ERICOPOLY

Sanjeev needs a nom de guerre. "famous and talented investors such as Prem Watsa (CEO of Fairfax Financials, "The Warren Buffett of the North") and Sanjeev Parsad (Founder of Corner Market Capital, "The Hoover of Vancouver") to invest in the"

What % of your portfolio are you targeting? Hope that your midas touch continues for the rest of us patient FFH holders It's roughly 50% of net worth. This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings. So I hope I just hold this for a long time in my taxable account. I still have a lot of BAC, but not as much and it's all hedged. Whoa man! I can be a bit dense here but are you saying that if BAC went to $0 that your networth wouldn't change (beyond the costs of the hedges)? I'm just a bit shocked is all. :P It would be a bit worse than that because 40% of my BAC is hedged at $12 strike and the rest is hedged at $10. I was really only talking about the portion that is paired up with the FFH in the taxable account, and that's the part that is hedged at $12 strike. See, in the taxable account FFH only needs to beat the after-tax cost of leverage. The FFH will continue to defer capital gains for hopefully decades, and the BAC puts will hopefully expire worthless. This gives me valuable tax losses given the insane capital gains tax rates for Californians. And besides, I expect FFH will likely beat the after-tax cost of leverage that I'm incurring with BAC -- roughly a 5% hurdle rate for 2013 given the short-term cap gains I took on those BAC warrants and the roughly 50% tax rate. However if the markets go to hell in a handbasket both FFH and BAC could be down for a while. Just like FFH dropped in 2008 and 2009. But I reason the situation will be good for the rate of value growth in FFH if I sit tight, and certainly it will be good for rolling the BAC puts along.

Plus I like the break from responsibility. I can behave like a child and do some backseat driving, like pointing out that they don't invest in Berkshire when it's cheap. But then somebody pointed out that there may be a conflict of interest in their making an investment in a competitor. So I learned something too.

This is from the annual report (pg. 97). The exposure to the largest single issuer of common stock held at Dec 31, 2012 was $604.7 (million), which represented 2.3% of the total investment portfolio. Hardly something to lose sleep over and thus I wouldn't consider them "heavily into RIMM". I would add that it's not like BBRY is in rough shape at all. They have nearly $3 billion in cash and no debt. They have higher gross margins that AAPL. The smartphone market is still in it's infancy. BBRY just released new products. Prem presents his rationale quite clearly in the annual report. Thanks for looking it up. I prefer to view it as a percentage of book value, but even then it's not that bad. For one thing it will take a while before it goes to zero (if it does), and over that time they get income from bonds to fill in the hole. Plus, any 100% loss isn't really a 100% economic loss due to the tax deduction. Last, if RIMM goes to zero it will be their mistake and not mine ;D That's why people pay others to make their mistakes for them.

What % of your portfolio are you targeting? Hope that your midas touch continues for the rest of us patient FFH holders It's roughly 50% of net worth. This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings. So I hope I just hold this for a long time in my taxable account. I still have a lot of BAC, but not as much and it's all hedged. So this kind of leverage I find interesting -- things turn out well, I'll keep making money from BAC and FFH at the same time. Things turn out poorly, FFH will be booking big gains and hopefully BAC will still make money. If not, hopefully the big FFH gains cancel out the cost of the BAC hedges.

It's nice to hear that things are going well. I've been buying (and still buying) FFH. I feel like with the markets this high the hedges can't be that much of a drag anymore. I'm buying the stock today for the same price I sold it for 2 years ago! The deflation hedges are already practically worthless. So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

This is why I mentioned "portfolio" margin. Instead of buying the calls in your taxable account, just use a margin loan to buy more common and use puts to hedge. You won't have the capital gains tax headache by rolling the puts along. Taxes are not an issue with this approach. I'm paying less than a 1% interest rate using Interactive Brokers. I think I worked out my cost of leverage to be roughly 10.75%, so that is a good deal cheaper than 13% annualized cost in the warrants. There's room for a little bit of interest rate increases. One risk is Interactive Brokers deciding to suddenly charge 3% for margin interest. They could do that of course, even if the Fed doesn't alter the rates.

Or perhaps the Treasury department has it's proposal, but perhaps Obama is proposing something that goes beyond what the Treasury proposes. Maybe that's because the White House is the political arm of the Treasury, and first Obama wants to scare you (to get you anchored to communism), and then in a "grand bargain" reduce his plan down to merely the Treasury's proposal.

He should start a holding company, not a fund. 0% tax by owning Berkshire till death (which is what you do if you are a billionaire, because you aren't going to spend the money). Owners of Berkshire enjoy dividends from equities taxed at 14.5% rate, dividends from subsidiaries taxed at 0% rate, and capital gains taxed at 28% (under Obama's proposal). I know you are thinking that 28% on capital gains is no sweet deal, but considering that California has a 13% capital gains tax rate on top of the 20% Federal capital gains tax rate as well as the roughly 5% Obamacare/medicare tax, then 28% seems like a pretty sweet deal after all!

It looks like IRAs can be rolled into variable annuities -- hopefully this is a loophole that can be exploited: https://investor.vanguard.com/what-we-offer/annuities/save-for-retirement quoting: In most instances, your earnings can accumulate longer because there are no requirements for withdrawals. Note: Required minimum distributions could still apply if you roll over assets from a qualified retirement plan or IRA.

This is all so silly anyhow. There is no limit on variable annuities contributions. So why go after IRAs? Here, for example, is Vanguard's variable annuities page: https://investor.vanguard.com/what-we-offer/annuities/save-for-retirement Notice the words save for retirement in that URL? How deferred annuities work A deferred annuity can be a smart way to build extra savings for retirement. You can put more money away than you can with other retirement accounts. In most instances, your earnings can accumulate longer because there are no requirements for withdrawals. Note: Required minimum distributions could still apply if you roll over assets from a qualified retirement plan or IRA. You can add to your deferred annuity and withdraw assets from it at any time.* You can convert the annuity assets into periodic payments—or simply make withdrawals as you wish. And then look at all the investment options -- doesn't this sound almost exactly like an IRA?: https://personal.vanguard.com/us/funds/annuities/variable

That's not quite what we're doing. We're pulling the flowers... I'm not going to say to water the weeds until I know where that specific money is going, but I do know for sure he's pulling the flowers. Only the best performing accounts are being culled. It's not like I'm some tycoon who stashed millions of pre-tax earnings aside. I made 30,000% in seven years (all the gains came in the last 7). I put 12,000 aside on average each year just like plenty of others could have done in the middle class. Obama says he is doing this for the middle class. But taking away hope? This is one of the only avenues for class mobility -- passive investing to get yourself out of your day job. And by getting myself out of the job at age 34, that enabled another person to take my job. Else, he'd be unemployed and on benefits. I have benefitted that guy enormously.

Actually, this country suffers from not enough people doing what they want to do. We wind up taking jobs that we don't like, simply because they pay better. See Munger's comments on the engineers working at hedge funds. So I have the idea of just providing matching income to my children if they pursue their goals. So if they want to pursue a career in teaching, they'll get a matching income (up to a certain percentage) from the trust. That way society benefits from one more passionate science teacher and one less useless money fund manager. Of course, I could just fund teachers directly but I have a biological itch to scratch (looking after my own). But I can do that I think while society is also benefitting from them pursuing their dreams. The criteria for getting any money is earned income. Gambling winnings not included.

I can't tell what they are planning. I pay a $1.5m larger tax bill next year (that's not what I'm forced to withdraw, that's what my income tax bill will be) if it's the worst case. Or I pay a $0 tax bill if it's the best case (contribution limits only). It's a tragedy for the tax payer though -- I'm pretty sure I can beat the cost at which the government borrows money. All of the gains I make in the Roth IRA going forward would otherwise the subject to the 40% estate tax. Same with Mitt Romney. It's a public private partnership. Obama is liquidating the largest partnerships that the US Treasury has an interest in. These tend to be the ones with investors who seem to be relatively good (or else the account just magically became large?). So the tax burden of the general tax-paying public just went up. Now that's assuming I take a big chunk of the money and use it to start reducing my taxable estate (gifts for kids crummy trusts'). And that's exactly what I intend to do. But yes, I'll get rich slower. That might make Obama satisfied, but it means more tax burden for the general public so his is a hollow victory.

May be. See page 18 in the proposal: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/strengthening.pdf "The Budget would limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million for someone retiring in 2013." Remember the tech bubble when stock market was 2x and then suddenly halved again? Surely Obama realizes that if you've got $3m, and then it suddenly doubles, it can suddenly be worth 50% again. But along the way you were forced to liquidate 1/2 of your retirement funds. Now after the crash you have $1.5m in the account, and your dividend income (and annuity purchasing power) is halved. This makes no sense. Or people with $1.5m will suddenly have $3m in their account, won't be able to contribute, but then the market will crash and it will be $1.5m again. Obama must have learned something about bubbles by now.

I would disagree with your characterization of Buffett's approach. That is how Berkshire operates due to size. A few years back in his personal account he reportedly bought a number of profitable low P/B Korean stocks. I would not characterize the stocks he bought as high quality businesses with moats. Yet Buffett could estimate a conservative IV on those companies. When Buffett describes how he would manage a one million dollar portfolio it is very different than what you described. I know about that trade (heard about it before). Effectively, he was not terribly familiar with Korean stocks but was aware that their stock market was priced out of whack to their economy. He asked some guy from Goldman to hand him a book of Korean financials (like ValueLine) and used some old-school methods of selecting companies he thought were survivors. Perhaps he used just common sense like picking a steel company, a cement company, a utility, I don't know what method. But he likely was less familiar with what name brands were the strongest in Korea because he isn't experienced in that culture. Just guessing! He's good at looking at financials and knows a cement company when he sees one. Thus he can look at the durability by just looking at how leveraged they are, how stable has their cash flow been, will cement be needed in the future.... I mean, are you certain that he hand-selected the more volatile sectors? Did he go for the highest P/Es that had lots of short term financing? Did he go for tech startups? I don't know how your example at all suggests that Buffett put away the risk metrics. I'm pretty damn certain he looked for enough details to ensure that these businesses would still be dull and boring for a decade. Thus he only had to worry about the entire stock market getting a mean reversion as a catalyst. But define "worry" -- he made a great earnings yield while he waited. Anyways, I would say that when everything is getting thrown out with the bathwater you can do well just buying an index on that market. Thus, the catalyst becomes reversion to the mean. But I bet Buffett tried to do even better by going through the stable and boring businesses that are lower risk. Nothing specific to any one company, just that the market itself will mean revert (foreign investors eventually realize Korea is really not that risky, or whatever). Or he might not have been looking at risk characteristics, but I highly doubt it.

I've been parsing Buffett's comments over and over again. He is basically telling us to: Only place IV estimates on businesses that are highly dependable to continue to spit out the earnings they've achieved in the past. Otherwise, it's too hard! This means high quality businesses. This means low financial leverage risk. This means moats. So just go ahead and throw out all of the high risk businesses that are vulnerable to rapid technological changes, deep cyclical downturns, financial panics, whiz-kid managers doing turnarounds, etc... etc... This means you won't get too many pitches. They rarely come along at massive discounts such as he had with WFC. That's why he concentrates his investments in few ideas and crushes them when they come along. That's how I interpret Buffett&Munger, anyhow. It's why they won the game.

I feel like a big part of the "cheap forever" puzzle is that people are often just wrong about what constitutes great value. A risky business model trading for an earnings yield in the teens. (no, I'm not referring to the high priced teen model character from Risky Business). Instead you have something like when Buffett purchased Wells Fargo in early 1990s -- a great business, great business model, but normalized earnings yield in the teens. A great business like that is undeserving of a high-teens earnings yield. The catalyst was for the earnings to shine through the elevated loan loss reserving. It's a clear catalyst -- it's not dependent on the kindness of an activist to come along. You can just bet on it (and he did). There are catalysts, and then there are catalysts. Buffett selected a high quality businesses with relative certainty of long term excellence -- thus the catalyst could be depended on because a high quality business isn't going to trade at high teens earnings yield levels for long after the uncertainty is lifted.

I need to find out what his proposal is for RothIRA mighty quick here. Every extra dollar of gains I accumulate would possibly be taxed in 2014 -- at regular income rates. That would be 50% in taxes! So you know how guys like Klarmann speak of making sure you have like 4 dollars of upside for every 1 dollar of downside? Well, I don't get any tax deduction for losses in a RothIRA, but if my gains are taxed at 50% it really changes the risk/reward math, now doesn't it.

Is this article giving me false hope? 1) Limits RothIRAs to $3.4million (instead of $3million) 2) Says that the cap is reached merely by banning future contributions (but doesn't mention forced withdrawals of excess) The budget’s proposed cap on retirement savings would apply to the total of an individual’s tax-favored accounts including IRAs and 401(k)s. It would be reached by barring taxpayers from adding more tax-free money once the limit is reached. Sponsors of retirement plans and IRA trustees would report each participant’s account balance as of the end of the year.

Guys, regarding the catalysts that can go on for years and years.... You are right. You just have to be highly selective about what a "catalyst" is. The Fairfax at $90 in 2006 was a situation where about 25% of the shares were shorted and the shorts were paying north of 20% annualized for borrowing the shares. It was a highly compressed spring. Now, that's not going to go on if they are a fully healthy company. It was going on because of the runoff mess that lasted for years and years -- but you had a letter to shareholders in your hand from Prem stating that the 7 lean years were over and that 2006 was the year that it would breakeven or turn a profit in runoff. And it did, and it's been profitable every year since. And the shorts covered soon after. Of course you can't trust everything a CEO promises, but Prem had a very trustworthy reputation.

Obama just threw out this softball which will probably make me richer over time even though he's fiddeling with my IRA: Obama proposes cutting the top U.S. corporate tax rate to 28 percent from 35 percent, now the highest in the industrialized world. http://www.cnbc.com/id/100630036 Makes holding companies like Berkshire, MKL, etc... a hell of a lot more valuable to the individual investor. I believe my tax rate on selling the BAC warrants (short term cap gain) is well north of 50%. I'm serious! It's totally crazy. Sanjeev needs to start a holding company along the lines of LUK. Sign me up. I can't invest in partnerships -- too much tax.

So anyways, the entire topic needs to be viewed under the framework of after-tax intrinsic value. Shares might be fully valued, but you capture 100% of intrinsic value when you repurchase shares. 45% of intrinsic value is lost to the tax man if you dividend tax rate is 45%. I'm not sure there is much else to discuss -- people are driven by incentives.

Forgot to add... Buffett's dividend tax rate at Berkshire is less than half of his capital gains tax rate. And he has many stocks carrying very low cost basis. So naturally he'd favor capital gains tax ::) Places like Australia tax dividends on KO at twice the rate of capital gains. Probably Canada too (not sure). Buffett's situation is completely reversed. He's paying less than 1/2 on dividends vs capital gains. And he LOVES dividends. Wow :-*

Cui bono? If you are Warren Buffett holding Coca Cola in 1998 and the stock is selling at a stratospheric valuation, it doesn't benefit the long term shareholder (Buffett in this case) if KO initiates a buyback at that valuation. My understanding is: All the intrinsic value that is lost (lost because you spend $1 to buy back stock worth less than $1) from buyback executed at steep levels is completely and proportionately transferred from the company coffers (long term shareholders) to the sellers of KO stock. Since all companies are run under the mandate of maximizing long-term shareholder value, isn't overpriced buyback always ill-fated? Said another way: Buybacks executed at prices higher than intrinsic value benefit short term sellers at the detriment of long term share holders, right? With the benefit of hindsight of course - but if Coca-Cola could have issued new shares in 1998 to raise cash and then turned around and used that amount to buyback the stock in 2000-2001, it would have benefited long term shareholders at the expense of short term shareholders - which is exactly a company ought to be doing. A couple of thoughts: Buffett regrets not selling Coca Cola during the bubble. You only hurt yourself by not selling during bubbles. Management of KO was not the source of his woes -- it was Buffett himself and he admits this. "I merely clucked when I should have walked". - Warren Buffett Berkshire pays 14.5% tax on KO dividends. It does't surprise me that he favors them. Only 14.5% of intrinsic value is lost to the tax man. I'd love to hear his thoughts on buybacks vs dividends if his dividend tax rate were 99%. Somewhere in between 14.5% and 99% lies reality for the rest of us who hold in taxable accounts. An Australian citizen holding KO shares pays dividend tax at 45% rate. Let's raise Buffett's dividend tax to 45% and see what comes rolling off his tongue? After $1 in dividend is paid: Buffett keeps 85.5 cents Australian keeps 55 cents Hmm.... 55 vs 85.5. And which guy did you say favors dividends? Oh right, yes...