Liberty

Thanks for posting, WhoIsWarren. It does indeed raise many of the questions that have been raised here in the VRX thread, though I don't think it really answers them or provide a smoking gun. About rising interest rates and the impact on acquisitions; I'd be curious to look at other businesses that have been successful at building value via acquisitions, and what they did when interest rates were higher (teledyne? capital cities?). I'm not sure exactly sure how their tactics changed (just lower leverage, higher hurdle rate, more equity raised?), but it seems like it didn't affect their overall strategy too much. I think smart management should be able to adapt. The question is more, are you sure management is as smart as you think? When they come out with stats like "70% of acquisitions destroy value", it reminds me of when people talk about overall market valuations. It's interesting, but if you're not buying an index, it might not tell you too much about the specific businesses you're looking at. Likewise, that 70% figure for the whole market doesn't matter if you invest in a specific business that can create value via acquisitions 75% of the time or whatever.

Ford ready to dump Microsoft for Blackberry in future cars http://www.detroitnews.com/article/20140222/BIZ/302220033/1148/rss25

http://www.cnbc.com/id/101428116

http://www.bloomberg.com/news/2014-02-22/microsoft-said-to-cut-windows-price-70-to-counter-rivals.html

Agreed. Just doing buybacks opportunistically would probably be a better use of that money.

Thanks, Cunninghamew! That's an interesting quantitative approach. I think what I've had most problem getting over is the qualitative mental block required to properly value some of these 'outsiders' type businesses. Most of these are asset-light, they make lots of acquisitions, and they usually have leverage and complex financial structures. If you look at them with the same lens as other businesses, they'll look expensive and unpredictable a lot of the time. Even Buffett sold his Capital Cities shares before buying in again when they needed money for the ABC deal, and he considered that first sale a mistake. The real challenge becomes making sure that you've truly identified a business model and management team that can keep compounding the way they have in the past and let them run with the ball. If you sell every time they become a bit expensive, chances are you won't capture much of the value creation because you'll be out quickly and won't have a chance to get back in for a long time (if ever, depending on how low you want to get in). But at the same time, this can't become a free pass for overvaluation because that can create too much risk even with a very good business, so how expensive is too expensive? I'm kind of used to what sane multiples are on a lot of businesses, but I find it harder with these types of businesses, especially since they often don't have really comps.. That's why I've been tempted to just do a lot of work beforehand to try to identify these rare combinations of management + business model that can reliably compound value over the long term and then hold them whatever comes except if there's a change in management or strategy that I think spoils the sauce. In hindsight, that was the right strategy with early berkshire, teledyne, capital cities, leucadia, fairfax, etc.. The question is, can we reliably identify similar businesses at earlier stages of development today? Hard to say. My biggest investments are still in other types of business (BAC and AIG being the two biggest), but I've started thinking that a kind of basket approach to these makes sense as long-term core holdings. It's a bit similar to what Gio has been doing, except that I'm not comfortable with all the names he likes and there are some that I like that I haven't yet created threads about here (I'm planning to, just need to finish doing more work on them first). Anyway, I think this style of investing fits well with my personality, so I've been trying to learn more about it over the past couple years. Take all this with a grain of salt.

Honest question: In the specific case of Ametek, are you sure you aren't looking at operational leverage boosting the GMs? Or maybe them making acquisitions in higher margin areas? I'm not super familiar with Ametek, but I've looked at similar types of conglomerates that had rising margins and that's what was happening.

Maybe if they had the all-seeing eye of Sauron, but I doubt it's on their radar.

I saw him mention it on Twitter recently. Definitely on my list too!

If history has taught us anything, it's that you can expect that every single time the stock goes up a fair amount.

Thanks, Gio. That's what I wanted to know.

In some ways, I'm not as comfortable with ENDP as with VRX for the following reasons: Even after the Ireland inversion, it looks like they expect their tax rate to be around 20% for the foreseeable future. Valeant has a cash tax rate of something like 5%, if I remember correctly, so M&A can create more value that way. ENDP doesn't yet have the big presence with cash-pay products in higher growth international markets that VRX has. It's their strategy to go there over time, but they haven't done much yet (Paladin has a few things in latin america and south-africa, but they're relatively small). But what makes it more attractive than VRX to me: Small size, earlier in the story for the same playbook. CEO was insider at VRX so knows as well as anyone how to do it. They've moved fast so far on reducing the SG&A and making smart acquisitions (at least it seems so to me).

Presentation here: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjIxNDQ4fENoaWxkSUQ9LTF8VHlwZT0z&t=1 http://phx.corporate-ir.net/phoenix.zhtml?c=112298&p=irol-newsArticle&ID=1902235&highlight=

Thanks, Gio. A couple more questions if I may... So you already own some. Did you get in at the relatively low multiple that you are now looking for, or do you now ask a lower multiple than your entry point to average down? One thing I'm always afraid is I'll find a company that I think is really high-quality on all fronts, with the ability to keep compounding for a long time (ie. transdigm), but if I wait for a certain valuation before buying, it might only happen in a number of years, and at the rate they're compounding, a 12-13x multiple in 3-5 years will be a higher price than a 18-20x multiple today. And then there's the possibility that even in high volatility periods, it wouldn't go down very low (say not below 15x FCF/share). So now I'm back to the problem of the guy waiting for Berkshire to become very cheap 30 years ago, watching it become a multi-bagger.. That's why I'm curious about if you're comfortable holding these types of businesses at higher multiples, why not buy some there? I can understand how if you already have a big position, you tighten the standard to average down on more. But would you use the same rule for the initial position? Thanks.

I think they're smart enough to figure it out. One easy way is to differentiate like Toyota did with Lexus. Lexus customers don't expect the same service as Toyota customers. Either they could create a new brand, or make it otherwise clear that the extra premium service is only available to the premium models. I think that even without going to crazy lengths, they should easily be able to provide much better service than other automakers at the mass-market level because they will control their service network entirely and won't have third party dealers (who often only care about making money on service, something that Tesla said it won't do). It's similar to how you'll get better service at the Apple store for Apple products than at a Best Buy for a random electronics brand.

A better way to put it: If I had bought a year ago, would I be selling today? If not, is that so different from buying and holding today?

Speaking of Dalio, I rewatched his 'How the Economic Machine Works' video yesterday. He makes it seem so easy to understand. For those who haven't seen it: http://www.economicprinciples.org/

I think it is very easy and straightforward: both for VRX and for ENDP I look at “Adjusted Diluted Cash Earnings Per Share”. And I feel quite comfortable to add to my holdings of both companies, when their share prices trade at around 12x ADCEPS. In 2013 ENDP’s ADCEPS have been around $4.25. ENDP has increased Sales at a CAGR of 22% for the last 5 years. Assuming that 2014 ADCEPS will be 20% higher than in 2013, they will probably be around $5.1. Therefore, I will gladly add at a price of around $62. Yesterday ENDP’s share price closed at $75.29. When I talk about a correction, I mean I hope its share price might come down by ($75.29 - $62) / $75.29 = 17.65%, around 20%. I don’t know if I ever will see ENDP’s share price come down by as much as 20% (though I think anything fluctuates and can come down significantly), but, if it ever does, I will be ready to act. :) Gio Hi Gio, I have a question for you regarding valuation. Does what you wrote above work in reverse? I mean, if you were able to get in at the price you want, and then the stock rose to become exactly valued like it is today based on the adjusted cash earnings at the time, would you sell? In other words, is the fact that you wouldn't buy today the same as you wouldn't hold at that valuation? If you wouldn't sell, is that so different from buying at today's price? You have a lower margin of safety, of course, but if you have enough trust in the company's future growth to keep holding at that multiple, then maybe you can buy higher and just let time be your margin of safety (ie. even if you buy at a higher valuation, in a year or two it'll have grown into it nicely and years after that are the same as if you had bought at a lower valuation at that later time -- in other words, you sacrifice a certain amount of time in exchange for the certainty of buying shares in a business you find good enough to own). Does this make any sense? Sorry if I'm being unclear, it's something I've been thinking about a lot when looking at these high-quality compounders that almost never become cheap enough... I don't want to be the guy who never bought Berkshire decades ago because he was waiting for the price to fall a lot. Sometimes you might be better to just bite the bullet and pay up for quality, but I'm always afraid that I could be fooling myself thinking like that.

Did I miss something? Where did he go? Did he get a job at Apple and he can't tell anyone?

I hope that's the case, because it does look a bit strange. And even if that was his primary job, why be in such a hurry to leave, before the ink is even dry on reports? I'd like to know the backstory on that one.

http://files.shareholder.com/downloads/ABEA-4CW8X0/2612790357x7382497x727013/9885dd26-2e82-4052-b171-3685fd8150b3/Q4'13%20Shareholder%20Letter.pdf Up 12% after hours so far. Anyone still short?

It probably helped Walton that they built the company from the ground up with a culture of low-costs, with basically no legacy problems, at a time when most of the competition was still high-cost and high-margins. Sears is in a more difficult position. They are starting from a high-cost business with lots of legacy issues (including the company's culture), and their competition has embraced low-costs and efficiency decades ago. Not saying they can't do it, but the starting point seems quite different. I'm not very familiar with the history of retailing, especially outside North-America. Did any of these other successful retailers start with a big legacy business and turn it around, or were they all built from the ground up?

Read that one a few years ago and liked it quite a bit (I recently read The Rise of Theodore Roosevelt, another great biography). Quite a bit better than Isaacson's Steve Jobs biography (probably because it was rushed, and because Isaacson doesn't really get technology and design). I have his Einstein biography on my shelf, but haven't read that one yet.

Recent VIC writeup: http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/111724

http://online.wsj.com/news/articles/SB10001424052702304703804579383313119686286