Liberty

I think this is new. Sorry if it has already been posted: http://www.sequoiafund.com/Reports/Annual/Ann14.pdf

https://glennchan.wordpress.com/2015/03/06/unusual-risks-at-ocwen/

Writeup on Live Nation: Live Nation Entertainment: An Unregulated Monopoly? https://punchcardblog.wordpress.com/2015/03/05/live-nation-entertainment-an-unregulated-monopoly/

Because I think cable companies are going to turn into utilities. Dumb pipes. Consumers are not going to pay a lot for dumb pipes. And regulators won't let them extract wealth from content providers. For example, John Malone used to use TCI monopoly power to extract equity stakes in various television networks like BET. But how are you supposed to do that now when regulators are pushing concepts like Net Neutrality. The internet is what is driving this. On top of this I also think John Malone made the cable industry seem much better than it really is. He pushed analysts to focus on cash flow which makes little sense for cable companies where depreciation is a huge cost. He somehow got acquirers to buy his cable networks for much more than they were worth. And he exhorted a lot of upside from emerging cable networks when TCI was the only game in town. All those games are going to be much harder in the current environment that they were in the past. Maybe I'm wrong but I feel that a lot of people are essentially extrapolating what John Malone did in the past to the present. I know I was. Thus they look at someone like Drahi and all they see is John Malone. And I think that is a mistake. Thanks for explaining your point of view. Saying that cable won't be as profitable because of net neutrality and the "dump pipe" effect implies that it is a good business right now because they are non-neutral on internet content or whatever. I don't think that's the case. Europe has a friendlier regulatory environment to cable than the US, mostly because there's more competition and regulators have seen cable companies invest heavily in taking speeds up, but even in the US where the FCC recently went a lot farther than many even expected, they are not touching rates. If they had capped rates and how much pricing cable could take, maybe that would be a problem, but I doubt that regulators want to risk making a big piece of the US internet infrastructure uncompetitive. Cable companies aren't making much right now by charging some companies more for faster lanes or whatever, so if they are barred from doing that at all, it won't change much. As for dumb pipes, I don't know. What's the opposite of a dumb pipe in this scenario? I think video might lose a bit of ground, though the switch to all-digital is allowing cable to compete with satellite (the huge growth that nationwide DBS operators had took place in a certain context that is changing) and frees up a lot of bandwidth for broadband without new capex on that side, and broadband is making up for losses in video and can potentially be very profitable over the cycle because most of the revenue doesn't go to content producers the way most of the video bill does. Also, the ability to do triple and quad play reduces churn a lot, which is one of the main things for profitability; competitors mostly can't offer 3-4 play. And OTT video might compete with the video bundle, but it makes broadband more attractive. Depreciation is a real cost, which is why free cash flow, which takes into account maintenance capex, is the right measure. But when Malone argued for the switch to EBITDA, it made a lot more sense than GAAP earnings (which is what people were looking at for cable companies at the time), because optimizing for GAAP meant paying a lot of taxes and growing a lot slower through acquisition at a time when consolidation made sense. Separating the underlying economics from the capital structure for analysis isn't a bad idea, because it's a lot easier to change the capital structure than the underlying business. You just have to make sure you aren't fooling yourself about what you're looking at.

and if they hadn't split, AAPL would have earned a much higher weight in that silly index... If they hadn't split, the index wouldn't have taken them, most likely.

Why do you think it will be worth a lot less than it is now?

Valeant has lost a couple of bids for public companies in the past, Allergan wasn't the first (though obviously it was the biggest). When you go fishing, you can't catch all of the fish. As Pearson said, I don't think they "lost" Allergan. They stayed disciplined and didn't pay more than they decided they would pay, so that's a win in my book too. If the goal was empire-building, then yes, they lost. If the goal is creating the most shareholder value, then staying disciplined is a clear win long-term even when it leads to setbacks short-term. If you bid for something and decide you won't pay more than $100, if someone else comes along and offers $120, should you decide to pay $130? No, you stick to the plan and walk away. What others will do is out of your control, all you can do is try your best. The next time VRX bids for a big public company, attacking its stock as a currency won't work and they'll have a better track record under their belt, and Actavis will probably be out of the picture for a bit, digesting Allergan. At the size that VRX will soon be playing at, there won't be a ton of buyers who have its structural advantages (tax, low SGA) and its experience integrating companies (decentralized model ftw!). Competition will probably be scarcer for 50bn businesses than it is for 10bn businesses, but that's just a guess.

I think the premise that what Valeant does is a scorched earth strategy of cutting all R&D and not caring about the future is incorrect, so it's not worth refuting. It's the meme that Allergan tried to sell, and too many people seem to have bought it. Look at the organic growth of even their older acquisitions (except biovail, which was bought mostly for the tax inversion and brought billions that way), look at the new products that have been introduced as well as the pipeline. Listen to their doctors describe their approach. The question isn't "should we have new products or not?" It's "What should those new products be, and where should they come from?" If you avoid big expensive blockbusters, highly competitive areas, and slow-growing areas, and instead go for lots of small products that aren't under generic attack (some things are more durable and harder to genericize, like skin creams), and if you source new products from very rational R&D and from bolt-on acquisitions (ie. buy a small company, plug its products into large worldwide salesforce), you can get more value per dollar invested than if you just throw a ton of money into the lab and hope to discover the next billion-dollar molecule. At some point in the past maybe the big pharma R&D approach gave good IRRs, but today it doesn't seem to be doing so, and smaller players are more effective at doing R&D. It's kind of like how big mining companies let juniors do the exploration and buy those that found something. The whole wolf-sheep thing is also flawed. As I said previously, this is a multi-trillion industry. There's always a ton of stuff for sale from private equity, family holdings, big companies divesting assets. Mr. Market also offers bargains from time to time, etc. Running out of targets isn't on the horizon. Valeant's strategy has never been a secret, just like Berkshire's strategy. What keeps others from adopting it is that it requires hard work, discipline, and good capital allocation skills, as well as a an owner mindset. Others can't just decide that they want to be disciplined and good capital allocators all of a sudden. Changing an established company's culture is extremely hard. That's why new models usually come from upstarts rather than from a big existing player changing its stripes. Plus, it's a lot more fun for most executives to have a fat SG&A and spend tons of money on pet projects, and have a very centralized empire to lord over. The Valeant model simply isn't appealing to most big shot CEOs. Sure we're in a wave of consolidation, so there's going to be competition for big deals and multiples might increase. But Pearson has clearly said that for the vast majority of what they buy, they are the only bidder. In fact, if there's someone else interested, they probably won't be. So out of the dozens of deals they've done so far, they got into bidding wars in maybe a handful of them. If every few years they can bag a big public company, they'll do fine and can deploy many billions the rest of the time just buying private assets (like B&L, btw).

That doesn't make it a more significant comparison ;)

Your link doesn't work, could you repost it? Be careful about the number of R&D employees and such. They outsource a lot of it (CFO has often mentioned that in many case there's an oversupply in the sector, so they can outsource projects to external labs at very low costs), and still develop a lot of it, just from a much more rational approach (zero-based budgeting, as opposed to a pre-set annual budget ("let's spend X% of revenue on R&D"), more reformulation and extension stuff with more certain outcomes, etc. ). Their pipeline seems pretty strong despite the lower spend, and Jublia, for example, is already growing to be one of their top drugs despite being just launched. As for Steve Jobs, he didn't believe in having a separate R&D function in the company. He thought that everything should be about products, and any R&D should be done by the product people in service of the products, not off in a separate lab somewhere, and after they come up with something, product people see if they can do something with it (kind of the Microsoft approach - over the years I've seen tons of great demos out of their labs, but almost no actual products that shipped). So when R&D isn't separate, it might seem smaller, but it doesn't mean that there's not a lot of actually R&D going on.

http://brooklyninvestor.blogspot.ca/2015/03/berkshire-hathaway-annual-report-2014.html

Rrrright.... So not counting 2009, which Buffett's recent purchases have been "obvious"? Or perhaps you can tell which of your recent purchases have been "obvious"? :) Obvious to him doesn't mean obvious to everyone. Otherwise, there wouldn't be much opportunity to take advantage ;)

cemadh, Valeant was trading around $10/share when Pearson joined, and soon after that he special-dividended almost $20. Now the stock is around 200. If you had bought at $10, how far up would you have had the conviction to hold? If you're buying AIG below book because you think it's worth book, then when it goes to book, you should probably consider selling because it's a slow-growing business and your results from that point will probably be fairly mediocre (especially if capital gain taxes don't apply in your case). If you're buying a high-quality business that is rapidly growing, creating value by organic growth and by M&A through a proven model, then selling it every time it looks a bit expensive probably means you would be the guy who bought VRX at $10 and sold it when it got to 16. I'm not seeing style drift with Salix and Dendreon, and I think they just showed great discipline with Allergan (not overpaying, walking away though they could no doubt have matched Actavis and still have done well, the IRR would've been lower than what they look for). No deal has been entirely perfect so far, and I'm sure people could find reasons to complain about biovail/medicis/B&L/PreCision/etc too, just like people complained when Buffett bought BNSF or IBM. At some point they mentioned that B&L was probably a more complex restructuring job than AGN would have been, because it had more employees and products/manufacturing (memory fuzzy on details here). Market cap is not always an indication of complexity, and if there's a model that can handle it, it's their decentralized model (as Berkshire has shown). Valeant is more like a holding company with lots of small semi-independent P&Ls than a big centralized organization - like most other pharmas - that crumbles under its own weight as it grows. "It is easier to double a $30 billion company than to double a $68 billion company." I'm sure people were saying that about Apple/Berkshire/Google/Mastercard/etc at all points of their growth. The question is, does your analysis leads you to believe that they are running into real barriers to growth (either internal or external), or are you just looking at the numbers and being scared because they are big? They are operating around the world in a multi-trillion industry (trillions in public markets, trillions in private hands). If you don't like debt, don't invest in companies that incorporate it in their model (ie. Malone is probably not for you). That's all I can say. But here again, the question isn't how big the debt is in absolute numbers, it's how big is it compared to true earning power, how fast are those earnings growing, how stable are cashflows, how diversified are cashflows, what did they get in return for the debt (did they get more value than they gave?), etc. It'll also be interesting if the company can get to investment grade in the mid-term, how that'll reduce how much they can refinance the old debt for... Bottom line for me, VRX is still trading pretty cheaply when you look ahead at cash earnings for the next couple years, and I expect management to keep under-promising and over-delivering and find other ways to create value. My time horizon is 10 years, and over that time I'm sure there will be times when things look better than others, but as long as I'm not seeing real red flags, I don't think it's wise to sell just because the stock price went up.

Speaking of Eric, has anyone seen him lately?

Phil Fischer: http://i.imgur.com/SIgHeaa.jpg

Wasn't Buffett recently on Bloomberg also? Does anyone have a link? Or did I misread that somewhere..?

As an aside and because it ties in with the theme of unconventionality, today there are many people who play and live stream video games for a living. The most popular site (I think) for watching these streams is Twitch.tv. Some of the most popular streamers draw tens of thousands of viewers every day. The streamers make money from people who subscribe to their channel, from donations and from ads. Some of them make a very good living. The most popular ones probably also get paid by game studios looking for a channel to promote their newly launched games. Twitch takes a cut of subscription revenues and also makes money of the ads. Amazon bought Twitch last year for about $1 billion. To me it is amazing how a site like this pops out of the ground and becomes an alternative to television for many (young) people looking for entertainment. It has allowed some entertaining gamers to make a career out of their hobby. In South-Korea, pro-gamers can be stars. The Starcraft scene, for example, has many teams with coaches who all live together and train all day long, with matches being shown on TV and streamed online. This type of thing will only keep getting more popular over time. Starcraft is so 2000's. LoL/Dota2 are where it's at. They are more popular than SC/SC2 for sure, though I never saw the appeal myself. I was into the korean SC2 scene for a while, but I stopped following it a little while ago.

Is that chart showing a whole 12 months? The financial media keeps getting more long-term oriented.

As an aside and because it ties in with the theme of unconventionality, today there are many people who play and live stream video games for a living. The most popular site (I think) for watching these streams is Twitch.tv. Some of the most popular streamers draw tens of thousands of viewers every day. The streamers make money from people who subscribe to their channel, from donations and from ads. Some of them make a very good living. The most popular ones probably also get paid by game studios looking for a channel to promote their newly launched games. Twitch takes a cut of subscription revenues and also makes money of the ads. Amazon bought Twitch last year for about $1 billion. To me it is amazing how a site like this pops out of the ground and becomes an alternative to television for many (young) people looking for entertainment. It has allowed some entertaining gamers to make a career out of their hobby. In South-Korea, pro-gamers can be stars. The Starcraft scene, for example, has many teams with coaches who all live together and train all day long, with matches being shown on TV and streamed online. This type of thing will only keep getting more popular over time.

http://www.bloomberg.com/news/articles/2015-03-04/spacex-profitable-as-musk-pulls-in-nasa-contracts-google-cash

I know it's the right approach, but I haven't had the discipline to do that yet. I hope to be able to improve on that front, because looking at prices more often than necessary uses a lot of mental energy to little effect.

I never had the time to see what you wrote, and I'm here a lot... I wish I had seen it.

http://www.bloomberg.com/news/articles/2015-03-04/oil-at-95-a-barrel-discovered-in-sec-rules-on-reserves

I'm no debt expert, but that seems like a good deal for SIRI: http://www.prnewswire.com/news-releases/sirius-xm-radio-inc-prices-offering-of-10-billion-of-5375-senior-notes-due-2025-300044969.html

I think you're right, it went to 4.05. I just eyeballed it quickly. Apologies, my bad.