ERICOPOLY

They flutter behind you your possible pasts Some brighteyed and crazy some frightened and lost A warning to anyone still in command Of their possible future to take care

With so much drama in the L.B.C., it's kinda hard being Snoop D O Double G.

Ok, I have understood your thinking. I would also like to know what Eric and Al think about the causes of HWIC’s mistakes today, and whether they will be able to correct them in the future. giofranchi Do you think I had inferred mistakes they are making today? Certainly (to me) I have not done so. I can only tell you that my position on Fairfax is far more nuanced than I suspect you believe. Hopefully you understand this following comment: My thinking is multidimensional yet my communication is two dimensional. So realize that my thoughts are populating a multidimensional space and yet you see only a two dimensional plane. Limitations of communication. So much thinking, little explanation. So many things to say, so few said. Precious attention of the listener. Misunderstanding is the price of compromise.

The future holds only one IV. Oh, you may deny it and instead talk about ranges and probabilities etc... but don't let lack of control frustrate you. What to look for in order to gain back a measure of control? Attributes that accentuate your predictive powers: for example, you can assume that diapers will still be in demand fifteen years from now, but you are less certain that a specific technology will not be replaced by a better one. All the rest of the stuff that Buffett keeps trying to teach us...

I need to have an income of $166,600 in order to pay an $80,000 rent in Montecito.. The investor might only be getting a 4% yield on his $2m property, but the renter is effectively needing to achieve 8.33% income yield on his $2m of financial investments in order to pay that rent. So given that an 8.33% yield is tough to come by, especially one that increases at the pace of rents, it's maybe worth it to just buy the damn house. So for the buyer it might seem like buying a home to live in isn't so dumb, even though getting only 4% rental yield from an investor's perspective may seem dumb. I find the rent vs own comparison in California muddied by these absurd tax rates -- 52% at the peak end. Perhaps that explains how these homes sell at prices you scratch your head, you know, at prices where investors wouldn't be too happy to invest.

Ultimately I view most insurers as leveraged bond funds that attempt to get a bit extra from underwriting profits. They (in a sense) compete against leveraged bond funds for capital investment. Is that completely off the wall? So it follows that if investors in leveraged bond funds (making low ROE in a low rate environment) see insurers making a lot of profit (from a hard market) they would then push money into the insurance market to drive ROE back down. So I'm curious enough to ask if there is a long term relationship between ROE from leveraged bond funds and ROE from insurers. Do leveraged bond funds tend to typically earn a given spread below what insurers earn (and the spread is there to account for the added risk)? So in other words, will there really be a hard market due to low rates that will drive insurance ROE's back up, or will bond investors drive it back to a soft market again in a reversion to the mean ROE spread of leveraged bond funds vs leveraged insurers?

This is the irony I am seeing. These guys are wonderful equity investors and just a few years ago I was reading that their lifetime return on equities was 17% annualized. One who looks at safety first and return second, isn't satisfied with this performance and would choose to add the risk of insurance operation to get better results? Myself, I'm guilty as charged and would do the same, but I wouldn't claim that it reduces my risk. I would call this looking at growth at the expense of some additional calculated risk. I'm of the opinion that an unlevered fund is safer than a levered one, even if that leverage be from insurance. There was a little bit of a scrape they got into ten years ago that suggests I'm right about this. Then of course Berkshire was run at the risk of permanent 100% capital loss for years before Buffett woke up to the risk of terrorists -- history could be written differently and Berkshire could be a zero today. He might have had a long string of wonderful results followed by a zero. Fortunately, he realized his blind side and nothing terrible ever came to pass. More recently he claims that his operation was last in a line of dominoes (financial crisis) that would have fallen if the government hadn't acted in 2008. They are going to earn 7.5% on their investments without a good chunk of it coming from their equities that are not under pressure to perform? That's a lot of yield in the bond portfolio don't you think? You laid out a target of 7.5% and portray it as having no pressure on equity stock picking. Then does it have pressure on bond picking? Remember these are the same guys that run the hypothetical unleveraged stock equity fund. Why are they under pressure in one scenario but not the other, when it's obvious that you either need to cream it in bonds to make 7.5% in this low yield environment or cream it in stocks? Or some of both at the same time if you like. I do?

Ok, let me ask you a question: if it were just between you and me, no Mr. Market involved, would you sell your shares of FFH at $380 to me? I would buy them without hesitation. But, forget about having them back at a later date. Because I won’t sell them back to you or to anyone else for anything below $700! If your answer is no, you are playing the market with the shares of a company that already is undervalued. If it weren’t undervalued, your answer would be yes (but, of course, you wouldn’t be receiving this offer from me!! ;)) Well then, good luck! What happened today? giofranchi Hypothetically, if they offered to invest your money in an unleveraged equity mutual fund with no management fee, would you sell your FFH stock and put the cash in that unleveraged fund? You've talked in the past about a 15% rate of book value growth, but that sounds to me a bit similar to their historical returns on equities, unleveraged. The equity fund shares of course would be purchased for tangible book value. Your unwillingness to sell FFH below $700 suggests that you would be willing to buy into FFH up to a bit more than 1.8x tangible book value. So I'm not sure that 55.5 cents growing at 15% is going to be as good a deal as $1 growing at perhaps the same pace, or maybe slightly less (a percent or two). I don't know. What are your thoughts on how much faster FFH can compound versus what they could do just running a 100% unleveraged stock mutual fund?

Now, I know you have powers of seeing the future with your $9 forecast on MBI, so now I worry that you are confusing a vision taken from one of these spirit talks with events already passed. This worries me a little given that I truly know nothing about SD. In truth, to date I have not purchased any calls on SD. Back to the "argument" of mine, I continue to stand by the definition of "future", and that all present actions of management are incorporated in a past future. I grew up on the words of the great philosopher Yoda, who effectively said "difficult to see is the future, always changing it is". Buffett talks about one foot hurdles -- he knows we can only make an estimate of IV, thus one needs to be WISE about what to throw in the Too Hard pile. Too hard to make a reasonably accurate prediction!

I disagree. IV doesn't change. Your perception of IV changes along the turbulent path of discovery. You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing. No. To get the IV prediction accurate with a higher batting average, and thus fewer investment mistakes, stick to businesses that are more predictable. (that's a "Duh" comment). I guess that by definition of the term "predictable business", you then realize that your IV number is a "prediction of the business"... well, more of the obvious. I would say IV changes in some cases and doesn't in other cases. For example, due to the fact that AMZN is trading at extremely inflated multiples for prolonged time, it is able to issue a small amount of equity to do a lot of things. The IV increase whenever it issues the equity at such extremely inflated multiples. You can run some simple math. Suppose AMZN's book value is $10 per share, and it issues equity at $200 per share and doubles the share count, what is the book value now? It is $105 per share! Who can create value faster than this? Buffet clearly cannot! ;) Then if the market thinks OMG, AMZN is much cheaper now than before, buy a ton! Then the stock price will jump to maybe $400. Those kind of companies' IV has little to do with BV and thus the effect on IV is much smaller. It's substantial but I don't see how they could exploit this forever. Do you have examples of extreme cases that were able to double share price a few times? I doubt they are out there and if they are it simply won't be for the capital injection but market perception of the company / simple momentum. OT: Bought some ITM SD leaps. Is CRM not a good example? They are making reckless acquisitions, so eventually they will go really bad. But assume they can issue shares at such extreme multiples and have our champ ERICOPOLY on the board to manage all the acquisitions, won't you agree that over the past few years, their IV would be growing? My point is, when these kinds of ridiculous companies trade at 100x IV, and they issue shares to acquire companies trading at 0.5x IV, doesn't this increase their own IV significantly? The future is the future. On a rolling basis, it is revealed. Intrinsic value didn't change, you merely witnessed managerial actions that were part of a past future, and this were always reflected in IV. You merely updated you estimate based on revealed information. To more accurately estimate IV, you need to listen to Buffett's list of what he looks for in an investment with low hurdle.

But when? And how will we know when we are at intrinsic value, and that our intrinsic value estimate is the "true" intrinsic value? :) Berkshire's intrinsic value may very well be zero. You don't know. You have only prediction to rely on, and thus you will have better luck restricting your forecasting efforts to the relatively more predictable businesses. Again, nothing brilliant in pointing out that "prediction" and "predictability" are related. However, still some disagree!

I disagree. IV doesn't change. Your perception of IV changes along the turbulent path of discovery. You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing. No. But isn't the concept of intrinsic value a "perception"? It is always an estimate, not a quantifiable, or verifiable property like say mass. There is only one intrinsic value. Time will reveal it to us. We have only prediction to rely on divining it's value.

I disagree. IV doesn't change. Your perception of IV changes along the turbulent path of discovery. You keep trying to predict the unpredictable, and blame it on the IV of the business rapidly changing. No. To get the IV prediction accurate with a higher batting average, and thus fewer investment mistakes, stick to businesses that are more predictable. (that's a "Duh" comment). I guess that by definition of the term "predictable business", you then realize that your IV number is a "prediction of the business"... well, more of the obvious.

Remember March 2008? Never yet even heard of QE. Gold has now appreciated 3% annualized since the highs in mid-March 2008.

Funny, Ghibli is a scirocco, a VW car.

Gold isn't really my thing, but if I had to guess I'd put a credit contraction in China as a negative event for gold prices. Haven't they been the biggest buyer of this stuff? EDIT: To spell this out, when the Chinese have a yard sale to repay debt, who is going to step in to replace their demand in the gold market? To the extent that gold has been popular in Chinese portfolios, it would be at risk in proportion.

This commodity is now priced near it's cost of production. I guess when somebody wants to buy gold it either comes from a miner (who won't produce below cost of production) or it comes from an investor/hoarder who wants to unload it. So it goes lower for a time perhaps, but should eventually return to it's cost of production at least when investors are through being afraid to hold it. So perhaps it's safe to own now, even though it might keep going lower for a short whie.

If you can afford a Tesla, you can afford to pay for a parking spot. It'll cost you more when someone decides to key your car. They will have a car out at 1/2 the price in 3 years. Even if you buy a car for $40k, you can still afford a parking spot. $30k. One thing you are forgetting is that butlers are expensive these days. The rich and famous in their $30k cars... $30k is not exactly the people's car. I didn't realize that $30k cars all have private parking spots. My bad.

If you can afford a Tesla, you can afford to pay for a parking spot. It'll cost you more when someone decides to key your car. They will have a car out at 1/2 the price in 3 years. Even if you buy a car for $40k, you can still afford a parking spot. $30k. One thing you are forgetting is that butlers are expensive these days. The rich and famous in their $30k cars...

If you can afford a Tesla, you can afford to pay for a parking spot. It'll cost you more when someone decides to key your car. They will have a car out at 1/2 the price in 3 years.

The battery swap is not just about long distance driving -- people in cities that don't have a driveway/garage and park on the street. They have nowhere to plug in. So swapping is their best option.

Perhaps somebody here knows more about battery technology... My understanding is that Lithium-ion is especially attractive due to it's fast recharging. If there were perhaps a higher energy density battery that could be made (at the expense of slow recharge), then battery swap would be the application to make that battery commercially viable.

Remember that I'm the guy who doesn't understand what a call report is... So keeping that in mind, can't these banks just sell their highly liquid short term treasuries to get their leverage ratios up? I thought this whole thing was a tempest in a teapot using that logic. They cited BofA at 5.1% leverage ratio, yet their Basel III was 8.5%. So there is a lot of zero-risk government securities that can easily be thrown overboard in order to get up to 6%, right? Or not so much? Sincerely just wanting to know more and willing to expose my ignorance while doing so.

One Tesla fan rendered a guess at what the compact model might look like: http://www.theophiluschin.com/?p=5161 Perhaps they can do that with the same battery as the Model S. You only need to make it shorter for compact parking spaces -- people don't really want their interior to be crammed. Normally cars are made super small for gas mileage reasons -- not as big an issue when the large Model S is getting 90 MPG equivalent.

I agree VAL9000. It's also impractical for everyone to purchase a battery that has 500 miles of range (and a battery like that will be available relatively soon I imagine). It makes more sense to own a shorter-range battery and "rent" the 500 mile range battery for your long range holiday weekend driving.