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My $650,100 Lunch with Warren Buffett
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GM Shares Fall to Lowest Price since 1954; Merrill Suggests Bankruptcy
Microsoft, Yahoo’s Winding Road
Blogs
OneBeacon, White Mountain File Shelf Registration (24/7 Wall St.)
Fat Pitch Financials Portfolio Mid-Year Update (Fat Pitch Financials)
Some Blogging-Related Quick-Hits (Controlled Greed)…
Read moreWhat strange times we live in when a candle company’s 10-Q reads like an investment bank’s:
The Company invests in a number of financial securities including debt instruments, preferred and common stocks, a joint venture, and a limited partnership that primarily invests in other limited partnerships who invest in real estate investment trusts and marketable securities…Certain preferred stocks are bought and sold on a short-term basis with the sole purpose of generating a profit on price differences…These securities are valued based on quoted prices in inactive markets… the Company held…ARS classified as available-for-sale securities. Auction rate securities are generally long term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at predetermined intervals in days.…The recent uncertainties in the credit markets have prevented the Company and other investors from liquidating their holdings by selling their securities at par value… In the first quarter of fiscal year 2009…auctions for substantially all of our auction rate securities portfolio…began to fail due to insufficient buyers.
The candle company in question is Blyth (BTH). Jonathan Heller, formerly writing as Clyde Milton, recently wrote about Blyth. I wrote about the company back in September of 2006.
Despite Blyth’s ability to find imaginative new ways to lose cash, the stock is worth a look.
There may be a lesson in all this. There are certainly a number of bad puns.…
Read morePoliticians are always telling us about gas prices.
So I thought maybe gas prices would like to tell us something about politicians for a change.
These “pump points” are based on gapitem data. I’ll explain gapitem in greater detail in a later post. For now, just know that it’s a unit of fuel consumption equal to gas consumption per person per day.
Gapitem = Gas per capita per diem
As the following scores use gapitem, a decrease in per capita gasoline consumption is just as effective in scoring highly as a decrease in the price per gallon of gasoline. The converse is also true – higher consumption, even at the same price per gallon, would result in a lower score.
Tree-hugging environmentalists will love this; laissez-faire capitalists not so much. The latter have a legitimate beef in that people may increase gas consumption for reasons other than necessity – and therefore gas consumption is not entirely non-discretionary. In that sense, higher gas consumption isn’t quite as ubiquitously onerous a burden as say increased tax revenues – but, it’s awfully close.
All scores are from 0.0 to 10.0 with 10.0 being the highest recorded score in that category.
Remember, these scores reflect increases in real per capita GDP after paying at the pump.
Presidents
1. Bill Clinton (10.0)
2. Ronald Reagan (8.6)
3. Jimmy Carter (5.9)
4. George W. Bush (4.2)
5. Gerald Ford (2.7)
6. George H.W. Bush (2.0)
Congresses
1. ’94 Republican Majority (10.0)
2. ’54 Democratic Majority (8.9)
3. ’06 Democratic Majority (0.0)
Party Presidents
1. Democratic Presidents (10.0)
2. Republican Presidents (6.2)
Party Congresses
1. Republican Congresses (10.0)
2. Democratic Congresses (8.2)
Majorities
1. Anti-Administration Majorities (10.0)
2. Pro-Administration Majorities (8.8)
Terms
1. Second-Terms (10.0)
2. First-Terms (4.5)
Real per capita GDP after paying at the pump tends to grow faster when the Congress opposes the President.
In other words, agreement in Washington tends to encourage stagnation in America.
Why?
No comment.…
Read moreA while back someone asked me why so many investment bloggers stop blogging.
I didn’t have an answer for him.
Bloggers stop blogging for a lot of different reasons. But, that wasn’t the question? The question was why investment bloggers stopped – especially good investment bloggers. Why, once established, and with some number of regular readers would an investment blogger stop blogging?
Good question.
I still don’t have a good answer.
My own experience with blogging has been mixed. I’ve had some wonderful exchanges with readers and especially with other bloggers. But, I’ve also had a lot of listless exchanges. A lot of people write to you – they don’t comment so much on my blog as email me directly – with questions that aren’t really questions. See, they want a certain answer, and if you don’t give them that answer – well, I’ve found almost everyone to be exceedingly polite. However, very few people are exceedingly interested in actually changing their mind. Very few people write to me asking for advice with the intention of actually allowing that advice to enter into the equation. It’s a strange feeling. Someone writes to you, you write back, they thank you profusely, etc., etc., etc. but you also know they’re going to do exactly what they intended to do before they wrote you.
I must sound awfully jaded. But, it really is a strange dance you have to experience to understand. It makes you wonder about the silent majority of readers who don’t write. Has anything I’ve written ever made a difference to them – ever entered into their thought process at all – about any stock, investment, approach, etc. I really don’t know. And I had intended to be a source of information (and improvement) rather than entertainment.
One thing I’ve been very lucky with is the cool-headedness of people who email me (and comment on the blog). When I first started the blog, the specter of ranting readers was the thing that worried me most. I’ve read other blogs. I know that people with the most extreme views will tend to be the most vocal promoters of those views. I know that the anonymity of the internet encourages more ranting, more raving, and more ad hominem attacks then ever occur face to face.
And yet somehow this blog has tended towards civility.
I didn’t expect that.
If the most vocal readers are as cool, calm, and collected as those I’ve exchanged emails with – the silent majority of readers must be on sedatives.
Overall, I’ve been impressed with my readers. And somewhat less impressed with myself. It took a little while to find my voice, and even then, I wasn’t very good at balancing the blog format, my readers’ interests, and my own interests. On several occasions, I made grave mistakes – usually by writing about something that interested my readers more than it interested me. My biggest mistakes in this area were when I had the most traffic data …
Read moreSome Posts Worth Reading
Value Discipline: Recurring Revenues and Industrials
Bill Rempel: Fundamental Portfolio Struggling YTD
Cheap Stocks: Premier Exhibitions (PRXI) – Value Not Without Controversy
Cheap Stocks: Net/Net Index In Positive Territory
Some Books Worth Reading
Investing The Templeton Way
The Little Book That Builds Wealth…
I don’t usually write on macro topics; however, I do get lots of emails asking me about the economy, markets, etc. I try to respond to these emails. Here are some excerpts from an email response I sent out tonight (some of the following has been edited):
The Fed is in a very tough position. This is a credit problem. It’s serious. It’s hard to say what the result will be – but it could potentially be very bad. You can have some pretty catastrophic things happen when people start to panic – as far as what happens with money and how all sorts of things can seize up at once. It’s really a psychological problem – a spiral of negativity and panic that feeds on itself. People start to do irrational things and then others respond in irrational ways to their irrational actions and so on and so forth.
The possibility of terrible outsized effects from the kinds of problems we’re seeing with Bear Stearns etc. is real. The housing problem is real. The economy can deal with a lot of things clogging up the system, but credit is probably the toughest.
This is the most serious threat the economy has faced in a long, long time – much more serious (to the economy) than the September 11th attacks. People always want to see just one catastrophic event – point to that – and explain away horrible problems. It doesn’t happen that way. You have a whole climate of negativity, fear, panic, etc. that feeds on itself and causes real problems. It really does come down to psychology. And it’s amazing how fast it can happen.
It’s something that either achieves a sort of critical mass or it doesn’t. It’s like a riot. Either it never really gets out of control and we all forget about it, or it builds on itself and it gets bigger and uglier faster than anyone could imagine.
I don’t worry about single issues. The price of oil alone means next to nothing. Housing alone means something, but it’s really how housing indirectly influences everybody’s behavior where you get problems. A stock market crash means next to nothing to the economy. But the totality of some combination of these things – the climate created – that means everything.
We are on the brink. We haven’t seen such potentially perilous economic times in a long, long time. But if the peril passes no one remembers it. People remember 1929 because the peril didn’t pass – because that climate of depression fed on itself in so many horrible ways that things got worse and worse not better. It seems almost inevitable in the past – but there was a point (no one knows when at the time) where you were on the brink, where terrible things lasting a long, long time could have happened (and eventually did) where you could have broken a downward spiral.
People always want to look at just one “black” day and …
Read moreIn finance, liquidity is not a physical state it is a psychological state. Liquidity is a state of mind. Worse yet, liquidity is in the eye of the beholder. That is not merely to say that liquidity is subjective. Liquidity is subjective, but it’s also more than subjective – it exists in the minds of others – others who can and do transact business with you. So liquidity is – to a great extent – uncontrollable.
Good assets may not necessarily be liquid assets. As a result, good decisions do not necessarily lead to good outcomes when an actor is dependent upon liquidity. An actor is dependent upon liquidity whenever liabilities are great relative to assets. However, an actor can avoid insolvency and make good decisions that will almost certainly lead to good outcomes if the actor can studiously avoid disbursing cash or other assets to meet obligations in the near-term. An actor who can finance an asset by selling a thirty-year zero-coupon bond does not have to worry much about liquidity. Any actor so financed weds its destiny almost entirely to the intrinsic value of the asset – and only the intrinsic value of the asset. All other worldly concerns seem to melt away. This sort of financial nirvana is rarely achieved by any actor who has tasted of the sweet, sweet nectar known as debt.
Actors – like addicts – can develop a dependence through regular use. There is no such thing as non-habit forming debt. Debt is so addictive precisely because it is so useful.
Wonderful businesses have been brought down by a lack of common sense and an abundance of debt. Great businesses – even some simple, great businesses – have been brought down by debt.
What their competitors could never do to them, these great businesses did to themselves.
Berkshire Hathaway (BRK.B) bought Fruit of the Loom out of bankruptcy. It’s hard to bankrupt an entrenched underwear business. Only debt could kill a business like Fruit of the Loom or Hanes (HBI).
So how can investors evaluate a debt-laden liquidity whore? For the most part they can’t.
Investors never like to hear that. But it’s true.
Hanes may have debt; but at least its business isn’t directly dependent on liquidity. Like Fruit of the Loom, Hanes can go bankrupt, but Hanes can also be evaluated without reference to all sorts of variables beyond the company’s control. An investor can decide if the company has too much debt without giving much thought to capital markets, interest rates, commodity prices, and all the other much discussed macro variables. The further an investor ventures from the specifics of the business he is evaluating the more unstable all of his assumptions become. As he stacks unstable assumption upon unstable assumption, he builds a teetering tower crowned with an intrinsic value estimate that could prove perilous.
If you can make successful macro bets, make them. If that’s your strong suit, stick with it. But don’t confuse the business of …
Read moreAlive – definitely alive.
This question – more than any other – dogs every discussion of Berkshire Hathaway (BRK.B). It isn’t immediately visible to those arguing on either side (“Berkshire is overvalued”, “No! Berkshire is undervalued”) but it underlies their arguments all the same.
What do I mean when I say Berkshire Hathaway is worth more alive than dead? I mean that Berkshire as a continuing whole is more valuable than a Berkshire that is dismembered into its constituent parts this very day – a Berkshire that is cut up and dished out like a Christmas ham.
Why?
A lot of people value Berkshire as a closed-end investment fund. Peter Lynch wouldn’t make that mistake. He’d see that Berkshire fits the bill as one of his stalwarts:
“Stalwarts are companies such as Coca-Cola, Bristol-Myers, Procter and Gamble…and Colgate-Palmolive. These multibillion-dollar hulks are not exactly agile climbers, but they’re faster than slow growers…When you traffic in stalwarts, you’re more or less in the foothills: 10 to 12 percent annual growth in earnings”.
(From Lynch’s One Up On Wall Street
That’s what Berkshire is – not a lifeless closed-end investment fund, but a living, breathing stalwart – a mega-cap company that needs to be compared to (and valued like) other mega-caps.
I tried to make this point in the comments section of an earlier post, when I wrote:
“So, now the question isn’t whether Berkshire can compete with its past (it can’t). But, whether Berkshire can compete with similarly sized public companies such as Nestle, Unilever, Google, Microsoft, General Electric, Johnson & Johnson, HSBC, AT&T;, Wal-Mart, Bank of America, and the big oil companies. Can it? I think it can. So, relative to its peers (in terms of size) Berkshire isn’t overpriced. Is it overpriced compared to the Berkshire of twenty or thirty years ago? Yes. But, so is just about every asset on planet earth. So, that’s not the right yardstick to use. You have to compare Berkshire (the stock) to other stocks you can buy today – and Berkshire the company to other companies with similar size constraints. On both counts, I think a valuation of about $140,000 a share is appropriate and fair.”
Berkshire’s value is every bit as dependent on growth as the value of those other corporate behemoths – more so, in fact, because Berkshire doesn’t pay out dividends. You need to value Berkshire based on its likely intrinsic value growth rate, because that rate will determine what the stock is worth in 3, 5, and 10 years’ time – just as it will at Microsoft and Bank of America and Wal-Mart and Google.
Berkshire is a growth stock. And how fast is it growing? Since 1995, I estimate intrinsic value has grown a little more than 15% a year. Of course, when I assign a value to Berkshire shares, I don’t assume it can keep up that kind of intrinsic value growth. Rather, I assume it could grow at a still stalwart …
Read moreVisit Gannon On Investing Book Store
Books are an important part of value investing and an important part of this site. They were an important part of value investing right from the beginning – when Benjamin Graham and David Dodd published Security Analysis 
Finally, I’ve gotten around to improving the lack of good reading resources on this site.
I’ve created a Gannon On Investing Book Store.
It’s very simple. But, I think you’ll find it useful. I’ve included and categorized value investing titles in the way I thought would be most helpful. The best part of the store is probably the Gurus Section where you can find book written by Benjamin Graham, Phil Fisher, Peter Lynch, Joel Greenblatt, David Dreman, Mohnish Pabrai, Marty Whitman, John Neff, and Phil Carret.
I’ve also included a general Value Investing Section.
Then, there’s the Buffett Books Section and the Buffett Quotes Section.
I rounded out the collection with investor profiles, books that broaden your horizons, and business books – all three selected with the investor in mind. Every book in the store is investor centric.
Finally, I added a section for all the books reviewed on this site – mostly by other people.
Let me know what additional categories you’d like to see added.
As for personal picks, there will be plenty of time for that later, but for now the one book I’d recommend for anyone and everyone is Roger Lowenstein’s excellent but outdated biography Buffett: The Making of an American Capitalist
For the true Buffett buff, the hands-down favorite is “Of Permanent Value: The Story of Warren Buffett 
If you have any questions about my favorite editions of certain titles, which editions of Security Analysis are canonical and which are apocryphal, and how you can find titles that can no longer be purchased new – please send me an email.
Regarding the store – comments, suggestions, and complaints are welcome.
Browse Gannon On Investing Book Store
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