Rabbitisrich

http://www.nytimes.com/2010/05/19/business/19client.html?src=busln Page 4 demonstrates how Goldman might, intentionally or otherwise, use legal tactics to worsen the equity value of its clients.

I like the fact that Klarman hewed to his principles throughout the 90s despite underperforming the major indices. It actually impressed upon me the importance of looking beyond the nominal returns to understand an investor. And he also provided one of the best quotes about investing: "Choose your remorse."

Cardboard seems to have the right way of it given the phrases "diversification" and "Delaware". It doesn't appear to be especially material given the size of the transfer relative to FRFHF's portfolio, but if anyone is in a masochistic mood, here is the Delaware code: http://law.justia.com/delaware/codes/title18/c013.html

So we are all in agreement that Charlie Munger had something to do with it?

As I understand, WRB doesn't file a 13f-hr because it manages less than $100 million in qualifying securities. Most of their equity exposure seems to be in the form of convertible debt and/or preferreds, which may explain the $0 cost available for sale holdings. I'm no expert on WRB so corrections are welcome.

http://www.youtube.com/watch?v=_3VgkooUpMg&feature=related I haven't had a chance to watch it yet, so I have no idea if it's worthwhile.

Txlaw, ACA possessed the right incentives for a CDO manager and it also carried the appropriate background for the job. As such, Goldman Sachs fairly marketed ACA as the final vetting agent. Any grey areas concerning the quality of information received by ACA were not in GS's purview; the Abacus owners would have assumed that ACA would properly weight such information. Even if Paulson brought insane assets to the mix, if you trust ACA, then you assume that ACA would evaluate the assets independently. Holding GS responsible for a lack of disclosure is akin to holding them responsible for not disclosing that a very stupid guy advised ACA on some very stupid bonds. The relevant information is ACA's role, and the investors should have based their decisions accordingly.

Propublica has a very interesting article about a hedge fund, Magnetar, which allegedly purchased equity positions in synthetic CDOs to influence the composition of the assets. Magnetar received cash flow from the CDOs and channeled the funds into long CDS positions. Magnetar further increased its odds by insisting that the CDOs it helped create had an unusual construction. Typically, cash flowing to the last-in-line equity buyers is cut off at the first signs of trouble -- such as a rise in mortgage delinquencies. Those at the top of the CDO -- who accepted lower returns for less risk -- received that cash, leaving none for the high-risk holders. Magnetar wanted its deals to be "triggerless," meaning lacking these cash-flow dams. When the market turned shaky and homeowners began to default, money kept flowing down to the risky slices that Magnetar owned. http://www.propublica.org/feature/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going The story isn't complete without some technical answers, such as whether they hedge out the underlying assets or simply the characteristics of the assets, or were they largely unhedged? Also, why did Moody's refuse to rate the CDO squared Magnetar sold to Moody's? And how could they reliably obtain CDS without counterparty risk, or without tracking error on the hedge? Unfortunately, only the government can pursue the answers.

I also liked the end of the article where Pabrai talks about double-checking for sustainability of profit. He mentions normalized earnings as a barometer, but that method can fool you if there is a major secular shift. It reminds me of a great speech by William Dudley where he talks about the role of positive-feedback in the credit crisis. If you are just looking at the economy from the point of view of a retailer, you only see higher margins due to wealthier customers. You don't see that you are a recipient of a huge positive-feedback mechanism. http://www.ny.frb.org/newsevents/speeches/2010/dud100407.html

Sorry, I'm wrong. GRATs are irrevocable so you can't cancel the transfer. You might be able to effectively quelch a GRAT through a process called regratting: http://online.wsj.com/article/SB124147213290384703.html. I don't know if you need permission from the beneficiaries, but you might be able to regrat with a high annuity fee that results in the paydown of principal.

Pabrai is spot on with the patience comment. I began my serious investment work at the tail end of the boom, and one of the most common techniques from "value investors" was the relative valuation method. "It's a good buy since the peers are trading at 17X earnings!" "A is trading at 15X earnings when B is trading at 18X even though A grows faster!" Impatience seems to turn normally studious investors into stock retailers.

I didn't read the whole thread so I can only comment on the last page. Ericopoly, you can establish a Grantor Retained Annuity Trust (GRAT) which allows you to control the assets and to break the trust prior to transference. The kicker is that the trust automatically breaks should you die before you bestow the assets. Any gains above the applicable midterm federal rate transfer gift tax free. If you are concerned about the character of your brood, why don't you try lending them money? It's a good way to administer a test and to provide a lesson. Current AFRs range from <1% short term to <5% long term.

Thanks.

I just read the Gurufocus article by Robert Miles. How did he find the weights for Buffett's portfolio? And how did he discriminate between Buffett's direct and indirect ownership? From what I could tell, the author took a quote from Buffett stating that Berkshire represented 95% of the Buffett family net worth, and assumed that 5% of the 13-HR belonged to Buffett. The article doesn't reveal much in the way of methodology.

Greenspan hasn't claimed no fault, to my knowledge, but has claimed that low interest rates did not significantly contribute to the credit bubble. He actually has a decent argument involving correlations between short-term rates, the 10-year treasuries, and overseas savings. However, that is not an argument to absolve the Fed given the regulatory powers that Greenspan squandered in his Fountainhead fantasy. http://finance.yahoo.com/news/Greenspan-defends-record-at-apf-712700185.html?x=0&sec=topStories&pos=main&asset=&ccode= "In his opening remarks, Greenspan blamed a litany of other parties and historical events for the meltdown but accepted no responsibility for himself or the Fed, which he led from 1987 until early 2006." Boy, I watched Brooksley Born ask Greenspan about AIG's CDS guarantees, and I almost threw a conniption fit when he said that AIG could just as easily have written bad insurance. Greenspan sounded less like an academic and more like a bureaucrat.

I know someone who has worked there for almost four years, and apparently very few of his first-year friends are still working for PIMCO. It must be quite a balancing act to maintain such a high pressure environment while adhering to conservative principles.

Greenspan hasn't claimed no fault, to my knowledge, but has claimed that low interest rates did not significantly contribute to the credit bubble. He actually has a decent argument involving correlations between short-term rates, the 10-year treasuries, and overseas savings. However, that is not an argument to absolve the Fed given the regulatory powers that Greenspan squandered in his Fountainhead fantasy.

Are those accounts prone to abuse? It seems like it would be easy to stash money away and then have a relative in a low tax bracket "tutor" the kids.

I'm interested in your projections about future capital expenditures in the operating companies. Is Berkshire really becoming an operating company with an increasingly less important investment department, or does BNI merely represent a 5-7 year capex obligation, followed by unencumbered cash flows requiring really smart investors at the helm?

Just to clarify, when you consider the cost of float, you want to make sure that you aren't double counting elements from Debt (D). The formula A = D + E assumes that D includes all liabilities.

Every public company pays a 'fee' for the its assets. If you had a company financed entirely by debt with zero equity, then the cost of capital is explicitly represented by the YTM of the debt. But if you have a debt free company with no growth, no volatility, generating $10 a year, then with a market cap of $100, the market demands a 10% return. You can think of it as the return the market demands when you try to sell more shares to them. So the cost of capital for most companies is the weighted average of D + E.

Thanks.

:o... >:(... :D... :(

Ericopoly assumes that the worker starts with enough cash outside of his/her IRA to cover the tax, so the IRA and the ROTH IRA compound at the same dollar amounts until the retirement period. That assumption may have to be relaxed given the current state of the economy, and its impact on older workers without a college degree. Another point that individuals should take into account is the effect of multiple period tax deductions for qualifying IRA contributions. For individuals who anticipate major differences in their active-retired tax brackets, those contributions may increase the attractiveness of an IRA.

Thanks for that article, but as I understand, much of China's growth in the last two decades comes from growth in total factor productivity. Also, China does some very smart things like leverage its monopoly over rare minerals to lure high-tech manufacturing and the accompanying talent. If you factor in China's emphasis on high level science and math education, and the below average labor participation rate of Chinese women, there is a good argument for China's long-term prospects. Can someone link the Chanos presentation that has been so influential?