“We try to stick to companies gushing free cashflow. Huge returns on capital, meaning they deploy their capital well.
That avoids some of the value traps from ‘traditional’ value. I think that brings up the point – we don’t really think of value as low price-to-book, low price-to-sales investing. We’re actually valuing businesses based on cashflow, like a private equity investor would.
So if you’re trying to figure out what a company’s worth and buy it for less, at a bigger discount, that will never go out of favor even if value as defined by companies like Morningstar, which is low price-to-book or low price-to-sales investing. That may or may not stay in vogue. It may be out of favor sometimes, in favor, it may not even outperform the market going forward.
That doesn’t mean that much to me because those have been correlations that have worked with more than your fair share of companies that are out of favor. I imagine they’ll come back a some point. We’re actually valuing businesses based on cashflows. That’s what stocks are, ownership shares in businesses.”
Thank you to value investor François Denault for the find.
The interview is hosted by Louis Rukeyser, guests included one of the world’s best investor: John Templeton, Steven Einhorn and William Schreyer. It was taped just after the market crash on Black Monday October 19 1987. That day The Dow Jones index fell exactly 508 points to 1,738.74 (22.61%), it’s largest daily percentage losses in history. You can tell from their display of emotion that this was not a normal week. The show starts at 1:44 min and the host had to reassure the viewers that they “just lost money and not their life”.
I wonder how people would react today to a catastrophic drop this big. Just look at the hysteria when the stock market goes down 2%. I can’t imagine the punch in the stomach of 22% drop.
By the way in 1987 there was no recession at the time and the Dow finished the year in the positive.
It is a windy Tuesday in London and from a Canary Wharf skyscraper, Bruce Flatt, chief executive of Brookfield Asset Management, surveys a corner of his global empire.
Close by is Newfoundland, 62-storeys of homes for rent beside the Thames. In the distance, nestled among City of London towers, is 100 Bishopsgate, a 37-floor office building under construction. To the right, in fashionable Shoreditch, the 50-storey residential Principal Tower is taking shape.
What about the West End, which is studded with cranes? No, nothing there is big enough for Brookfield. “The sites are small and our advantage is scale,” says Mr Flatt.
Sheelah Kolhatkar from The New-Yorker wrote a long-form piece on Paul Singer and Elliot Managment. Like most pieces from the New-Yorker, it’s long and very detailed. Sheelah wrote a great article on one of the most feared and successful investor. Below are some of the notes:
Paul Singer, the head of Elliott Management has developed a uniquely adversarial, and immensely profitable, way of doing business.
Singer grew up in the Bronx and in Teaneck, New Jersey, one of three children of a pharmacist father and a homemaker mother. Paul is now 73 years old. Elliot is his middle name.
Singer is deeply involved in everything Elliott does.
The firm has many kinds of investments, but Singer is best known as an “activist” investor, using his fund’s resources—about $35 billion in AUM—to buy stock in companies in which it detects weaknesses.
Elliott then pressures the company to make changes to its business, with the goal of improving the stock price.
Last week I posted about Lego’s 7,500+ Piece Millennium Falcon set. You can find one for about $1,000. While on the topic of shopping, I just saw a set of Magic: The Gathering cards going for $199,998 on Ebay. I don’t know anything about the game and I’m not qualify to provide any insights on the cards. However, I do know something about investments and this sounds like a lot of money for a bunch of playing cards. I remember seeing people playing in the 90s, who knew that your cards would be worth something one day? I know that rare things could be worth of money over time, but I had no idea that very expensive playing cards were a thing. For the people who bought packs when it was cheap, good for them. I should have bought that instead of hockey cards. My hockey cards are worth as much as the paper it was printed on.
It’s hard to make sense of sound financial advice when you see things like that. If you want a successful retirement, we are told to buy some stocks, some bonds, some gold, keep some GICs and invest in some non-correlated assets. We are constantly reminded about how important a diversify portfolio is.
Or you can forget about all that and buy Magic: The Gathering booster packs.
It’s been a while since I posted anything on Seeking Alpha. I was due. The post is part of my California trip. More posts on the subject will come later. Here’s the part of my trip at that concerns Charlie Munger.
The article is available on Seeking Alpha. They have exclusive rights. Here’s a preview:
Charlie Munger At The 2018 Daily Journal Corporation AGM
Charlie Munger did a two-hour Q&A. He answered questions on a variety of topics.
DJCO is a cult stock. It’s not in an attractive business, but the company has gained a following with Munger as its Chairman.
In 2009, DJCO invested its excess cash in a portfolio of securities that has gained in value. This portfolio of securities and dividend provides a cushion to DJCO.
DJCO is not a mini Berkshire Hathaway.
*I was in LA for the DJCO AGM. If you are reading this article for an advance analysis on DJCO, you won’t really find it. This article is about the AGM and Charlie Munger.
I recently attended the annual shareholder meeting of Daily Journal Corp. (DJCO) in Los Angeles. I am not a shareholder in DJCO, and I don’t plan to be one anytime soon. But I wouldn’t overlook the company either. I will explain later. So, why attend? The main reason for attending a DJCO AGM is not for its results or the company itself, but for the opportunity to hear Charlie Munger’s wisdom in his Q&A segment, who is the chairman of DJCO. Also, part of the reason for attending is the DJCO meeting reveals itself as a community gathering of fun, fellowship, and learning. There are dinners, lunches, and social gatherings related to investing. It’s great to see familiar faces and to meet new people. Ideas are generated and exchanged. You learn a lot. Attending these investment events is a way for me to regenerate myself. It’s like adding wood to a fire. It fuels the core of why I do this for a living. I can’t wait to get back to my desk. Value investing is a lone wolf business. You spend a lot of time in your bubble. Sometimes, you can drift, so it’s good to re-center yourself. Like the Berkshire Hathaway (BRK.A) AGM, the DJCO one offers a great experience for any serious investors on a much smaller scale. Continue reading “Charlie Munger At The 2018 Daily Journal Corporation AGM”→
I finished Berkshire Beyond Buffett by Lawrence Cunningham (@CunninghamProf). Prof Cunningham is well known for his work on Berkshire Hathaway (BRK) and Warren Buffett. Prof Cunningham’s books on BRK and Buffett are among the best. He’s been a follower for decades and has direct access to Buffett and its managers. If you want to read this book, I would assume it’s not your first book about Buffett and BRK. There’s ton of material you can read before this one. If you don’t know where to start, here’s a good start: The Essays of Warren Buffett: Lessons for Corporate America.
This book on Buffett/BRK book is different. This is not a Warren Buffett centric book. It’s more like the bio of BRK. And not just a book full of happy stories about BRK.
BRK is structually complex and highly decentralized. Lawrence had access to many people in BRK organization to realized this book with Buffett’s blessing. Despite its popularity, few people understand Berkshire and many assume it cannot survive without Buffett. They are wrong and this book proves them wrong. This is a comprehensive portrait of the corporate culture that unites BRK’s subsidiaries and the traits that ensure the conglomerate’s continued prosperity.
“The special Berkshire culture is deeply ingrained throughout our subsidiaries, and these operations won’t miss a beat when I die” – Warren Buffett
The book also goes on to explain why many companies picked BRK as their home, even when a more lucrative offer was on the table. It goes beyond the dollar amount. For many entrepreneurs, their business is their baby. It’s their life’s work. And it’s very important for them to preserve it.
I’m glad I read this book. I was looking forward for a book like that for a while. One that goes inside and throughout the subsidiaries. Even the smallest ones. Cunningham talked to many family businesses belonging to the Blumkins, Bridges, and Child and several entrepreneurs like at FlightSafety and Justin Boots.
An interesting question why aren’t there many more companies like BRK? Markel is the closest clone that I can think off. BRK has been cloned before, but you don’t seem to hear about their success. The reason is because it goes beyond the corporate structure. It’s about the attitude. Berkshire takes a partnership attitude toward its shareholders whereas most corporations are hierarchies, with shareholders seen to own a residual claim on firm assets, an equity stake after liabilities are covered by assets. BRK is simple, but hard to replicate.
Here are some characteristics among many others:
Decentralized. The managers of the subsidiaries have massive power.
It rarely uses intermediaries — brokers, lenders, advisers, consultants and other staples of today’s corporate bureaucracies.
No strategic plans administrated by an acquisitions department.
Berkshire defined itself as a partnership from the outset: “While our form is corporate, our attitude is partnership.”
While American companies borrow heavily, Berkshire shuns debt as costly and constraining, preferring to rely on itself and to use its own money.
BRK generates abundant earnings and retains 100 percent, having not paid a dividend in more than 50 years.
Berkshire earns some $30 billion annually — all available for reinvestment.
In addition, thanks to its longtime horizon, Berkshire holds many assets acquired decades ago, resulting in deferred taxes now nearing $100 billion.
The principal leverage at Berkshire is insurance float. This refers to funds that arise because Berkshire receives premiums up front but need not pay claims until later, if it all.
Walter Elias Disney’s corporate vision since it was codified back in 1957. Only two years after the company’s first theme park opened, Walt detailed an expansive vision for Disney – one where every segment of the business worked in concert.
I will be attending the Charlie Munger DJCO Meeting in LA on February 14, 2018. I booked the day. I will probably bounce around the meetups and lunch afterward. I will then go to San Francisco for a couple days. I also posted on Reddit here. One of the best part of these meetings are the great people that you meet. If anyone wants to meetup reach out. This approach worked when I went to Omaha.