JBTC

Thank you John. Buybacks alone could make EPS a bit higher, but seem unlikely to make it "far higher" as suggested. I have to say I am surprised that it's been more than two years since the account-opening scandal initially broke. I thought at the time that by now, the co would have completely sorted everything out and started performing. I assumed it's a fundamentally good company and has good management and culture etc despite some issues. Do people still think that and why?

Would you mind sharing what you see - EPS will be far higher because?

Earnings per share didn't seem to grow much over the past 4 years - why should the stock go up?

Just curious if anyone has a good answer on the issue of losses caused by rising rates to banks' fixed-income portfolios. I presume the consensus view is the impact of such losses is more than offset by higher net interest income. The bank analyst Dick Bove says otherwise. See below. ---------------------------------------------------------------------- Dick Bove: Rising interest rates are not bullish for bank stocks Contrary to popular opinion that rising interest rates will be bullish for banks, analyst Dick Bove told CNBC on Friday the opposite is true. "What if you have $3.5 trillion worth of bonds and you increase interest rates — what happens to the value of that $3.5 trillion? It goes down. It takes the common equity of the banking industry down. It reduces the secular growth rate of the industry," the vice president of equity research at Rafferty Capital Markets said in an interview with "Closing Bell." "It is not good for banks to see interest rates go up even though you get an improvement in net interest margins and net interest income," he added. http://www.cnbc.com/2017/04/07/dick-bove-rising-interest-rates-are-not-bullish-for-bank-stocks.html

I've been thinking a lot about Starbucks and I think there are worse ideas than buying this and holding on. I generally think this will do very well over time, but here's sort of a loose outline of what I think: People really like their coffee. You don't, I don't, but millions buy it every day. I like that people make small, nearly automatic transactions everyday. The cost of each coffee, in dollar terms, not relative to other coffee, is low and I doubt too many people pay attention to the price of a single coffee, let alone their run rate costs. I think this is the type of thing that they win a customer at a young age and have them for decades as habits and preferences take root Coffee is mildly addictive with little health risks and low potential for future concerns of adverse effects. There has been a demonstrated ability to raise prices The company is currently quite profitable. I like the management. I think they have shown persistence and strategic focus (e.g. multiple attempts to enter the tea market, multiple attempts to enter higher end coffee shops.) I think they have a good chance of entering and, frankly, dominating the higher end coffee market over time. I like their capital management. I like their returns on capital I think they can continue to grow in Asia and in the US Little to no technological risk Demonstrated ability to scale without brand dilution If you take a look at the competitors in the space, the one I'd worry most about is JAB b/c I don't fully understand their strategy. They have a lot of good brands, but it's going to be hard for them to compete with SBUX outside the CPG space. Dunkin is a regional brand and MCD promise as a brand isn't good coffee, and as such, they aren't a strong competitor (though it is worth their while to try). Third-wave coffee shops are largely small chains and independents, and Starbucks is well finance and has substantial real estate expertise, which can make them a formidable competitor (I don't know about you, but most indy coffee shops are shit, though I would recommend la Colombe if you come across it). The multiple's high but I can't think of anything else that's wrong with the company, and the multiple is only a major concern if there is a risk to the company's perception as a going concern. This isn't like a retailer or fashion brand where purchases are large enough and infrequent enough to promote comparison shopping. Purchases are habitual. It's a high margin product with a low absolute cost and generally affluent customer base concentrated in urban areas. And they own their go to market and have an actual relationship with their customers. I think they get low, double digit EPS growth over the next decade, through a combination of store openings, price increases and share shrink, plus another 1.7% in current yield. Even if the multiple shrinks in half over that period, that's a mid-to high single digit return for what is essentially a consumer stable. It seems you made a strong case about the company's moat and defensiveness. But what about growth potential? Are you not worried about the slowing same store traffic in the US? In the latest quarter same store transactions didn't even grow.

What are those comments?

I don't see that specific point either. Amazon doesn't need to replicate what TRIP is already doing, only help make it bigger. Amazon/TRIP can probably pass a large portion of the commissions they get as OTA back to Prime members and make it super sticky, among other things...

Dear Amazon shareholders, Just wondering what you guys make of the idea that it may make sense for Amazon to buy Tripadvisor, whose shares have dropped to a 4-year low. See below some comments on SA - ------------------------------------------------ I would like to see what others think but I think tripadvisor would be a great asset for Amazon.com to buy. Here are reasons why 1) We need slew of services that are available to members of Amazon prime and i need a reason to keep that. If amazon can buy tripadvisor and can negotiate special rates with the hotels and have special travel deals for prime members, the cost of my membership would be truly worthwhile ( it costs only 100$ and if a prime deal gets me a cheaper hotel or car rental, I am all for it) - Its a huge incentive to keep my prime membership 2) When i want to research any product i buy, i go to amazon. Similarly when i try to research on a trip, I go to tripadvisor. Combining the strengths of the two with massive user base would be an easy target for tripadvisor growth - and a good profitable business for amazon. 3) When i buy a trip, amazon has the relevance engine to upsell massive amount of goods and products that would pertain my trip ( imagine i book for a trip to Paris) and moment amazon knows that they can start selling me things based on what i would need for a trip. huge upsell for relevance engine etc etc To add few more details 1) TripAdvisor would benefit from Amazon tech stack 2) Tripadvisor would benefit from amazon customer base and immediately turnaround on IB 3) Amazon will have a travel platform versus google hotel finder 4) Hotels need a strong support from non OTA to reduce reliance on Google, Priceline and expedia ( Its a win for hotels to reduce their fee structure) 5) Amazon will have a profitable cross selling platform with good margin travel business 6) PCLN rules europe and expedia rules US , Amazon has an opportunity to take it to an absolute global scale than no-one else 7) They can just start with taking the TRIP/Maffei share alone to start making money on this. 8) Amzn can use their high stock price to buy a depressed asset 9) Amzn can bring to scale the tripadvisor advertising/referral revenue stream as well. 10) Finally - It would be a huge win for Amazon Payments business to scale ( and all those credit cards on amazon to make those travel purchases )if trip if bought.

Below are the comments on SA - --------------------------------------- I would like to see what others think but I think tripadvisor would be a great asset for Amazon.com to buy. Here are reasons why 1) We need slew of services that are available to members of Amazon prime and i need a reason to keep that. If amazon can buy tripadvisor and can negotiate special rates with the hotels and have special travel deals for prime members, the cost of my membership would be truly worthwhile ( it costs only 100$ and if a prime deal gets me a cheaper hotel or car rental, I am all for it) - Its a huge incentive to keep my prime membership 2) When i want to research any product i buy, i go to amazon. Similarly when i try to research on a trip, I go to tripadvisor. Combining the strengths of the two with massive user base would be an easy target for tripadvisor growth - and a good profitable business for amazon. 3) When i buy a trip, amazon has the relevance engine to upsell massive amount of goods and products that would pertain my trip ( imagine i book for a trip to Paris) and moment amazon knows that they can start selling me things based on what i would need for a trip. huge upsell for relevance engine etc etc To add few more details 1) TripAdvisor would benefit from Amazon tech stack 2) Tripadvisor would benefit from amazon customer base and immediately turnaround on IB 3) Amazon will have a travel platform versus google hotel finder 4) Hotels need a strong support from non OTA to reduce reliance on Google, Priceline and expedia ( Its a win for hotels to reduce their fee structure) 5) Amazon will have a profitable cross selling platform with good margin travel business 6) PCLN rules europe and expedia rules US , Amazon has an opportunity to take it to an absolute global scale than no-one else 7) They can just start with taking the TRIP/Maffei share alone to start making money on this. 8) Amzn can use their high stock price to buy a depressed asset 9) Amzn can bring to scale the tripadvisor advertising/referral revenue stream as well. 10) Finally - It would be a huge win for Amazon Payments business to scale ( and all those credit cards on amazon to make those travel purchases )if trip if bought.

With another selloff post 4Q, it seems to warrant an update. There were a few good things in the quarter. The sequential improvement in click-based and transaction revenue trend seems happening – in the past 4 qtrs, it was -13% (y/y), -15%, -10%, and 0%. In Jan, this was high single digit growth. In the US, the click-based and transaction revenue grew double-digits in 4Q. Shopper growth accelerated to 8%, and to 22% on the phone. Revenue per shopper growth also improved to -7% y/y. Mgmt said that monetization on the phone improved relative to desktop. But profits decline due to continued investments in not just hotels but also attractions, restaurants, etc. Company headcount rose 10% in 2016. So TRIP is stuck in a no man's land. It's not growing, whereas Trivago grew revenue 70% in 4Q as it's able to spend essentially all revenue on marketing and not obligated to report profits. It's also not cheap based on profits, where PCLN/EXPE have a much more robust business model and are reasonably valued. Given mgmt has guided for falling profit in 2017, it looks like the stock will remain weak for some time. On SeekingAlpha, there's one comment that TRIP could be a good fit for AMZN. That seems an interesting speculation. By acquiring TRIP, AMZN would be able to enter a huge market with a great asset. At the same time, TRIP probably desperately needs a bigger player to bankroll its ambitions in travel, considering it's up against the OTAs with own meta engines and Google. One obvious problem with TRIP being an acquisition target is Greg Maffei's voting control. Anyway, more tough slog ahead.

Chuck Akre has owned MKL for more than 20 years, and he values MKL by comparing the stock price to the growth in BPS (in his words the real economic earnings). In a 2014 interview on WealthTrack, he argued that MKL was cheap because it traded at less than 10x its growth in BPS in 2013. In 2016 the growth in BPS was $45. So on this basis MKL is now trading at 21x. I suppose there's no reason to buy at this level.

Interesting discussion. I have a small position in MKL. I have been enamored by MKL and hope to be able to buy more. My concern is about the possibility of slowing book value growth in a rising rate environment. Take 4Q16. BPS fell because MKL booked profit of $133mn, which was more than offset by a net holding loss of $136mn, resulting in a negative comprehensive income. Given both underwriting and Venture profits were strong, clearly the impact from higher rates on MKL's bond portfolio were not small. I understand rates had a large move in 4Q, otherwise book value may not decline. The question for me is if I assume future rate rises are slow and steady, how much book value can grow? In 2005-15, MKL's average return from its fixed income portfolio was 4.6% per year. In the future this should likely be lower. In 2005-16, combined ratio averaged 95%. So the 89-92% combined ratio in the past two years were above average. So underwriting profit may also decline in the future (not saying it must). Of course, even if both bond returns and underwriting profits decline, in theory MKL could post large returns from its stock portfolio to offset those and grow book value. That was what happened in 2013 when its return from bonds was 0%, but stocks were up 30%+. There seem two ways to look at MKL. The optimistic view is the co has a long track record, and BPS grew 11% in the past five years, which was good. The pessimistic view is MKL's entire track record coincided with the bull market in bonds, and as the bond bull market came to an end, its future growth could be lower, possibly as evidenced by its BPS growth of just 5.5% on average in the past two years. Shares are now trading at 1.6x P/B. Appreciate any thoughts on what future book value growth is now in the price - 10%+ or 5% or somewhere in between?

Would you mind sharing what those spots are that you like much better? Thanks.

Thanks for the insight. I do also like their holdings. Not everyone but generally.

No idea how to arbitrage, but I couldn't resist picking up a few 80-cent dollar bills. Below from PSH's 3Q letter - Pershing Square Holdings’ discount from NAV has increased substantially over the last eight months and was more than 20% as of November 30, 2016. As an investor’s return is a function both of underlying NAV performance and price versus NAV, we find the current discount unacceptable. We believe the discount is attributable to a number of factors which include our below-expectation performance, and recent capital flows out of the hedge fund industry. We are exploring potential steps to narrow the discount to NAV and expect to report back to investors as soon as we have decided our intended approach.