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Author: RoughlyRight Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 211919  
Subject: DJCO 2013 Date: 2/7/2013 12:50 AM
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I attended the Daily Journal meeting with Charlie Munger today. Charlie is 89 now, but he doesn't seem much different to me then when I first started attended such meetings (WSCO, BRK) 18 years ago. The meeting was in L.A. My 19-year-old son lives in L.A. as he's a freshman biomedical engineering student at USC. At my encouragement, he skipped his Calculus class today and caught about 2/3's of the meeting (it lasted over two hours). My son quickly typed up his notes based on points he thought worth writing down; there was a lot more covered. I'm posting his notes. It's likely someone will have more complete notes to post.

My son's notes come from the perspective of someone not interested in investments. He's a fairly worldly 19-year-old, but he is just 19. I'm excited that was able to learn from Charlie.

Daily Journal Meeting Notes – February 6, 2013

1. Public notice business–previously highly lucrative, but now being downsized by technology
2. Charlie has not seen a housing bust like the one in recent years at any prior time in his life
3. After the Japanese bombed Pearl Harbor, one congressperson voted against war (used to illustrate the fact that we can never get unanimity)
4. Daily Journal was never used to spew a political ideology
a. Charlie thinks this was the best business policy, makes the Daily Journal a trusted source
5. Charlie doesn’t believe in a “master plan” but rather just reacting to the current needs of the marketplace/society
6. Charlie has never taken a penny out of the Journal
a. Charlie and his colleagues sincerely want people they barely know (that own stock in the DJ) to turn out alright
b. They don’t mind putting these people through a little hell along the way (chuckles)
7. Amazon takes territory from incumbents by brute force
8. The housing bust was created by people who blindly believed mathematical formulas over common sense; made the US pay a dear price for this
9. A good way to think: articulate those things that you do not want (i.e., things you’d like to avoid) and live a life that avoids such things. It seems simple, but many people don’t live their lives this way.
10. Why should criminal law dictate our behavior? We would never behave this way in a relationship, yet it’s common to behave this way in business.
11. Charlie doesn’t think society will function well if a bunch of people are making money simply by being clever (and then get “soft, white, wrinkly” hands)
12. There should always be a category in your mind that reads “this is too tough for me to fix.”
13. The method of corporate acquisitions in America usually hurts the shareholder
a. Berkshire seems to be an exception
14. “If you get pancreatic cancer, are you going to buy your way out of cancer? I don’t think so.”
15. If your product becomes a by-product of another company’s main product (e.g., Microsoft packaging a free encyclopedia in Windows) you’ve now acquired pancreatic cancer…but worse.
16. During the construction of the transcontinental railroad, some congresspersons took bribes from people like Huntington and Stanford
17. Charlie likes to live a life that has some fun in it (not all sure things)
18. The wealth of the country is based on the productivity of the country
a. Right now, we aren’t a very productive country, so this is bad for our overall welfare
19. If you want to get rich:
a. Have a few decent ideas
b. Have a lot of knowledge about them
c. Stick with it through the ups and downs
20. Charlie never paid attention to the “stupid” things taught in business classes
21. Department stores may not have the world’s greatest future; they realized this upon purchasing one
22. Charlie worst investment decision: he didn’t borrow money for buying stock in Bellridge Oil, and it soon sold out for over 35x what he was going to pay for it
a. You’ll only get a few risk-free opportunities in your life to make an investment/decision. Charlie regrets not having made this investment.

RR
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Author: ratehunter Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198456 of 211919
Subject: Re: DJCO 2013 Date: 2/7/2013 1:01 AM
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Your son took great notes. Thanks for sharing.

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Author: StuyvesantGrad70 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198457 of 211919
Subject: Re: DJCO 2013 Date: 2/7/2013 4:51 AM
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21. Department stores may not have the world’s greatest future; they realized this upon purchasing one
-Any idea which one? Not Wal-Mart?

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Author: rationalwalk Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198458 of 211919
Subject: Re: DJCO 2013 Date: 2/7/2013 7:11 AM
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21. Department stores may not have the world’s greatest future; they realized this upon purchasing one
-Any idea which one? Not Wal-Mart?


My guess is that he was going way back to Buffett's purchase of Hochschild Kohn in the late 60s, although I do not recall whether Munger was in that deal. I believe Snowball covers it.

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Author: rationalwalk Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198459 of 211919
Subject: Re: DJCO 2013 Date: 2/7/2013 7:14 AM
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Here's the Google Books excerpt on Hochschild Kohn from Snowball:

http://books.google.com/books?id=tU_CAUXWpCsC&lpg=PA290&...

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Author: olehere Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198468 of 211919
Subject: Re: DJCO 2013 Date: 2/7/2013 10:55 PM
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RR

Your son took great notes for you today.
Now get to work on his calculus assignment for tomorrow.

Thanks to your "son",
Now 'you' calculate the cross sectional area of a bilaterally sectioned trumpet.

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Author: cubsfan988 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198471 of 211919
Subject: Re: DJCO 2013 Date: 2/8/2013 10:55 AM
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Charlie was referring to his investment in Diversified Retailers,
which he talked about. He invested 10% of his personal net worth or
600K into this retailer. "It was hugely competitive and consumed
capital like crazy. Warren and I knew very quickly it was a mistake.
We stopped putting capital into it. We could not wait to get out of it".

That was one of his examples of investing mistakes he discussed.

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Author: ToddFinances1 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198472 of 211919
Subject: Re: DJCO 2013 Date: 2/8/2013 11:47 AM
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"It was hugely competitive and consumed
capital like crazy. Warren and I knew very quickly it was a mistake.
We stopped putting capital into it. We could not wait to get out of it".



I can't help but wonder if Eddie Lampert is learning that lesson with Kmart and Sears.

Todd

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Author: rationalwalk Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198473 of 211919
Subject: Re: DJCO 2013 Date: 2/8/2013 12:18 PM
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I can't help but wonder if Eddie Lampert is learning that lesson with Kmart and Sears.

According to Bruce Berkowitz, the story is about the real estate. He's been saying the same thing for years now. There was an OID issue many years ago where he refers to a bottom-up valuation of the real estate (but this was before the crash).

This recording of his presentation at Columbia a few days ago is worth listening to in general. He talks about Sears toward the end of the Q&A.

http://investinginknowledge.com/info/2013/02/bruce-berkowitz...

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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198476 of 211919
Subject: Re: DJCO 2013 Date: 2/8/2013 3:26 PM
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According to Bruce Berkowitz, the story is about the real estate. He's been saying the same thing for years now. There was an OID issue many years ago where he refers to a bottom-up valuation of the real estate (but this was before the crash).

This recording of his presentation at Columbia a few days ago is worth listening to in general. He talks about Sears toward the end of the Q&A.



I can't quite get SHLD out of my system (although I have no current position) so I listened, and I agree it's an intriguing talk, BAC, AIG and SHLD in particular.

As for SHLD, yes, the story is the real estate, although he still feels like Lampert is entitled to keep trying to turn the retail operations around, as hopeless as that seems. Perhaps he is more patient because what he refers to as the 'real estate cycle' has not really turned yet, so as long as Lampert can keep the thing afloat by selling an asset here and an asset there, time may be on his side. He compares SHLD to the Simon Group, similar RE footage but with Simon having an enterprise value 10 times higher. A funny argument, since Simon has the not insignificant attribute of being steadily profitable, and very probably overpriced to boot.

But he mentioned something else that I didn't understand: "I'll give you a hint, go to Sears, and do an analysis of Sears' legal entities," says he, "and separate the entities into ones that are guarantors and non-guarantors, and take a look at their individual balance sheets and cash flows, and tell me what you think." (my approximate transcription)

Any idea what he means by this?

Regards, DTM

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Author: jkm929 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198477 of 211919
Subject: Re: DJCO 2013 Date: 2/8/2013 3:51 PM
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But he mentioned something else that I didn't understand: "I'll give you a hint, go to Sears, and do an analysis of Sears' legal entities," says he, "and separate the entities into ones that are guarantors and non-guarantors, and take a look at their individual balance sheets and cash flows, and tell me what you think." (my approximate transcription)

Any idea what he means by this?


LAMPERT HAS TAKEN CARE TO separate Sears into "guarantor" and "non-guarantor" subsidiaries, with the former securing the company's $1.2 billion in senior notes due 2018. Importantly, KCD and a unit housing 125 properties leased to Sears aren't guarantors. The division signals where most of the value resides in the company.

Cliff Orr, an analyst at Privet Fund, a hedge fund in Atlanta focusing on special situations, notes that loan documents indicate that KCD and other non-guarantor subs generate more than $600 million in free cash flow annually. Using conservative industry multiples to value their profit stream would suggest they are worth more than Sears Holdings' current value.


http://online.barrons.com/article/SB500014240531119042393045...

jkm929

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Author: cubsfan988 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198480 of 211919
Subject: Re: DJCO 2013 Date: 2/9/2013 8:46 AM
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There are also pictures and notes from the meeting attendees posted here:

http://www.cornerofberkshireandfairfax.ca/forum/general-disc...

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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198485 of 211919
Subject: Re: DJCO 2013 Date: 2/9/2013 12:57 PM
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LAMPERT HAS TAKEN CARE TO separate Sears into "guarantor" and "non-guarantor" subsidiaries, with the former securing the company's $1.2 billion in senior notes due 2018. Importantly, KCD and a unit housing 125 properties leased to Sears aren't guarantors. The division signals where most of the value resides in the company.

Cliff Orr, an analyst at Privet Fund, a hedge fund in Atlanta focusing on special situations, notes that loan documents indicate that KCD and other non-guarantor subs generate more than $600 million in free cash flow annually. Using conservative industry multiples to value their profit stream would suggest they are worth more than Sears Holdings' current value.



OK, thanks for that, that shed some light on the idea. The question being, how to get more value out of a pie by a crafty division of the pie. It seems counterintuitive, but it may be true, and it may be why Berkowitz (and Lampert) are coy about the process.

So if the whole company is worth (say) $5bn, how could you divide it into G and non-G, and end up with more than $5bn? Why by making sure the G part is actually worth less than zero. So if you can put debt, the loan guarantees and the pension obligations in non-G, and all the good stuff (KCD etc.) in G, and have non-G worth -$5bn, and G worth $10bn, then in order to realize the value of the whole thing, wouldn't you have to start paying out bits of G to shareholders? Is the next step a dividend?

Regards, DTM

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Author: rogermunibond Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198519 of 211919
Subject: Re: DJCO 2013 Date: 2/12/2013 12:30 AM
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http://www.businessweek.com/stories/2007-04-15/the-new-alche...

This BW, originally on Bloomberg online, article explained the KCD intellectual property securitization. I think there is some confusion in the Barrons piee about just what the KCD IP sub actually does, which is provide liquidity to the captive Bermuda insurance sub.

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Author: rogermunibond Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 198520 of 211919
Subject: Re: DJCO 2013 Date: 2/12/2013 12:41 AM
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http://www.searsholdings.com/invest/docs/Sears_Re_February_2...

Sears Holdings presentation on Sears Re including the real estate securitization $1.25B and the KCD IP securitization $1.8B.

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Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 200631 of 211919
Subject: Re: DJCO 2013 Date: 4/2/2013 3:53 AM
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Oui, when K-Mart purchased Sears. K-Mart was able to do that because they owned nearly all of their Real Estate. For a long, long time Sears has been selling-off most of its owned Real estate, including the Landmark Sears Tower at Wacker Drive and Monroe in the "LOOP" of Chicago.

In the early nineteen-eighties SIMCO moved from the Sears Tower to three floors in the Xerox Center Building at the Monroe and Dearborn Subway stop. From there the Subway/El went to O'Hare International Airport. -- About a twenty-minute trip.

Kahuna, CFA
Venture Capital
Portfolio Manager
1977 - Present
Kailua-Kona 96745

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Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 200632 of 211919
Subject: Re: DJCO 2013 Date: 4/2/2013 4:00 AM
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Yes, absolutely!!! I used to do investment banking consulting work for Sears. Launched the Discover Card, Acquired Dean-Witter Socks and Socks, acquired Morgan Stanley(MS) White shoes, etc.,etc, etc..

Kahuna, CFA
Investment Professional
1974 - Present
Kailua-Kona, HI 96745

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Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 200633 of 211919
Subject: Re: DJCO 2013 Date: 4/2/2013 4:08 AM
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http://www.businessweek.com/stories/2007-04-15/the-new-alche......

This BW, originally on Bloomberg online, article explained the KCD intellectual property securitization. I think there is some confusion in the Barrons piee about just what the KCD IP sub actually does, which is provide liquidity to the captive Bermuda insurance sub.
- rogermunibond | Date: 2/12/2013 12:30:43 AM | Number: 200632

Barron's is often WRONG and very easily confused!!! The hedges use the publication to plant "Street" buy-out gossip. -- Nothing more, nothing less!!!

Kahuna, CFA
Investment Professional
1974 - Present
Kailua-Kona, HI 96745

Date: le 01 avril 2013
Temp: 22:08 HDT

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