Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life, in Reddit Q&A

Hi, I’m Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life. Looking forward to your questions.(self.investing)

submitted 26 days ago by aliceschroederThe Snowball

 

I was fortunate to have spent 10 years getting to know Warren Buffett by spending days and weeks with him. I could ask him anything and you can ask me anything as well. Some of you may want to know why he chose me. In his words, he likes the way I think, he likes the way I write. Spending thousands of hours with Warren was like getting a Ph.D., or maybe more than one. Before writing The Snowball, I was an analyst at several firms on Wall Street, a regulator, a CPA, and now I invest, and serve on corporate boards. From auditor to board member I’ve seen the sausage factory. My motto is: do whatever will teach you the most.

 

[–]omar_torritos 7 points 26 days ago

 

You had mentioned in one of your interviews that you’ve changed how you manage your time as a result of writing your book. Could you explain that a little more? How has it changed?

 

[–]aliceschroederThe Snowball[S] 19 points 26 days ago

 

Sure, there are several things. Warren is a master of time management. He knows how to ease people off the phone without making them feel dismissed. He is great at saying no and I learned a lot about saying no tactfully. That’s an important time management technique. Also, he manages his energy, reading when it’s optimal, talking on the phone when he’s got the right energy for that and so forth. It’s fairly compartmentalized and he does not multitask through his day. That was a useful lesson.

 

[–]HypotheticalTheorist 7 points 25 days ago

 

Hi Alice, before I get started I just wanted to say thanks for doing this.

How Warren would value a company. First let me just start by saying that all value investing works. If you buy a dollar bill for sixty cents over time you will make money. So the search for a single method is to some extent a chimera. Warren’s way is very simple. I have copies of an envelope or two where he did his calculation on the back – literally. If the margin of safety is wide enough, it almost doesn’t matter what method you choose.

Here, you describe what seems to be a quick calculation that Warren uses to contribute to his valuation analysis of companies. Is it too bold of me to ask for further details about what this calculation is? Or if it would be possible for us to see the actual calculation? Thanks again for going out of your way to give such a detailed AMA, I’m a huge fan of your work and appreciate the time you gave to this.

 

[–]aliceschroederThe Snowball[S] 7 points 25 days ago

 

ok this is from memory because i’m traveling, and it’s not by any means a complete way of looking at it but just to illustrate the simplicity, there might be something like this:

net quick $42

inventory $30

earnings $11

$34/share

and that would be it. shooting fish in a barrel stuff.

what he would spend his time on was making sure the quick assets were real, finding any other assets that could be converted to liquid, figuring out how much you could reduce the inventory and increase the turnover, and how much you could increase the earnings (or cash flows).

i was at an event recently and a buy-sider said, the reason we all want a book is that warren tells these parables about his investments, and they’re great and make important points. however, he has never told the complete story of any investment, that’s not his style. and we want the insights that you’d gain from that.

so that is the reason to write a book or give the information in some manner, and it’s also a caution that the back of the envelope is only a small part of the story.

 

 

 

[–]HypotheticalTheorist 3 points 24 days ago

 

Thanks for the response. You’re absolutely right on the point about a book. I can’t think of a single mind in the finance world that wouldn’t be interested in reading a comprehensive example of Buffett’s investment procedure, especially when it’s written by the man himself.

 

 

 

[–]omar_torritos 13 points 26 days ago

 

We have a number of questions from users that can’t make it:

From /u/earthtomonty

In The Snowball, Buffet’s memory seemed to play an incredibly powerful role in his success (perfect memory of textbooks in college; perfect memory of company financial information during investing). Are you aware of any exercised that Buffet did to strengthen and/or maintain that level of memory performance, or was it all raw genetic talent?

From /u/Grammar_nazii

What lessons did you learn from Warren Buffet that affected you to change? In relation to encouraging you to save more or how he invests. Thanks

 

 

[–]aliceschroederThe Snowball[S] 16 points 26 days ago

 

Warren seems to have been born with a near-photographic memory. He exercised it a lot (memorizing the population of all fifty states etc.) I consider it genetic for the most part.

 

 

 

[–]aliceschroederThe Snowball[S] 19 points 26 days ago

 

Lessons that affected me personally regarding investing — the most important was about concentration. Warren believes in concentrating your bets, up to 15-20% of your assets, if you have high conviction. As he puts it, ,why invest in your tenth best idea. So I have a very concentrated portfolio now.

 

 

 

[–]Grammar_nazii 1 point 23 days ago

 

Hey, Thanks for replying!

 

 

 

[–]aliceschroederThe Snowball[S] 12 points 26 days ago

 

i am shocked. no one has asked me yet who will be the next CEO of Berkshire!

 

 

[–]aliceschroederThe Snowball[S] 8 points 26 days ago

 

that was freudian … Greg Able…

 

 

 

[–]omar_torritos 2 points 26 days ago

 

We asked Jeff Matthews a few months ago and he told us that we had to buy his book. So maybe we’ve been jaded

 

 

 

[–]aliceschroederThe Snowball[S] 8 points 26 days ago

 

🙂 Hmmm. I’d be interested to know what Jeff thinks he knows. Okay what I can tell you is that the “name in the envelope” has changed often enough that it would probably surprise you. Warren is determined that it be an insider, yet like most powerful CEOs he doesn’t have anyone with skills similar to his own except perhaps Ted Weschler. It won’t be Ajit except possibly as a very temporary fix while they find someone permanent. Ajit would rather be set on fire and thrown off the roof of Kiewit Plaza. Between Matt Rose, Greg Able, or someone else, the name in the envelop could change very frequently. And I think the job is a no-win situation — imagine working for a board with Howie as chair and people like Bill Gates overseeing you, trying to live up to Warren Buffett’s reputation.

 

 

 

[–]omar_torritos 2 points 26 days ago

 

Given that no one person can run that company do you think BS should be broken up?

I know that it’s not what Warren would want. But is it the best option?

 

 

 

[–]aliceschroederThe Snowball[S] 7 points 26 days ago

 

Glad you asked. Warren has designed it so that Berkshire can’t be broken up as far as I can tell. For example, I am fairly sure that National Indemnity owns the railroad. No way would the insurance regulators let that be unwound.

 

 

 

[–]moumouren 2 points 26 days ago

 

Yeah I can appreciate that. It would be like taking over Steve Jobs role, only worse. I hope he gets lots of support from you guys when the time comes.

 

 

 

[–]Walrus6114 1 point 15 days ago

 

Alice, I am hugely upset I didn’t know this was coming, and I’m not prepared. My questions will have to come later. Godam it, the only AMA I ever wanted to be a part of.

 

 

 

[–]omar_torritos 6 points 26 days ago

 

Not a question but a comment from /u/innerscorecard

Holy shit. I have been waiting for this ever since I finished The Snowball, a book which completely changed my life. Seriously, my life is now completely different and better because of it.

From /u/myjourneytomillions

You don’t need to provide specifics, but did Buffett ever express concern or displeasure with? A story he disagreed with? a portrayal he didn’t like? etc

From /u/pigpotjr

what advice she has for a 16 year old investor like my self? Also please tell her I really enjoyed the book! And What way would she recommend to maybe contact Warren Buffett.Thanks!

from /u/TRKillShot

You’re obviously a very successful woman, who has accomplished much more than most in life. With that being said, everyone has to start from somewhere. What is one piece of advice you would give a teenager who is looking to major in finance/business?

 

 

[–]aliceschroederThe Snowball[S] 14 points 26 days ago

 

Advice for a teenager. It’s tough being a teenager these days, you have a lot of pressure to make life choices very early. My advice would be to do be ruthless about making your choices based on what will teach you the most about something you’re interested in. Also — statistics is not emphasized enough in business schools or high schools but it’s probably the most important element of mathematics you can now and applies to nearly everything in life. So I’d go out of my way to learn it.

 

 

 

[–]aliceschroederThe Snowball[S] 11 points 26 days ago

 

Contacting Warren Buffett. He prefers to be contacted in writing and likes handwritten or typed letters more than email. Write him a letter at Kiewit Plaza. As a side note, a lot of people write him with essentially the following message: Dear Mr. Buffett, you are wonderful, will you please do the following for me (a) hire me (b) give me money (c) speak at my event (d) donate to my charity (e) be my mentor (f) help me get out of prison (g) help me market my invention. He gets thousands of these letters — no kidding! Be original and you’re more likely to get his attention.

 

 

 

[–]aliceschroederThe Snowball[S] 8 points 26 days ago

 

innerscorecard, thank you so much for your kind remarks. The Snowball changed my life too. When my husband read it, he came into my office with tears in his eyes and said, “You think it’s a book about money, but it’s a book about love.” That was really perceptive.

 

 

 

[–]innerscorecard 2 points 23 days ago*

 

That’s exactly what I felt too. I can’t articulate everything I learned from you, but because of the Snowball I now know that small things matter and that decisions in how you live your life, treat people and spend your time add up and make up who you are in the end. It was a total revolution in my way of thinking, and everything has changed because of it.

EDIT: You can obviously also see where my reddit username came from.

 

 

 

[–]aliceschroederThe Snowball[S] 8 points 26 days ago

 

Advice specifically for an investor. As I mentioned in the intro I’ve been inside the sausage factory and know how complex business is in the real world. In that context, a lot of investor opinions display a high level of confidence based on a relatively sparse set of facts. So as you develop your skills its important to be mindful of the risk of overconfidence. This is where the margin of safety and circle of competence have done wonders for Warren. I would look at how he’s applied those in investing and really think through the implications of “don’t lose money.”

 

 

 

[–]aliceschroederThe Snowball[S] 6 points 26 days ago

 

ps guys sorry about some typos, I don’t have Apple here to auto correct for me 🙂

 

 

 

[–]ImissCuil 4 points 26 days ago

 

Do you have any plans to write any more books?

 

 

[–]aliceschroederThe Snowball[S] 9 points 26 days ago

 

As you know I’m not one of the people who has a career as a “Warren Buffett author.” However, there is a lot of demand for an investing book as I’ve been told more than a few times! I have been carefully and slowly moving in that direction. It would not be a tome like Security Analysis. And I’m still on the fence about publishing it as a book versus doing something else. There are a lot of people, a whole lot, who are certain they know everything about how Warren Buffett invests. Disillusioning them may not be the right thing to do. Whatever I end up doing, the goal is to reach an audience that wants to learn more, not upset the applecart of people who make their living from magic formulas and so forth.

 

 

 

[–]omar_torritos 4 points 26 days ago

 

If it would encourage you to do so, I would by an advanced copy of that book right now.

Also, way to call out Joel greenblatt.

 

 

 

[–]aliceschroederThe Snowball[S] 5 points 26 days ago

 

🙂

In fairness to the Joel Greenblatts, value investing works and if they are educating people about that, even using a formula, the world is probably better off as a result. I do think claiming there is one right way is the wrong approach. Warren himself does not use a single method.

 

 

 

[–]slackie911 1 point 24 days ago

 

Can you elaborate on this disillusionment? I’ve read most of these value investing/warren buffett investment books, at some point as I’m sure you know, the methodology becomes so repeated it’s like banging your head against a wall. And as an entrepreneur, I know business just isn’t like that.

So I’m very curious to know your insight about this! Cheers and thanks for doing this (and the candor of your book)

 

 

 

[–]moumouren 6 points 26 days ago*

 

My mind is still blown that you’re actually here. How did omar_torritos get you to come here? Thank you for coming!

Can you tell us a little about how Warren’s methods of investing differ from common financial literature? You gave a speech once mentioning that he hasn’t used a DCF calculation in his life; can you shed some light on that please? I’m not asking for you to reveal any secrets, but can you please give an example of how he would value a company? Was it really as simple as observing a development from the outside and doing some subsequent research, then acting on a ‘feel’ of the value (subjective opinion)? Or was he very detailed and precise in arriving at his numbers?

Having observed Warren for so many years, would you say investing can be easy, for someone who has a few years of financial background? Also, what are your thoughts on the viability of investing for someone with a small sum of capital? I’m well aware that Warren has increased his investments in Washington Post by 10000x; but should I hold the same hope of repeating that feat, or should I be more realistic and give up?

Btw, what are your personal contributions about investing? I understand what it’s like to be overshadowed by someone else and seen as an extension of him rather than as an individual in my own right; so I’d respectfully like to give you your chance to shine. What would you say to the world if you were running your own successful hedge fund? What observations have you made which you’re bursting to talk about, and what methods of yours would you like to share? Who is Alice Schroeder, both as an investor and as a person?

I may not be able to come back in time for your reply so I’d just like to thank you so much for being here! If you don’t mind I’d appreciate a signature 😉

 

 

[–]aliceschroederThe Snowball[S] 22 points 26 days ago

 

My personal contributions. This is an interesting question because I’m so influenced by Warren. Ok here goes.

1) If a stock is cheap enough, often the reasons don’t matter and you should own it because the company will get acquired at a premium to wherever it’s trading. This has happened to me any number of times. For example,Ancestry.com was incredibly cheap because people were always worrying about its growth slowing. Meanwhile the thing was spitting out incredible amounts of cash. Naturally it got bought out. You do have to accept that the price will not reflect full value nearly always in these situations.

2) There are a couple of exceptions. One is broken business model. The other is if the company may need capital (e.g., bankruptcy or rating agency prompted). I avoid situations where the company has a history of raising capital at the wrong time, no matter how attractive the investment.

3) Warren advocates against trading, however, my career as an analyst taught me that you can do very well trading once you understand the investor mindset about a particular stock. I buy and sell a few stocks over and over because people get fixed ideas about companies and then chase and dump the stocks repeatedly. For example (I will pull a Ben Graham here and give you a current stock) USA Mobility is a small cap maker of paging devices that is slowly losing customers. It also owns a communications software business. For years, the market has panicked periodically about the rate of customer loss and the stock tanks. Then, eventually, the stock runs up. I have traded this stock over and over.

4) For whatever reason investors do not listen to what they are told and this creates opportunities. For example, USA Mobility again — couple of years ago, the management stated on a conference call that they were probably going to cut the dividend at some point. No reaction. Then when the actual announcement came a couple of quarters later, people could not dump the stock fast enough. This kind of thing is a bit mystifying to me but I’m glad the market is dumb sometimes.

5) Companies follow routines and when something goes out of pattern be careful. For example when I was at Morgan Stanley following AIG the company used to announce its earnings release date on a certain day of the month every quarter (for example, second Tuesday or something along those lines). One quarter, they didn’t do it. I downgraded the stock as fast as I could. My research director was not too wild about telling our clients the real reason so we made up something about the economy that was truthful, but not the catalyst. Sure enough, that was the quarter AIG blew up its reserves.

I should tell you that I make a lot of mistakes and have some temperamental habits that are not helpful. My worst habit is getting a price stuck in my head and not buying things I should because they don’t hit my bid. I am still kicking myself over Autodesk where I got stubborn over twenty-five cents and missed it completely. This happens to me more than I like admitting.

 

 

 

[–]moumouren 8 points 26 days ago

 

Wow I cannot thank you enough for these responses. You’ve been amazingly open to us compared to most of our guests and I’d just like you to know I really appreciate that. I’m actually bursting with questions to your responses but I’ll hold back a little for now 😉

If you don’t mind I have a just few more questions for you. Firstly, what is your take on the efficiencies of today’s market? For lack of a better way to express this, I’m actually of the opinion that the market is just as dumb as it is smart. Your comments about USA Mobility really echoes how I’ve been feeling, and I suspect you feel the same. Would you say from your own insight, that our market as a pricing mechanism hasn’t adequately matured yet? And there are plenty of inefficiencies to exploit if you look hard enough?

Secondly, what books would you recommend? Both on Buffett and from you. Thirdly, are you going to continue frequenting reddit? It would be nice to be able to chat with you once in awhile.

I don’t think you should beat yourself over Autodesk. I too have had my bad days and this is how I rationalize it. Like they say hindsight is 20/20, and when you look back you’re just looking at the tree of possibilities which already occurred. What we don’t see is that at the point the decision was made, there are many branches under consideration which we don’t take into account when we look back from hindsight, since they are no longer relevant. So the path of the tree we took becomes extremely bright and obvious, when really the outcome could not have been foreseen at the point of the decision. It’s like how Warren puts it, “the rearview mirror is always clearer than the windshield” (don’t quote me on that 😉 Bottom line being there’s no point crying over spilt milk, because the actual reasons the milk was spilt usually isn’t as clear as they seem on hindsight. Hope this helps you if even a tiny little bit.

 

 

 

[–]aliceschroederThe Snowball[S] 11 points 25 days ago

 

Books. Phil Fisher. Buffett says he’s 20% Fisher and 80% Graham — I think there’s a little more Fisher in him than that. Against the Gods: The Remarkable Story of Risk. The Theory of Investment Value (John Burr Williams), Manias, Panics and Crashes (Kindleberger),anything by James Montier.

I also agree with Charlie Munger that reading non-investing books is important. Negotiating Rationally. The Sixth Extinction. The Signal and the Noise. This Town: Two Parties and a Funeral. Switch, How to Change Things When Change is Hard.

 

 

 

[–]moumouren 1 point 24 days ago

 

Thank you! Hope you will continue to hang out with us, we have some great members among our community.

 

 

 

[–]extraperson1988 1 point 26 days ago

 

Your responses have a ton of amazing information and insight. I’ve been upvoting everything you’ve been putting out so far

 

 

 

[–]aliceschroederThe Snowball[S] 15 points 26 days ago

 

How Warren would value a company. First let me just start by saying that all value investing works. If you buy a dollar bill for sixty cents over time you will make money. So the search for a single method is to some extent a chimera. Warren’s way is very simple. I have copies of an envelope or two where he did his calculation on the back – literally. If the margin of safety is wide enough, it almost doesn’t matter what method you choose.

I know you want something more specific. I have to generalize, a lot, but hopefully this is helpful. Essentially it’s a three step process. 1) Is it an addressable investment? He rules out a lot of stuff that has too much tail risk, or he has no edge on the market. For example, thinking you can be smarter at buying Johnson & Johnson than everyone is essentially market timing. Warren rules that out unless he has some insight he is convinced no one else has. He may not always be right but it’s the right approach and works over time. 2) Downside protection. He looks for multiple ways to avoid losing money. If you look at the preferred stock deals he did after the financial crisis, he fenced in these companies and built in so many ways to avoid losing money it was almost funny. He will pass on huge upside opportunities if he can’t get downside protection when its an investment as opposed to a bet such as March Madness deal. 3) Capital generating power. His focus is on how much capital an investment can produce that can be reinvested either within the business or elsewhere. He prefers the easy route (reinvestment) however, ultimately he’s agnostic, money is money and for a dollar he puts out he wants x% back. The x% has declined over the years with Berkshire’s size and falling interest rates.

There are many wrinkles and specifics to how you apply these ideas, it’s difficult to cover in a short form.

 

 

 

[–]aliceschroederThe Snowball[S] 12 points 26 days ago

 

a lotta questions there. some good ones though. Will answer in pieces. First I’m here because Reddit was kind enough to ask me. I have to be selective about how I spend my time (see question below) however, for Reddit, obviously, yes.

 

 

 

[–]aliceschroederThe Snowball[S] 9 points 26 days ago

 

How Warren values a company. Someone could write a book on this subject and in fact, many have. 🙂

For a Q&A format like this, here are some thoughts. Correct, Warren does not use DCF. Implicitly, he does think in terms of compounding, always, so when he comments on DCF as a method of valuation that’s consistent even though he does not do the calculation. Hopefully that resolves this particular mystery.

 

 

 

[–]aliceschroederThe Snowball[S] 7 points 26 days ago

 

Is investing easy? It’s gotten a lot harder because so many people are value investors now. With a small amount of money you can hunt among the nano caps and that market is less efficient. Also, one thing that is clear is that really good investments jump out at you; they’re obvious. I spent tons of time on Wall St doing models of minutia that didn’t matter at all. It’s a few big things that determine whether something will succeed or not. That said, investing requires a really strong stomach. A mispriced bet, to quote Charlie Munger, is normally misplaced because the consensus thinks the company’s got a problem or has reached its limits of scale. So to be successful, you have to be able to understand herd mentality. The battle over Herbalife is a very interesting real world application of this. On valuation, Herbalife is one of the most attractive stocks… holy cow. So the question is do you believe Ackman’s thesis, or do you go by valuation.

 

 

 

[–]omar_torritos 1 point 26 days ago

 

That’s some great insight, thank you!

 

 

 

[–]omar_torritos 5 points 26 days ago

 

Is there something that the popular press get’s wrong about warren that really annoys you?

Do you have a favorite warren investment?

 

 

[–]aliceschroederThe Snowball[S] 12 points 26 days ago

 

Favorite investment. Um, it would be easy to say Coca-Cola or something like that however my favorites are actually the ones that were his most complex operations. They include FMC, Butterick, Dempster, and the creation of Berkshire Hathaway. Not a lot has been written about some of these.

 

 

 

[–]No_thank 1 point 25 days ago

 

I would really love to hear more about those!

 

 

 

[–]aliceschroederThe Snowball[S] 12 points 26 days ago

 

Popular press. Yes, they get a lot wrong. The main thing is that Warren is extremely literal. You need to listen to what he says, and read his words, very carefully. People extrapolate and read things that aren’t there. As just one example, he invited a bear to ask questions at this meeting. Then it was revealed there would be no bear. What got reported was that he “couldn’t find a bear” or “no bear showed up” and the like. That’s not what he said. There would not be a bear, however, it isn’t because nobody volunteered. So you have to be careful not to read more into what he says than is there.

 

 

 

[–]kempton-ideas 1 point 8 days ago

 

Agree re the report of “no bear”. The only tiny piece of info I found was from a report in Omaha.com. Here is a quote from that article, “Doug Kass, from Seabreeze Partners Management in Palm Beach, Fla., was the “bear” at last year’s meeting. He said Wednesday that he showed his investment list at Buffett’s request but that Buffett found only a “de minimus” negative position on Berkshire.” Before the annual meeting, I tweeted Kass to try to find what kind of short position qualified as a “de minimus negative position”. I, of course, got no reply from the man. 🙂 P.S. Thanks Alice for taking time to share your insights on reddit! Thanks to the forum moderator for inviting Alice!

 

 

 

[–]cgl88 2 points 26 days ago

 

If you were to re-release this book and called it the 2014 edition, what additions would you make to it? Lots happened since 2009 (money printing is still going on, HFT, mini-bubbles in tech, biotech, social media). What questions would you ask W.B. in regards to things that happened between those years?

 

 

[–]aliceschroederThe Snowball[S] 11 points 26 days ago

 

You are right, there have been a lot of developments in the business world since 2009. Warren himself has not changed a whole lot and I think most of you could guess his opinions on these things and be right. There were some things he said to me earlier and predictions he made that have come true. I might include that. Also, in private he has been more negative, at least with me, about the economy, money-printing, employment, than he is in public. It may be true that your children and grandchildren will live better than you, but a whole lot can happen on the way to that happy ending many decades from now.

 

 

 

[–]moumouren 4 points 26 days ago

 

Can you tell us some non investing stories of you with Buffett? (or team) Maybe 3 instances where he made you laugh or helped you in a difficult time? We’d like you to help us get to know him as the person, not as the investor. What moments which you’ve shared with him stand out to you?

 

 

[–]aliceschroederThe Snowball[S] 9 points 26 days ago

 

Sure. Dining with Warren is such an experience. Once, we were at a restaurant and Warren ordered a steak. The waiter offered him truffle sauce. The look on his face was priceless. it was as if someone said, would you like some arsenic, Mr. Buffett?

He’s a terrible driver. There’s always something going on in his head and he’s also talking to you, meanwhile the car wanders between lanes and goes through yellow lights. He drives slowly to make sure it won’t cause too much damage if he gets into an accident. I think he is doing less driving these days and being driven more, thank goodness.

Here’s a good one. I bought a house in 2004 and when I told him he was aghast. That’s when I knew we were in a serious housing bubble. Finally he said, well, don’t worry, you’ll be able to sell it in ten years, so just hold on until 2014.

 

 

 

[–]greenlamp90 3 points 26 days ago

 

Alice, thanks so much for doing this, and just wanted to say I’m a big fan. I recently finished Security Analysis and have also read the Intelligent Investor, but I feel like I’m not getting the most out of these books as I should because my ability to read balance sheets and financial statements is very very basic (sorry, I have a liberal arts degree).

Do you have any recommendations (specifically books) that are a good source for learning them in greater detail? Any other recommendations for those of us who are more fundamentals based investors instead of technical/momentum?

 

 

[–]aliceschroederThe Snowball[S] 7 points 25 days ago

 

I like books from business history — anything by Galbraith, Keynes, John Brooks. Mark Twain said history doesn’t repeat but it rhymes and that’s really true. Warren stressed to me over and over how much studying business history has helped him.

I would also recommend Generations: The History of America’s Future by Strauss and Howe. or its follow up, The Fourth Turning.

Apart from books I think you should know what is going on that will affect the future. Not in the sense of forecasting. But for example, I was at a conference and asked a successful entrepreneur, “How do you get ideas to start businesses” since he had started quite a few. His answer … “I look for big companies that have a lot of employees, and I figure out ways to get rid of the employees.”

This sort of thing can take you aback, but it is worth knowing, which is one reason I stay in touch with the tech world.

 

 

 

[–]aliceschroederThe Snowball[S] 6 points 25 days ago

 

also to answer your specific question more directly, you could get the syllabus books for the CFA and read any that would plug gaps in knowledge. And one way or another you should take an accounting course. It’s the language of business, you’ve got to learn it to invest.

 

 

 

[–]moojo 3 points 25 days ago

 

http://www.amazon.com/How-Read-Financial-Report-Wringing/dp/0470405309

 

 

 

[–]greenlamp90 2 points 25 days ago

 

Thanks. Any others you’d recommend too?

 

 

 

[–]moojo 1 point 25 days ago

 

Thanks. Any others you’d recommend too?

If you are starting from scratch. I would say go for

Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports by Thomas R. Ittelson. The language is much more simple.

Once you understand that then move to “how to read financial report” by Tracy

You should be able to read financial statements or else there is no point in direct stock market investing.

 

 

 

[–]NPR_Sherlock_Junkie 7 points 26 days ago

 

Alice, I’m a huge fan (and probably one of your younger ones, too) of both your book and of Warren buffet. I was wondering what the greatest lesson he ever taught you was, investing or otherwise?

 

 

[–]aliceschroederThe Snowball[S] 16 points 26 days ago

 

Hi there, great question — there were so many. The most important lessons he taught me were about people. You should handle your relationships know you don’t really get a do-over in the way you treat people. Warren was exceptional in how he built his friendships. One of his regrets is that he didn’t do the same thing with his kids.

 

 

 

[–]bomby0 1 point 25 days ago

 

Can you elaborate on this and maybe give some examples?

I love The Snowball and it’s the only biography I’ve read twice.

 

 

 

[–]omar_torritos 7 points 26 days ago

 

More questions from other users:

From /u/TheSystem_IsDown

Great book, and really helped me to remember that it’s not about that one $30k win, it’s about finding the things that will compound earnings as early as possible and putting everything into them. Not just with investing, but in all aspects of my businesses and life – find the things that can snowball and don’t worry about the slow start. I wonder how many Omaha shindigs she’s been to with Buffett, and what she thought of her first one.

From /u/rr2999

Why did you have a fallout with warren? Are you guys on good terms now? Does he still drink cherry coke?

 

 

[–]aliceschroederThe Snowball[S] 11 points 26 days ago

 

Cherry coke – yes. I have never seen him drink water. Susie Jr. says likewise. I wouldn’t call it a fallout. He made himself extremely vulnerable when he opened himself up to do this book, without any control over the contents. It was the right decision and he did it because he knew it was the only way to get a credible book. Then, as you would expect, when he read it, the book did not perfectly match the narrative of his own life that he carries in his mind. That was pretty uncomfortable for him. One of his friends wrote me a letter that said, oh my god, you captured him exactly but it was like taking all his clothes off in public. And that’s true. So, I have a lot of empathy, because he made himself vulnerable in a way that I would never do myself. It was courageous of him. The end result is that the book makes him feel uncomfortable. He would rather not think about it. There’s no personal issue between us at all, it’s pretty comfortable actually.

 

 

 

[–]aliceschroederThe Snowball[S] 7 points 26 days ago

 

Omaha shindigs 🙂 I have a feeling you know that Warren’s not that active socially in Omaha. For example, he is not that fond of Ak-Sar-Ben. I have a quote on that which he asked me not to use while he’s alive … He has local friends and tends to see them for dinner, not parties. Most of my local socializing was around the shareholder meeting. Omaha’s a great town.

 

 

 

[–]indigoreality 3 points 26 days ago

 

At what point in your life did life get easier? For example, I know my cousin is currently going through the testing process for his CPA, afterwards he’s expected to continue to work hectic and long hours. He works for E&Y.

It sounds like now you invest and serve on boards. Has life taken a turn for the better and how did you go about achieving this status?

 

 

[–]aliceschroederThe Snowball[S] 15 points 26 days ago

 

Well, I will tell you a little story. When I was 47, I was having a difficult year for a variety of reasons and Warren sat me down and said look, when I was 47 I thought my life was over. Susie had left me, and I had already accomplished everything I thought was worthwhile as an investor. Berkshire, as far as I knew, was at its peak. And to my surprise, my life kept getting more and more interesting since, and most of the really important things I’ve done happened after I was 47 and thought my life was over. The reason, he said, was that he had stored up so many experiences, good and bad, in the first part of his life, and as a form of compounding, their positive consequences unreeled over the next thirty-some-odd years.

So that’s something to ponder.

 

 

 

[–]indigoreality 2 points 26 days ago

 

Compounding “interest” in another sense. 🙂

 

 

 

[–]iLLwiLLGivingThrills 3 points 26 days ago

 

What is your favorite Buffett quote/memory?

 

 

[–]aliceschroederThe Snowball[S] 7 points 26 days ago

 

On who influences him:

“When I get up in the morning I look in the mirror, and at that point, everybody’s had their say.”

 

 

 

[–]rdudejr 2 points 24 days ago

 

Best quote in here!

 

 

 

[–][deleted] 26 days ago

[deleted]

[–]aliceschroederThe Snowball[S] 8 points 26 days ago*

 

It was Bill Gates who said that at the Allen Conference. Although he got the concept from Warren. I believe I actually have a transcript of Warren telling me that story. And, this is funny, when I wrote the ham sandwich comment in the caption of the photo in the book, it was the only one that Bill didn’t like, and he rewrote it. So I am suspecting neither he nor Warren want to own the ham sandwich comment. 🙂

 

 

[–]kempton-ideas 1 point 8 days ago

 

Ham sandwich proposed excessive compensation plan at Coke! Sorry for the bad joke. 🙂 By the way Alice, was Warren trying to “have the cake and eat it too” when he abstained in the Coke vote but publicly (and privately) said the compensation plan is excessive?

 

 

 

[–]dicksonpau 3 points 25 days ago

 

Alice, would you mind telling us a bit more about your current investments? Like how concentrated do you go? Do you do special situations or deep value or quality at a fair price and so on?

 

 

[–]aliceschroederThe Snowball[S] 9 points 25 days ago

 

I have a few cigar butts, I have one very large investment in what you could call a bond surrogate bought at a discount to book value that will compound for years. I will put 15-20% of my investable assets in one investment and right now have two of that size. Also I have a few venture capital investments. It’s obvious that the capital markets grow less efficient further back in the chain, so early stage investing is the most inefficient market. It’s possible to find great businesses, meaning terrific models that generate very high cash flow margins, run by experienced people. I am willing to take execution risk with successful serial entrepreneurs in a diversified portfolio. Please understand I don’t invest in companies that make apps or in social media. I like b-to-b hardcore businesses that take big costs out of somebody’s value chain. Also I prefer companies that can cash-flow themselves quickly so they do not rely on venture capital. What’s going on in consumer tech is insane and I would not touch it. Congrats to the founders of What’sApp but you know a blowup is coming from that deal.

 

 

 

[–]dicksonpau 2 points 25 days ago

 

Okay I have two follow-up questions here.

Actually would you mind explaining just a bit more on “bond surrogate”?

As for your VC investments, by avoiding apps or social media, is it right for me to think that you are really avoiding the risky winner-take-all situations? And instead prefer businesses that can do well without being the only few players while having good product economics?

 

 

 

[–]aliceschroederThe Snowball[S] 3 points 25 days ago

 

Insurance companies are bond surrogates, in effect they are compounding book value at a rate that you can compare to a zero coupon bond (assuming they don’t pay a dividend). Berkshire also is a bond surrogate although I’ve rarely heard it described that way.

On #2 yes. It should be a business that does not require an exit. That said, if there is a business where all the players are competitively conflicted meaning that only a new entrant can do it, you can wind up with a winner take all by default. The best example is Bloomberg.

 

 

 

[–]dicksonpau 2 points 25 days ago

 

Okay understood!

What I also hope to get some insights from you is how you would think about the competitive advantage or competitive nature/environment of a b-to-b business?

Prof. Bruce Greenwald’s book specifies entries to barrier and Warren loves mind share.

But for a start-up company, there is no brand value nor enough scale to fend off potential competitors, how do you think about whether the prospective companies can earn excess returns in the long run?

This also reminds me of other b2b businesses Warren has bought along the years. Ranging from beverage dispenser to small item distributor to Iscar. Do you have any idea of how Warren thinks about such businesses’ competitive advantage?

 

 

 

[–]aliceschroederThe Snowball[S] 2 points 25 days ago

 

“selling shovels to gold miners”

if you are the GEICO of shovel makers (Iscar) and your shovels can radically lower the gold miners’ costs, increase their efficiency or output, you’ve got a sustainable competitive advantage. IP is a barrier to entry. If the business is far enough along the production process, it is often easier and cheaper for a potential competitor to license or buy it than to try to replicate really good IP, or even steal it. Really good IP can be hard to steal, there are ways of protecting it beyond patents.

this is a very big subject and I can only touch on it but hopefully this is slightly helpful.

 

 

 

[–]dicksonpau 1 point 25 days ago

 

Yes, your comments definitely help add a new perspective for me! thankssss! But since I am still a novice, I am not too certain I really get the whole idea here. English is also not my native language. Like for example, when you say “if the business is far enough along the production process”, do you mean like the shovel is used in a large proportion of work for the gold miners, such that the switching cost will be high anyway? Or does that mean to the gold miner, the making of shovels is simply way behind the value chain of gold mining that they won’t bother making shovels? But if it’s the latter, wouldn’t potential competitors (but not gold miners) just appear and try to make a comparable product anyway? One way of thinking about this I have learned elsewhere is if such a resource input (i.e. shovels in this case) accounts for a pretty small proportion compared to the overall production cost (i.e. gold mining), then the gold miner won’t bother looking for an alternative source for shovels if the current suppliers offer quality and reliable product. Could this be what you were referring to as well? And in addition to patents, what are the good and reliable ways that make IP hard to steal?

Hopefully you can also include this subject in your next project! Thanks again

 

 

 

[–]No_thank 1 point 25 days ago

 

Please say MKL, although I guess it didn’t trade at a discount.

 

 

 

[–]dicksonpau 1 point 25 days ago

 

Thanks for the reply and good morning to you! 😀

 

 

 

[–]is_2013 3 points 25 days ago

 

Hello Alice it’s great to have you here. I have a simple question 1)Could you tell us about the daily routine of Mr Buffett, how he plans his day, what are the interesting things he does daily that make him a better investor? 2)Mr Buffett spends a lot of time speaking about developing the right habits early in life. Could you please elaborate on that with examples It’s unbelievable to have you here and thanks to all the folks at reddit for this

 

 

[–]aliceschroederThe Snowball[S] 5 points 25 days ago

 

Thanks for the question – here I’m going to refer you to The Snowball, Warren’s habits and routines are exactly as described there. However in terms of habits I would say, conceptually, he’s talking about delayed gratification, work ethic, and focusing your energy on a goal.

 

 

 

[–]john_portfolio14 3 points 25 days ago

 

Hi Alice. Love your writing. You have already touched a bit on different styles of value investing. As a value investor, one of the decisions is where to invest the time: cigar-butts vs quality businesses vs special sitations, etc etc. Professor Sanjay Bakshi who teaches value investing at MDI Gurgaon in India wrote a piece titled “What Happens When You Don’t Buy Quality? And What Happens When You Do?” (http://fundooprofessor.wordpress.com/2013/10/11/october_quest_2013/) He reckons quality businesses aresystemically being undervalued because the market consistently uses the wrong discount rates to value them. The market is being myopic and discounting future of these businesses too much. This reminds me the saying that Buffett uses long-dated bond yields to discount cash flows. This also reminds Buffett’s “bird in hand” Aesop fable.

What’s your view on this systematic undervaluation argument? And what will Buffett’s view be?

 

 

[–]aliceschroederThe Snowball[S] 1 point 25 days ago

 

going to read it – looks like a great source. .

 

 

 

[–]inguy 1 point 10 days ago

 

Very useful and interesting research. Thank you for the link.

 

 

 

[–]Rosly 3 points 25 days ago

 

Do you think the Warren Buffett model of investing would be applicable in India?

 

 

[–]aliceschroederThe Snowball[S] 5 points 25 days ago

 

I don’t follow the Indian market so can’t really say. There are some criteria required for value investing to work. The numbers and disclosures have to be reasonably trustworthy. The legal system and culture of a country must support the rights of investors, otherwise the profits that accrue will probably flow to someone else.

 

 

 

[–]judefinisterra 5 points 25 days ago

 

Attended a student Q&A with Buffett earlier this year and he specifically mentioned a basket of net net bargains in India that he would invest in if his capital base was smaller

 

 

 

[–]aliceschroederThe Snowball[S] 2 points 25 days ago

 

He did this with Korea. He will spend more than 500 hours to get there.

 

 

 

[–]kanishkhanna 3 points 15 days ago

 

Thank you so much Alice for doing this Q&A.

 

 

[–]omar_torritos 3 points 26 days ago

 

I assume most of the questions are going to be about Warren, so I’m going to try to get an insurance question in now.

How do you go about determining the underwriting quality of an insurance company as an outsider? It’s the most important part of an insurance company, and I find that accountants can be frustratingly vague about the issue. Any tips, on how to approach the matter, or materials someone can use to get better at it?

 

 

[–]aliceschroederThe Snowball[S] 11 points 26 days ago

 

Yes, learn to do reserve tables using the statutory filings. Get an analyst to teach you. Also the history of the company is revealing. The companies that underwrite well tend to keep on doing so, and those that have had negative surprises and reserve blow-ups will generally keep on doing so.

 

 

 

[–]Piospro 2 points 26 days ago

 

Hi Alice!! Could you go into a little detail on what Warren reads and how he spends his day? I often hear too many generic responses.

What I’m asking is, does he truly read everything cover to cover in the WSJ? Does he sift through the NYT online and read every article?

What is his filtering process like? Does his staff request an annual report and then he starts reading it when he gets it? Does he go from Company A to Company Z?

When he finds a company that catches his interest, does he really spend 500+ hrs doing more reading and research on it?

Essentially, how does Warren best use his time to efficiently read what matters to him? I am often very overwhelmed and end up burning out feeling like I’m not getting anywhere.

Thanks!!

 

 

[–]aliceschroederThe Snowball[S] 12 points 26 days ago

 

Sure, happy to answer. Warren does his reading in the morning. He had cataract surgery not long ago and it’s made things much easier for him.

He starts with the newspapers. He looks at them page by page but doesn’t read every article. He is very interested in news about companies and less interested in general news. Warren is outstanding at pattern recognition and prefers to do his own synthesis so when he reads he’s looking more for data points rather than other people’s conclusions.

The annual reports — he reads them for the most part as they are received. He’s been following some companies for fifty years or longer and as noted earlier he’s got quite a memory, so the process of reading annual reports is pretty efficient for him. He can go through one in an hour or less and get what he needs. On the other hand, say when Google went public, he spent more time on their filings because it was new information. He reads a lot of annual reports of companies he would not buy to expand his knowledge.

The filtering is informal. His friends will send him something they think he will find interesting. Or he will read something in the paper and ask for the report. He isn’t systematic nor comprehensive. That’s today though. When he was younger, he filtered using Moody’s, Value Line etc. reading everything about every company, then got the reports for the ones he was interested in. That’s probably more relevant to you than what he does today.

Does he spend 500 hours. Well, he spends a lot of hours if it’s something totally new. That said, Warren’s investable universe is somewhat limited now by Berkshire’s size which means he’s already familiar with almost every investment. So he has probably invested that time, but it’s cumulative over many years.

 

 

 

[–]Piospro 3 points 26 days ago

 

Thank you very much for your time! I appreciate the quick reply!

 

 

 

[–]pigpotjr 2 points 26 days ago

 

What advice 16 year old investor like my self? Also I really enjoyed the book! And What way would you recommend to maybe contact Warren Buffett.Thanks!

 

 

[–]dicksonpau 2 points 25 days ago

 

HI Alice!! Thanks for the book. It is marvelous for me as is for a lot of ppl. I remember watching your video clip explaining Warren’s investment in the tap card business. You said you might publish a book about Warren’s other investments that are rather non-public like the Mid-Continent Tab Card Company. Will this book get published?

 

 

[–]aliceschroederThe Snowball[S] 5 points 25 days ago

 

I’ll do something. Not sure exactly of the medium. Books are a static one-way medium and it would be interesting to do something more interactive. Also working with the publishing industry has some challenges. My publisher has priced the e-book for The Snowball higher than the paperback. I feel that’s wrong.

 

 

 

[–]dicksonpau 1 point 25 days ago

 

Great!! looking extremely forward to that!

I have been expecting it for quite some time now. I would really love it and find it useful, as I feel a lot of folks and the media still get it wrong when it comes to how Mr. Buffett values a company. (For example, you mentioned here many books have been written on how Warren does valuation, but many of them suggest DCF nonetheless)

Thanks again for all your generosity!

One thing I think Buffett and Munger do not get enough of praise is how much of a good example they have set with their own lives and thus affecting so so many people in areas outside investing. People who enjoy value investing and love these two gentlemen in particular are also usually those who are the most frank, generous and kind! You certainly are displaying such qualities here as well!

Thanks again!

 

 

 

[–]moumouren 1 point 24 days ago

 

If you’d like we could help you set up some kind of interactive website or something like that. If educating more people is your thing we could even make it approachable to younger investors by simplifying some of the technical details.

 

 

 

[–]13104598210 2 points 25 days ago

 

Hi Alice, two semi-related questions:

What’re your thoughts about channel checking as a method of due diligence

Do you think studying a company’s sector and business is more important than analyzing cash flow, or are both equally important?

 

 

[–]aliceschroederThe Snowball[S] 4 points 25 days ago

 

Channel checking is important. Absolutely.

They’re both important and to some extent they’re the same thing. To analyze cash flows you need to understand a company’s business model which requires knowledge of its sector, competitors (including competitors that may not be obvious such as private companies or adjacent businesses). Quick example, cable companies. You need a vast amount of knowledge to really figure out these companies cash flows. You need to understand what is going on in the startup space (hard to get that information without investing huge amounts of time), where the company stands assembling a broadband model (very difficult to find out, they will all profess more progress than is the case), and you will need to learn adjacents such as the gaming industry. (gamers not gambling).

 

 

 

[–]13104598210 1 point 25 days ago

 

Thank you–very interesting response and I appreciate the insights (and the affirmation that I’m not entirely off base in my own investing career).

 

 

 

[–]hedgefundaspirations 1 point 25 days ago

 

Damn, I really wish we could get these answered. I’m gonna ask /u/omar_torritos if he can possibly email her this one last thing.

Sidenote though: we need you in these AMAs man! They’re always at the same time, Fridays at 12:30. Even if you can’t be there, just throw your questions into the announcement thread (usually up by Wednesday of that week) and we’ll ask it for you. We’ve usually only got an hour or two with the interviewees, so time matters.

 

 

 

[–]13104598210 1 point 25 days ago

 

Thanks–I should’ve put my answers in the announcement thread, but I thought there was no way I’d miss the actual thread. And of course I did.

 

 

 

[–]whr1 2 points 25 days ago

 

I believe Ted Weschler was quoted saying he spends over 500 hours doing diligence before he makes an investment. I am wondering what you think of this and how it relates to Buffett’s DD process. I am also wondering what kind of DD you do (time/channels/filings/etc). Knowing as you say “how the sausage is made” what gives you the confidence to pull the trigger on an investment.

Also, I am wondering what investors you admire (ex Buffett) and would you include Ted & Todd in that group?

 

 

[–]aliceschroederThe Snowball[S] 4 points 25 days ago

 

My understanding is that Ted’s process is similar to Warren’s and the amount of time sounds right. Let’s say you work 50 hours a week, that’s ten weeks of work. You could spend a large part of that time reading filings and articles about the company — and its competitors — and the industry. Then you do scuttlebutt on the people running the company, which can quite a bit of networking. Ted has a big network, I assume he works it for information. Then there is the garden variety information gathering such as channel checks, meetings with management, plant tours, visits to retail stores. Add to this the time spent every day reading relevant news, and the various conferences that investors attend. The valuation takes time — early on you have a hypothesis and spend a lot of time testing and refining your assumptions. 500 hours is very reasonable.

The main effect of being in the sausage factory is to make me humble about the state of my knowledge. I am slower to pull the trigger and I pay attention to every bit of nuance I can find. My process is not that different from anyone else’s. I do a few extra things. For example, it’s useful to do a line by line comparison of press releases and filings over time to identify the “ins and outs.” You can learn a lot from this. (Companies are trying to be more concise these days; even so it’s amazing how often things disappear from sight when news is bad.) I also look at who is on the board and audit/risk committees. If you had looked at JP Morgan’s risk committee composition along the way and seen the head of a museum on it who had no business experience, that was a signal. So I look at this sort of thing.

The advent of Reg FD has created a situation in which companies are forced to, essentially, lie to investors. So a company is not thinking about a divestment until the day it is suddenly announced. Loan loss reserves are adequate, and management has unshakeable confidence in that, until the day they are suddenly increased by a walloping amount. Inside the company, there are teams of accountants, consultants, bankers, executives and ultimately the board working on the projects that lead to these surprises. Most big events develop gradually over time. Companies used to do more signaling that helped investors adjust timely to changes rather than the present requirement to throw investors over the cliff. I think that in preventing companies from giving inside information to favored people, Reg FD pushed the system too far the other way.

Investors I admire — I don’t know Ted and Todd personally so just taking Warren’s word on it. Youall know who the great value investors are, there are many I admire. I will give one shoutout to John Hussman for sticking to his guns even though his fund must be bleeding investors.

 

 

 

[–]TeatSeekingMissile 2 points 25 days ago

 

Hi Alice, Just wanted to say how much I enjoyed reading The Snowball, many thanks for writing something so thorough. Got me reading more about people like Buffett and Ben Graham and made me a better investor, all thanks to your book.

 

 

[–]thelim3y 2 points 25 days ago

 

My favorite part of this thread is where Ms Alice mentions that she trades… and not one of you assholes jumped on her for gambling/timing the market/<insert degenerate word here>

So if it isn’t too late. Would you mind telling us muppets how trading can actually work providing it is approached from the correct perspective? If you have time could you also talk a little about Mr Buffet’s risk management process (and yours when it comes to trading)?

 

 

[–]aliceschroederThe Snowball[S] 5 points 25 days ago

 

last one and then gotta go.

Warren trades some in his PA … He referred to it as “rational speculation.” Not like Stevie Cohen (!) He has mentioned arbing on-the-run and off-the-run bonds. Nearly riskless. The Indian stocks would be a trade, they’re cigar butts he would sell as in the old partnership days. Buying a basket is a risk management strategy.

I don’t trade a lot. Every now and then there are easy and obvious situations. Let me give you an example. I did not trade this situation as an analyst because I couldn’t, but I wanted to. Every quarter for years, right before AIG released earnings, someone would circulate a rumor that Hank Greenberg was dying and the stock would take a hit. Then on earnings day they always hit their number and the stock came back. It was hilarious. 1-2% for five minutes’ work to take advantage when somebody was short-covering.

 

 

 

[–]cloudatlas1 1 point 25 days ago

 

Do you follow any internet boards or forums? Except reddit of course.

 

 

[–]No_thank 1 point 25 days ago

 

Hi. Really enjoyed your book and a talk you gave. Do you know what happened to Rick Guerin?

 

 

[–]pachinkothrow 1 point 25 days ago

 

Hi Alice,

Any thought on calendar year vs. accident year reserves when it comes to insurance companies? Why do publicly traded insurers post calendar year reserve development triangles in their 10-Ks, as opposed to accident year?

It is my view that accident year triangles are more useful and help avoid double counting. Do you share that view, or have an alternative?

 

 

[–]wonderdog9 1 point 23 days ago

 

Hi Alice. I read the your book The Snowball and I also really appreciate this Q and A. If Warren were just starting out and he found a situation with a huge margin of safety, what percentage of his personal funds do you think he would put into an investment if he thought it was a slam dunk? Assuming he was a private investor only.

A friend of mine put 80 percent of his net worth into FOUR (formerly KIDEQ), as it was a special situations play. He made 10 times his money in less than three years. He still owns it. I bought some shares myself, but couldn’t pull the trigger on more than 5 percent of my net worth. Please tell us more about how you believe Warren Buffett would approach diversification if he were strictly investing personal funds, and he truly believed he found a huge margin of safety, like in FOUR (company name is 4Licensing). Thanks Alice.

 

[–]financiallyanal 1 point 15 days ago*

 

I’m a little disappointed I saw this so late. I have some questions I’m somewhat burning to have answered.

Alice – in case you revisit this thread, here are a few questions:

Warren and Charlie have spoken about Henry Singleton on a number of occasions. (Annual meetings, shareholder letters, Charlie’s book, etc.) Charlie once said that he believes there’s likely a lot more to learn from Henry than has been learned already. What is he referring to? Is he “simply” referring to his ability to maximize the value per share equation and issue stock at high prices and then buy it in at low prices, among other techniques?

I haven’t heard Warren talk about cat bonds for quite a while. Insurance Observer cited some of his quotes back a while ago (1-2 decades? gosh.). It took a while, but they’re in strong force, especially property cat. Do you know what Warren’s thoughts are on this? What are your thoughts?

When they sold Fannie/Freddie positions in their control in the early part of the decade, was that because their underwriting guidelines changed? Warren once mentioned that he saw that Fannie bought some weird bonds to meet a certain earnings target and so that’s what tipped him off that things won’t go well. I have read Charlie’s annual letters from the 80’s when he bought into Freddie and he listed a number of things that would cause him to sell and if I remember correctly, underwriting changes was on there.

Finally – how do I get to a good value fund? I had some trouble and so I stopped trying. My approach was to simply write a letter, attach a sample of my work, and offer to come with capital to live on for 1-2 years if it was unpaid. Without much response at 1 or 2 (Marty Whitman’s shop & Klarman’s, though Klarman wrote back with a nice letter), I got a bit demotivated. I’ve considered sending this out to the Lou Simpson’s, Li Liu’s, David Einhorn’s of the world, etc., but haven’t. Is this okay? I’m not networked into these groups and so I don’t have a preexisting route.

PS: Does Buffett ever reach out to investors in tough times? I think of Einhorn during Allied Capital issues and have wondered if Buffett ever reached out at times like that

PS2: When it comes to insurance reserves, you mentioned below to reach out to an analyst and learn from them. I will do that. I have always wondered though… I’ve spent time in the stat filings, especially schedule P for the reserves. Many firms have offshore subsidiaries that don’t make those filings necessarily. How do you handle that, and in addition, are you going through it in a consolidated manner or 1 LOB at a time? I have historically just looked for guys who scale back premium (but not employees) when rates aren’t adequate and that have a decent reserving history, but we’ve been in a time period where so many have done well for so long that I can’t say who is doing really badly. Obviously, we had Tower Group and Meadowbrook, but they were growing like crazy in falling rates, and so I didn’t even need to look at the reserves there. When have you found looking deep into stat filings to be helpful? And does any of this work for reinsurers, where those outer layers in XOL contracts can be so volatile? (Sorry if I’m ignorant – I’m really interested in learning)

PS3: Sorry for so many questions. In another post, you said that Buffett has made comments privately on many topics including governments printing money. Buffett is very intelligent and so I’m guessing he has at least considered the contributions of both money supply and also the velocity of money relative to something like GDP. I also sit there and my libertarian side comes out, because when the government gets involved, there’s usually a lot of wastage among other issues. All that aside, in times when velocity of money drops, supply can increase without there necessarily being inflation. In times of complete meltdown, there’s no alternative, because doing nothing will result in a depression (this last crisis). So in those scenarios, how better could it have been handled, or were his comments directed at something else?