valuemodel

Riding the Rails: Why BNI Was Berkshire's Best Bet - And Vintage Buffett

First, thanks to the author for the analysis, and its focus on the long-term returns in this prosaic workhorse of an industry.

There are many good comments by the readers: it is always good to debate both sides of an issue. I respect Buffett; however, I fall into the camp of the skeptics on this acquisition: the Buffett of the 60s would probably have gone ahead and bought BNI at substantially lower prices a few months ago, in spite of concerns about a depression. He would certainly have been well-acquainted with the company and its management by this point. If I were a reporter, I would have loved to ask him why now? Is he reacting to those like Jim Grant who argue that the economic pendulum must swing as strongly to the right as it has to the left?

For myself, since expectations (a psychological phenomenon) are closely linked to consumption, inflation, etc., I also think about Buffett's charisma, and its potential to "create" events, a kind of self-fulfilling prophecy as it were. A year hence, we may see this as an inflection point in the economy because of the effect of Buffett's statements, especially, “Most important of all, however, it’s an all-in wager on the economic future of the United States.”

On another note, in reference to the news today about GS and Buffett buying tax credits from FNM et al, they might help raise those modest-sounding 12% RORs...

Barron's' 'Miller Time' Completely Misses the Math - and the Mark

This is good analysis, the kind one would wish to see more of at Morningstar or Barron's, and well worth the price! A reminder to all of us not to blindly accept what "prestigious" media may tells us, to do our own research, and to make sure we spend enough time on the science of investing (as well as the art). One (pseudo?)scientific observation: more pictures = less substance.

Textainer Group: Counting on Container Shortages, Slow Ships to China

If you look at the company's most recent 6-K (available on their website), it would have been more accurate (for the company) to state that slightly more than half of the 22% decline was due to fewer container sales; 41% of the 22% decline was due to reduced revenues from the primary business of the company. It raises a little flag to pay attention to numbers, and not just how management talks about business trends.

Jim Rogers on the Next 10 Years

Good comment; as someone who has studied Chinese (as well as a few other languages) I'd like to add:

*Studying Chinese is time-intensive: memorizing characters is difficult, and you'll need to know tens of thousands to read a newspaper. As far as speaking, you need to get the tones right: if you don't, you'll look ridiculous; worse, you risk insulting someone. Achieving meaningful fluency in Chinese is a matter of years. Accordingly, in a world of scarce resources (time), I'd opt to study sciences, math (maybe the only universal language), engineering, etc., and perhaps learn just enough Chinese to get around.

*With all due respect to Jim Rogers, I think he may be excessively bullish with his prognostications of Chinese global dominance, as well as his views on oil. China's growth story will evolve differently than ours: how interesting that at the same time it is modernizing, the demographics (especially aging of the population) are playing out more somberly. How will the savings vs. spending dynamic play out? Vibrant markets need a relatively high proportion of young people. As far as commodities are concerned, it seems entirely reasonable to be bullish about agriculture; however, a case can be made (and is being made by some analysts) that the next oil price spike will be the last, as it will ensure a switch to cheaper energy sources as well as alternative fuel technologies.

*Investing in China for those of us living elsewhere will be "interesting," and certainly no slam-dunk. Did any of us see this coming: "Several of China's online video game stocks suffered big losses Monday after Beijing announced investment restrictions on foreign corporations trying to get in on this lucrative industry." (From today's Investor's Business Daily)

Talk about which country will achieve/lose dominance brings to mind the difficulty of being an alpha dog: there is only one way to go, and it isn't much fun, really, to have to defend one's position all the time.

Thanks for the article.


On Oct 11 09:51 PM New Reader wrote:

> You can take it from a westerner who has been heavily invested in
> Asia ( ex Japan) since 1991-1992, received an M.A. in East Asian
> Studies shortly after Nixon returned from Beijing and is near- fluent
> in spoken Mandarin: English is, and will remain, 'the' premier language
> of commerce and diplomacy. Chinese will be a very important, but
> not the exclusive language of Pacific Rim regional trade.
>
> If your business is concentrated in the Pacific Rim, facility in
> Chinese can smooth communications and may help cement commercial
> relationships. But, once your product or service integrates into
> the broader world markets, English takes top billing. Moreover, just
> because you speak the local language, don't expect to negotiate a
> better deal than your non-Chinese speaking counterparts. Sure, language
> may help secure a few minor concessions , but that skill, without
> more, won't merit an upper hand at the bargaining table.
>
> As for encouraging students to learn Chinese, I say, go to it. But,
> they should study the language for a deeper appreciation of one of
> the world's great civilizations-not employment. Companies hire people
> for business skills like those found in IT or an MBA program. If
> language enters the equation ( generally quite rare ), it is a secondary
> concern. An exception would be hiring a translator. And unless you're
> connected,
> a law degree will price you right out of the China corporate market.
> ( Personal experience on all counts).

What's Plausible for the Fiscal Outlook?

With all due respect to the Concord folks and their nobly-motivated call for fiscal prudence, to talk about raising taxes as the principal means of solving the budget deficit is to frame this problem in a truly limiting way, as well as to accept the status quo. Eliminating our budget deficit is going to take a great deal of resourcefulness and common sense, and more participation on the part of voters when they think elected officials are behaving like idiots. I would also submit that it means challenging the media to be more rigorous in searching for and presenting the facts so that we raise the level of the debate and the chances of a more sensible, enduring solution.

Why don't leaders/economists/cit... look at the U.S. budget deficit from the perspective of personal financial planning? When individuals spend beyond their means and experience cash flow and credit problems, a line item review is conducted to reveal which expenditures are absolutely essential. Here, then, is how our country spent its resources in 2008. Of almost $3 trillion in expenditures, 23% was spent on Medicare and Medicaid, 21% each was spent on Defense and Social Security , 17% on "Other Discretionary," 10% on other mandatory, and 8% on interest. (en.wikipedia.org/wiki/...)

Drilling down into one of the categories, the U.S. spent almost ONE-THIRD of its tax receipts, or $800 billion, on defense and Homeland security. This is certainly not fiscally prudent, and it also may be overkill from another perspective. According to Defense Secretary Robert Gates, "The United States cannot take its current dominance for granted and needs to invest in the programs, platforms, and personnel that will ensure that dominance's persistence. But it is also important to keep some perspective. As much as the U.S. Navy has shrunk since the end of the Cold War, for example, in terms of tonnage, its battle fleet is still larger than the next 13 navies combined -- and 11 of those 13 navies are U.S. allies or partners."

I've picked on defense spending which some here might find ideologically unpalatable, but I ask those to recall that Mr. Gates also served under Bush. My point is more fundamental: we should examine closely the details of all large spending programs and decide where we will sensibly allocate scarce resources. We can't afford not to.

I very much appreciate the comments made about George Bush's imprudence in giving tax cuts we could not really afford. Now we are in a situation where I think we can't afford raising taxes, either. I would be curious to know whether the Concord Coalition has addressed or is considering other more creative or constructive means of deficit reduction.

EXACT Sciences' Key to Future Earnings

Thank you, Mike, for your extensive work on EXAS, a stock I've owned for several years, and a company whose work I strongly believe in.

Friday Outlook: Rage Against the Machine

Re: Asset Allocation

Yes, gold for sure.
The Yuan. (Speaking about the trillions of dollars needed by the U.S., China's USD reserves are currently $2.13 trillion.)
Cash.

As alluded to by Dr. O, asset allocation may be the least of our worries.

Great article (as usual), great links.