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During this week’s Value: After Hours podcast Taylor, Brewster, and Carlisle explain why Warren Buffett is the G.O.A.T (greatest of all time), and discuss Berkshire’s secret sauce. Here’s an excerpt from the interview:

Jake Taylor: Yeah, I didn’t take umbrage to it too much, but it was… It’s definitely a… It does highlight an interesting I think phenomena that maybe we’ll get to as some point during this podcast where we have… The information now has gotten so readily available that if you were just a value guy in the ’60s, even just looking through the numbers gave you such a huge advantage and now it’s gotten much tougher now to really try to find value that other people aren’t finding.

Tobias Carlisle: Well that’s the kind of the informational argument for value, right? But is that the… I’ll lean more heavily on the behavioral. I think that, and I always bring it up and I should get John Huber on the podcast at some stage, but John Huber wrote this great piece where he talked about even in very large cap companies, they vary from two thirds, like 30% tripling over the course of the year. And he gave the example of JP Morgan, which I don’t think it backed off at all through 2007, eight, nine. It might have had a couple of years where it didn’t grow book value, something like that.

Tobias Carlisle: But the share price was wildly all over the place. And if you just kept an eye on even book value, as unpopular as that is, but that’s probably a pretty good way of valuing financials, valuing banks, if you kept an eye on the book value, you bought it at a big discount the book value, you’ve done really well.

Bill Brewster: Yeah, well I mean, look at Apple since December, right?

Tobias Carlisle: Apple.

Bill Brewster: I mean, you going to tell me that that company has changed 70% value? No way.

Tobias Carlisle: It goes to show what a G.O.A.T [greatest of all time] Buffett is, backing up the truck and buying a ton of it when it was down like that.

Bill Brewster: He’s a beast. I mean, I think the thing about that is it’s always easy in retrospect to be like, “Oh yeah, that was a buy,” Pulling the trigger and catching a falling knife and knowing when it’s not a knife that’s going to stab you and when it’s a butter knife or whatever. I mean, that’s what makes the greats the greats I think.

Tobias Carlisle: So how do you do it? What’s the secret to that?

Bill Brewster: TBD [to be defined] man. I’m still working on it. But I mean, for me I got more lucky than good I’m sure, right? In December part of it was watching. Like I said, part of it was being lucky and part of it was like this is panic right now. And the stuff I’m buying, I’m comfortable owning, right? Like the cashflow underlying, even if I have to wait a while. Especially with Apple, you’re going to benefit so much from the buyback if the shares go down. I actually just let go of it today.

Bill Brewster: The capital return story doesn’t go as far with these valuations. And I don’t know… I mean, I’ve even having a little seller’s remorse, right? But it was so much easier to identify that it was cheap than… Was it right to sell? I mean, I don’t know. That’s sort of a harder question to answer, but we’ll see.

Tobias Carlisle: Well they’re two sides of the same coin, but buying is hard, but selling’s even harder.

Bill Brewster: Yeah. You know, that’s like Munger says, right? He’s like, “I’m good at buying. I’m not very good at selling.” I feel like I probably suffer from the same thing.

Tobias Carlisle: The people who are best at selling never sell. You just hold onto it. A decade later you’re like, “Oh, we’re up 1000%.”

Bill Brewster: Yeah.

Jake Taylor: I think that’s one of the maybe the secret sauces of Berkshire that doesn’t get talked about enough is that that constant replenishment of cash coming into the inside of the company. They never really have to sell anything if they don’t want too.

Tobias Carlisle: Right.

Jake Taylor: And there’s always new money coming in to buy the next interesting idea. What a huge advantage compared to when you’re… If you’re managing a fixed portfolio that you have to dump something, that can give you a lot of remorse.

Bill Brewster: Well yeah, Markel benefits from that, Fairfax to a certain extent too, right? I mean, I think Markel’s philosophy is closer to, “We’re going to focus on companies that are quality and we’re going to sort of… We’ll maybe buy a little bit more when we think they’re cheap. We’ll maybe dollar cost average throughout,” but I almost think of that portfolio like a levered quality portfolio.

Bill Brewster: I mean over time, if you have strong underwriting and you’re reasonably good at identifying when to buy something, which they obviously are, you would think that that’s going to be a powerful engine.

Tobias Carlisle: That was AQR’s analysis of Buffett too, wasn’t it? That he was 1.7 times levered to the quality factor I think. And there was very little value in there.

Bill Brewster: Yeah.

Tobias Carlisle: Which is surprising to me.

Bill Brewster: Well it’s so different from the partnership days, right?

Tobias Carlisle: Right, which doesn’t get discussed very much.

Bill Brewster: At least from what I understand. Yeah, that’s right. When he needed to make the money, he was a value guy, right?

Tobias Carlisle: Buying it like a net-net guy, a liquidation investor if he needed to be. Like a pretty hardcore activist who actually went in and shut down the business and liquidated, even though the townsfolk were upset about it and they were writing letters in the little local newspaper.

Jake Taylor: My favorite-

Bill Brewster: Don’t ruin his image, Toby. Come on.

Jake Taylor: Yeah. My favorite story of that-

Tobias Carlisle: Corporate raid Buffett.

Jake Taylor: … was from when he just went… He painted a line inside of the warehouse and said, “If you don’t get the inventory below this line, then everyone’s fired basically.”

Tobias Carlisle: We’re going to shut the business down. Yeah, that was… Was that the first… Was Harry Bottle the man who had to do that?

Jake Taylor: Yeah, that was the Dempster Mills activist position.

You can find out more about the VALUE: After Hours Podcast here. You can also listen to the podcast on your favorite podcast platforms here:

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Buy my book The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market from on Kindlepaperback, and Audible.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on The Acquirer’s Multiple, or connect with me on Twitter, LinkedIn or Facebook. Check out the best deep value stocks in the largest 1000 names for free on the deep value stock screener at The Acquirer’s Multiple®.

 

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Buy my book The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market from on Kindlepaperback, and Audible.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on The Acquirer’s Multiple, or connect with me on Twitter, LinkedIn or Facebook. Check out the best deep value stocks in the largest 1000 names for free on the deep value stock screener at The Acquirer’s Multiple®.

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Singular Diligence Header

An Excellent Speculation on Higher Interest Rates

 

If interest rates never rise, this wide-moat stock will be on a trajectory to return a modest 7% a year. But if interest rates increase, it’ll be a wide moat stock on a trajectory to return an excellent 10% a year.

This stock will be an acceptable, but not especially profitable investment, if the Fed never raises interest rates. But once the Fed does start raising rates, it’ll be a good long-term investment. The stock should provide excellent annual returns during the 5-year period where interest rates increase at the fastest pace.

If you’re looking for an excellent medium-term–say 2016 through 2021–speculation on higher interest rates, this is the stock.

Click here to learn more

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Singular Diligence Header

A Rare Business Model

Since 2008 this company has converted 58 cents of every dollar of EBIT into free cash flow. This is like a company with a 35% tax rate converting 90% of reported after-tax earnings into free cash flow. All the while it was paying interest and growing sales at rates above nominal GDP growth.

If you’re looking for a stock to buy and hold forever, this is your stock. This is a perfect buy and hold forever stock.

Click here to learn more

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micro-cap-conference

I’ll be speaking about my books and research in Philadelphia at The MicroCap Conference on October 24th and 25th. Should be a lot of fun.

The focus of The MicroCap Conference is to highlight the most attractive companies across various sectors. We will be bringing up to 75 companies in addition to expert speakers to present to the audience. October 24th and 25th will be jam-packed with company sessions, presentations, industry panels, good food, and of course plenty of time to network with other investors over drinks.

For tickets and more information, click here–>Philadelphia 2016 – The MicroCap Conference

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Singular Diligence Header

It’s one of the cheapest stocks we’ve written about in Singular Diligence. Right now, it trades at a huge discount to comparable companies and historical prices paid in the past for acquisitions of companies.

Cheaper than many peers while also having better growth prospects than those peers, it’s a growth stock that trades at an unusual discount for a company that isn’t seriously troubled.

Click here to learn more

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