Outsiders - Summary

Clear pursuit of Cash flows over earnings maximization - ignoring quarterly results to a large degree; It ran all the way from running their companies to how much they paid for acquisition to their personal life style

Common theme also seems to be aversion towards communication with the Street, using advisors to chase a deal and preferred decentralized organization structure - Capital allocation decisions at the top, running the organization left to lieutenants below

Singularly focused on profitability in conjunction with cash flow over size; In fact, most of the outsiders shrank their book sizes by divesting non-core operations through spin-offs, slump sales etc - anything unprofitable just kill it

Dan Burket at Capital Cities - CBS to begin with was 16 times more valuable compared to Dan Burket; 30 years later Capital Cities became 3 times more valuable compared to CBS - Much like Amara Raja and Exide in the Indian context, Insurance is an unnecessary diversification with no synergies for some one in branded auto comps

Capital Cities was a roll out model i.e. acquire few large stations, turn them around by controlling costs and improving programming and moving onto the next acquisition - only difference, they used far lower debt and longer time between two acquisitions - May be ENIL can adopt the same strategy in radio broadcasting

Dan and Murphy were first timers - They did not have prior broadcasting experience:); Murphy was the CEO and therefore the capital allocation guy, while Dan was in-charge of daily operations

Murphy repurchased 50% of the outstanding stock mid 70s to early 80s (Reagan era) - most of it at single digit P/E - beat that 7 to 8 years of repurchases! Why can't Infy do the same absent major M&A?

"Burke and Murphy wasted little time in implementing Capital Cities’ lean, decentralized approach—immediately cutting unnecessary perks, such as the executive elevator and the private dining room, and moving quickly to eliminate redundant positions, laying off fifteen hundred employees in the first several months after the transaction closed. They also consolidated offices and sold off unnecessary real estate, collecting $175 million for the headquarters building in midtown Manhattan. As Bob Zelnick of ABC News said, “After the mid-80s, we stopped flying first class."

Murphy generated an IRR of 20% over 30 years ~230 times your original money invested in 1966 - S&P did 10.1% CAGR over the same period

on HR
Decentralization is the cornerstone of our philosophy. Our goal is to hire the best people we can and give them the responsibility and authority they need to perform their jobs. All decisions are made at the local level. . . . We expect our managers . . . to be forever cost conscious and to recognize and exploit sales potential.

Tagore and Einstein

Tagore and Einstein met through a common friend, Dr. Mendel. Tagore visited Einstein at his residence at Kaputh in the suburbs of Berlin on July 14, 1930, and Einstein returned the call and visited Tagore at the Mendel home. Both conversations were recorded and the above photograph was taken. The July 14 conversation is reproduced here, and was originally published in The Religion of Man (George, Allen & Unwin, Ltd., London), Appendix II, pp. 222-225.

TAGORE: I was discussing with Dr. Mendel today the new mathematical discoveries which tell us that in the realm of infinitesimal atoms chance has its play; the drama of existence is not absolutely predestined in character.

EINSTEIN: The facts that make science tend toward this view do not say good-bye to causality.

EINSTEIN: One tries to understand in the higher plane how the order is. The order is there, where the big elements combine and guide existence, but in the minute elements this order is not perceptible.

TAGORE: Thus duality is in the depths of existence, the contradiction of free impulse and the directive will which works upon it and evolves an orderly scheme of things.

EINSTEIN: Modern physics would not say they are contradictory. Clouds look as one from a distance, but if you see them nearby, they show themselves as disorderly drops of water.

TAGORE: I find a parallel in human psychology. Our passions and desires are unruly, but our character subdues these elements into a harmonious whole. Does something similar to this happen in the physical world? Are the elements rebellious, dynamic with individual impulse? And is there a principle in the physical world which dominates them and puts them into an orderly organization?

EINSTEIN: Even the elements are not without statistical order; elements of radium will always maintain their specific order, now and ever onward, just as they have done all along. There is, then, a statistical order in the elements.

TAGORE: Otherwise, the drama of existence would be too desultory. It is the constant harmony of chance and determination which makes it eternally new and living.

EINSTEIN: I believe that whatever we do or live for has its causality; it is good, however, that we cannot see through to it.

TAGORE: There is in human affairs an element of elasticity also, some freedom within a small range which is for the expression of our personality. It is like the musical system in India, which is not so rigidly fixed as western music. Our composers give a certain definite outline, a system of melody and rhythmic arrangement, and within a certain limit the player can improvise upon it. He must be one with the law of that particular melody, and then he can give spontaneous expression to his musical feeling within the prescribed regulation. We praise the composer for his genius in creating a foundation along with a superstructure of melodies, but we expect from the player his own skill in the creation of variations of melodic flourish and ornamentation. In creation we follow the central law of existence, but if we do not cut ourselves adrift from it, we can have sufficient freedom within the limits of our personality for the fullest self-expression.

EINSTEIN: That is possible only when there is a strong artistic tradition in music to guide the people's mind. In Europe, music has come too far away from popular art and popular feeling and has become something like a secret art with conventions and traditions of its own.

TAGORE: You have to be absolutely obedient to this too complicated music. In India, the measure of a singer's freedom is in his own creative personality. He can sing the composer's song as his own, if he has the power creatively to assert himself in his interpretation of the general law of the melody which he is given to interpret.

EINSTEIN: It requires a very high standard of art to realize fully the great idea in the original music, so that one can make variations upon it. In our country, the variations are often prescribed.

TAGORE: If in our conduct we can follow the law of goodness, we can have real liberty of self-expression. The principle of conduct is there, but the character which makes it true and individual is our own creation. In our music there is a duality of freedom and prescribed order.

EINSTEIN: Are the words of a song also free? I mean to say, is the singer at liberty to add his own words to the song which he is singing?

TAGORE: Yes. In Bengal we have a kind of song-kirtan, we call it-which gives freedom to the singer to introduce parenthetical comments, phrases not in the original song. This occasions great enthusiasm, since the audience is constantly thrilled by some beautiful, spontaneous sentiment added by the singer.

EINSTEIN: Is the metrical form quite severe?

TAGORE: Yes, quite. You cannot exceed the limits of versification; the singer in all his variations must keep the rhythm and the time, which is fixed. In European music you have a comparative liberty with time, but not with melody.

EINSTEIN: Can the Indian music be sung without words? Can one understand a song without words?

TAGORE: Yes, we have songs with unmeaning words, sounds which just help to act as carriers of the notes. In North India, music is an independent art, not the interpretation of words and thoughts, as in Bengal. The music is very intricate and subtle and is a complete world of melody by itself.

EINSTEIN: Is it not polyphonic?

TAGORE: Instruments are used, not for harmony, but for keeping time and adding to the volume and depth. Has melody suffered in your music by the imposition of harmony?

EINSTEIN: Sometimes it does suffer very much. Sometimes the harmony swallows up the melody altogether.

TAGORE: Melody and harmony are like lines and colors in pictures. A simple linear picture may be completely beautiful; the introduction of color may make it vague and insignificant. Yet color may, by combination with lines, create great pictures, so long as it does not smother and destroy their value.

EINSTEIN: It is a beautiful comparison; line is also much older than color. It seems that your melody is much richer in structure than ours. Japanese music also seems to be so.

TAGORE: It is difficult to analyze the effect of eastern and western music on our minds. I am deeply moved by the western music; I feel that it is great, that it is vast in its structure and grand in its composition. Our own music touches me more deeply by its fundamental lyrical appeal. European music is epic in character; it has a broad background and is Gothic in its structure.

EINSTEIN: This is a question we Europeans cannot properly answer, we are so used to our own music. We want to know whether our own music is a conventional or a fundamental human feeling, whether to feel consonance and dissonance is natural, or a convention which we accept.

TAGORE: Somehow the piano confounds me. The violin pleases me much more.

EINSTEIN: It would be interesting to study the effects of European music on an Indian who had never heard it when he was young.

TAGORE: Once I asked an English musician to analyze for me some classical music, and explain to me what elements make for the beauty of the piece.

EINSTEIN: The difficulty is that the really good music, whether of the East or of the West, cannot be analyzed.

TAGORE: Yes, and what deeply affects the hearer is beyond himself.

EINSTEIN: The same uncertainty will always be there about everything fundamental in our experience, in our reaction to art, whether in Europe or in Asia. Even the red flower I see before me on your table may not be the same to you and me.

TAGORE: And yet there is always going on the process of reconciliation between them, the individual taste conforming to the universal standard.

Easy to P Tough to F

Chance shrank. He felt the roots of his thoughts had been suddenly yanked out of their wet earth and thrust, tangled, into the unfriendly air. He stared at the carpet. Finally, he spoke:  “ In a garden, ” he said, “ growth has its season. There are spring and summer, but there are also fall and winter. And then spring and summer again. As long as the roots are not severed, all is well and all will be well. ”

Give your portfolio plenty of time to benefi t from the magic of compounding, and minimize the costs you incur. Never forget that costs, like weeds, impede the garden ’ s growth. - Again easy to preach tough to follow - Little wonder that einstein said compounding is the nth wonder

Stay the course. No matter what happens, stick to your program. I ’ ve said “ Stay the course ” a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you

The postulate that simpler is the explanation better is the plausibility (Occam's Razor) is a powerful anti-tool. The more a fund manager uses it, the more he is out of his job! Classic Principal Agent problem, Principal needs complex explanations to justify Agent's pay and Agent has to give complex explanations to earn his pay:) - Finally for want of a shoe a kingdom is lost!

In each of the 172 25 year rolling returns, index returns have been ALWAYS positive!

Investing with the press

Momentum vs Value or Momentum & Value

Source:http://anishteli.blogspot.in/2014/05/dont-fight-trend.html
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435323

Holy grail of value investing seems like research and investing against the trend; There are variants in terms of modifying the style by reducing or amplifying risk (although definition of risk itself could vary from individual to individual). Risk 'probably' could be best explained by permanent loss of capital. Its delayed gratification and hence is against our nature - easy to preach impossible to practice

Momentum investing on the other hand relies heavily on trend following; its a bit like surfing or fashion  - you enjoy the ride but you don't get out at the right moment, you are screwed! Its an addiction, easy to practice but very tough to manage risk (eg. Stop loss etc)

The paper demonstrates that momentum works over well over long periods of time and beats value significantly. Additionally, it also reduces risk (defined as volatility in stock prices)

HML: is long high P/B - why would this constitute Value? if any you combine low P/B and strong research that 'could' constitute Value
UMD: is momentum looking at past returns to extrapolate into the future - Newton's law at work

In any event, HML generates about 4.7% return over the long run less than market return; clearly, Value does not mean buy the cheapest s**t in the market. There are multiple cases of value doing well either from 60s crop of investors or 90s crop of investors. The value of value really lies in the research part and behavioral part.

Nevertheless, key things that could be picked up from the paper:
- Can one somehow combine Value and Momentum investing?
- Can risk be managed effectively by having stop losses?
- Does momentum or anti momentum work individually precisely because there is no section of the investors who believe in combining both?

Contingent Debt and Off Balance Sheet stuff...

Case 1:
If the customer is Big and credible and is bullying you by not paying on time:
Factoring without recourse, i.e. palm off the receivable to one of the unsuspecting PSU factors

Case 2:
You are big and you want to fund your vendors:
Vendors would discount your bills and Banks will look to you as a fall back option

Case 3:
You are big and have a hot product and want to fund your channel partners
Channels could borrow from a bank and pay you and if they default, you remain a back stop.

One side of the working capital equation is bloated, one could be creative; if its both then you are in a terrible business!

Mr. Pabrai - Clarity!

Yellowstone:
Filter down 1% of the companies by financials and management
Invest at 0.5x intrinsic value

I would even write that financials can provide better margin of safety than management - Reputation of the business generally succeeds (WB)

Even if you factor in Black Swans, one can aaram se make 15%+ compounding.. I agree

Steer Clear of the Short Side?

Very tempting but sureshot way to lose pants if you are mediocre, not for the faint souls who are happy eating idly sambar for a saturday breakfast..

More than 80% of the fund managers lag indices - There are ample reasons for that:

Govt. Regulation: Definition of what constitutes diversification
Competition: Continously comping against the best and following a trend
Structure: Significantly dependent on retail investors who historically have invested and dropped out at the wrong times

"So my choice is very clear that I will not negotiate on the quality and if I don’t get it at an absolute bargain basement price, I am willing to pay a little higher but the portfolio has to reflect the quality" - Ramdeo Awl

Insurance Float vs growth

This approach led to lumpy, but highly profitable, underwriting results. As an example, in 1984, Berkshire’s largest property and casualty (P&C) insurer, National Indemnity, wrote $62.2 million in premiums. Two years later, premium volumes grew an extraordinary sixfold to $366.2 million. By 1989, they had fallen back 73 percent to $98.4 million and did not return to the $100 million level for twelve years. Three years later, in 2004, the company wrote over $600 million in premiums. Over this period, National Indemnity averaged an annual underwriting profit of 6.5 percent as a percentage of premiums. In contrast, over the same period, the typical property and casualty insurer averaged a loss of 7 percent.

Buffett’s approach to capital allocation was unique: he never paid a dividend or repurchased significant amounts of stock. Instead, with Berkshire’s companies typically requiring little capital investment, he focused on investing in publicly traded stocks and acquiring private companies, options not available to most CEOs who lacked his extensive investment experience. Before we look at these two areas, however, let’s first examine a critical early decision.

After a brief flirtation with the textile business, Buffett chose early on to make no further investments in Berkshire’s low-return legacy suit-linings business and to harvest all excess capital and deploy it elsewhere. In contrast, Burlington Industries, the largest company in the textile business then and now, chose a different path, deploying all available capital into its existing business between 1965 and 1985. Over that twenty-year period, Burlington’s stock appreciated at a paltry annual rate of 0.6 percent; Berkshire’s compound return was a remarkable 27 percent.

These differing results tell an important capital allocation parable: the value of being in businesses with attractive returns on capital, and the related importance of getting out of low-return businesses.
This was a key decision for Berkshire and makes a more general point. A critical part of capital allocation, one that receives less attention than more glamorous activities like acquisitions, is deciding which businesses are no longer deserving of future investment due to low returns. The outsider CEOs were generally ruthless in closing or selling businesses with poor future prospects and concentrating their capital on business units whose returns met their internal targets. As Buffett said when he finally closed Berkshire’s textile business in 1985, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.

Buffett’s pattern of investment at Berkshire has been similar to the pattern of underwriting at his insurance subsidiaries, with long periods of inactivity interspersed with occasional large investments. The top five positions in Berkshire’s portfolio have typically accounted for a remarkable 60–80 percent of total value. This compares with 10–20 percent for the typical mutual fund portfolio. On at least four occasions, Buffett invested over 15 percent of Berkshire’s book value in a single stock, and he once had 40 percent of the Buffett Partnership invested in American Express.

The other distinguishing characteristic of Buffett’s approach to portfolio management is extraordinarily long holding periods. He has held his current top five stock positions (with the exception of IBM, which was purchased in 2011) for over twenty years on average. This compares with an average holding period of less than one year for the typical mutual fund. This translates into an exceptionally low level of investment activity, characterized by Buffett as “inactivity bordering on sloth.”

American oil - bought during Salad Oil scandal
WP - bought during broadcast license change
GEICO - during potential insolvency
Wellfargo - SC recession and real estate crisis
Fmac - Recession
GD - defense industry slump

Buffett never participates in auctions. As David Sokol, the (now former) CEO of MidAmerican Energy and NetJets, told me, “We simply don’t get swept away by the excitement of bidding.”9 Instead, remarkably, Buffett has created a system in which the owners of leading private companies call him. He avoids negotiating valuation, asking interested sellers to contact him and name their price. He promises to give an answer “usually in five minutes or less.”10 This requirement forces potential sellers to move quickly to their lowest acceptable price and ensures that his time is used efficiently.

Buffett does not spend significant time on traditional due diligence and arrives at deals with extraordinary speed, often within a few days of first contact. He never visits operating facilities and rarely meets with management before deciding on an acquisition.

Pre-Paid Legal Services was until recently a publicly traded company that sold legal plans to individuals and businesses. These plans are effectively insurance products—in return for an annual premium, customers are covered for expenses that might arise from a wide range of potential legal activities, including litigation, real estate, trusts, and wills. These plans were invented in the 1970s, and Pre-Paid Legal grew rapidly throughout the 1980s and 1990s. What’s interesting about the company is that after this strong initial growth, its revenues have been virtually flat over the last ten years.

This pattern of rapid growth followed by a sudden and extended flattening in results has historically been a recipe for horrific stock market returns. Over that same period of time, however, Pre-Paid’s stock appreciated fourfold, dramatically outperforming both the market and its industry peers. How did the company achieve these results? Starting in late 1999, its CEO, Harland Stonecipher, realized that his market was maturing and that additional investments in growth were unlikely to have attractive returns. At the urging of his board (which, unusually for a public company, included several large investors), he began a systematic and aggressive program of optimizing free cash flow and systematically returning capital to shareholders through an aggressive stock repurchase program. Over the next twelve years, Stonecipher bought in over 50 percent of shares outstanding, to the sustained applause of his shareholders and the stock market, and in June 2011, agreed to sell his company to a private equity firm for a significant premium.

Probable reasons why WB purchased Exxon?

Since Pre-Paid Legal is a smaller, closely held company, it’s important to look for another example among larger firms. A big one—a really big one—is ExxonMobil, the world’s largest company by market capitalization. Since 1977, Exxon (and later ExxonMobil) has generated a phenomenal 15 percent compound return for its investors, dwarfing both the market and its peers, a truly remarkable record given its size. When we look at how its managers achieved these results, the similarities with the outsider CEOs are striking. A handful of lessons stand out.

Under the leadership of CEO Rex Tillerson and his curmudgeonly predecessor, Lee Raymond, ExxonMobil has exhibited similar discipline, requiring a minimum 20 percent return on all capital projects. During the recent financial crisis, as energy prices fell, Tillerson and his team were criticized by Wall Street analysts for lowering production levels. They simply refused, however, to pump additional oil from projects with insufficient returns, even if it meant lower near-term profits.

In widely varying industries and market conditions, this group independently coalesced around a remarkably similar set of core principles. Fundamentally, Stonecipher, Tillerson, and their fellow outsider CEOs achieved extraordinary relative results by consistently zigging while their peers zagged; and as table 9-1 shows, in their zigging, they followed a virtually identical blueprint: they disdained dividends, made disciplined (occasionally large) acquisitions, used leverage selectively, bought back a lot of stock, minimized taxes, ran decentralized organizations, and focused on cash flow over reported net income.

1. The allocation process should be CEO led, not delegated to finance or business development personnel.2. Start by determining the hurdle rate—the minimum acceptable return for investment projects (one of the most important decisions any CEO makes).Comment: Hurdle rates should be determined in reference to the set of opportunities available to the company, and should generally exceed the blended cost of equity and debt capital (usually in the midteens or higher).3. Calculate returns for all internal and external investment alternatives, and rank them by return and risk (calculations do not need to be perfectly precise). Use conservative assumptions.Comment: Projects with higher risk (such as acquisitions) should require higher returns. Be very wary of the adjective strategic—it is often corporate code for low returns. 4. Calculate the return for stock repurchases. Require that acquisition returns meaningfully exceed this benchmark.Comment: While stock buybacks were a significant source of value creation for these outsider CEOs, they are not a panacea. Repurchases can also destroy value if they are made at exorbitant prices.5. Focus on after-tax returns, and run all transactions by tax counsel.6. Determine acceptable, conservative cash and debt levels, and run the company to stay within them.7. Consider a decentralized organizational model. (What is the ratio of people at corporate headquarters to total employees—how does this compare to your peer group?)8. Retain capital in the business only if you have confidence you can generate returns over time that are above your hurdle rate.9. If you do not have potential high-return investment projects, consider paying a dividend. Be aware, however, that dividend decisions can be hard to reverse and that dividends can be tax inefficient.10. When prices are extremely high, it’s OK to consider selling businesses or stock. It’s also OK to close under-performing business units if they are no longer capable of generating acceptable returns.

Berkshire AM - nice points

Interesting insights from Berkshire's Annual meeting:

Nebraska Furniture Market acquisition - sticks to 10 x PBT multiple rule
Paid 11-12x after tax earnings. Bought 80% of company at $60 million =
100%value. This was a little more than BV. Sales roughly $100 mm about
$7 mm pre-tax earnings; $4.5 mm after tax. German co was trying to buy at
same time.

On investing in brands

Q: See's Candies. Since 1999 profits have apparently stalled. Did
something change about business. Could relatively recent geog
expansion reignite growth.

Boxed choc business has not grown much. Have lost position dramatically
primarily to salted snacks of one sort or another. See's has done far better
than others. Can't do much about increasing size of market. See's has
provided earnings that have been used to buy other businesses. Also opened
Warren's eyes to power of brands. Seeing the possibility of it and what it
might do. Would be surprised if would have ever bought KO if hadn't owned
See's. CM - We're pretty good at ignorance removal and have a lot of
ignorance left.

Bank investing in Panics

Depends on which name you pick. Hurt by spending too early. Bottom was
quite a bit lower in March 90 than September 08. Have never really figured

out how to spend it all at the bottom. Did buy BNSF, which is enormous part
of future. Want to buy big businesses with good management that can grow
over time. CM - Private businesses BRK controls have become bigger and
bigger piece of biz. Wasn't that way going back in time. Expect that to
continue. Being right about stocks shows up in market value and net worth.
For businesses it shows in improved earnings power which is more enduring
but a little harder to see. More in this second phase now. CM - investing
moderate amounts of capital in middle of panic, you can't purchase
significant share. Their own success has resulted in this change.Have
adapted pretty well to changes in circumstances. WB - Bought a fair amount
of Wells over last few years. Most money actually came from buying banks
of lesser quality, which needed a good economy even more to come back.
Felt 100% comfortable buying WFC only 50% comfortable buying others. Ones hit the hardest had the greatest recovery potential.

On intrinsic Value

Differences between intrinsic value calculated in Security Analysis
and now. Also, who do you fear as a competitor.

Graham did not fully define IV. Has come to relate to IV as private biz value.
PV of all cash that will be distributed by that biz between now and judgment
day. Fisher would want to look a lot harder at the qualitative factors in
making that decision. Graham focused on the quantitative aspects. Charlie
pushed WB more to the qualitative side. He was right to do that. Doesn't
really see any competitor to BRK. Private equity and its willingness to lever
up does make them a competitor. Don't see anyone else drying to run biz
that way. CM - BRK business will go a long time. Has enough advantage to
keep going a long time. Most don't. Think will be more like Standard Oil than
ordinary businesses. Keep doing what they're doing, learn from mistakes.
The system is in place. 

R K Damani - Value Investor

The Value Investor

For all his mild mannerisms, the legend of Radhakishan Damani was born in a pitched battle. In 1992, when Harshad Mehta, the Big Bull of the time, was ramping up share prices, Damani kept looking at the astronomical valuations— and shorting.

Mehta bought more, prices rose further, Damani sold more. Someone was going to be killed. When it was revealed that Mehta had been siphoning off funds from the banking system, the market collap .. 

Read more at:
http://economictimes.indiatimes.com/articleshow/32630959.cms?curpg=2&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Retail failures - Buffett

BUFFETT: Yeah, we have a really bad record, starting in 1966. We bought what we thought was a second-rate department store in Baltimore at a third-rate price, but we found out very quickly that we bought a fourth-rate department store at a third-rate price. And we failed at it, and we failed ... 

Read more at: http://www.moneycontrol.com/news/international-markets/cnbc-excl-warren-buffett-charlie-mungerbill-gates_1079816-5.html?utm_source=ref_article

Yeah, quickly. That's true. We failed other times in retailing. Retailing is a tough, tough business, partly because your competitors are always attempting and very frequently successfully attempting to copy anything you do that's working. And so the world keeps moving. It's hard to establish a permanent moat that your competitor can't cross. And you've seen the giants of retail, the Sears, the Montgomery Wards, the Woolworth's, the Grants, the Kresges. I mean, over the years, a lot of giants have been toppled.

Read more at: http://www.moneycontrol.com/news/international-markets/cnbc-excl-warren-buffett-charlie-mungerbill-gates_1079816-5.html?utm_source=ref_article

Its not a given

Retail and circle of competence
Interestingly, Buffett noted that most of his investment misses -- at least those related to straying outside his circle of competence -- have been in retail. Without explicitly saying, he more or less chalked this up to not knowing the businesses.

I take a somewhat different view. Retail and consumer goods companies with solid, enduring brands possess a license to print cash. That's good, except for one thing: The prospect for that license to print cash to stick around is uncertain, and sometimes it disappearsvery quickly. Brands move in and out of fashion and that makes long-term cash generation nearly impossible to estimate.

special mention

There must certainly be a vast Fund of Stupidity in Human Nature, else Men would not be caught as they are, a thousand times over, by the same Snare, and while they yet remember their past Misfortunes, go on to court and encourage the Causes to which they were owing, and which will again produce them.


(While) the actual private object of most skilled investors today . . . is a battle of wits to anticipate the basis of conventional valuation a few months hence . . . the social object of investment should be to defeat the dark forces of time and ignorance which envelop our future.

a. Our investments will be chosen on the basis of value, not popularity.
b. Our investments will attempt to reduce the risk of permanent capital loss (not short-term quotation loss) to a minimum.
c. My wife, children and I will have virtually our entire net worth in the partnership.

The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment today is ‘to beat the gun,’ as the Americans so well express it, to outwit the crowd, to pass the bad, or depreciating, half-crown to the
other fellow.This battle of wits to anticipate the basis of conventional valuation a few months hence . . . does not even require gulls amongst the public to feed the maws of the professional; it can be played by the professionals amongst themselves. Nor is it necessary that anyone should keep his simple faith in the conventional basis of valuation having any genuine long-term

He need pay attention to it and act upon it only to the extent
that it suits his book, and no more. Thus the investor who permits
himself to be stampeded or unduly worried by unjustified
market declines in his holdings is perversely transforming his
basic advantage into a basic disadvantage . . . price fluctuations
have only one significant meaning for the true investor. They
provide him with an opportunity to buy wisely when prices fall
sharply and to sell wisely when they advance a great deal. At
other times he will do better if he forgets about the stock market
and pays attention to his dividend returns and to the operating
results of his companies.

Meeting with Prof. Mankekar - Outstanding Value Investor

- Graham Style of Investing with a twist
- Needs to know the eco system around a company really well
- Had cash as high as 95% in 2000 and 2008
- Stop loss at 40%
- Portfolio approach to distress investing
- Significant interest in pharma

More Buffett

he engineered the tax-free sale of 17÷ of his interest in Coca-Cola, at the outlandish price of 167 times Coke's 1998 earnings. Last, but not least, it is the first book to fully integrate Buffett's investment methods with the powerful investment research tools that the Internet now offers to individual investors.

This means that if stock prices are falling, many mutual funds jump on the bandwagon and start selling just
because everyone else is. Like we said, Warren thinks this is madness. On the other hand, it's the kind of
madness that creates the best opportunities.

The most common cause of low stock prices is pessimism— sometimes widespread, sometimes specific to a company or industry…. We [Berkshire Hathaway] like pessimism because of the stock prices it produces." Pessimism, not optimism, is the fountain that produced all of Warren's fantastic wealth.

Life

A clever man must arrange his interests in order and carry out each of them in its proper place. Our greed often disturbs this, and makes us run after so many things at the same time that we miss out on the most prestigious ones because we have too great a desire for those of least importance.

Leaps

It occurred to me that by selling puts on stronger, well-endowed firms whose
intermediate- and long-term prospects are above average, it might be possible to achieve
high returns without incurring undue risk.