Parsad

Grantham Mayo's 4th Quarter Letter is out. Always a good read! Cheers! http://www.gmo.com/websitecontent/JGLetter_ALL_4Q09.pdf

Seems to me that for a relativeley small investor (25K or more) that does not want to/cannot do the work himself, it is virtually impossible to find a manager that is likely to beat the magic formula especially on a pre-tax basis. Do you agree? I'm sorry, I'm one of the handful of people who don't buy this. Magic Formula is just one of the hottest new market tactics available. Please find me anyone who actually practices Magic Formula and has beaten the markets regularly...and not back-tested data, but actual published results somewhere, be it an audited fund manager, or private investor who actually is on the record with their results and we can compare. I've seen so many Magic Formula blogs and I know some young managers are now embracing Magic Formula, but let's see the actual results that can be verified. I know of many investors who have killed the markets over the last decade (Buffett, Simpson, Klarman, Watsa, Pabrai (PIF 1&2), Biglari, etc.), but I would like to see as many managers who have done so using Magic Formula. Cheers!

I think $1.8M is possible, but it will be tough. In'N Out does that, McDonalds does that...not far-fetched if SNS can do that over time with a sound focus on operations and execution. In regards to sales per store, McDonald's is very mature so I agree the averages are harder to increase, but they are still on the top end of the fast-food market. It's just a public comparative for SNS. If they want to be one of the best, then you have to compare to MCD or In'N Out. Cheers!

McDonald's released their 4th Q same store sales, and they were up 0.1% in the U.S. That number is on the higher end for the fast food industry! http://finance.yahoo.com/news/McDonalds-profit-is-122B-in-apf-865278868.html?x=0&sec=topStories&pos=6&asset=&ccode= It will be very interesting to see how Steak'n Shake's 1st Q same store sales number will look, especially since it will be Sardar's first full "year over year" quarter where he has been in charge. I would expect the numbers to be very good...perhaps up 3-4% as they are driving traffic hard to Steak'n Shake. Cheers!

Businesses continue to streamline...probably some time before we hit equilibrium. The good news is I think businesses are getting more efficient and it should bode well in the future at some point. Cheers! http://finance.yahoo.com/news/Unemployment-rose-in-43-apf-261347135.html?x=0&sec=topStories&pos=6&asset=&ccode=

Parsad (and others), At the risk of taking the unpopular view here, I feel that Patrick Byrne has really undermined his credibility by comparing the author of the article unfavorably to those performing cheap sex acts and cooking meth. In fact, I stop reading at that point, thinking that (at least with me) the author is not rational on the issue--he has lost his perspective along with his credibility. And, to a certain extent, those who think that such over-the-top characterizations are dead on lose some luster in my eyes as well. Gali, I totally agree with you that Patrick's time would be much better spent on Overstock.com, rather than trying to counter the likes of Roddy Boyd via Deepcapture. And I definitely agree that his message would be viewed as more objective and rational if he did so. At the same time, if you read the fifth paragraph, shortly after the second paragraph which alludes to the use of crystal meth and sex acts, you would have read that his whole attack was based on a particularly disturbing incident: Boyd and his minion defied a protective court order, and released restricted and private emails by Overstock.com that were produced in discovery in their case against Gradient Analytics. A case that Gradient subsequently settled for five million dollars! Now we aren't talking about Bernstein and Woodward revealing a break-in at the Democratic National Committee's headquarters, but several journalists who decided to defy a court order, flaunt the First Amendment, and drive down the price of a company they've had a personal vendetta against for five years. Perhaps Byrne should have chosen different analogies for these miscreants...lickspittle was a very popular one in my mind...but instead he decided to roll around in the gutter with these pigs. So be it! I think most of us would agree, that we would rather see him use Prem's strategy and focus solely on the business. At the same time, I'm very happy to see a CEO who is relentless in his attempt to bring to light blatant manipulation of market prices, which in the correct circumstance can obliterate a company's credibility, ability to borrow or issue shares in the open market. Cheers!

Due to the influx of new BNI shareholders after the merger, Berkshire Hathaway will only be giving out two annual meeting credentials per request, unlike past years where you received four. Cheers! http://www.omaha.com/article/20100120/MONEY/701219979

Thanks for the link Matt! Cheers!

Yeah, I read it and thought it was dead on. These scumbags coordinated their articles again...Gary Weiss, Sam Antar, Roddy Boyd all published today and I would guess Tracey Coenen will also be writing something. Herb Greenberg is now a private analyst...phhpppphtttt! I wonder if he actually reads any financials now, or does he produce the reports based on his sources? Cheers!

Do you figure 'business journalists' have increased your overall investment gains or reduced them? Helped. But so have the unscrupulous bank executives who enabled the mortgage boom and bust, and the reckless executives who run quality businesses into the ground. Even though they've been very profitable, I wish the world didn't work that way. Perhaps some of these journalists, like a doctor taking the hippocratic oath, could hold themselves to a higher standard of conduct. The Roddy Boyd's, Herb Greenberg's and Peter Eavis' of the world are the equivalent of doctors who perform breast augmentations or botox injections...superficial research accompanied by unproven inference and hearsay. Cheers! http://www.studyjournalism.com/?p=278

Perhaps "milking" wasn't the right word. Let's try leveraging the notoriety. I agree the hero worship goes a bit far, but at the same time, she's done an awfully good job (if you can call it that) of tearing Buffett down in the media. How many times are we going to hear her say "Warren's needs" or "bathtub mentality" when she discusses him. The way she speaks of him, as if he is some sort of needy child. Does anyone here really believe that? The man runs a frickin' empire, with hordes of managers that will do anything to please him. Is he really the basketcase that Schroeder portrays? Please. We all have issues and events in our lives that have affected us in some manner. Why would he be any different? I would just hope she focuses more on the actual events at Berkshire and with Buffett, rather than presuming to be his psychoanalyst. Cheers!

Former NY Post scumbag Roddy Boyd wrote an article for Slate.com about Patrick Byrne. http://www.thebigmoney.com/articles/judgments/2010/01/19/americas-nastiest-ceo?page=0,0 It's interesting how at the end of the article, Boyd holds up Herb Greenberg as a beacon of journalistic integrity. I remember talking to Herb Greenberg at the very first New York VIC, where he and Chanos had just finished lambasting Fairfax and Prem. When I cornered Greenberg in the hall upstairs and asked a few questions about his research methods, his answers were mind-blowing. I asked him if he had read Fairfax's annual reports when doing his research. His response was no. I asked how he came up with his conclusions. He said he had two very reliable and knowledgeable sources. I said, how can he come to any conclusions without reading the financials. He said, he just doesn't have enough time, and that his sources had done the work. Interesting, a journalist writing negative stories about an insurance company that can't even read financial statements. He was perspiring profusely, not unlike condensation on a shower door...dribbles of sweat beading down his forehead. Agitated, he excused himself and went on to talk to other people. So unfortunately, I would ponder a reasonable guess that neither Boyd, Eavis nor Bethany McLean can read financial statements as well. That much of their articles are probably written based on material from their numerous and "reliable" sources. For those that remember Eavis' articles, virtually all reeked of the same stench as the smears that John Hempton and John Gwynn were passing along to various people. That diligent journalist Fabrice Taylor, who ran "Frank" magazine into the ground in less than year, used to write the same identical crap in his VOX column in the Globe & Mail. Who are all these journalists that Boyd refers to as the "reporters who have done the epic and heavy lifting in holding American businesses accountable?" All the ones I've seen don't even do any research, and rely mostly on sources. What heavy lifting have they done? You can still find all my arguments with Greenberg online...the best one is when I asked him why he wasn't covering New Century during the beginning of the real estate bust in very early 2007? http://blogs.marketwatch.com/greenberg/2007/02/novastar_delinq/ Was it because David Einhorn was on the board of directors? It was the largest mortgage bankruptcy at the time, and Greenberg had not written one iota on the subject. Heavy lifting...yeah right! Cheers!

Not surprisingly, Alice Schroeder has a website now. I really liked the last two-thirds of her book, but she is really milking this thing...speaking engagements, a multitude of interviews, articles and probably a couple of other books in the work. No more analyst work for her! Cheers! http://www.aliceschroeder.com/blog/buffett-orchestrates-kraft-cadbury-deal

You are going to make lots of money on the Cadbury deal? So who is the real winner! ;D Cheers!

Due to low capital ratios, China is slowing down lending at some major Chinese financial institutions. Cheers! http://www.bloomberg.com/apps/news?pid=20601087&sid=asj.kLMqwSvE&pos=2

Parsad, I respect writing and your opinion and I love this website. I disagree on the CBY price. Time will certainly tell (he he he) but I think Kraft did well and I think CBY will benefit from KFT's involvement. I have owned CBY for 10 years, buying at a little below $24 and again when it briefly dropped below $20. As I recall CBY dropped below $20 in the 2000 era (around then but I can't really remember) because investors were selling everything they owned to buy tech, including the braces off their children's teeth! Hi Dealraker, The deal will work out fine for both parties, but Cadbury certainly got the better end of it. I would not have paid that much, regardless of any sort of synergy the two CEO's think they will generate. Cadbury earns about $800M annually...KFT paid almost 25 times earnings, and it's actually even worse because they used alot of undervalued KFT stock. Cheers!

The housing market is oversupplied by 860,000 units: Hi Eric, That number is the current oversupply from the 10-year average, but does not include homes that are 60-90 days delinquent. If you look further down that same link you provided, or the one below, you'll see on the last slide exactly what the shadow inventory looks like. Multiply the number by about 4-5M, not 860K. It's still doable, but the current administration is going to get alot of flack for trying...that's if they even have enough Senate seats to actually pass any future legislation! Everyone who owns U.S. debt won't be pleased as well. Cheers! http://ftalphaville.ft.com/blog/2009/12/17/115581/us-shadow-housing-inventory-at-1-7m-corelogic-says/

They've overpaid by $3B! They'll get their money back, but better returns could have been had elsewhere. Cheers!

Southern California home prices were up year over year: http://www.bloomberg.com/apps/news?pid=20601087&sid=av2pFDXS7_YY&pos=4 I would argue that California home prices were up due to demand in a low-interest environment and tax credits being offered, as well as banks holding onto inventory to allow the market to stabilize. Is this sustainable going forward? S&P still cheap based on cash flows: http://www.bloomberg.com/apps/news?pid=20601087&sid=anDIJIkZOUt4&pos=7 Expected, as the economy stabilized, interest rates to refinance are lower, and companies have streamlined their businesses. With higher regulatory requirements and taxation, will this trickle down to earnings? Will consumption start to increase? Cheers!

Vito Maida, who runs Patient Capital, had an interview in the Financial Post which was printed Saturday: http://www.financialpost.com/opinion/story.html?id=0c4200d8-ee15-4aac-ad38-e7ca1449ec72 Maida, who left Trimark ten years ago to start Patient Capital, has not had a negative year since inception. He currently sees that large-cap U.S. equities are reasonable, while remaining very cautious about the markets and economy. He does not expect a V-shaped recovery. His October letter can be found here as well: http://www.patientcapital.com/newsletters/newsletter-2009-09.pdf Again, I could not agree more with his sentiment. Cheers!

There are a couple of small private precious metal dealers in Vancouver that I used...one is Vancouver Bullion & Currency Exchange and the other is J & M Fine Jewellry, Bullion. Cheers!

As far as pawn shops buying gold, start worrying about a gold bubble when they are selling it! Money Mart is a check cashing financial institution in Canada, not a pawn shop. They cash all sorts of checks, but their bread & butter is payroll checks. They also issue Mastercard cash cards, etc. So, they've just entered the scrap gold business completely out of the blue. I'm not sure if all their locations now accept scrap gold, but it's really bizarre that they've entered the business. I bought troy ounces of gold about five-six years ago at the bottom that I kept in my safety deposit box. Over the last couple of years I've sold them off with, the last block I sold last month. I didn't buy it to hedge my portfolio or anything. I just started buying them when all the reserve banks went off the gold standard and gold companies were hedging that the price would go lower. Now, I'm completely on the opposite side of the bet. I don't short, but I would say that the short bet on gold is a far better choice than the long position on gold today. Cheers!

Hoisington's 4th Q Letter is terrific and a must read for investors. I continue to agree that deflation is a far bigger threat than inflation. With the price of gold these days, and the number of value managers buying gold for their portfolios, and commercials I see on television, I think any investment in gold is a poor speculative bet. I just saw an ad today for Money Mart, where they are now buying scrap gold...not just cashing checks anymore...but actually buying gold from the general public. Nuts! Cheers! http://www.hoisingtonmgt.com/pdf/HIM2009Q4NP.pdf

This is interesting that you pointed out. I see huge cash balance as true manifestation or sign that you are absolute value investor. You are putting your cash on work only when investments presented a compelling opportunity and you are able to archieve margin of safety. If this is true, you are not charlatan who is playing on market just to keep up with the crowd. Well I agree with this sentiment, since it is exactly what we do. We have more cash in our funds today than at any time since inception. By your definition, we would qualify as a "true value investor". I just don't think that definition actually exists or is applicable, since all investors should be looking for values. Whether you are successful at it or not is another matter entirely. Cheers!

I think the CDS in isolation is a speculation to you and me but in the context of FFH's total portfolio it was a value investment to them. The degree of speculation is dependent upon the price paid. The price FFH paid made the speculation at a different price more of an investment. I think Graham points this out in the Intelligent Investor that the price paid is what makes a security an investment or a speculation. In essence, FFH was purchasing for very little money long-term put options on bonds of firms they knew had questionable underwriting policies. They knew that these firms were going to blow up the primary risk was when and by purchasing long-term puts from sellers who were motivated they mitigated some of their risk. Since this was in their circle of competence to them it appeared more like an investment but to others it may appear a speculation because it is outside our circle of competence. Nope, the CDS was a speculative bet...pure and simple. It was a smart bet, because the swaps were priced cheaply, but there was a definite time arbitrage involved and that makes it speculative. Ironically, their investments in Canwest and Torstar were deep-discount, margin of safety investments...what most "value investors" would call "Ben Graham investments"...yet there remains the likely possibility of full impairment of capital. Every investment we make is a speculation to a certain degree. What Graham tries to point out is that we want the odds in our favor on every bet...increasing our long-term batting average on these investments. Whether it is Prem, Buffett, Graham or Seth Klarman...they are handicapping...we are all handicapping with our investments. Cheers!