fees than he does. Yeah I wouldn't put him anywhere near the same class as Bogle. Vanguard is shareholder owned, I don't think third avenue is. Plus they have rock bottom fees, are one of the largest in the industry, plus Bogle talks out about all sorts of abuses and excess, I haven't heard Whitman do that. Bogle is a constant advocate for the individual investor. I don't know what happened in this case exactly but I read a reasonable amount by Whitman and Ackman. When Whitman threw in the towel he basically said that he didn't realize he was dealing with toxic management and that was what broke his thesis. That is a bit of revisionism on Whitman's part. His original thesis anticipated excess funds in the case of a runoff. He characterized the 2008 equity as an excess of caution measure intended to pacify the ratings agencies. If you go back to a 1Q08 Third Avenue shareholder letter, his analysis consisted of slicing MBIA CDOs into senior and junior tranches, assuming respective default rates, and then calculating the present value. There was a major assumption that the tranches receive their payments in a vanilla, intuitive fashion and that ratings downgrades do not affect liquidity through forced settlement or collateral calls.

"We have interviewed the MBIA people up the kazoo and I am convinced they are utterly responsible, diligent underwriters, and the probabilities are they've done a terrific job," Whitman said. http://www.reuters.com/article/2008/03/04/sppage012-n03399090-oisbn-idUSN0339909020080304 Whitman got the monolines completely wrong as exemplified by the ACA Holdings investment. Keep in mind that, unlike Berkowitz, Whitman's thesis actually relied upon Brown and Dunton being strong financial underwriters. Whitman's responses to Ackman never strayed from ad hominem, and he seemed to treat the idea of ratings downgrades as "poor form". I don't remember him speaking up when Brown tried to keep the proceeds of a 2008 equity raise at the holding company, an action that caused the hapless Eric Dinallo to complain, "I thought that we had an understanding."

Ericopoly, I don't think that destroyed units are surveyed. Calculated Risk compares year to year changes in housing stock surveys (ACS or CPS/HVS) to Census surveys of new home completions. The difference is the implied units destroyed. http://www.calculatedriskblog.com/2011/12/american-community-survey-and-total.html The link above discusses a problem with the ACS survey (CR and Tom Lawler have posted about problems with the CPS/HVS): However, in April 2010, the decennial Census showed significantly more housing units than the ACS had captured (obviously a negative 1.15 million homes weren't demolished in early 2010!) The decennial Census data itself seems a little off since it suggests only about 645 thousand housing units were demolished during the decade (that would be very low). Most estimates are demolitions are in the 200 to 300 thousand per year range (so the ACS seemed reasonable through the first 9 year of the decade).

UC Berkeley posted its reasoning for selecting Google email and calendar functions over Microsoft. http://technology.berkeley.edu/productivity-suite/google/matrix.html Functionally, Google has significant advantages that Berkeley can quickly and cost-effectively take advantage of; its most significant weakness is its lack of integration with an on-premise email and calendar solution in the way Office365 does. A UC Berkeley Microsoft implemention requires some central AD and Exchange infrastructure to support the on-premise solution and our wish to keep our MX records at UC Berkeley.

Look at pg. 52 "Historical Loss and LAE Developments".

Are you saying that the principal didn't budge over 12 years? What is your LP's reasoning for staying in the fund versus a simple hedging strategy?