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Stocks B / Berkshire Hathaway


Subject:  Re: Stock Picking Getting Harder Date:  11/23/2017  7:47 PM
Author:  TransverseSlice Number:  232779 of 253435

I am not sure I agree that stock picking, or rather let's call it security selection (include bonds,
funds, what have you, we should probably also include real estate and the like), has got much
harder. It's just always been tough. More of an evolving game.

I do think that it is very tough to find anything reasonable if you are relying on a screener. Not
impossible, but tough because there is a lot of adverse selection.

The easiest thing for me to do at this point would be to give a list of 20 very different securities
(primarily U.S. equities) at least half of which would fit your (or a general reader's) criteria of
reasonably valued and understandable investments. But if that's what people want, well I think then
you should just post and ask for investment ideas. My guess is that your question has a bit more of a
general/philosophical bent to it.

So let me try and offer some platitudes (some of which might actually be helpful). Do the whole Sir
Terry thing of setting a man on fire so that he'll be warm for the rest of his life. If you like, a
sort of treasure hunt of where market inefficiencies may lie (all my opinion and biases of course).

- There are plenty of arenas where a lot of institutional money simply doesn't play or can't play.
For instance, short swing rules and the like "force" funds to keep their ownership in a company
below 10%. So the larger a fund, the more it is "forced" to hunt for big companies. You don't have
to go small illiquid micro-cap size here. Plenty in the $1-$5B market cap range.

- Sometimes it'll be a large company but will be ignored by large funds because there'll be an
insider or some other large shareholder who leaves very little public float available. Large fund
can't play, but the little guy can.

- Dual class share structures

- I tend be very quick to point out that people should be very careful about investing in
banks/shadow banks and insurance companies. Quirky accounting and all sorts of funny firm specific
issues. But here also lies opportunity - if something is not well understood, there is opportunity
for the gal who sits down and expends time and effort to understand these things.

- Companies that don't do earnings calls or provide guidance. In the same vein, companies that have
no analysts following them (bonus points if no one on popular stock commentary sites like Seeking
Alpha, Motley Fool and the like is interested in them).

- Companies that screen in a particular problematic sector and are dismissed, but have businesses
inside them completely outside the problem sector.

- Acquisitive companies whose earnings are obscured by purchase price accounting. In the same vein,
companies whose earnings are obscured by amortization charges that are significantly higher than
economic reality.

- Build your own LBOs (company where debt dominates the capital structure - there is the usual
risk/reward of high leverage here).

- the local company approach still works, albeit you need to squint a bit. Who owns that booming
parking lot/warehouse? Why do you see so many trucks with the same recurring logo? Who owns all
those billboards that seem to always have a new flashy advert on them. Who owns these car
dealerships? Who is providing all that support software to these car dealerships? Who is the can't
live without business support/supplier for your favorite restaurant whose owner you have got to know
a bit over the years? So on and so forth.

- Spin-offs

- Companies that pay no dividends and have no always on share repurchase, but seem to every few
years do a large tender offer typically right about when their stock price is being pummeled.

- For skin in the game, instead of active funds look for companies where insiders have a large
percentage of their net worth (or reputation) tied up in the company and don't compensate themselves
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