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Hi folks, people always ask where the PEG comes from and what it means so I made an attempt to derive it from the dividend discount model.  It's a heuristic proof at best, but it does produce results that seem to align with experience.  I was frustrated for many years by my inability to reconcile the PEG ratio with the Gordon Growth Formula, but I came to realize that the formula is invalid for companies growing above the level of inflation for finite periods of time (which of course is the case for most companies of interest).

Hopefully this is helpful to those of you who were as confused as I was.  I think it also lends some theoretical clarity to the comments Buffett has made over the years about the effect of interest rates on the valuations of growth stocks.

Berkshire Hathaway / Re: 2017 letter
« Last post by Spekulatius on Today at 06:21:45 AM »
The biggest risk with BRK is WEB age. I think once WEb passes on the baton, BRK will fundamentally change. Nobody can fill WEB shoes and do the Job the same way he does, or they will do it badly. do BRK will have to change, my guess ist hat headquarter staff will significantly expand. I also think that BRK will have to to beef up their financial controls, the system in placebos probanly ver weak and build on a web of personal relationships and trust that won’t work past WEB departure.
Berkshire Hathaway / Re: 2017 letter
« Last post by Cigarbutt on Today at 06:09:06 AM »
I would respectfully add that concentration in Berkshire does not meet the strict definition of concentration.

-The focus has always included a large consideration for downside protection, whatever scenario, macro or otherwise.
-The downside protection is "naturally" counter-cyclical as it is firmly anchored on true value.
-The insurance/reinsurance side is the most "risky" but Mr Buffett, again this year in his short letter, describes how the non-insurance little correlated businesses act as a buffer against large insurable events. Even a massive event would be, after a relatively painful period, a major plus in the forward-looking insurance competitive landscape.
-The non-insurance businesses are many, varied, do not overly rely on leverage and many in the group, including in the big 5, could be considered, in isolation, as a diversified entity (ie the Marmon Group).

I would even say that holding BRK now is an excellent way to mitigate concentration risk because of Mr. Buffett's unique ability to maintain independent thinking in this homogenized market.

Thinking about what Viking has described, I would say that, when capital preservation becomes a larger issue, there is the potential "risk" that the risk (and reward?) appetite goes down.
To reconcile, Mr. Buffett mentions that you have to sleep well and only need to get a few things right.
Sounds good. :)

Investment Ideas / Re: CVE - Cenovus Energy
« Last post by Spekulatius on Today at 06:05:54 AM »
Worth revisiting now, with the new mangement in Place from Transcanada. Company is delevering (debt is at 2.8x EBITDA down from a 4.2x Peak) and they seem to be cutting cost and overhead quickly. I bought a starter position a few day ago, because I like what I see. I think the  new mangement should make a tremendous difference, the assets were good all along, IMO.
Investment Ideas / Re: GLRE - Greenlight Capital Re
« Last post by Spekulatius on Today at 05:59:14 AM »
Both the underwriting and the investment returns suck, that is why GLRE trades at 0.75x book. Maybe the new mangement fixes the underwriting, but it will some time to play out. The investment side is harder to fix, because I don’t think they can fire the investment manager. :P

It is funny how Einhorn pushes for aggressive capital actions with his stock positions, but here he can buy back a dollar for 75c in his own company and dances around it.
If Einhorn would buy back stock at .75 that would maybe be good for shareholders of GLRE (assuming the thing is worth more than .75) but it would mean less money into his fund to charge 2 and 20 so it's not gonna happen. I would love for someone to ask the question on a call though. The mental pretzel to justify not doing the buyback is gonna be a lot of fun.

Agreed on above and these insurance /hedge fund vehicles seem to resemble more poorly managed high fee closed end funds rather than the BRK Original that they were build after. I would love an activist to put pressure on this.

I hope it is fine to post this on here - if not, please let me know.

I have been working on the buy-side for a few years (investment banking before that), specifically for a large U.S. hedge fund in an event-driven strategy in equities.

At this stage, I am looking to move into a fundamental strategy for the long-term, i.e. concentrated book, longer holding periods of 2-3+ years, and focus on Northern America and or Western Europe. I have been preparing my move including ideas and keen to hear from funds that are hiring.

Thank you
Investment Ideas / Re: ALS.TO - Altius Minerals
« Last post by linealdin on Today at 04:50:27 AM »
The market only recognizes the car zooming down the track, not under the hood developments. Which is fine.

In a bull market, which we are the beginning stages of, the under the hood stuff turns into cash. It’s just a matter of time.

Do you think Altius is going to be in debt forever? Look at the pace of payback. Altius will be free of traditional debt in 2.5 years at the latest. And it could be tomorrow if they decide to cash in a few investments. The investment portfolio dwarfs the traditional debt.

What happens when the debt is gone? The $30 million plus a year they’ve been spending on repayment of principal and interest goes straight into the cash hoard and into increased dividends. Altius becomes an ATM.

Everything else is contingent— there’s no certainty any of the hundreds of thousands of meters being drilled on Altius royalty land hits paydirt—there’s no certainty Altius will be able to find accretive investments for its Fairfax cash—but the debt payoff to cash machine process is inevitable.

After the Chapada deal debt spiked to $103 million on April 30th, 2016. Debt was $79.42 million on January 31st, 2017. Debt was $60 million at the end of 2017. The required term payment on January 31st was $3.25 million. So the debt position was at most C$56.75 million at the end of January.

C$46.25 of debt paid off in only 7 financial quarters. And the Altius board was still unhappy with the pace of repayment. They’ve officially charged Dalton with the task of obliterating the debt.
Investment Ideas / Re: ALS.TO - Altius Minerals
« Last post by Sunrider on Today at 03:49:18 AM »
Linealdin et al

Firstly, L, thanks for the continued news flow. I’ve held for more than five years and I think my cost basis is around $13.3. I didn’t add when I took the major turn down a while ago.

What’s been in mind for a while is the question as to what will actually get the market to recognise the -alleged- value creation that’s been going on under the hood? (Which would also be a guide to the potential returns from here on out.)

People on this board have argued for years that value has been going up every year based on the underlying deals. The only ones that have been able to extract money out of this increase in value has been management. I say ‘alleged’ because is it really value if it can never be sold at the indicated ‘value’ level?

Cheers - C.
Berkshire Hathaway / Re: 2017 letter
« Last post by scorpioncapital on Today at 03:07:25 AM »
Concentration is very risky in the case where you do not control the management and the management has a defect and cannot be displaced. This is the one case I can think of where it is deadly to concentrate. If the management is solid, intelligent, not committed down one wrong road, then giving up control is ok too. Or control the entity yourself - but then you have to watch that you yourself don't turn out to have all the weaknesses of a bad manager.
Berkshire Hathaway / Re: 2017 letter
« Last post by Hielko on Today at 02:36:01 AM »
I would see it from a different perspective. If you are really rich you can take way more risk and afford losing money. What can’t you do with 100 million dollar that you can with one billion? On the other hand, going from 1 million to 100K would be a big blow for almost anyone.
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