tkenyon

Why You Don't Need an Informational Advantage, Just an Emotional One

Tony - great comments - thanks! I will read the SA article today! You are correct that most of the academic tenants of market dynamics and economics are plain wrong since they do start with the belief that market participants act rationally. If the past few years (not to mention the late 90s) hasn't dispelled that notion permanently, I don't know what will. We hear that "markets are driven by fear and greed" constantly. I doubt you could many market participants who would disagree with that. Neither of those emotions are rational precursors to making economic decisions. There, I just disproved the EMT.

Setting the Record Straight on Buffett and Derivatives

This confounds me as well. Surely Kass is is smarter than his statements on Berkshire's "style drift" make him appear. Buffett sold index puts for about $4B if I recall correctly. As long as the indexes in question are at higher levels in 15-20 years (a pretty darn good bet), the puts expire worthless. Meanwhile Buffett gets $4B to play with. Not even in the same universe as the so-called FWMD's. (I'm long BRK)

Buffett: The Impossible Expectations of Stock Performance

mla99, you re right - just because the number looks big relative to today's level means nothing. It's all a matter of whether the Dow can return 9% on average. I am not sure why Buffett emphasized the enormity of the number, as it is an example of "anchoring" , one of the behavioral mistakes he and Charlie try to avoid. Here he seems to be using our natural tendency to anchor to help make his point.

Regarding the puts, he wrote them because he get $4.5B NOW to play with for 15-20 years. I am sure he believes there is almost NO CHANCE of the indexes being lower in 15-20 years, hence he gets $4.5B almost like he found it on the sidewalk. When you consider the return he should be able to generate on those funds over 15-20 years, the chance of any NET loss is nil. If he can earn 6% on that 4.5B, he'll have 12.5B in 17.5 years. Vintage Buffett. He could care less about the non-cash effect on accounting earnings. I wonder who is on the other side of the trade - can you say sucker...

Berkshire's Intrinsic Value: Raw and Uncensored!

Please email me via my website nobadeercapital.com

Berkshire's Intrinsic Value: Raw and Uncensored!

Insurance capital = statutory surplus. This is reported in the SEC filings.

Berkshire's Intrinsic Value: Raw and Uncensored!

It's basically a ddm model or dcf. Similar to the way Alice Schroeder did it, I grew the float at 7% for 4 years and 5% for 6 years, which should be conservative. Then, at year 10, I calculate a perpetuity value and discount it back to the present. I used a perpetual growth rate of 4% and required return of 6.5%, a more typical risk free rate than we have currently. You never actually own the float, but if you have the right to invest that $59B at the risk free rate in perpituity, then that privilege is worth $59B. It is worth more if the float grows and/or the returns are greater than the risk free rate. I hope that helps.