MichaelBurry2000 Final

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To: James Clarke who wrote (9731) 1/25/2000 3:19:00 PM

From: Michael Burry Read Replies (2) 9733

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Jim, Glad to see it working for you. Me, look at what I just did today (because it would seem that I have lost the 'net net' faith, though I don't believe so): Sold Disney, PECO. Bought Washington Mutual, Ross Stores, Ethan Allen, more Clayton Homes, more Tricon Global. Two days ago, I bought Philip Morris. I feel like a kid in a candy store. There are quite a few values in the market, IMO, and I don't feel the need to play net nets. The stuff I'm buying passes EVA muster at the same time it passes various other value criteria IMO. This of course raises the question whether I would ever play net nets at a true market bottom. My strategy with net nets is the opposite of what Tweedy Browne found (they having found that it was the money-losing crappy businesses that were the money makers for net net investors). Rather, since I am not playing the tried-and-true diversified approach to net nets, I'm only buying net nets when I see "corroborating value" in the story/cash flow/earnings/potential/insider activity/whatever. EBSC I own now, but for different reasons than you might think. After buying, I realized it is not really a net net when you consider the operating leases. There is corroborating value though, so I held. With LKI, an updated 10Q revealed it wasn't a net net, and I couldn't find corroborating value, so I sold. With General Cigar, I was up to my ears in corroborating value no matter what the inventory really was worth.

To: cfimx who wrote (9747) 1/26/2000 10:51:00 AM


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I think the you hit it twister. When looking at net nets as individual picks in a concentrated portfolio in a frothy market, we're not following Graham's method very well anyway. So I insist on extra corroborating value analysis/evidence to help me when I add my one or two or three net nets to a portfolio. Tweedy Browne has done some proprietary research on this which which is mentioned here and there in various investing texts. Their feeling is that the net nets that actually did well when purchased as part of a broad diversified portfolio of them were the ones that had horribly negative earnings rather than positive earnings, and that had business models that didn't seem viable. This makes sense, because net net is

really a proxy for a form of liquidating value, and becomes least relevant in an operating company that is expected to continue to run forever. Nevertheless, Jim and I and others here have had success picking up operating companies with decent futures and decent stories at less than 2/3 net net. Hence, inevitably we will each just have to reach our own conclusions given the available personal anecdote and evidence.

To: Paul Senior who wrote (9751) 1/26/2000 4:13:00 PM

From: Michael Burry 9754 of 38844

If one does subtract out operating lease burden, then retailers become doubly suspect as net nets - their inventories are already as suspect



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Pre-Paid Legal (short at 24 3/4) I've gone through before (I shorted it from $37ish down to 24ish last year). Cash flow continues to lag far behind reported net income, membership retention stinks, and the CEO is engaging in borderline stock promotion while he steadily sells. Many in the investor community misunderstand this stock. Bought Sara Lee, now trading at an EV/EBITDA of just over 8, and with return on capital greater than 25%. Management's initiatives to maximize return on capital and follow an EVA-type strategy over the last few years have been successful, and the company has been buying back stock with its tremendous cash flow. Its debt is rated AA-. Solid, defensive stock in an industry given no respect by the market. Bought Hasbro in addition to my Mattel. Hasbro is another one with an EV/EBITDA just over 8. Tremendous brand equity and a good future strategy, IMO, with its games.com. On the Buffettology thread early last year I made a strenuous argument against Mattel and pointed out Hasbro's better record of return on investment. Well now they're both so cheap I'm in both of them. Sold Philip Morris (MO) as it makes new lows.



And so after I added to YUM yesterday, I doubled up in SNH. I agree. The

price has gotten stupid, even if it does consistently make new lows. Worst-case my yield will be 10%. Middle case 20%. Best case with capital gains just tremendous.

To: Marc Fortier who wrote (10055) 2/24/2000 5:01:00 PM


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Hard to swallow? Yes. These are repeated gut checks for any value investor. I've been using Enterprise Value/EBITDA with a maximum of 6 as one of my criteria. Wow. When you hold one of these at 6 and then see the ratio fall to 3, it is indeed hard to swallow. Especially when, like me, you usually don't take new lows lightly but this time prided yourself on the fundamental value. But you don't have to buy a high-flyer. That's just a lack of discipline. May I suggest that any regular here, if ever tempted, try to justify buying a high-flyer here first before buying? Without discipline, long-term, you might as well just buy a mutual fund or hire a money manager. Because 99% of people are undisciplined investors, and 100% of them will be part of the 99.9% of investors that fail to achieve superior long-term gains. There's just no point. Myself, I'm starting to see a lot of Buffett-like stocks laying around. This is a change from when I had to buy a lot of cigar butts, cyclicals, and decent-companies-at-a-discount the last few years. This is a switch from my version of Graham-like investing to my version of Buffett-like investing. I sold Crane and bought Liz Claiborne. That's my first switcharoo. Looking to make more in the coming weeks and months. BTW, sold Mattel today; I was suspicious and started looking for an exit when the numbers came out. Now S&P's debt downgrade nicely summarized my suspicions. I'm outta there. This is a good example of a free S&P debt report detailing the magnitude of the troubles better than any retail stock report. http://biz.yahoo.com/rf/000224/5p.html

Fast food stocks on the whole are down, and I can't figure out a justification for such beatings. Seems like most are steady growers. Heck, even MCD is starting to look good again. Jack in the Box and YUM are trading at EV/EBITDA ratios under 4 while their businesses are on firm growth tracks. I own a whole lot of YUM personally. In some other accounts I had forgotten to buy it, and I took advantage of the recent dive to add it.

To: Freedom Fighter who wrote (10140)

3/7/2000 4:06:00 PM


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Like Wayne and Jim, I've felt tinges of the insanity this market's dissociative characteristics can bring to bear on the typical value investor. Absolutely outrageous comparisons. Infuriating. And unlike Wayne and Jim, I've been plain stupid with some of my trading. The insanity has driven me from mumblings to my wife in the car and in bed to actual point-and-click trades that I would never have done had I had a brain. But then, PG is now only becoming fairly priced. Same really goes for PEP. I mean, if we are expecting 1970's Washington Post-type or 1986 Coke-type Buffett bargains, these things need to be halved again. The S&P Index buying drove many of these "buy what you know" stocks way too high, and it will the S&P Index selling that will drive them way too low. I think some patience is still in order. I'm not buying them yet. Same goes for the drugs - another big S&P500 component that is only now getting fairly priced after 50% haircuts. Hey, if we get thousands of swings and thousands of "take-backs" then so-called "start-up positions" in some of these might be warranted. But these aren't the home run balls. These are not chest-high 80 mph fastballs.

To: Jurgis Bekepuris who wrote (10356) 4/16/2000 3:32:00 PM


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Jurgis, your position is clarified, and I agree. When the market really falls, I go for quality. As the non-tech market has fallen sharply over the last 6 mos, I've already been doing that, slowly phasing out of my Graham mode and into my Buffett mode. Last night, I finished compiling a list of techs that I would like to own. I see one, Symantec, that is interesting to me at current prices, and then only because I know it pretty well from legal inside info. The pharms are not near where I would buy yet. TSG I am buying Monday. I was trying to buy it below 34 Friday but never could. DNB I own. RAL I just don't "get" yet. But on the whole Jurgis, I'm with you. I don't believe you're on the wrong thread. Mike

I think tech has a long way to go until I'm interested. Let's keep an open mind though. The question is how long will techs take to get there? I think they have a long way to go in terms of distance, but the travel time

is an open question. We're at the gates of hell for many people. Some have the luxury to ponder what to do Monday. Many will be sold out by their brokers to meet margin calls . And if even a fraction of mutual fund holders call in for withdrawals, it will a nightmare (although I'll admit to a very gleeful feeling when I see the market crash so bloodily). So I've compiled my wish list.

To: Jurgis Bekepuris who wrote (10356) 4/20/2000 1:32:00 AM


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Today, I did buy Symantec as my first pure tech holding since Oracle andApple . Only in one of my portfolios, in which the owner wants to be more aggressive. But I did buy it. The reason I am attracted to it is that they are not only a growing tech company at a reasonable multiple well below their 5-year sustainable growth rate, but like my Apple and Oracle picks last year, they are not being recognized for two big things: 1)Many still think of Norton Utilities and its second-banana Antivirus product. It has expanded into much more than that, and dominantly. There is much growth left and it is not Y2K or PC dependent. It doesn't seem that this is priced into the stock, for whatever reason. 2)Cost controls at the company are excellent. The company is just about the only tech player in Silicon Valley who does not think money is water to be thrown on every fire. Very little excess. The company works from a tight working capital base, keeping minimal inventories and tight credit with customers. After I bought, the company beat estimates by 10 cents. I was hoping it would fall lower so I could get a chance to add it in some other portfolios, but it does not look like that will happen. Here's hoping for another Nasdaq crash.

To: Wallace Rivers who wrote (10381) 4/20/2000 1:22:00 AM


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Re: ANF, I've watched it fall since it hit 40. Around 20, I thought really hard. Went to a store. Turned around and walked out immediately. Too trendy. And therein is the key to its high ROE/ROA. It has been "in" fashion. The problem with all these chains is that they can fall out of fashion. ANF is a century-old name that decided to get trendy in 94-95. It has worked. But the problem is the survivability of the trend and concept. So I discount the ROE/ROA numbers very severely. Especially when I think how hard those numbers will get hit in a recession. That said, I think the company is no Merry Go Round. It produces cash at or above earnings each quarter. The clothes are attractive, and if I could afford

them I'd like to own some. Management has really thumbed its nose at WallStreet , which I like. They appeared to be very focused on the long-term, and are terse with the Street out of spite for the Street's short-term focus. But then this last fall they go and have an illegal private analysts' meeting that basically blows any proof of this theory out of the water (along with the stock price). That all said, I am buying ANF. Not in the portfolio I run so visibly on my web site - yet. But in several other portfolios. In the 11-12 range, I feel there is a bottom. My interest perked when the stock jumped on two downgrades. Finally, the downgrades came. My wife was the one who alerted me: "You always say wait for the downgrades. Well, they came." The company is miniscule relative to something like the Gap and has much room to grow in terms of store numbers. It also may benefit from Gap's fashion missteps for all I know. For now, the earnings yield just seems to great to pass up. Especially with a growing coupon.

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To: cwillyg who wrote (10398) 4/20/2000 5:20:00 PM


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Chilly, Welcome to the thread. I didn't buy EBSC for its growth. It may grow 10%, but not consistently, and not using its capital efficiently. In fact, investors have reacted negatively any time the company does something that indicates it will continue as a going concern, much less grow. There were investors who bought a big chunk. The company is clearly undervalued, but it is not a good company in terms of management or use of assets. As you know, there has been some theorizing that there will be shareholder maneuver to get the company to create more value for its shareholders. A Barron's article helped that out. The fact that it was a net net helped give this argument some bite here on the Value Investing thread. So I and others here bought. I brought up the issue of the huge operating lease liability. How it made it not a net net - possibly a problem for all net net retailers. There was some debate about this. To me, after some thought, I figured that this issue destroyed my reason for owning the stock. Others argued that EBSC's operating leases might be considered assets, for all we know, and hence should be held as a wash.

Of course, I still find that hard to swallow, so I say, well maybe I really should ignore the operating lease liability, but at any rate I thought "this is a growing, cash-generating company trading at around net net value." So I held onto it. To me, it was a poor decision. I confused the "net net with a catalyst" strategy with a "cash flow/growth" strategy and ended up violating a rule I try to remember: to get out when the reason I bought becomes or is realized to be no longer valid. Today, I switched my EBSC out at a small loss - even though I agree it does appear very undervalued. Used the very same cash to buy ANF at 11 1/8 - the same price Jim got, it turns out. I might have continued to hold, but I really wanted to buy ANF after it fell today, and one of my retail/apparel stocks had to go. LIZ ain't going anywhere. Same with Ross Stores. I'd rather have the better business. Mike

Scott, my global strategy is not changing. I try to buy near support and sell when support is broken (i.e. new lows), so that lends itself to high turnover, which I defended in an article on my site. Recently I ventured a buy of INCY at 69 and the next day or so it was 82. I sold it figuring there were other values, or I would buy INCY back. It fell to 73 where I bought again.When it hit 66 I bought some more. Now I intend to hold it. That is one volatile stock, and it is hard not to take money off the table when given to you, since chances are if it is given quickly it will be taken back quickly. It is hard to shake the "I should be holding on like a good value investor" mentality though. After buying at 73 it shot to 90 in a few days and I held on for this very reason. Now it's at 71. Fossil was a fundamental decision - my reason for buying was muddied by their latest report, which I had trouble reconciling. Abercrombie broke what nascent support it had developed. So when it went under 10 I was out. We'll see where it stops. My strategy is simply not to wed myself to a stock, and to always be

open to new information. This is an art, independent of steadfast rules other than my own, and contributes to high turnover. It doensn't change the type of fundamental analysis I do before buying. Re: INCY's business model, there is a salon article under my INCY description at VSN that details it very well. It's an interview with the CEO. There is just tremendous misunderstanding here. I don't see the NIH deal as anything close to INCY giving away the farm. The database subscriptions are not going to be big money makers. They provide some steady cash flow - enough to keep the company actually cash flow positive last quarter despite negative GAAP income. Management has shown itself to be pretty savvy in both finances and operations, and that salon interview really clarifies a lot of points.

To: jeffbas who wrote (10780) 6/27/2000 1:47:00 AM


As you know, I have a simple philosophy: sell on new lows. There are two reasons for this: 1) Many people do this. It's a self-fulfilling prophecy. I try to do it quicker. 2) If I know something is a fundamental value and it breaks to new lows, the selling is irrational by definition and I don't want to be in the way of irrational selling. Better to wait for the buyers to show where they are willing to step up and give support. I suffered for several years trying to be stubborn in the face of irrational selling and all it got me was a lot of 50% haircuts on stocks that had already been too cheap. One of the biggest lessons I've learned was that PE 8 stocks can become PE 4 stocks and stay that way for a long time. AT&T's long-distance business is getting close to trading for 1X EBITDA, yet everyone looks at it like this big albatross around T's neck. Maybe in the future I'll get the long-distance biz for free. All we need is another $15

billion in lost market cap .



To: Grommit who wrote (10925) 7/11/2000 10:26:04 AM


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Congrats on the ANF. I would like to bring to this thread's attention that GATX is announcing it will sell its Terminals division. In my web site analysis justifying my buy, I had said, "There are a lot of assets ripe for shedding (as indicated by the $115 million being paid for just two of its tens of terminals) as well as potential for high returns in certain operating segments (especially Capital). This company needs capital allocation expertise, and if it didn't have it before, it has it in spades now." I was referring to Buffett jumping two-feet-first on board. Terminals includes many terminals owned outright -at least 15 in the US - and several significant statkes in international ones that bring its total to at least 34 terminals. They also own 4 pipelines, and they own, not lease, the significant amount of land related to all this. Now it's for sale. The question is what is left? We'll have to see what all this goes for, but

this could drastically reshape the balance sheet and place a load of capital in the hands of the master allocator. There's even a vehicle already existing within the company, Capital, that is growing at least 15 years and has interests in telecommunications. GATX Rail and the steamship company are both still there too.

To: cpabobp who wrote (10986) 7/22/2000 10:53:55 AM


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why "in a period that profits and revenue are growing and strong, why can they not generate enough cash to provide positive cash from operations for a single quarter?" Bob, you hit on the primary reason I'm not in the home builders. Looking at the cash flows of the few companies I was intereste in led me to the same question. It wasn't always negative, but it was never big enough for me to think it would not become so significantly negative during a downturn as to wipe out the small positive during the boom time. Net zero or net negative over the cycle. I thought there might be a dynamic that I did not understand. And could not understand. How comfortable for me to know that DHOM's CFO is in the same boat. The way some of these companies purchase

inflated real estate during the boom times, I guess I shouldn't be surprised. Good investing, Mike

To: Jurgis Bekepuris who wrote (11090) 8/21/2000 4:34:57 PM


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To answer whether this is a good business (and not just apparently cheap based on traditional superficial measures) I coincidentally just did a new return on capital calc on WCOM today, based on its latest results. Largely, I go by Stern and Stewart's version when doing this. In terms of earning cost of capital, Worldcom is doing a poor job. In fact, it is not earning its cost of capital. After accounting for past pooling acquisitions, and breaking down Worldcom's cash flows, I figure the company is going to earn, optimistically, $8 billion in cash earnings on invested cash thus far somewhat above $90 billion. Even looking ahead and taking analysts estimates into consideration, I'm seeing at best a 10% return here and hence WCOM is not earning whatever its cost of capital may be - I'm estimating at least 12%. Right now, it trades above its capital even though it is not earning the cost of its capital. Not good. This may change as WCOM finds a way to leverage its investment into further profits down the road. The latest quarterly report provides a hint of this. But it has said it will have

massivecapital expenditures in the future - and current cash levels imply additional borrowings to do it. All this will dilute returns further. I think with T and WCOM, we'd have to find a way to analyze the current levels of investment and somehow come to a conclusion that future earnings will grow quite significantly off this base alone. One wonders what degree of empire building is going on - what is motivating management? Right now, T seems to have the greatest potential because of its cable assets, but it is potential. Management has to execute. Plans to spin off or merge with BT tell me that management is responding to the wrong inputs right now. Ebbers' Sprint plan told me he is responding to the wrong inputs as well.

To: Freedom Fighter who wrote (11096)

9/6/2000 11:36:34 AM


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Following up on my examination of Worldcom, I concluded that Worldcom would have to start showing it didn't need more acquisitions. Its acquisitions to date seem to have been borne of empire-building rather than shareholder reward. And the market is knocking it down drastically on news of its latest acquisition. Certainly it appears that the "story" phase for the stock is over, and the proving time has begun. But Worldcom is still trying to finish the story. I'm still staying away. Mike

To: David who wrote (11117) 9/5/2000 9:45:31 PM


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I also grabbed some SPOR today. At 3 1/4, a no-brainer. Interesting price action. I changed my bid 3 times, and the bid changed to reflect it each time. Certainly don't buy it at market. You held CCN? Bongo for you! That was a good buy, and a timely exit. Congrats. I range-traded that and gave up. Looked like a good move for about a year. Good investing, Mike



To: Allen Furlan who wrote (11159) 9/13/2000 11:02:35 PM

From: Grommit Read Replies (1)

Paul recommended MTW to be privately and I found it quite a nice find. Quite the value. in technovalueland land -- NSM, KEM & KLIC have been my heart-throbs lately. http://partners.nytimes.com/2000/09/11/technology/11CHIP.html

http://www.electronicsweekly.co.uk/issue/articleview.asp?vpath=/articles/2000/09/06/special01.htm&mode=archive But I am predominantly in pure valueland. FBN, SPR, WBB, NWPX, USFC, MAIR, WNC, CTB, ROST, ABS, AMES, JNY, JBX, APPB, ..... Recently sold EBSC, ANF, AEOS, CLE I feel like I'm writing to myself sometimes on this thread, so why bother.





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I think we're learning something about Gap and fashion in retail. Basically, it's all fashion-driven. In a post earlier on this board, I brought up that from my store visits, Gap didn't seem any less exposed to fashion risk than anyone else in the industry. Now ANF and AEOS are rallying because experts are saying they had the right fashion mix for this fall. BUT I would still say that this just cements the fashion fate even more so. A while ago, we were talking about ANF being the next GAP. Well, let's hope not. BTW, I've completed a review of Buffett's holdings, and doesn't appear that he has any GAP. Not the last few years.

BTW BTW, Buffett has UST and Edison International. California is going medieval on its utilities. I was lucky to grab UST at prices around where Buffett must have bought. We may get a chance to do so with Edison International. Contrary to popular press, these are the only two that he likely bought last quarter. Good investing, Mike



To: Freedom Fighter who wrote (2618) 7/20/2000 3:39:59 PM


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Soon after I posted that, I picked up some. The industry is ripe for consolidation, and Horace Mann's ratio issues appear temporary - a confluence of unfortunate events. I think management can turn it around. But it may be bought before then. The ratio even in bad times is still well into profitability. I also picked up Carnival Cruise Lines. I've wrestled with this one. All the bad news. And the obvious fact that there's more to come. But I think this is a good place to start a position. Favorable demographics, much like my RV pick, National RV. Except much, much, much bigger. And one absolutely knows this business will come back. Mike



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The thing about Buffett and ServiceMaster is that it IS a different company now. It was a partnership when he was known to have liked it and owned it. Now it is a corporation. No doubt so that the company could better fund its acquisitions. But taxes take a much bigger bite and have severely affected the resulting cash flows. The issue now is, now that they have acquired their way into being a bigger company, can we get some organic growth please? Without additional capital requirements? So I don't think it is near the company it was when Buffett liked it. BUT I do like the business economics pre-tax, and would like to invest in them again at some point. To understand it, though, requires more than a quick once-over, because once-over it is not too attractive. Horace Mann was almost bought/sold less than a year ago for more than

twice the current price . It's a steal. Just how low can it go? I'm watching it carefully right now. Mike



Re: Gap, we all know Buffett liked it enough to buy some. It definitely has been in a sweet spot, extended temporally by its addition of economic tiers. But what I wonder is why everyone says it's 4-tiered structure appeals to all ages. I definitely see it appealing to nearly all income levels. But not all ages. My wife is a Banana freak, and she will often visit Gap because they are usually in proximity. And of all the hundreds of times I've been in these stores (trying desperately to think of something interesting to avoid developing a frown), I definitely do not notice a geriatric population. And in the case of Gap, the clothes are nearly as unappealing as those of Abercrombie. I don't think it is a crazy stretch to say Abercrombie could be the next Gap, because I think Gap is as much a beneficiary of a trend as Abercrombie - and it is primarily the kids-to-young adults crowd. But I also would double or triple discount my DCFs if somehow it had become stuck in my mind that something was "the next" big thing. One of the oldest rules in the investor's handbook - there is NEVER a "next" big thing. Gap is like any retail organization. The gravy train has passed, and it will not give and give to investors for decades to come. What growth has not yet been realized has been fully discounted. So that's where ANF's advantage lies. If it can become half the next Gap and grow 4 times in size, we've got a winner. Mike

To: Madharry who wrote (2557) 6/22/2000 1:38:00 PM


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A couple of my "Buffett" tech plays: Today I added to AT & T. What MCI Worldcom is willing to do to have the Sprint deal go through is ridiculous, and only benefits AT&T. I've said from the beginning that the danger is not whether or not the deal goes through, but how much MCI is willing to shed - and it appears they're willing to give the store away to get the deal done. Is it pride? I'm not sure, but it only benefits AT&T in the long-distance area. I find AT&T's assets to be worth more than twice the current stock price, and it is probable one of the few guaranteed long-term winners in the creep of broadband into our daily lives. At today's price, you're getting the long distance business, which contrary to popular belief still has a big moat around it, for about the $18 billion it generates in EBITDA every year. A recent CSFB report after their analyst had dinner with T's CEO and CFO clarifies how the rest of AWE will be spun off and makes the value even more clear. Not surprisingly,

CSFB now has a sum of assets target of $85, which approximates mine. So I stand by my original analysis over on VSN, and have added to the position. I also added Symantec (SYMC) back to the portfolio today at 57 1/2. That has been a trading vehicle for me the last two trips to the 70's. Maybe I can get myself to hold on the next time it reaches that level. Good investing, Mike



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New stock for this thread: Liqui-Box. This is an illiquid, boring company. Somehow it earns high return on assets and high return on equity in the business of liquid delivery. High insider ownership, and the thing generates cash. Is there a moat here? Buffett has said that if he were smaller, he'd find lots of stuff to buy right now, and last year he said he could do 50%/year if he were managing less than $10 million. Is this the type of company he might be talking about? Due to apparently limited growth prospects, and lack of a "consumer" link, possibly not. But it nevertheless in the past seems to have been growing, albeit slowly, and buying back shares. It revealed itself to me during my April "Target Management" screen on my web site. A day later I saw

Wayne started posting on the LIQB Yahoo message board. If that was due to my screen, I'm very flattered. But regardless we have two of us interested. Wayne has said he has a small position, and I am contemplating it. Also, my most recent screen revealed a whole host of tiny banks

and insurancecompanies . The insurers were mostly specialty insurers or very geographically limited. Still, they are all trading below book value, and some with good stories. It was an interesting screen. I do want to invite anyone with an interest to review it athttp://www.valuestocks.net (go to Screening Lab). If there is someone here with a special talent in insurance/banks and can lend some more detailed analysis of one or more of these, I'd appreciate it. I'll follow up with my thoughts if someone posts theirs first. Good investing, Mike

To: Shane M who wrote (2525) 6/14/2000 10:02:00 PM


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IMO, everyone thinks of their IRA/tax-advantaged accounts as the "sit back and forget about it" accounts. I have harped on this irony for years. Given my type of investing, you'd think it would have hit me like a ton of bricks, and it did. I am an aggressive unapologetic value-based trader in all my non-taxable accounts. Everyone should be. As Jim said, it's a big, exploitable advantage. I think even Buffett more or less said so when he said he could make 50% a year if he was smaller (I am guessing he might agree that most chip shots are of the microcap, and hence ben graham, variety.) In my taxable ones, I'm a bit more apologetic. If it fits one's personality and stock-picking ability, then the advantages are obvious to a buy and hold strategy, though. As you might guess, I don't think that risk necessarily equates with potentially tradable, i.e. "Graham" or "Buffett I" stocks.

To: James Clarke who wrote (2321) 3/13/2000 2:28:00 AM


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What I'm saying is that I'm looking for the price that will return me 15% annually after tax, per Buffett's guidance. Higher is a higher margin of safety. I'm not looking for the price equivalent in 30 year bonds. Any price below that which will return 15% is an extra margin of safety. You're telling me how to calculate intrinsic value (equivalents in instruments of similar risk). I'm just concentrating on what I can expect to earn over time. Remember the intrinsic value is not static and is likely to grow over time, so just knowing the discount from today's intrinsic value does not tell you your expected return. Re: GEICO, "The pace will step up materially in 2000. Indeed, we would happily commit $1 billion annually to marketing if we knew we could handle the business smoothly and if we expected the last dollar spent to produce new business at an attractive cost." He'll spend $350 mill on advertising, and more on additional personnel and support investment. And what he's saying is he'd spend $1 billion if need be. And then he's saying that the auto insurance business is worsening and becoming more competitive, with poorer ratios. I know there is not a parallel with Bezos. Just a vague semblance. Mike

To: Daniel Chisholm who wrote (2349) 3/13/2000 3:18:00 PM


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Daniel, re: picking apart twister's statements, thanks for doing what I was too tired this weekend to do. What you point out exactly explains my read vs. twister's read, mine being right of course <g>. Thanks on the return part too. You're right - if anything this letter provides a fairly strong statement that one ought wait for lower prices if one wants 23.9% returns (if it ever gets that low, who knows). I figured 1500 meant 15% returns. But then he goes and says what he said (and not what twister said he said) and I simply must conclude that in his estimation the 1500 is possibly too high for 15%. Checklist and wait Mike



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My read is that the read is vague. He certainly did not come out and say that at current prices he is willing to buy back shares in the open market. I mean, who is going to call up his broker and offer their shares at less than the market? To me that implies that while we are below intrinsic value in his estimation, we are not "significantly below" it- in his estimation. In the past,his estimations have been fairly accurate. Just remember that he's looking for 15%! 1500 was 15% in my opinion. What this tells me is that I was wrong and that the intrinsic value is actually lower than I thought. Critically speaking, what is with the Jeff Bezos imitation on GEICO? All of a sudden, it's OK to spend all kinds of money on marketing ($1 billion this

year he says) in order to grab market share , even if it means a loss? He then excuses it by saying how Gen Re will offset in all likelihood. But that does really excuse the approach with respect to GEICO? I don't understand it. Every year the report becomes more a marketing tool. Never more than this year. Why buy Buffett's Berkshire when one can buy a portfolio of many of his stocks (Freddie Mac, Gilette, Coke, Amex, Wells Fargo) near yearly lows

and without the capital gains liability embedded in Berkshire. Moreover, one can make an educated guess as to the several of the others he either owns or would buy given the carnage in the market. IMO, now is a good time to start piecing together one's own Berkshire-like equity portfolio Indeed, maybe a good time to buy an insurer and do it with the float <g> Mike

To: David Bogdanoff who wrote (2302) 3/10/2000 11:57:00 AM


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One that he has moved into, and that I've bought, is GATX Corp. Glancing at it won't get you anywhere, and even an analysis won't get you anywhere until you see what Equilon is willing to pay for just two of GATX's terminals. And until you see the strides GATX Capital is making. And until you see that management talks like Buffett disciples. Not sure who lit the fire under these guys, but I can imagine who might keep it burning. The stock is in the dumpster along with the rest of the Dow Transports. Wayne, Re: D&B, take a look at how much Fitch is paying for DCR, a much smaller company than Moody's. The key dynamic is how D&B is working with the Oracles and Siebels of the world to ensure it maintains a leading position in business information as ERP software flourishes. It is difficult for me to assess that dynamic. But I assume Buffett can. Brands are getting murdered once again today. Thanks Dial. I haven't bought in yet. KO getting KO'd.

To: sjemmeri who wrote (2301) 3/10/2000 11:48:00 AM


I just think of it as trying to get the fattest pitch possible, period. If there's one thing I've learned from Buffett, it's that styles can be tweaked for the better. Lord knows I don't generally invest like him. Let me explain something about the "new lows" though. Buffett talks to management. He knows the companies intimately, and he knows the competition intimately before he makes a decision. He is an excellent judge of

character in CEO's. When a factor in the company's success turns south, don't you think that he finds out about it through these contacts? I don't have any of that. I have the 10K. I don't sit on any boards. I can't buy enough shares to influence the board's or the executive decisions. What I do have is the knowledge that when a stock makes new lows, the people that do have that knowledge for some reason have decided not to provide buying support at a place where in the past they have provided solid buying support. To try to emulate Buffett perfectly without his full complement of skills and advantages (which I do not have, but any of you here might for all I know) seems foolhardy. So I take something else from Buffett - the willingness to improvise new investment parameters as fits my situation.



To: hoyasaxa who wrote (2248) 3/7/2000 2:59:00 PM


No doubt. The big pharmas at currently prices are just correcting to fair valuation, though. Most are still in no-man's land technically, and who knows where it will stop. I'll look to fundamentals for that - and I see

loomingMedicare issues with subequent commercial payer issues, increased costs (yes, costs!) due to genomic focus, decreased ability to market effectively due to ethics guidance from hospital departments, overarching power of pharmacy review committees, the lack of a good internet strategy <g>... There's quite a list. None of these pitches are fat enough for me yet (MOHNISH – yells cheap! 3-4 times per year) , and I expect I'll see one that is really, really fat But they are tempting - the last time Merck was at this level in terms of valuation I didn't buy and in retrospect it was a no-brainer. Mike



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How about Equifax? The Yahoo numbers are confusing, but underneath it there's a lot of potential.

I see about 320M in after-tax cash return on invested capital of 1.537B. Excluding goodwill, capital base is 932M. This gives returns of 20.8% and 34.3% respectively. I'm sure that well exceeds their cost of capital. They have a billion in long-term debts, but the interest coverage is >5.

Last year, they bought into Brazil just as the currency fell, undermining a year's worth of earnings - lost to currency translation. This also impacted EFX's equity base, cutting it drastically. This results in sky-high numbers on Yahoo for return on equity as well as debt/equity. Now the stock is trading around 12X after tax cash earnings. The company just announced it was buying a respected direct marketing company. It also continuing a significant share buyback. There is mild support around 20. It can be played like I ususally do - selling at new lows, or from these levels can be held long-term IMO. Disclaimer: I bought a full position at 20 3/4 today. Good investing,



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When I compare the tone of Sara Lee's CEO to the tone of Liz Claiborne's CEO in their respecive interviews posted here, I agree. One makes me say "Eeewwww." The other "Lord, Buffett's found a friend." I am raising a cash kitty so I can be a happy kid in the candy store. So many good businesses cheap, and they've all made new lows! Now I have to hop over the cyclicals and sway to avoid the internet's silver bullett and find my way into my own inevitables - equity-bonds that I can really sink my teeth into and hold on for a good while (sigh, unless of course they make new lows). Fortuitous timing for me for reasons that go beyond my personal portfolio - as you know. Good investing, Mike

This board sorely needs to move on - and that goes for everyone, myself included. Buffett stocks in the traditional sense

are literally littering the floor of the market right now. Coke's at 50 and nobody's mentioning it (although I don't like it, I know some here do) . My Liz Claiborne post went unchallenged. It is truly a time to be buying Buffett-like stocks, IMO. We have the SEC telling Buffett, "No, you're not that influential anymore" and we have the lone bastion of Buffettology on the net distracted or something. Let's get the idea chain going again. Has anyone looked at Intimate Brands as a Buffett-like stock potential? It is hard to imagine their version of ultra-soft skin mag ever going out of style, and they're earning some 40% on capital.

To: Bob Rudd who wrote (2065) 1/1/2000 10:39:00 PM


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What I just don't get is all the fretting over BRK falling, and now the subsequent cheering its <1hr rise. Tells me a lot about the true horizon of people here, as well as others, who are investing in BRK. Isn't the idea to root for lower prices once a great business has been identified? Mike

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