ERICOPOLY

It's unclear how to vote if you are female trapped in a man's body. The labeling of restrooms is ambiguous enough.

Let's say you are self-employed (but new in that position as he is), and you have $3 million in cash. Let's say you want to refinance a $2 million mortgage. I'll bet you'll get turned down. They'll take your $3 million and try to create an income stream from it. They will claim the income is not enough (debt-to-income ratio) to support the mortgage. It doesn't matter if you have enough cash to pay off the mortgage in full. Even if you have enough to put 50% down so the mortgage can't possibly be risky, they'll still say no. They don't do things logically anymore -- they just do things in a way to avoid being fined by their regulator. That's what's so damn funny -- they won't even lend to their regulator if he needs a mortgage (or recent regulator in his case). I'm glad the dummies who made up all these rules have to live with them too! It's like their own little purgatory. His cash invested at these low interest rates (that Ben himself created) is what's preventing him from showing he can earn a large enough income from the cash. These low rates have frustrated a lot of savers, and this mortgage debacle is just one of those frustrations (the other being a lack of suitable income from the cash). I forgot... they also "haircut" your assets when you try to qualify. So if you have $4m and you are trying to borrow $2m, they'll claim you only have $2.8m of qualifying assets (after applying a 30% haircut). Then that $2.8m can't possibly support $2m of debt in their eyes, so they'll turn you down.

Who is lying about what? I don't understand your comment. In America, mortgages work differently than what you are used to in other countries. Here, they give you below-market interest rates if you are subprime, and if you are really wealthy they turn you down as a credit risk. It's just the way things work.

I think she's good to look at, so I watch her either way. Here's a gift for you:

That's too funny. He should have refinanced before the W2s stopped showing up. That's his tactical mistake. Even though he'll now have speaking engagements, it's "self-employed". They'll assign it zero value until he's been doing it for two full years. Haha!

It's been ten years of horrible performance, so I'm not okay with giving him the benefit of the doubt when he says the the numbers look good internally. Furthermore, some of the numbers he has released to investors are misleading. For example, labeling an "active SYW member" as someone with a minimum ONE transaction in a year. Slide 34 of the presentation Getting out once a year is "active" for them. I mean, they don't get out much, obviously, if they still go to Sears.

I am going with Eric's guess -- "Dual Drive". The other letter is also D. Imagine if Musk tweeted about revealing a DD. Hence his comment that he is glad he didn't mention the other letter. Additionally, it's a Model S behind the doors. Exact same front trim and headlights. Model X looks different from the front and so would an entirely new not-yet-revealed body style. These aren't my original thoughts by the way -- just what I deemed the most likely scenario based on what I read over on the Tesla Motors forum.

Depends how the road is painted. A terrorist could just repaint the highway lanes in the night so that everyone with a self-driving car goes off the cliff.

Boom! This is like buying computers. You are better off to hold off the purchase until the following year (or in my case 2 years).

"D" All wheel drive Model S. Dual-motor / Dual-drive It's standard on Model X

I thought you might be serious there for a minute until you started into the "good faith" comment. I think though, that you now recognize that DCF is driven by the securities in the portfolio. So there is really nothing left to discuss.

Or some examples... Example 1: In the case where you "know" the current portfolio of hypothetical FFH to be 50 cent dollars on average. Does this knowledge affect your DCF calculation? Example 2: In the case where you "know" the current portfolio of hypothetical FFH to be 75 cent dollars on average. Does this knowledge affect your DCF calculation versus Example 1? Example 3: In the case where you "know" the current portfolio of hypothetical FFH to be 100 cent dollars on average. Does this knowledge affect your DCF calculation versus Example 1 & 2? I provided these examples to hopefully demonstrate that whatever you give for DCF, it does in fact say something about your opinion of the value of the securities in the portfolio. That's because the DFC depends not just on how successful future investments are, but the current ones as well. This is why I think there are two Richards commenting here: one uses a method that's output depends on knowledge of the value of the securities as input, and the other claims to have no opinion on the value of the securities.

There is also the example earlier on where I said that Fairfax should never trade for intrinsic value if they are indeed value investors. You disagreed. However think more about that example for just a minute. The market (in order to get the DCF right) would need to know how undervalued it's securities were. But in order to know that, it would have to disagree with itself about the very value of those assets. To me, that is an unreasonable expectation for Mr. Market.

1) The securities in the hypothetical FFH's portfolio are already DCFd by Mr. Market. They represent the future cash flows expected by Mr Market discounted to the present 2) That collective DCF is the only thing that comprises "book value" for the hypothetical FFH. 3) What is your DCF based on that brings you to pay a premium to this value if you are agnostic as to the value of the securities on this book? 4) If you say "managerial outperformance", why isn't that tied to your expectation of the value of the securities on the books? I personally don't expect outperformance from a portfolio of securities that I hold no opinion on, so when you say that you do expect outperformance from securities that you hold no opinion on I wonder how you can hold that view. And if you think it's because the investors are really awesome that you expect outperformance, I find it unlikely that you have no opinion as to whether the securities are undervalued -- how are you expecting outperformance otherwise. 5) And so when you say you are paying for outperformance... I don't see how you can detach that comment from the implication that the assets are undervalued. So when you say the former, I see the latter as well. So is there some special corner case that you are arguing about where you've found a company that you'll pay a premium for even though nothing leads you to believe that the assets are undervalued? That would be interesting for you to explain further.

So, up there you say "in a hypothetical". So do you understand what a hypothetical means? Can you make the leap to figure out why taking a hypothetical and using it as evidence to say that's what I think Fairfax should be worth, is misrepresenting my view? This is the post you are objecting to: Eric, if I had said that, I would have predicted an expansion in the multiple FFH will be priced tomorrow. Have I said that? No! Yeah, sorry. Richard said it. Richard believes the appropriate valuation is to DCF their future six-sigma returns. Perils of multitasking with you guys. I apologize if I misrepresented your position for Richard's. Nobody has ever literally accused you of believing that Fairfax will deliver six-sigma returns. I told Gio that it was Richard when I said "Richard said it". By saying "it", I'm not saying that Richard said he is expecting six-sigma returns from Fairfax. In that statement I'm saying it was Richard that said he'd pay for expected "alpha". And you said so. Go back to that hypothetical 1000% example and you say precisely that. That's why I'm saying I was referring to the hypothetical example. That hypothetical example was where you stated you would DCF the future alpha if you believed there to be future alpha. And so I mixed up Gio's message with yours and mistakenly accused Gio of paying upfront for alpha. Then he said he didn't say that, so I said something to the effect of "sorry, oh yes, that was Richard". Not the exact statement "six sigma", but rather the viewpoint that expected alpha should be bought and paid for upfront. It is your viewpoint however that expected "alpha" should be bought and paid for upfront, right? That's how I've understood all of your comments. Therefore I have disagreed with all of your comments.

Try to reconcile that comment "makes no sense" with this one: Right, so why does it "make no sense" to value the securities at market if you don't disapprove of valuing their securities at market? To me this looks like two different Richards are posting their thoughts. Yeah, that's because there's a difference between "valuing their securities at market" and valuing their security (i.e. shares of FFH) at the value of the securities they hold. Those really aren't the same thing. That's true but it's off-topic. In the first quote I provided above, you said that valuing it (hypothetical Fairfax) at book value made no sense. Thus, in that quote you are valuing the securities on the balance sheet above market. That conflicts with the second quote where you say that you don't do that.

Please don't misrepresent my position. I haven't. I said that if they are indeed value investors, and if they indeed have a portfolio of stocks and bonds that is marked-to-market below intrinsic value.... then it must be the case that FFH itself should not be trading at intrinsic value. You disagreed, saying that we must DCF those future capital gains -- therefore, the only way for that to be the case is if the market puts the "magic hat" premium on FFH such that the current market price reflects the intrinsic value of the stocks and bonds that they currently hold. It's okay though if you don't even realize the implications of what you said, but it's not a misrepresentation. Sorry, where did I say that I think they're going to have six-sigma returns? You alluded (in a hypothetical) to paying a DCF for expectations of six-sigma returns. You stated that if you believed that they were going to make 1,000% per year then it would be appropriate to value their expected six-sigma returns using DCF. Is it an exaggeration to mark 1,000% a year as "six sigma"? Is it only two sigma? How many sigmas is 1,000% a year? It was in an example you provided. I was still referring to the Fairfax of your example. You said it would be appropriate to discount the future cash flows if you expected them to make 1,000% a year.

Right, so why does it "make no sense" to value the securities at market if you don't disapprove of valuing their securities at market? To me this looks like two different Richards are posting their thoughts.

Needless to say, it's going to look a bit awkward tucked into the pocket of skinny-jeans (the skin-tight stretch denim variety). Shouldn't take long to wear holes into them.

He's smiling now... But those square corners are going to rub him the wrong way in his pants pocket. His wife's going to get suspicious of where those sores are coming from, and soon he's going to be defending half of his assets in a bitter courtroom battle.

Why do you assume that dividends will be reinvested into something? Investor could be buying booze... Similarly, I don't make the assumption that cash-flow for booze must come from cash dividends. I am impartial as to whether they liquidate some shares to raise this cash, or whether they use their dividends to raise this cash. Let's put it this way... are they going to sober up if the management cancels their dividends? What do Berkshire shareholders do for beer money? (except I'm not impartial -- the tax would be less if they sold their shares because they don't pay tax on the cost basis... so they can purchase either more beer, or higher quality beer)

What tax rate do you pay on those dividends? In California, at the top tax rate, you get a $1 dividend sliced down to 67 cents (approximately) by the tax man. With what certainty is this Californian able to reinvest it into a 67 cent dollar stock (or cheaper)? I'll bet he's better served with buying back stock at 100% of intrinsic value. After all, if the investor sees a 50 cent dollar swimming around and he knows how to spot one, chances are good that he's already pouncing on it using the cash from selling these shares around 100% of intrinsic value. And if he doesn't know how to spot a 50 cent dollar... then what the hell is he going to do with his 67-cent after-tax divided? He's likely just going to reinvest his 67 cents back into some fully-valued stock. So he gets screwed by the management's decision to pay a dividend. So in this example, the buyback at 100% of intrinsic value is suitable for all stripes of investors, savvy or not. But that's because of the high tax rate in the example. Can't really discuss this without regard to the tax rate. Buffett likes dividends but they only pay 14.5% tax rate or something like that on dividends in their insurance companies. I would love to bump up Buffett's tax rate to that of the top California rate and then hear him weigh in on the topic. Especially since he has mentioned that Berkshire's target is more like 80 cent dollars these days -- at 80 cent dollars for reinvestment, the current dividend tax rate doesn't destroy his value because his after-tax dividend exceeds 80 cents. But knock his after-tax dividend dollar down to 67 cents -- I think he'll squeal.

But if the investor is smart enough to spot the "undervalued" companies, why does he hold onto the overvalued ones? Bingo.

Hi Ericopoly - Will they allow you to buy/sell options in individual 401k or self directed IRA? I used my wife's account to purchase calls and write cash-covered puts.

You say you didn't object to valuing securities at market? The mark-to-market values on the books reflects the market's DCF for the businesses underlying those securities. Your objection to assigning market value to them implies that you expect those market values to be incorrectly discounting the future cash flows derived from holding those investments. You specifically wrote it is "a pretty bad idea" to use those values. You said that instead of using the mark-to-market values, you wanted to include a DCF derived premium because this is an investment business and you lectured about how the cash flows from an investment business need to be DCF'd. Well, how are you expecting the cash flows to be different from the ones predicted by Mr. Market’s DCF unless you are predicting that the stock pickers at the investment company will either over perform or underperform the market? Unless a "Magic Hat" premium is thrown in there because these guys are seers of the future or something like that. Such a premium has to be agreed to by Mr. Market or it will vanish after you've paid it. That's a tall order to expect the general consensus to remain that HWIC will just reliably beat the market to such a certainty as to warrant a DCF on that "alpha". My objection is that you think an investor should go ahead and do that, you gave the reason that it's a business. You are therefore advocating for the Magic Hat premium.