rranjan

Thanks for taking time to put the details. I am just curious about it. I don't use any of it for my investments, but curious about it. So big picture I am getting here: Demand for long end( for example 10 years) treasury was not that high in early part of 2021 and 10 years rates rose as result. Then we had high demand starting from Mid-March and that put the pressure and yield on 10 years did not go up after Mid-March. What happens starting Aug and why? Demand for 10 years treasury shouldn't go down starting August. I know you answered it earlier, but something obvious to you is not obvious to me even after reading your detailed post.

Hey! Thank you so much for your reply. What you're saying and the calculations you present make perfect sense to me and stay in line with the argument about a high IROIC. It also seems to make sense to me that a company can increase profits by $3 by investing $12 at 25%. With that said, do you think the author made a mistake with this statement: "See's Candies has a ROTCE of 25%, so if the business grows three percent, it will require roughly one-quarter of that amount to finance the growth (if one assumes that capital intensity for the marginal business is the same as for the overall business)." If anything, it seems to me that it would require 4x to fulfill the RR you're speaking about (0.12=0.03/0.25) If the business grows 3% with 25% ROTCE it will require (3*100)/25 = 3 * 4 = 12% of funds , not 0.75% of funds. Similarly, if the business grows 3% with 50% ROTCE it will require (3*100)/50 = 3* 2 = 6% of funds. Last, if the business grows 3% with 10% ROTCE it will require (3* 100)/10 = 3*10 = 30% of funds. 10% ROTCE is using 30% of funds 25% ROTCE is using 12% of funds 50% ROTCE is using 6% of funds You can see that higher ROTCE will be better because fewer funds will be used for the same growth and more funds will be available to owners. Hope you can sleep better tonight ;) - Rohit Looks a mistake to me.

If the business grows 3% with 25% ROTCE it will require (3*100)/25 = 3 * 4 = 12% of funds , not 0.75% of funds. Similarly, if the business grows 3% with 50% ROTCE it will require (3*100)/50 = 3* 2 = 6% of funds. Last, if the business grows 3% with 10% ROTCE it will require (3* 100)/10 = 3*10 = 30% of funds. 10% ROTCE is using 30% of funds 25% ROTCE is using 12% of funds 50% ROTCE is using 6% of funds You can see that higher ROTCE will be better because fewer funds will be used for the same growth and more funds will be available to owners. Hope you can sleep better tonight ;) - Rohit

Agree here. Building a resume for 15 years so that you can do so and so .... A better idea will be to start doing whatever you want to do. Sure, you can't start writing full-time poetry when you have 5 kids to feed, but plenty of people unnecessarily keep building their resume for doing something in the future rather simply start doing what they want to do.

As opposed to Mohnish promising certain returns? Please cite the source. How come the fee charged after 6% compound returns get compared to Ponzi scheme run by Madoff?

There is a fair criticism and then there is this. Madoff? Seriously?

Not true. You are laying out cash to buy a business in the hopes that someone else will be willing to buy it from you at a much higher value. If the second part doesn’t happen then it didn’t work. You do not actually get the cash a business produces... Some one else will eventually buy it higher from you 100% of times if value of owner's earnings are higher than price you paid.

First of all, the asset base of FFH is not that small (though much smaller than BRK). FFH also faces competition from PE and others for deals in the $1-5 billion range. Second being smaller in now way guarantees success; the lackluster investment performance of FFH over the last 15 years is a prime example of that. I was comparing only with Berkshire in relative terms. Anyway, as you said being small does not guarantee sucess. With similar skill set, being small should provide a higher probability of success, but I don't think that skill set of Prem and Buffett can be compared. Fairfax is priced cheaper than usual right now and owners may do fine in the next few years with insurance hard market coming, but I don't know how to hadicap it. I put it in my too hard pile.

If I can find a business throwing 10% of FCF with very little growth and FCF is not wasted then by owning it I can expect to make 10%. If my investment returns depends on liquidating to produce cash then time line for liquidation matters a lot. If you buy 1 dollar of asset by paying 50 cents then you will do fine if asset can be liquidated quickly. If it takes 10 years and meanwhile business also requires more cash to keep running then it's not going to work nicely. I find it too hard. Even lampert admitted it that it was not a one foot hurdle. ----------- Lampert. "We'd rather jump over a one-foot hurdle too. But it's difficult to find the opportunity. So I'm willing to engage more in underperforming companies." https://money.cnn.com/2006/02/03/news/companies/investorsguide_lampert_stockpicking/ -------

Ceratainly of asset getting converted to cash was not too high. When you have to fire people to liquidate asset, it's not easy to do so quickly. There is time value of money when liquidating. Liquidating within a year is totally different than liquidating within 20 years. Illiquid real estate assets are not worth the claims made by many investors. If assets are liquid and can be converted to cash quickly then situation will be different. I personally put these cases in too hard pile.

Buffett's investment universe is 1/15th the size of Prem's. If Buffett's universe comprises 200 public and private companies worldwide, Prem's universe has 3,000 companies to look at. It will be a huge advantage as long as we assume that Buffett and Prem can be compared as investor. Prem has speculated many times and won some time. Buffett operates differently and his process is likely to produce very few permanent loss. He has still taken 1-2% permanent loss in past, but that's not going to set back Berkshire too much. Buffett process is repeatable and outcome is more predictable. Prem can still produce higher returns due to being small, but certainly of that outcome is not very high. Both are different and can't be compared.

35% gross margins in retailer won't work when other retailer can operate at 11% gross margin. Department stores fell behind and it's very hard to make math work for customers if your gross margin is drastically higher than others. Department stores needed high gross margin to operate because they had much higher expense. Old customers kept going for a while due to habit , but you can not attract new customers. Eventually you die if you are not providing value to your customers.s Now there was hypothetical value in asset, but it could not be converted to cash. If you can not take out cash then investment will not work.

rranjan, Yes makes sense. How then do you explain Chou Associates 15 yr compound return of 1.6%? Are you saying that value investing community is not able to fairly assess how much cash the business will generate in future. I have not followed Chou to really comment on what he is doing. Market may not price properly for couple of years, but in most instances market will push asset price closer to true worth in 4-5 years. Often it will overshoot as well. In general, if you do poorly for 15 years then it means simply one thing, you are making mistakes in figuring out how much cash business will produce for owners. Recently, we have seen articles like value investment being dead or value investors not doing well. Some time it could the case of growing companies getting higher multiple due to very low interest rates. I meant, cash coming after 10-15 years becomes a lot more valuable for investors if they think that interest rate(proxy for inflation) will remain low for entire time. It may create a situation where investors starts overpaying for such companies and underpaying for decent cash but not growing that much. But even if you own second group, it's hard to only make 1.6% for 15 years unless you are making mistakes in evaluating what cash business will generate over time for owners. But when all said and one, investment is all about how much cash you get in future, how quickly you get it and how certain you are about getting it. Growth is simply a component in figuring out how much cash will come to owners in future. These tags about value investment, growth investment etc does not make too much sense to me.

You are laying out cash to buy a business to get more cash from business in future. If you get the second part right and buy at a decent discount, I don't see how investment( or call it value investment) won't work. Trying to assign value based on P/B or P/E can be indication of value sometime, but not really a value other times. But if you can figure out owners earning with high degree of certainty and buy at a discount, it's extremely hard to not make money over time.

Yeah this is very surprising given how much he was talking about the Great Depression. He talks to Gates frequently. Gates initially thought 5 years of doom. Now Gates has changed his mind about it and thinks rich countries will be done with virus issue by the end of 2021. Range of outcome has become narrower. I am just speculating here.