zarley

Merger announcement indicates May 4th for an afternoon with Charlie. http://www.wescofinancial.com/WescoPress%20Release.pdf

Quick question -- has the date/time been set for the Wesco meeting this year? Since this might be my last opportunity, I fully intend to go.

Yeah, 2011 was a little ugly. Declining FCF resulted mostly from higher pension costs and increasing working capital. They've noted that the pension cost in the next year or two will be as much or worse than FY 2011. But, I think the changes in working capital should return to a more neutral level. Even if you added some of that back in to the results the FCF would be well below the results of the past few years. So, at the end of the day, the results from operations need to improve for cash flow to get back where it needs to be to support the current valuation. $60 is about where adding to shares looks attractive to me as well. My average cost is below that, but over the last couple years I've bought a little near $60 and sold a little over $100. In between, I just hold and wait. As for Lampert's "magic" I'm not sure what that's supposed to mean. I think any thoughts of SHLD turning into a significant investment vehicle for Lampert are pretty much dead. I think the plan is still to try and turn SHLD into a profitable $30-$40 billion retailer instead of a money losing $50 billion retailer. He's not done pruning, and the result isn't certain, but magic isn't required.

Yeah, that's been linked around the webs lately. Very good interview. It was my first direct exposure to Jain; he's about as thoughtful/sensible/rational as you would expect. Listening to Berkshire's leaders is always like a fresh breeze of sanity in a financial world swirling full of crazy (yeah, I'm looking at you Cramer).

I tend to lean this way as well, after watching the events in Japan. Having no long-term solution for storing spent fuel/waste is a real problem. And, as you note it will need careful watching over hundreds (thousands?) of years. Even low probability events become something like a certainty over a long enough time period. Punting that responsibility to future generations is no small thing. With that said, some of what I've read about Traveling Wave Reactors (http://en.wikipedia.org/wiki/Traveling_wave_reactor) is very interesting. In theory, these sorts of reactors can use spent fuel from traditional reactors as fuel, and possibly generate something like a fueling feedback loop that is very waste efficient (I am not a nuclear scientist; I do not know how feasible something like this is in practice). At this point none have been built, but it seems like something world governments should probably put some money into for real-world testing. I'd bet for the cost of dealing with Fukushima you could do a lot of testing for new reactor technology.

I don't follow that particular advice. However, in my retirement accounts where I have limited choices, I do use index funds and a slightly conservative asset allocation approach. I will make occasional tactical allocation shifts depending on my view of the markets. Right now, in those accounts, I'm at what could be considered normal allocation given my age and account goals. 15% cash 25% Bonds (TIPS and total bond market index) 40% US stocks (S&P 500 index) 20% International stocks (Dodge& Cox Intl) My non-retirement accounts don't really follow allocation rules per-se, but I'm around 20% cash there.

Despite the ongoing problems at the Fukashima plant (no sign that the situation is getting better), I did find this transcript from the British Embassy in Tokyo somewhat reassuring (from March 16): http://ukinjapan.fco.gov.uk/en/news/?view=News&id=566811882 It's an interesting read in whole because it appears to be the current opinion of the UK and what they're telling their people in Tokyo. I think this snippet succinctly sums up their position.

Living in Southern California, the earthquake/tsunami component of recent events has me re-evaluating my worst case scenarios.

This has been the most frustrating thing for me. Trying to understand what's happening, what the likely scenarios are moving forward, and how bad is bad has been very difficult. The problems at the nuclear plant have been rated a 6 out of 7 (3 mile island=5, Chernoble=7) so, this is very very serious. And, it doesn't seem like they have a full handle on the situation. I've read that a Chernoble type event is not possible because of the design of the reactors and how it's operated, but two days ago the party line was that things were under control and the situation was not likely to be worse than 3 mile island. Personally, I think it's too early to start getting excited about market prices. Seems like there's still a lot of potential downside to the situation in Japan. It's horrifying and depressing to watch. Contemplating investment opportunities under the circumstances just seems . . . wrong (for lack of a better word).

I've been looking at the numbers for WDC and Hitachi GST and I'm starting to think the combined entity should be worth $45 per share (probably more because I think WDC was worth close to $40 on its own). There isn't a lot of data on GST's financials, but the little comparative graphic that WDC put out with their announcement points to GST being around 60% in volume/revenue of WDC. So, the combined entity probably had revenues of around $16 billion last year. At the time of the announcement, WDC was trading at $30 per share which works out to about .7 x sales. And, the $4.3 billion price tag for GST is probably around the same multiple of sales ($4.3 billion / $6 billion). So, combined revenue of $16 billion at .7 x sales = $11.2 billion or $43.92 per share. If the combination canibalizes 10% of sales, you're still north of $40 per share. Alternately, if WDC and Hitachi think GST (which is around 60% of the size of WDC in units and revenues) is worth 4.3 billion, a comparable valuation for WDC would be $7.1 billion (4.3/.6). The combined valuation would be $11.4 billion, or $44.70 per share. I really think WDC management has managed to turn a couple billion dollars of excess capital into a dominant position in the hard drive market (with a little help from borrowing and share issuance). http://www.wdc.com/wdproducts/library/company/investor/InvestorSummary.pdf I had started buying WDC just before the announcement at around $30. The immediate price jump on the announcement gave me a little pause, but I'm coming around to the idea that I can buy more at current prices and still get a decent deal. Anyone take profits Monday/Tuesday?

I'm pretty sure Babu was Pakistani, not Indian.

as of right now . . . Link here: http://www.fairfax.ca/Assets/Downloads/AR2009.pdf same as: http://www.fairfax.ca/Assets/Downloads/100305ceo.pdf Somehow, I think they just miss-linked the report.

The linked letter looks more like a 2009 letter than 2010. Am I crazy, or does all the data end with 2009?

Thanks Myth. It's fair to say I basically see it the way you do. And storage redundancy/backups is a great point I hadn't noted directly. But, again from my own experience, I have a primary need for more personal storage for videos and pictures an whatnot. But, I also have need of extra storage for backups. That redundancy will probably have me doubling my personal storage in the next few months. It's the same thing for businesses generally and for guys like netflix and google.

Hey Myth, I stumbled upon WDC and have been taking a good look at it. It is still cheap @~$30. But, I'm trying to figure out why it's cheap. What's your take on why WDC is unloved given its operating results are very good and balance sheet is strong? In no particular order, I'm thinking: --rise of mobile computing (smartphones and tablets) which use flash memory instead of hard drives. --the related rise of cloud computing and online media streaming which allows for thin-client type PCs which may need less local storage. Servers will need more storage, but those will be sold at lower margins. --HDDs are very much like a commodity business, with modest barriers to entry and a history of technical disruption. The flip side to those issues is the ability for individuals to create personal content that needs to be stored locally (home or office). I know my personal need for storage has exploded recently as I take more pictures/and videos, store my MP3s, and set up a personal home media server. I've gone from having maybe 100GB of storage in my home to having over TB of storage and looking to get more. It seems like the demand for storage will continue to grow along with overall computing power. Thoughts?

Great section on net income (emphasis mine):

First impression is he spent more time laying out the valuation than in previous letters. He didn't do all the math, but he basically laid it out there: $17 billion in normalized earnings cash investments of $90 billion . . . do the math.

Thanks Myth.

I just started looking at Loews and it does seem undervalued. Both the insurance sub or the nat gas pieces look a little cheap, and a sum of parts using current market prices for the traded pieces probably puts you in the mid $50's. Haven't looked closely at CNA, but it's trading around .7 x BV. Good or bad Impressions of their operation overall? Is there a thread in the ideas forum for L?

I agree about the current price. Around $90 it isn't obviously cheap, or obviously expensive. In the low 60's a few months ago it was obviously cheap. I think the sum of parts run-off valuation and the ongoing buy backs put a reasonable floor under the price somewhere in the low 60's. I also agree about the short term use of cash flow. Obviously, Eddie is retiring shares and doing a little restructuring with the debt. Mostly, he's securing his hold and putting cash to use where it makes sense to him. Watching SHLD these days is like watching a python eat a pig. The pig is only half way in the snake's mouth, but there's no doubt how the process will end up. A good entry price and patience will be rewarded.

Yep, that's pretty much the standard long opinion -- which I share. One issue with the real estate, which became clearer and more important over the past two years is the timing of the monetization of those assets. Real estate that is hypothetically worth several billion might take many years to actually turn into cash. So, the value is tied to how quickly you can make those transactions. In 2007 that real estate was valued at one price given prevailing rates and an expectation that the assets could be flipped quickly, giving Eddie a pile of cash to invest. These days, the real estate still has value, but it's harder to see how those assets get turned into cash in a timely manner. I think patient investors will be rewarded, particularly given the ongoing cash flow and share buybacks. But, it will take time. As Berkowitz has said, if they do figure out the retail piece, that's gravy.

Awesome brker_guy. Thanks for the link. Nokia really is a great example of how market leaders can get lost in the woods with their own products. The key difference at Apple is, I think, that they view themselves as a consumer electronics company rather than a computer or technology company. The end-goal for Apple is focused very much on the user experience more than on the technology its self. That's what Nokia lost (at least at the high end) and what Microsoft often struggles with -- a compelling consumer experience that just blows people away. The positive thing for Nokia is that despite its own flaws and the time they lost on smart phones, they're still the top phone maker in the world. And, there is a lot of improvement that can be made organizationally, that should improve overall effectiveness. Elop's shock (as expressed in the burning platform memo: http://www.engadget.com/2011/02/08/nokia-ceo-stephen-elop-rallies-troops-in-brutally-honest-burnin/) is the same as every other outsider -- how can Nokia not have a reasonable competitor to iphone after three years?

Been thinking about NOK and MSFT since the week of their announcement. I agree that the two companies make good/complementary partners. Nokia's hardware expertise and global manufacturing reach combined with MSFT's software strength. I've heard very good things about WP7 and it would seem that exchange integration and native office support would be big advantages in the business market. Both would seem to have a consumer/retail problem in the American smartphone market, but they are probably better off together than they are apart. The timing is tough though. I think they'll be lucky to get a new product to market this year, and they better do it right because a lot of people are skeptical of combination. Being an underdog is an odd position for two tech giants to find themselves in, but that's where they are and they need to execute. I'm also giving NOK strong consideration right now because the reaction to the MSFT announcement seems way overdone and the valuation looks really attractive. I think the market is pricing this as a failure before they even get a chance to show what they can do.

Honestly, for basic web access and email/facebook/twitter/etc. any of the big three (iOS, Android, WP7) will probably work for you. I have a moto Droid and am perfectly happy with it. If you already use Google services (gmail, calendar, finance, etc.) then an Android phone will probably be the easiest to get started with. If not, then it may not matter that much. Verizon's network is better in terms of access and stability, but AT&T is better in overall network speed. I wouldn't switch networks for a phone, but would choose the phone you like best on your current network. My Droid contract is up in October and I'll give serious consideration to the iphone, but the competition is catching up fast.

This is the root problem. R's and D's are equally at fault here, they just want different things and want different people to pay for them. All the partisan handwaving is just bullshit -- Tocqueville saw it coming a couple hundred years ago.