Try to be punctual in all your dealings. You will find it difficult to get along with some men, deal as little as possible with such… Save your credit, for that is better than money. If you go into business, be content with moderate gains. Don't be too hasty to get too rich…

Thus, Keynes, like most of us, lost big money during the 1929 crash and subsequent bear market.But surprisingly he didn't see this as a weakness.He took a positive attitude about bear markets:

"I feel no shame at being found still owning a share when the bottom of the market comes... I would go much further than that. I should say that it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself. Any other policy is anti-social, destructive of confidence and incompatible with the working of the economic system. An investor...should be aiming primarily at long-period results, and should be solely judged by these."

Excerpts rom : Inside the mind of a colossus, Ruth Sunderland, The Guardian

His basic principle is to behave according to his ‘Inner Scorecard’, doing what he feels to be correct, rather than using the ‘Outer Scorecard’ and measuring himself by the opinions of others.

He is indifferent to the trappings of wealth; even when he succumbed to buying a private jet for his frequent business trips, he named it ‘the Indefensible’. Thrifty and defiantly unsophisticated, he consumes only burgers, fries and cherry Coke: His rules of investment are straightforward: distrust debt; build in a margin of safety; be in there for the long term; don’t invest in something you don’t understand.

Surely anyone could do that, so why is there only one Warren Buffett? The answer is that it demands a resolute independence of mind that eludes other investors. Buffett was derided for his refusal to participate in the dotcom boom, but maintained a dignified silence until he was eventually proved right. As early as 2003, he was warning that the derivatives behind the current credit crunch were ‘weapons of financial mass destruction’; he is now buying at rock bottom prices.

At 26, when he set up his first investment partnership for family and friends, he had $174,000. At the end of last year, his personal fortune was $60bn and Berkshire Hathaway, his holding company, was valued at $200m.

Buffett unfashionably believes that moral rectitude has a financial value. He campaigned for an increase to inheritance tax in the US because he believes the rich owe a debt to society and that their children should not be automatic winners of the ‘Ovarian Lottery’.

Fantastic interview of Buffett on CNBC. Speechless and awed on reading as usual. Also read some other emails on chuck's prior to reading the below transcript and was finally convinced of the good of the bailout and the reason to not add too many clauses regarding executive compensation in it.

BECKY QUICK: We know you get all kinds of deals, all kinds of people who come knocking asking you to jump in. You've said no to everything to this point. Why is this the right deal at the right time?
WARREN BUFFETT: Well, I can't tell you it's exactly the right time. I don't try to time things, but I do try to price things. And I've got a formula that says bet on brains, and bet of them when it's the right type of deal. And in this case, there's no better firm on Wall Street. We've done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check.

BECKY: Does the backdrop of the Federal government potentially getting involved with a massive bailout plan for Wall Street, does that have anything to do with this deal?
BUFFETT: Well, I would say this. If I didn't think the government was going to act, I would not be doing anything this week. I might be trying to undo things this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal.
BECKY: Why would that be a mistake? Because the institutions would collapse, or because you could get a better price?CNBC.COM POLL: BUFFETT'S BET, A BOOST OF CONFIDENCE?
BUFFETT: Well, there's just no telling what would happen. Last week we were at the brink of something that would have made anything that's happened in financial history look pale. We were very, very close to a system that was totally dysfunctional and would have not only gummed up the financial markets, but gummed up the economy in a way that would take us years and years to repair. We've got enough problems to deal with anyway. I'm not saying the Paulson plan eliminates those problems. But it was absolutely, and is absolutely necessary, in my view, to really avoid going over the precipice.
CARL QUINTANILLA: Warren, we can almost hear you measuring your words as you speak, because what we're talking about has such gravity. There are people out there who either don't, or are unwilling, to acknowledge what exactly, how serious the situation was last week. And I'm hearing you say is that, was it the most frightening experience you've had in your lifetime, in terms of evaluating where this economy stands?
BUFFETT: Yeah, well, both the economy and the financial markets, but there're so intertwined that what happens, they're joined at the hip. And it doesn't pay to get into horror stories in terms of naming institutions or anything. But I will tell you that the market could not have, in my view, could not have taken another week like what was developing last week. And setting forth the Paulson plan, it was the last thing, I think, that Hank Paulson wanted to do. there's no Plan B for this.
BECKY: Warren, you mentioned that Wall Street could not have taken another week like that. But what does that mean to the American taxpayer who's sitting at home saying, 'Why is this my problem?'
BUFFETT: Yeah, well, it's everybody's problem. Unfortunately, the economy is a little like a bathtub. You can't have cold water in the front and hot water in the back. And what was happening on Wall Street was going to immerse that bathtub very, very quickly in terms of business. Look, right now business is having trouble throughout the economy. But a collapse of the kind of institutions that were threatened last week, and their inability to fund, would have caused industry and retail and everything else to grind to something close to a halt. It was, and still is, a very, very dangerous situation. No plan is going to be perfect, but thanks heavens that Paulson had the imagination to step up with something that is of the scope that can really do something about it. And what he did with the money market funds, that was not an idea that I had, but as soon as I heard about it, that was an important stroke. Because the money, pulling out of the money market funds and going to Treasuries, and driving Treasury yields down to zero. That -- a few more days of that and people would have been reading about lots and lots of troubles.
JOE KERNEN: People listen, Warren, when you speak. And I don't know if you watched the hearings yesterday ...
BUFFETT: I got to watch some of them.
JOE: But when the more dire it looked, in terms of communicating, with some of these Senators, the three-month or one-month bill, again, started acting similar to what was happening on Thursday. Now we averted that disaster on Thursday, but it's already been three or four days. It's almost as if these guys already forgot about the position that we were in. Do you think that accounted -- we're still susceptible to that happening again if it looked like they're not going to go through with this?
BUFFETT: No, it would get worse. Last week will look like Nirvana (laughs) if they don't do something. I think they will. I understand where they're very mad about what's happened in the past, but this isn't the time to vent your spleen about that. This is the time to do something that gets this country back on the right track. What you have, Joe, you have all the major institutions in the world trying to deleverage. And we want them to deleverage, but they're trying to deleverage at the same time. Well, if huge institutions are trying to deleverage, you need someone in the world that's willing to leverage up. And there's no one that can leverage up except the United States government. And what they're talking about is leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that's going on through all the financial institutions. And I might add, if they do it right, and I think they will do it reasonably right, they won't do it perfectly right, I think they'll make a lot of money. Because if they don't -- they shouldn't buy these debt instruments at what the institutions paid. They shouldn't buy them at what they're carrying, what the carrying value is, necessarily. They should buy them at the kind of prices that are available in the market. People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments. If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually.
BECKY: Are you buying instruments like these in the market?
BUFFETT: Well, I don't want to leverage up. No one wants to leverage up in this thing. So, if I could buy a hundred billion of these kinds of instruments at today's prices, and borrow non-recourse 90 billion, which I can't, but if I could do that, I would do that with the expectation of significant profit.
JOE: But the government can do that. You can't. And that's why the private sector can't, even you, can't save the system.
BUFFETT: I can't come close to it. But they have the ability to borrow. They can borrow much cheaper than I can borrow. They can borrow unlimited. They don't have covenants. They don't have -- I mean, they are in the ideal position. So, for example, if I were hiring advisers, as I talked about doing to buy these things, I would tell those advisers, 'Look it! People are buying these instruments to make 15 percent. So if you're going to charge me any fees, I'm going to defer those fees until I get rid of these instruments later on. If I don't make at least ten percent on my assets, you know, your fee goes down the drain. Because it should be a lead-pipe cinch to make 10 percent at the kind of prices that exist now. I wouldn't try to write that into the legislation. I don't think you should -- I think they should punish, in many cases, the people -- I would think they might insist on the directors of the institutions that participate in this program waiving all director's fees for a couple of years. They should, maybe, eliminate bonues. They may wish to do some of those things. I don't think you should try to write it into the instrument, though. I think that gets so damn complicated and ties people's hands. But if I were administering the program, I think I'd be fairly tough about some of those things, and I'd make sure that the advisers earned me a return that was well above my cost of borrowing before they got paid a dime.
BECKY: Would you administer the program?
JOE: Yeah, can you be on the oversight board? (Buffett laughs.) Can you be on the oversight board?
BUFFETT: I'd love to administer (laughs). I'd love to administer it for nothing, but I would really love to administer and get some kind of an override in terms of the profits, which is naturally the way Wall Street thinks. No, it's not my game to do that, but I will tell you that the buyers of the instruments these days are going to do better than the sellers. And the big buyer, if they -- they shouldn't pay any attention to the cost of these instruments to the selling institutions. They shouldn't pay any attention to the carrying value. In fact, one thing you might do, is if someone wants to sell a hundred billion of these instruments to the Treasury, let them sell two or three billion in the market and then have the Treasury match that, for what they pay. You don't want the Treasury to be a patsy. But I'll tell you, with Hank Paulson on top of it, you couldn't have any better guy to do that. The important thing is that if this program extends into the next administration is to have somebody in the next administration that has similar market savvy.Warren Buffett was interviewed live by telephone on CNBC's Squawk Box this morning about his surprise investment of at least $5 billion in Goldman Sachs.
A summary is available in the post Warren Buffett to CNBC: Government Bailout Plan Made $5B Goldman Investment Possible.
This is part two of the complete transcript of that conversation. (Click here for part one .. Click here for part three)
CARL QUINTANILLA: Separate from the bailout, Warren, people obviously this morning want to look at the Goldman deal, I guess on top of Mitsubishi-Morgan, which happened yesterday and wasn't nearly as popular, at least from a market point of view. But they want to point to you as the 'canary in the coal mine.' Is that fair? Do you have a problem with that?
WARREN BUFFETT: Well, as long as the canary lives, I'm fine. (Laughs.)
CARL: I'm guessing you're going to live. At least, you're guessing you're going to live?
BUFFETT: Yeah, I think so. (Laughs.) This is, you know, from our standpoint, we've had a lot of cash. And we now are seeing things that, you know, give us a chance to use that cash sensibly. And this was a five billion dollar opportunity to, I think, deploy cash sensibly. I understand, incidentally, that there will be another five billion. In other words, they mentioned 2-1/2 billion, but I think they're going to allocate it down to five billion additional. So Goldman will have ten billion, I believe, of new money coming in.
BECKY: In that capital offering. In the release, they said 2-1/2 billion (of common stock would be offered in addition to Buffett's investment.) You're saying you understand it's five billion?
BUFFETT: Yeah, I think they have quite an outpouring of orders, so I think -- They'll be allocating it down, but I think from all over the world. So I think there will be five billion of additional common stock sold. That will be determined and announced, I believe, before the opening.
JOE: How much do you know about AIG and their books right now, Warren?
BUFFETT: Well, I think I know a fair amount, but I don't think anybody knew what they needed to know, including the management. The troubles there were in the subsidiary, AIG Financial Products, and they had hundreds of thousands, I'm sure, hundreds and thousands of derivative contracts. And I think that top management did not have their mind around what was involved with those contracts. And you can do a lot of damage on Wall Street with a pen and a piece of paper.
JOE: How many of those units are going to end up under the Berkshire umbrella?
BUFFETT: Well, we would have an interest in a couple of 'em. And actually over that weekend I expressed an interest in one or two, but the pressures were such, and the hole was deep enough, that they simply couldn't get it worked out. And some of those units, most of those units, I believe, will be for sale over the next year or two. And we would be interested in a couple of them. I think they'll probably do a pretty intelligent job of selling them, which means we won't be as good a buyer.CNBC.COM POLL: BUFFETT'S BET, A BOOST OF CONFIDENCE?
BECKY: You know, Warren, we've been trying to figure out -- I have to admit that I was shocked when I heard the news yesterday about this deal with Goldman, because you haven't put any money into an investment bank since 1987, Salomon. And that was a deal you had to get personally involved with later in 1991 when you went to run the company for almost a year. It was a very difficult experience. I'm shocked that you would get back in with another investment bank. Why do it?
BUFFETT: (Laughs.) Well, the pain has worn off. That won't be happening with Goldman, but I -- That was a very unfortunate experience, and it was actually caused by just a couple of people out of a workforce of 8000 that got the company into big trouble. And I had the help of a lot of people at Salomon in getting out of it. But I don't think this experience will be similar. Goldman has been extremely well run. My experience with Goldman goes back, when I was nine or ten years old my parents took me back to the New York World's Fair, and by an odd chance I got to sit down with Sidney Weinberg, who was the dean of Wall Street then, and he talked to me as if I was a grown-up for 45 minutes. I've never forgotten the experience. Gus Levy (who later ran Goldman in the 1970s) was a good friend of mine when I worked in Wall Street. In 1955, we only had four wires to Wall Street firms and one of them was to Goldman Sachs and Gus was on the other end of the phone. So I've had a long experience with Goldman and they've done a lot of things for me recently.
JOE: I just assume you know what was going on at all of these firms because I know everybody probably came to you and you made your decisions one-by-one on what to do. When you look at the way some of these assets were marked, could you tell that, for example, Lehman still wasn't facing reality and perhaps Merrill Lynch was more in the real world?
BUFFETT: Well, I think that turned out to be the case. I was apprached on Lehman back in, I think, maybe it was April or March. But the first round of financing when they raised the four billion, and, yeah, it looked to me like it was pretty unrealistic where they were marking things. I feel good about the Goldman marks, incidentally, that's one of the discussions I've had. And -- You can be pretty fanciful in marking positions in Wall Street, particularly when things aren't trading. The one thing you want to make sure, when the Treasury is buying things, is the marks they have don't make any difference. Like I said, it wouldn't be a bad idea, if you're buying ten billion of a security and you're the Treasury, to have them sell five-hundred million, or something like that into the market, so you find out what the real market price is and then buy the other 9-1/2 billion at that price. I really think, I really think the Treasury will make -- I think they'll pay back the 700 billion and make a considerable amount of money, if they approach it in that manner. But I don't believe in trying to write that into some legislation. I think it gets so unworkable. I think you have a smart person in charge, and have them treat it like it's their own money, and the taxpayers' money, in terms of behavior, and I think it will work out very well. I think it's not comparable to the RTC.
CARL: A lot of people who are watching us Warren, and even people who have just started watching us over the past week or two, look at the stock market every day and are confused. They want to use it as a metric for how we're doing, or at least the progress we're making on big issues. I'm guessing you don't think it's reflective of anything that's based in reality right now?
BUFFETT: Well, the stock market in the short -- my old boss Ben Graham said that in the short-run the stock market is a voting machine, in the long-run it's a weighing machine. As a voting machine, it responds to people's emotions. There's no literacy test for voting. You vote according to how much money you have, not according to how smart you (are.) So the stock market does some very silly things in the short-run. Over the long-run, it behaves quite rationally. And, you know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well. But they shouldn't own it on leverage. That's what people have learned in this period, that you've got to be able to play out your hand and it's a big mistake to let somebody else be in a position where they can sell you out.
BECKY: Warren, when you first invested back in '87 in Salomon, I believe your partner, Charile Munger, was not as enthusiastic about the idea as you were. Is that true?
BUFFETT: That's true. Of course, he's never as enthusiastic about my ideas as I am. But I would say he was even less enthusiastic. (Laughs.)
BECKY: How does he feel about the Goldman deal?
BUFFETT: Well, I'm glad you asked because I, (laughs), didn't tell him about it until after it was done. (Laughs.)
CARL: How rude!
BUFFETT: (Laughs.) Yeah, it is kind of rude. But Charlie's wife had a bad fall and he's (inaudible) and I called him last night about an hour after I committed it, or something, and I called kinda like a little boy ... (laughs) ... bringing into the house something he was a little worried about. But, Charlie's all for it. (Laughs.)
BECKY: He's all for it.
BUFFETT: Yeah. Now I'm really worried.
BECKY: Uh-oh. For the last nine months, Berkshire has spent a lot of that cash it's been hoarding over the last several years.
BUFFETT: That's right.
BECKY: I was trying to figure it out. I think it's about 24 billion dollars you've spent in the last nine months?
BUFFETT: Yeah, we've spent a lot of money. The money, the money we've spent, you know, we've found things we like to do. It's nice to have a lot of money, but you don't want to keep it around forever. I prefer buying things. Otherwise it's a little like saving up sex for your old age. (Laughs.) At some point, you've got to use it. (Laughter.)
JOE: Uh-oh.
BECKY: Twenty-four billion dollars. Is that a right guess and how much cash do you have left?
BUFFETT: You know, it would be 6-1/2 for the Mars deal, there's five for this, there's five for Constellation, there's a couple of other things. So, yeah, your addition is fine, Becky.
BECKY: How much cash do you have left?
BUFFETT: Well, I've got enough. (Laughs.) I don't really look at it every day. I look for opportunities every day, and then if I find opportunities, I see if I've got enough cash around to take care of them.
JOE: Well, by my calculation, if you lever that up thirty times, Warren, you can really get serious here. (Laughter.) Maybe you don't want to do that, I don't know. (Laughter.) What about, how are we going to deal with this looming 50 -- we just had (New York State Insurance Commissioner) Eric Dinallo on, I don't know if you were watching, Mr. Buffett. He talked about, he can, maybe New York and his unit can look at the twelve billion, or trillion, jeez, we've got to add a T. I'm finally getting used to Bs, now we have to add a T. But what we are going to do with that 50 trillion and how, having that still around, all these credit default swaps, how serious is that, and how are we going to unwind it and deal with it?
BUFFETT: Yeah, well, it goes beyond credit default swaps into all forms of derivatives. But the derivative genie got out of the bottle, and it's a huge genie, and it will never get back into the bottle. It is a terribly tough problem because they are not homogeneous items. It's one thing to have a clearing house for the futures in Chicago, or something, and every morning have everybody post to market and that's a very efficient system. It's very hard to do that with derivatives where you can derivatives based on the New Zealand money supply or the number of babies born in Japan, and all kinds of things as the variables. And they're often very complicated. I applaud Dinallo. He is an outstanding insurance comimssioner. But getting regulation around the entire derivatives market is really tough. I've thought a lot about it. But it's important. Derivatives have been an important part of the problem in financial markets. And they continue to be part of it. And in AIG's case -- AIG would be doing fine now, I think, if they'd never heard of the word derivative.

Warren Buffett was interviewed live by telephone on CNBC's Squawk Box this morning about his surprise investment of at least $5 billion in Goldman Sachs.
A summary is available in the post Warren Buffett to CNBC: Government Bailout Plan Made $5B Goldman Investment Possible.
This is part three of the complete transcript of that conversation.
(Click here for part one ... Click here for part two)
BECKY QUICK: Mr. Buffett, the front page of the Wall Street Journal and other media organizations around the globe have been picking this up, your move yesterday into Goldman Sachs, as a vote of confidence in the banking institutions across the globe. Is that fair?
BUFFETT: Well, I'm not buying a cross-section of banking institutions. But I certainly have confidence in Goldman. And you can say it's a vote of confidence in the Congress to do the right thing with something that's being debated before them right now.
CARL QUINTANILLA: You know, Warren, some might say, 'OK, we know Buffett is a pure capitalist. he's in this to make money and nothing else.' But also you're a philanthropist, you have interests in seeing the country do well over time. Some might say he's doing this, he's timed this to help get the package through. Is there anything -- is that even close to reality?
BUFFETT: No. I timed this because Goldman Sachs yesterday came up with something that made sense to me. I'm not brave enough, to try and influence the Congress. The other way around, they influence me. And I am betting on the Congress doing the right thing for the American public by passing this bill and not trying to doctor it up with a hundred things that, you know, emotionally they feel should be on the bill but as a practical matter will gum things up.
CARL: When do you think, Warren -- I don't know if you even have an answer to this question -- When is the absolute deadline by which you think this needs to happen? Is it this weekend? Can you be that specific? Or if this thing were to bleed into next week, or if they had to reconvene a special session, would that be disastrous?
BUFFETT: Well, I think anything that makes it look like it's in doubt is what causes the problem. So if they said on Friday we're absolutely having a vote on Monday, or something of the sort, I don't think that would be a problem. But if they went home on Friday and there was doubt about whether they were going to do something on Monday, I think you'd see some things you don't want to see in the markets and they would have some effects on the economy.
JOE: You were watching yesterday, and I don't know, maybe I don't know the ways of Washington. Maybe they say one thing and maybe they're really planning -- you know, they have to look good for their constituents. But I wasn't convinced they really understood the seriousness of the situation, Warren, and that was after they said, look, Greenspan says we need this, Volcker says we need this, Bernanke, Paulson. Now we have you. I don't know. Do you think they get it?
BUFFETT: Well, I think they will get it. I think enough of them will get it. You know, it's not like Pearl Harbor where you could look at what happened with your own eyes and decide you had to do something that day. But this is sort of an economic Pearl Harbor we're going through. And I think most of them will get it. And I do believe they will do what's right for the country. They may vent their spleen a little bit by getting mad about the people that brought us into that, and I don't blame them for that. I might do that privately, too. But in the end, you know, Republican, Democrat, I think they've got the interest of the country at heart and I think they will do the right thing. But I hope they do it soon. (Laughs.)
BECKY: Warren, how long were you talking to Goldman Sachs and how significantly did they have to change the terms of the deal to get you interested?
BUFFETT: Well, what they -- they had talked with me -- almost every financial institution has talked with me, that you read about, over the past few weeks. But, but, they were serious yesterday about doing something. They said, in effect said, 'What would you do? What would Berkshire do? And I laid out something. And they said, 'That makes sense to us.' And we had a deal. It doesn't take long.
JOE: You were kidding Becky when you said that you did this just 'cause you knew we were going to ask you when you were going to do something in financials again and you wanted to have an answer.
BUFFETT: Joe, Joe, I was not -- you know, I was trembling with the thought of you asking me again, 'When are you finally going to do something?' (Laughs.) So this was definitely an attempt to get you off my back.
JOE: It was a cheap way, a mere five billion, so you'd have something to show us this time.
BUFFETT: That's right. I mean, your withering questioning is just too tough for me. (Laughs.)
BECKY: You know, you mentioned earlier, in the grand scheme of things, it's going to matter who the next Treasury Secretary is going to be. Are there names of people you think would be sound in either administration.
BUFFETT: Becky, if I were running things, Republican or Democrat, I would ask Hank to stay on. I mean, you don't get talent like that very often in any administrative job. And the guy pays an enormous price to do it. He's probably sleeping three or four hours a night. He knows the market. He's got the interests of the country at heart. So I think if I were either Barack Obama or John McCain and found myself in the White House in January, I would go down there and say, 'Hank, do me a favor, stick around another year.'
CARL: And Warren, if you believe, as a lot of people do, that we are in for several years of this unwinding process, the government's going to play a huge role. If you were called to do something on the public side, would you do it?
BUFFETT: Well, I would certainly be glad to help in any way that I could. You know, I would be looked at as having conflicts-of-interest, I'm sure. But anytime I can be helpful on something -- For example, in terms of what you might do with institutions that participated in this program, I think the Treasury can, they can lay down some terms for these people. I don't think they should be in the legislation, but I think -- And if anybody wants my opinion on it, I'd be glad to help them out.
BECKY: Warren, if ...
BUFFETT: They can make money on this deal. I can tell you this. I would love to have 700-billion at Treasury rates to be able to buy fixed-income securities now that they're in distress. There's a lot of money to be made.
JOE: It's just that, you know, they want these details, Warren. They said -- Paulson says there's the hold-to-maturity price and there's the firesale price. We're going to go somewhere in between, get a much better price but still leave enough for the people that are buying it to make some money. That can be done in principle? There's a way to do that, do you think?
BUFFETT: I think what I would be looking for -- I heard that hold-to-maturity price. I'm not as excited about that. I basically like a market, or something very close to a market-related price. And there are ways to determine that and I don't think that Uncle Sam should be in the business of paying somebody a whole lot more than it's worth in the market today. And if the guy that bought it doesn't like it, he doesn't have to sell it, and it was his problem, he bought it in the first place. I think a market price will enable people to be leveraged. The problem they have now is that some of the institutions, they're loaded with this stuff, they're having trouble funding, and they're worried about being able to sell a ton of it. But take the Merrill Lynch deal. Merrill Lynch had to take back 75 percent of the sales price. Well, they didn't want to take back that 75 percent. I would let 'em sell it for the same price, but I'd pay them the whole thing in cash. So they'd be a lot better off if they could have sold the whole thing at that same price but gotten paid a hundred percent in cash instead of having to take back 75 percent. And I see the government fulfilling that kind of a function.
JOE: All the outrage we're seeing in these comments from viewers, and obviously the senators are hearing from constituents. If we take your word for it, that the government could even break-even, or only lose 50 billion, that 700 billion dollar number is out there in the public, and people think that we're spending that.
BUFFETT: Yeah, they think that, yeah.
JOE: It seems crucially important to get the point across that, in your view, we could, the government could actually end up making money and saving the taxpayer from much worse, a much worse outcome if we didn't do this.
BUFFETT: The government is getting 700 billion worth of assets, assuming they spend the 700 billion, they're getting 700 billion of assets at what I regard as attractive prices. And they've got the staying power to hold those things. If I could get 700 billion, if I could borrow 700 billion on the government's terms and buy these assets I'd be doing it myself. But unfortunately I'm tapped out. (Laughs.)
BECKY: And yet, Warren, Mayor Mike Bloomberg, I heard him making comments this morning, and he's someone I know you've spoken very highly of ..
BUFFETT: I admire him.
BECKY: You admire him. he says this morning we should not be giving a blank check to have something passed in the dead of night. How dire is this situation?
BUFFETT: Well, I'm sure we didn't want to go to war on December 7, 1941, maybe, in the dead of night, or whenever we did it, in the middle of the afternoon actually. But there are time when events force timetables on you, and force action, and you have to be -- You know, it's just like in my business. I might like to think over buying something for a month, I'm not that type anyway. But in the end, if somebody offers me something that makes sense, I better decide whether to act or not. And if it makes sense to me, I usually don't attach unnecessary conditions, you know. It would be nice to have the luxury of thinking about this for three months. But I will tell you, if you think about this for three months, you're going to have a situation where -- If you think about it for three weeks, you're going to be facing a situation that's far different, and far more difficult, than if you do something now.
END OF TRANSCRIPT

"No pleasure philosophy, no sensuality, no place nor power, no material success can for a moment give such inner satisfaction as the sense of living for good purposes, for maintenance of integrity, for the preservation of self-approval." -- Minot Simons

Great essay written by David Foster Wallace in WSJ, some excerpts :

There is no such thing as not worshipping. Everyone worships. And an outstanding reason to for choosing some sort of God or spiritual-type thing to worship- be it JC, Yahweh or some in frangible set of ethical principles-is that pretty much anything else you worship will eat you alive.

The most precious sort of freedom you will not hear talked about in the great outside world of winning and achieving and displaying. The really important form of freedom involves attention, and awareness, and discipline, and effort, and being able truly to care about other people and to sacrifice for them, over and over, in myriad petty unsexy ways, every day. That is real freedom.

Oh man, why do I even bother? Good thread on angels on the same

AMR is taking such a beating. Could have bouggt BAC and COP last week when I knew they were screaming buys. Just that work's gotten too busy. No time for this stuff.

Old Buffett post from some blog

If what they say and their values match what they teach you, you are lucky. What I observed in the world was consistent with what my parents taught me. That was important. If you are sarcastic, and use it as a teaching tool to kids, they'll never learn to get over it. Those first few years they are very impressionable. - Buffett

Yes, I would still say the same thing today. In fact, we are still earning those types of returns on some of our smaller investments. The best decade was the 1950s; I was earning 50% plus returns with small amounts of capital. I could do the same thing today with smaller amounts. It would perhaps even be easier to make that much money in today's environment because information is easier to access.You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. A company that I found, Western Insurance Securities, was trading for $3/share when it was earning $20/share!! I tried to buy up as much of it as possible. No one will tell you about these businesses. You have to find them.Other examples: Genesee Valley Gas, public utility trading at a P/E of 2, GEICO, Union Street Railway of New Bedford selling at $30 when $100/share is sitting in cash, high yield position in 2002. No one will tell you about these ideas, you have to find them.The answer is still yes today that you can still earn extraordinary returns on smaller amounts of capital.

Q: Since Ben Graham isn't around anymore, what money managers do you respect today? Is there a Ben Graham today?
You don't need another Ben Graham. You don't need another Moses. There were only Ten Commandments; I did read Phil Fisher later on, which showed the more qualitative aspects of businesses. Markets are there to serve you, not to instruct you. You can often find a couple of companies that are out of line. Find one; get rich. Most people think that what the stock does from day to day contains information, but it doesn't. It isn't just something that wiggles around. The stock market is the best game in the world. You can take advantage of people who have no morals. High prices inside of a year will typically be 100% of the low price. Businesses don't change in value that much. That is simply crazy. There are extreme degrees of fluctuation, and Mr. Market will call out the prices. Wait until he is nutty in one direction or the other. Put in a margin of safety.When investing you don't have to invest in all 10,000 companies available, you just have to find the one that is out of line. Mr. Market is your servant. Mr. Market is your partner and wants to sell the business to you everyday. Some days he is very optimistic and wants a high price, others he is pessimistic and will sell at a low price. You have to use this to your advantage. The market is the greatest game in the world. There is nothing else that can, at times, get this far out of line with reality. For example, land usually only fluctuates within a 15% band. Just keep your wits about you and you can make a lot of money in the market.


Q: Do you expect the stock market premium to continue to be 6.5% over bonds?
Risk premiums are mostly nonsense. The world isn't calculating risk premiums.Best book prior to Graham was written by Edgar Lawrence Smith in 1924 called Common Stocks as Long Term Investments. It was a study that evaluated how bonds compared to stocks in various decades of the past. There weren't a whole lot of publicly traded companies back then. He thought he knew what he was going to find. He thought that he'd find that bonds outperformed stocks during periods of deflation, and stocks outperformed during inflationary times. But what he found was that stocks outperformed the bonds in nearly all cases. John M. Keynes then enumerated the reasons that this was so. He said that over time you have more capital working for you, and thus dividends would grow higher. This was novel information back then and investors then went crazy and started buying stocks for these higher returns. But then they started to get crazy, and no longer really applied the sound tactics that made the reasons given in the book true. Be careful that when you buy something for a sound reason, make sure that the reason stays sound.If you buy GM, you need to write the price and the respective market valuation. Then write down why you are buying the business. If you can't, then you have no business doing it.

Don't worry about mistakes. You'll make mistakes. Get over it. At the same time, it's important to learn from someone else's mistakes. You don't want to make too many mistakes.

Q: When did you know you were rich?
I really knew I was rich when I had $10,000. I knew along time ago that I was going to be doing something I loved doing with people that I loved doing it with. In 1958, I had my dad take me out of the will, as I knew I would be rich anyway. I let my two sisters have all the estate.I bet we all in this room live about the same. We eat about the same and sleep about the same. We pretty much drive a car for 10 years. All this stuff doesn't make it any different. I will watch the Super Bowl on a big screen television just like you. We are living the same life. I have two luxuries: I get to do what I want to do every day and I get to travel a lot faster than you. You should do the job you love whether or not you are getting paid for it. Do the job you love. Know that the money you will follow. I travel distances better than you do. The plane is nicer. But that is about the only thing that I do a whole lot different.I didn't know my salary when I went to work for Graham until I got his first paycheck. Do what you love and don't even think about the money.

If there is a place that is warm in the winter and cool in the summer, and you do what you love doing, you will do fine. You're rich if you are working around people you like. You will make money if you are energetic and intelligent. This society lets smart people with drive earn a very good living. You will be no exception.


Q: What led you to develop your values and goals at an early age?
 I was lucky because I knew what I loved at an early age. I was wired in a certain way when I was born, and I was lucky enough to stumble upon some books at a library at a very early age. In 1930, I won the ovarian lottery. If I had been born 2000 years ago, I'd have been somebody's lunch. I couldn't run fast, etc.I was lucky. I had a terrific set of parents. My father was an enormous inspiration for me. The job when you are a parent is to teach them. Be a natural hero. They are learning from you every moment you are around. There is no rewind button. If your parents do what they say and their values match what they teach you, you are lucky. What I observed in the world was consistent with what my parents taught me. That was important. If you are sarcastic, and use it as a teaching tool to kids, they'll never learn to get over it. Those first few years they are very impressionable.


I think those that get the lucky tickets should pay the most to the common causes of society.

Q: What would Berkshire be like if you hadn't met Charlie Munger?It would be very different, but I could say the same thing about a lot of other people, too. I've had a lot (at least a dozen) of heroes, including my parents. Charlie and I didn't meet until 1959, although he grew up a half a block from where I lived. Charlie was 35 and I was 29. We've been partners ever since. He is very strong-minded, but we've never had an argument that whole time. I've never been let down once. It must be a terrible feeling to be let down by a hero. Hang around people who are better than you all the time. You do pick up the behavior of people who are around you. It will make you a better person. Marry upward. That is the person who is going to have the biggest effect on you. A relationship like that over the decades will do nothing but good.

Q: Are investors more or less knowledgeable today compared to ten years ago?There is no doubt that there are far more “investment professionals” and way more IQ in the field, as it didn't use to look that promising. Investment data are available more conveniently and faster today. But the behavior of investors will not be more intelligent than in the past, despite all this. How people react will not change – their psychological makeup stays constant. You need to divorce your mind from the crowd. The herd mentality causes all these IQ's to become paralyzed. I don't think investors are now acting more intelligently, despite the intelligence. Smart doesn't always equal rational.The tech and telecom madness that existed just 6 years ago is right up there with the craziest mania's that have ever happened. Huge training in capital management didn't help.Take Long Term Capital Management. They had 100's of millions of their own money, and had all of that experience. The list included Nobel Prize winners. They probably had the highest IQ of any 100 people working together in the country, yet the place still blew up. It went to zero in a matter of days. How can people who are rich and no longer need more money do such foolish things?


Q: What sectors are hurting? Is there a bear market coming?Humans are still made up of the same psychological makeup, and opportunities will always present themselves. All these people have not gotten more rational. They are moved by fear and greed. But I'm never afraid of what I am doing. What are directors thinking [by not repurchasing shares] if the business is selling on a per share basis for one-fourth of what the whole business would sell for? They don't always think rational. I simply don't have that problem.Berkshire owned the Washington Post, the ABC network and Newsweek. It was selling for $100 million based on the stock price. No debt. You could have held an auction, and sold off the companies individually for $500M total, but $100M was the price. In other words they were willing to sell us money that was worth $1 for $0.25. According to efficient markets, the beta was higher when the stock was at $20 than at $37. This is insanity. We bought what was then worth $9 million that is now worth $1.7 billion

Saturday Interview
How to Fail in Business, a Guide to Success
http://www.nytimes.com/2008/07/26/business/26interview.html


By J. ALEX TARQUINIO
Now, at the urging of his lifelong friend, the investor Warren E. Buffett, he has turned the speech into a book, “The Ten Commandments for Business Failure,” which was published by the Portfolio imprint of the Penguin Group this week.

Q. Why did you decide to focus this book on the mistakes that can lead to business failure, rather than on the much more common theme of business success?
A. The word “success” has always made me nervous, because I believe built into that word are a couple of viruses — arrogance and complacency — and left unchecked, they can ensure failure. Ultimately, it is when mistakes are made that life takes its turns. If you watch a tennis match, it is the mistakes that determine who is going to win.
Q. You were highly critical in your book of the role that consultants played in the New Coke episode. Do they really deserve so much of the blame, if management was responsible for calling the shots?
A. Consultants will probably not be great purchasers of this book. There is nothing wrong with outside help. But they have to be there for a specific purpose, for some knowledge that you don’t have. These are usually very smart people, and they are very good at PowerPoint presentations. But you shouldn’t rely on them more than the people in your own company.
Q. Why did you hesitate to invest in Eastern Europe after the Berlin Wall fell in 1989?
A. That was one of those times when I almost succumbed to the view that I was infallible. The man in charge of Europe asked us to invest a huge amount of money in Eastern Europe. Apparently, I was unpleasant about it. His boss, who was in charge of international operations, came into my office afterward and said to me, “You haven’t got the right to shoot him down, because you haven’t been there and you don’t know what’s going on.”
It hit me like a brick that he was right. We went all over Eastern Europe together, and three months later, we announced that we would spend a billion dollars there. And if he hadn’t had the guts to come into my office and tell me how stupid I was being, we wouldn’t have the kind of business that we have there now.
Q. Why do you think there have been so many scandals at large public companies in recent years?
A. The focus has moved from managing the company to managing the stock. If you look back, 20 or 30 years ago, the typical annual report was four or five pages and had no pictures, just the facts. But as the bull market developed, the annual reports became sexier.
And the chief financial officer was no longer there to add and subtract the numbers. He was encouraged to be creative. The C.E.O. might say to him: “The Street is expecting 5 more cents. Can you find it?” The pressure in that bubble was so intense. The bubble ended in 2001.
But it still takes a rare C.E.O. to say: “I am not going to pay attention to my quarterly results. I am going to run the company on the basis of long-term return to my shareholders.”
Q. You had a colorful childhood, working with your father in the Sioux City, Iowa, stockyards. How do you think that influenced your executive career?
A. When I was 15 or 16 years old, I got a job buying bulls to ship to processing plants back East. I worked for a man named Doyle Harmon, and my first day on the job, he chastised me for paying too much. He said “concentrate on the bull, not on the language of selling.” I’ve made most of the mistakes in my career by not concentrating on the bull.

We buy businesses that are drowning in cash - Munger

Investmentu cash flow

Three Ways to Beat Analysts at Their Own Job by Floyd G. Brown, Advisory Panelist
The problem is that DCF  based on computer models with assumptions about future sales, earnings and growth rates. What you end up with is highly subjective.

So what should we look at?
Cash Balances and Debt When the economy turns down, highly leveraged firms get in trouble first. Cash Flow The market will - over time - value cash flow in similar ways. Look for times when the market undervalues a company's cash by finding out how much cash a company is producing today. Cash flow is the lifeblood of a company. You can reasonably expect that Wall Street will appreciate the value of free cash flow in the future, even if the firm is out of favor today.

In the 1990s, oil stocks greatly underperformed the market. But they generated huge amounts of cash. I started buying these deeply undervalued stocks in the late '90s knowing that eventually, the historic cash flow generation would win out.
Can the company continue to generate healthy cash flow and earnings?

Secrets to understanding the picture of any company through their annual report.

Experience has taught me that accumulating "more stuff" provides a short-time high at best. When that wears off, you invariably find that all this "stuff" you had to have needs to be stored, cared for, maintained and insured. Hence the old saying, "do you own your possessions or do they own you?"
And ask yourself this: If you stepped in front of a bus tomorrow, as you lay there on the pavement, would you really regret the stuff you never bought? Or would it be the things you never did?
Spend a moment thinking about the things you've always wanted to do and still haven't done. Maybe the best way to spend your money is to get busy doing them.
It costs a lot less to collect experiences - memories - than expensive stuff. And you'll probably find it a lot more rewarding.

Fave Ben Franklin quotes

• A good conscience is a continual Christmas.
• A house is not a home unless it contains food and fire for the mind as well as the body.
• A penny saved is a penny earned.
• A place for everything, everything in its place.
• Absence sharpens love, presence strengthens it.
• An investment in knowledge pays the best interest.
• Anger is never without a reason, but seldom with a good one.
• Be slow in choosing a friend, slower in changing.
• Being ignorant is not so much a shame, as being unwilling to learn.
• Beware of little expenses. A small leak will sink a great ship.
• By failing to prepare, you are preparing to fail.
• Fatigue is the best pillow.
• It is easier to build two chimneys than to keep one in fuel.
• He that has done you a kindness will be more ready to do you another, than he whom you yourself have obliged.
• He that rises late must trot all day.
• He that speaks much, is much mistaken.
• He that would live in peace and at ease must not speak all he knows or all he sees.
• It is the working man who is the happy man. It is the idle man who is the miserable man.
• It takes many good deeds to build a good reputation, and only one bad one to lose it.
• Necessity never made a good bargain.
• Never confuse motion with action.
• Never leave that till tomorrow which you can do today.
• Rather go to bed with out dinner than to rise in debt.
• Rebellion against tyrants is obedience to God.
• Take time for all things: great haste makes great waste.
• The worst wheel of the cart makes the most noise.
• There never was a truly great man that was not at the same time truly virtuous.
• Those disputing, contradicting, and confuting people are generally unfortunate in their affairs. They get victory, sometimes, but they never get good will, which would be of more use to them.
• Well done is better than well said.
• Whatever is begun in anger ends in shame.
• When in doubt, don't.
• Where liberty is, there is my country.
• Where sense is wanting, everything is wanting.
• You can bear your own faults, and why not a fault in your wife?

Very nice article in The Washington Times today. (Edited to the best bits)

The Fading of the Mirage Economy By Steven Pearlstein
The global economy is purging itself of unsustainable imbalances. Most of us understand that an overabundance of cheap credit created a housing bubble that produced too many homeowners supporting a lifestyle they could not sustain. We are now coming to accept the reality of lower prices and the wisdom that a house is not a substitute for a retirement fund.

The reality is that for too many years, airlines have sold too many tickets at prices that failed to reflect the real cost of providing the service passengers want and expect. But they also include costs that may be less obvious, like keeping up with preventive maintenance, hedging fuel costs, paying a decent wage to front-line employees, investing in modern air traffic control systems, and paying a price that reflects the true value of scarce air space and landing rights.
Airline executives will say that if they were to charge enough to reflect all these costs, they would have many fewer passengers. That's the point: A sustainable equilibrium will inevitably involve a smaller industry with fewer planes, fewer flights, fewer passengers and fewer employees.

Enjoying new job immensely. Fervently hope that can do the job to everyone's satisfaction, scared that I won't be able to. Anyway hope to try my very best.

Some good stuff from Emerson on Fate :

• The Turk, Arab and Persian accepts the foreordained fate :

"On two days, it steads not to run from thy grave,

The appointed, and the unappointed day.

On the first, neither balm nor physician can save,

Nor thee, on the second, can the Universe slay."

• Great men, great nations, have not been boasters or buffoons, but perceivers of the terror of life, and have manned themselves to face it.The Spartan, embodying his religion in his country, dies before its majesty without a question.
• The bill of a bird, the skull of a snake, determines tyrannically its limits. So is the scale of races, temperaments, sex, climate and the reaction of talents imprisoning the vital power in certain directions.
• Let him value his hands and feet, he has but one pair. So he has but one future, and that is already predetermined in his lobes and described in that little fatty face, pig-eye , and squat form. All the privilege and legislation in the world cannot help to make a poet or a prince of him.

Don't sweat the small stuff.

• Do something nice, don't tell anyone about it.
• Remember that when you die, your in-basket won't be empty.
• Lower your tolerance to stress : What you want to do is notice your stress early. When you feel your mind moving too quickly, its time to back off and regain your bearings. When your schedule is getting out of hand, its a signal to slow down and reevaluate what's important rather than power through everything on the list. When you're feeling out of control and resentful of all you have to do, rather than roll up your sleeves and "get to it", a better strategy is to relax, take a few deep breaths and go for a short walk. When its small, its manageable and easy to control. As you lower your tolerance to stress you will also see things as they are and come up with creative ways to handle the work. (E.g. ask someone to help, talk to manager)
• Repeat to yourself : "Life isn't an Emergency". We take our own goals so seriously that we forget to have fun along the way and we forget to cut ourselves some slack. We beat ourselves up because we cannot meet self-imposed or arbitrary deadlines. The first step to becoming more peaceful is to admit that in most cases you're creating your own emergencies.
• Set aside Quiet Time, Every Day. : Mornings, its absolutely silent outside and I am in complete solitude. There is something rejuvenating and peaceful about being alone and having time to reflect, work or simply enjoy the quiet.
• Breathing from the Belly : Breathe before your Speak. Increased patience and remarkable results for virtually everyone who has tried it. Pause and breathe after the person to whom you are speaking is finished. You will get used to the beauty and power of breathing. We will overreact less, misinterpret meanings less, will not impute false motives or form opinions before our fellow communicator is finished.
• Praise and Blame are All the Same. : One of the most unavoidable life lessons is having to deal with the disapproval of others. The sooner we accept the inevitable dilemma of not being able to win the approval of everyone, the easier our lives will become. "Here is is again. That's okay"
• Quiet the Mind. "All of humanity's problems stem from man's inability to sit quietly in a room alone". Train your mind for 5-10 mins a day. Close your eyes and focus your attention on your breath- As thoughts enter your mind, gently let them go and bring your attention back to your breath. This isn't easy, beginners can only do it for seconds at a time.
• Cut yourself some slack. There will be many times when you lose it, get used to it. When you do it, its okay. Just start again.As long as your doing your best and moving in the right direction, that's okay.
• Become an early riser. An hour or two that is reserved just for you-before your day begins-is an incredible way to improve your life. Sometimes I'll just sit and do nothing. The phone never rings, no one is asking me to do something for them., and there is nothing that I have to absolutely do. By the time everyone wakes up, I feel like I've had a full day of enjoyment.. All of a sudden, the books are getting read, the meditation gets done, the sunrise appreciated. Turn off the TV at night and get to sleep and hour or two early.
• Listen to your feelings : You have at your disposal a foolproof guidance system to navigate you through life. You can think of your negative feelings in the same way you think of warning lights on the dashboard. Don't pretend that negative feelings don't exist. Instead of rolling up your sleeves and fighting, back off, take a deep breath and relax. Remember life isn't an emergency unless you make it so.
• IF Someone throws you the Ball, You don't have to catch it. Developing a more tranquil outlook on life requires that we know our own limits and take responsibility for our part. By simply not answering the phone, or on being insulted or criticised, if you choose to drop the ball, means some more peace of mind. You can either catch it or drop it and go on with your day.

Stress !

Stress is caused by two things and two things only :

1. Any time we believe we "have to do something".
2. Any time there is a conflict between our actions and beliefs.

When you pretend not to like do something, pretending to enjoy something you don;'t really like, or any time of pretending whatsoever, you are "coping". Coping causes physiological havoc inside your body. The answer or alternative to coping, is complete honesty - especially with yourself. This puts realness back into your life and eliminates feeling out of control. As you honest with yourself, you are living life as it really is and the result is true joy rather than pretended happiness. Self-honesty fosters good health.

In a nutshell, the way to avoid coping is to be completely honest with yourself. Coping is just surviving. Self honesty gives vigor to life and fosters strength. When hurting words are spoken, damaging deeds are done, or discouraging events take place, you can focus on your feelings and not try to hide them. This gives your hypothalamus some rest. The only message that is stored is the truth- that your feelings were hurt, you struggled to get by, or you felt sad. All this does is reinforce to the mind that your ability to feel and to recognize feelings is still functioning and a series of 1400 chemical reactions which constitute survival or coping mode will never be initiated.

Blowing up and getting angry, giving up, or gritting your teeth and going at it again all allow the survival mode to keep on going which is bad for the body.

Re-energizing is simply doing things that you really enjoy. As soon as you begin to experience stress, you lose sight of who you really are and what you enjoy doing. You begin to ignore your dreams and aspirations and put them aside.

You have been taught to ignore your feelings because the only thing that is important is being successful. Unfortunately, this system also teaches you to pay less and less attention to the child within you that does understand what you want. Along the way, creativity, originality, fun and individualism become lost. The child in you wants to crate new things, to play and laugh, climb mountains, sail around the world, give a big hug, splash in the puddle, explore the wilderness, fight the bad guys and win, find a Cinderella or Handsome Prince, collect pretty things , and let the wind blow your hair wherever it wants.

For most people the end point is feeling worthless and/or depressed. I would rather go to work than be depressed. I don't end up being guilty, frustrated or worthless. So "I want to go to work". Reality then is that "I want to go to work" not that I have to go to work.

Each of us already knows what the ideal "Big Picture" is for us. It is in our heart, we can feel it. So, taking your time to feel what is most important to you is important.. Your feelings are very close to the truth. Trust them. A good person is loving, honest, kind , courageous, gentle, industrious, financially independent, compassionate, giving and forgiving.

The result of being free from stress is that the body can operate in the efficiency mode as it was designed to do.

Prevention :

• Exercise : 5 days 20-60 mins exercise.
• Water : Liquid Gold. Drink water when you feel you're hungry
• Low fat food.

Sir John Templeton also tells us: "Before this century is over, the Dow Jones Industrial Average will probably be over one million versus around 10,000 now. So for the long-term, the outlook is tremendously bullish if you buy stocks blindly to keep for a century."

Read a bit about Lincoln today. Interesting to read his comments on liberty for slaves, yet acknowledge social disparities. Found some of his quotes :

• "If I were to try to read, much less answer, all the attacks made on me, this shop might as well be closed for any other business. I do the very best I know how - the very best I can; and I mean to keep doing so until the end. If the end brings me out all right, what's said against me won't amount to anything. If the end brings me out wrong, ten angels swearing I was right would make no difference." The Inner Life of Abraham Lincoln: Six Months at the White House by Francis B. Carpenter
• "Those who deny freedom to others, deserve it not for themselves; and, under a just God, can not long retain it."
• "My paramount object in this struggle is to save the Union, and is not either to save or to destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it; and if I could save it by freeing some and leaving others alone I would also do that. "
• "Common looking people are the best in the world: that is the reason the Lord makes so many of them."
• "Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."
• "With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in; - to do all which may achieve and cherish a just and lasting peace, among ourselves, and with all nations."
• "I am rather inclined to silence, and whether that be wise or not, it is at least more unusual nowadays to find a man who can hold his tongue than to find one who cannot."
• "I have not permitted myself, gentlemen, to conclude that I am the best man in the country; but I am reminded, in this connection, of a story of an old Dutch farmer who remarked to a companion once that 'it was not best to swap horses while crossing streams'."
• "Whenever I hear any one arguing for slavery I feel a strong impulse to see it tried on him personally."
• "The probability that we may fall in the struggle ought not to deter us from the support of a cause we believe to be just; it shall not deter me."
• "Leave nothing for tomorrow which can be done today."
• "Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser - in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough."
  
• "I will say then that I am not, nor ever have been in favor of bringing about in anyway the social and political equality of the white and black races - that I am not nor ever have been in favor of making voters or jurors of negroes, nor of qualifying them to hold office, nor to intermarry with white people; and I will say in addition to this that there is a physical difference between the white and black races which I believe will forever forbid the two races living together on terms of social and political equality. And inasmuch as they cannot so live, while they do remain together there must be the position of superior and inferior, and I as much as any other man am in favor of having the superior position assigned to the white race. I say upon this occasion I do not perceive that because the white man is to have the superior position the negro should be denied everything."
  
• "I have never said anything to the contrary, but I hold that notwithstanding all this, there is no reason in the world why the negro is not entitled to all the natural rights enumerated in the Declaration of Independence, the right to life, liberty and the pursuit of happiness. I hold that he is as much entitled to these as the white man. I agree with Judge Douglas he is not my equal in many respects---certainly not in color, perhaps not in moral or intellectual endowment. But in the right to eat the bread, without leave of anybody else, which his own hand earns, he is my equal and the equal of Judge Douglas, and the equal of every living man. "
  
• "With some the word liberty may mean for each man to do as he pleases with himself, and the product of his labor; while with others, the same word may mean for some men to do as they please with other men, and the product of other men's labor. Here are two, not only different, but incompatible things, called by the same name - liberty. And it follows that each of the things is, by the respective parties, called by two different and incompatible names - liberty and tyranny."
• "It is said an Eastern monarch charged his wise men to invent him a sentence to be ever in view, and which should be true and appropriate in all times and situations. They presented : 'And this, too, shall pass away.' How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!"
• "I am not a Know-Nothing. That is certain. How could I be? How can any one who abhors the oppression of negroes, be in favor of degrading classes of white people? Our progress in degeneracy appears to me to be pretty rapid. As a nation, we began by declaring that "all men are created equal." We now practically read it "all men are created equal, except Negroes." When the Know-Nothings get control, it will read "all men are created equal, except Negroes and foreigners and Catholics." When it comes to this, I shall prefer emigrating to some country where they make no pretense of loving liberty - to Russia, for instance, where despotism can be taken pure and without the base alloy of hypocrisy."
  
• "Stand with anybody that stands RIGHT. Stand with him while he is right and PART with him when he goes wrong."

From Berkshire Annual Meeting 2008

• Munger : The key is not to be seduced by crazy ideas, but instead just stick to the fundamentals year after year. Academia doesn't get too interested in us -- we're too simple. What would the professors do? A great many of the formulas [they use to analyze securities and markets] are dead wrong. They exist purely to give the intellectual class something to do. We don't do anything just exercise our intellectual proclivity for mathematical formulas."
• Then Buffet said one of the most remarkable things I've ever heard him say: "There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month."
• Q: You said before that one of the things you look for in businesses you're buying is good managers. To me, that's a hard judgment to make if you haven't known him for long on a personal level. How do you go about figuring that out about somebody?
  WB: We're buying businesses where the managers come with it, so I do have a record [I can judge]. If I had to pick out the five people in this group here who would be the best managers, I wouldn't know how to do it. I mean, you all have great IQs, great academic records. You've all shown the energy to get into school.
• Can I pick out the five best? I don't think I can do it. What I can do, when I've seen somebody run a business for 20 years, is decide whether they're going to keep behaving in the future as they have in the past. So when I buy a business - it's the biggest question I ask - "Do they love the money, or do they love the business?" [One giveaway is] if they auction the business. We've never bought a business at an auction.
  I got a fax from a fellow named Peter Liegl from Forest River. I said, "Pete, send me the last few audits and I'll call you tomorrow" Never met him, never heard of the company. (It's a RV company.) So I called him that afternoon. I said, "Pete, here's what I'll do. And if it works for you, fine." I'd never met the guy, but I could still tell by just the way he presented it and his thinking on it.
  I said to him, "Pete, what kind of salary would you like"; this is a company that did a billion seven last year. That's not the way they teach you to do it in business school, but I don't want anybody working for me that has a compensation system they're unhappy with. And he said, "I don't know." And I said, "Well, just tell me because I want you to be happy. You have to run this thing." "Well," he took a little while, "Well," he said, "I looked at the proxy statement, you make $100,000. I wouldn't want to make more than you do." So that became his salary.
  I said, "I want you to have a percentage interest in future earnings above this level," which we worked out. But he offered $100,000 and I offered the percentage above that. I've never seen this place. I hope it's there. [Laughter] Pete may have some 11-year-old kid in there that says, "What figure shall we send Warren?" [Laughter]
  He doesn't need the job. As long as that thing is a lot of fun for him, he's going to keep running it. [I get offered all] kinds of deals from LBO operators. I would just love to bet against the projections of every one that they give me. They hand me these books, which I don't even want to look at, and of course they always just project like that [points upward like a graph that only increases]. I would just love to make a career out of betting against the figures presented in those books, but I don't get a chance to do that. If you ever get a chance to short investment banker books, that would be a great activity.
  
• We don't think about cost of capital or risk-adjusted. I mean, we don't want to take any risk, and we don't. That doesn't mean we don't do things that are wrong, but we are not doing anything that risks real losses.
  
  And as I said earlier [regarding stock holdings], we would have sold the thing to do something that offered even better opportunity. If it's going to permanently lose money, I reserve the right to sell it, and if it has labor problems, I reserve the right to sell it. They've been there for 20-plus years, those principles. But we believe in them. We follow through on them.
  The smaller capital expenditures, or even fairly large ones at the subsidiaries, they just do them themselves. They don't need me, because if some guy comes in to me and talks about something in the yarn plant or something in Georgia, what the hell do I know about it? If I say the internal rate of return we demand is 15.83, it'll be 15.84. I mean, you just can bet on it. We don't go through those charades. And it saves my time, saves their time.
  
• There isn't one security that I've got in the portfolio that I look at as-in terms of risky - in the sense of permanent capital loss. They can go down 50%.
  Berkshire Hathaway (BRKA, Fortune 500) stock itself has gone down 50% three times since I bought the first stock in at 7 3/8. In 1974 it got cut in half. In 1987 it got cut in half. In 1998, 2000 or so it got cut in half. So that doesn't make any difference. I mean, I just don't worry about it. I worry about permanent loss of capital. I worry about making the right businesses. I worry about keeping the managers happy. Everything else pretty much takes care of itself.
• Berkshire Hathaway Inc. says its first-quarter profit fell 64%, because it recorded an unrealized $1.6 billion loss on its derivative contracts. BRK.A reported net income of $940 million, or $607 per share, in the quarter ended March 31. That's down significantly from the net income of $2.6 billion Berkshire generated a year ago.
  Warren Buffett, warned shareholders in his annual letter that the derivatives could make the company's earnings volatile. But Buffett predicted the derivatives will ultimately be profitable.
  The four analysts surveyed by Thomson Financial expected earnings per share of $1,476.99 on average.

From Charles Hugh Smith : Where is the bottom in housing ?

What's a sound business proposition? making a profit from day one. At the real bottom in real estate cycles, you can buy a house or apartment and rent it out at market rates--and make a profit on day one in cash-accounting terms.

1. down payment. The down payment isn't "free": you could be earning 3% or so in a money market/T-bill. As pathetic as that is, it's not zero. If the down payment isn't earning more than 3%, then why bother buying real estate?

2. mortgage/borrowed money. This is self-evident. But wait--there's more!

3. property management. Even if you do it yourself, it's not "free"; nobody's time is free. The standard fee is abour 5-6% to handle the rental and collect the rent. This does not cover gardening, upkeep, repairs, etc.--those are extra. Plus somebody has to respond to tenant complaints. That's not free, either.

4. property taxes. Like weeds, these just grow constantly. Don't forget the special assessments.

5. advertising/marketing. Sure, craigslist is free--but somebody has to meet prospective tenants, process their rental applications, check their credit, etc. Maybe that's included in your property management fee, maybe not.

6. auto/truck expenses. hauling stuff to the dump and driving to Lowes/Home Cheepo isn't free.

7. cleaning and maintenance. When the tenant moves out, the place isn't perfect, no matter what you hope/what the lease says. (And how good is that lease, anyway? Better add a couple hundred bucks for attorney's fees if you're smart.)

Ah, maintenance. That covers quite a few costly items: appliances that die, carpets that wear out, hardwood floors stained by cat pee/soggy house plants, furnace filters, paint that gets grimy, etc. Many pros figure 10% of the rent goes (eventually) to repairs/maintenance.

8. Insurance. It's nice if you could get homeowner's coverage, but you can't--your rental is a commercial property. Now you need liability coverage, too, not just fire insurance. Nothing like a tenant "tripping on the broken concrete" to remind you of that.

9. repairs. A building is a living thing which breaks down over time--expecially if it's a cheaply built, poorly constructed McMansion/condo. Windows break, paint peels, roofing leaks, flashing rusts, stairs rot, crummy veneer flooring delaminates, the list is endless.

10. utilities. Many landlords pay for water, but maybe you won't.

11. fees and licenses. Your city or county probably wants some business license fees from your landlording business. One way or another, there's sure to be some fees or licensing costs somewhere. Maybe the city inspects the property for safety--and bills you. Some agency or municipality is sure to assess you something beyond property tax.

12. Vacancies. Yes, some premium properties are rarely empty, but don't fool yourself--the pros know vacancies are a fact of rental real estate life. Most figure 5% (for premium properties) to 10% (for less than premium).

OK, so let's say a rental property rents for $1,500/month in the real world. In my neck of the woods, this would be a small 2-bedroom, 1-bath bungalow.

To keep things simple. let's say the rental costs $300,000 and the owner bought it with no down payment. According to zillow.com's mortgage estimation tool, a $300K mortgage at 6% (30-year fixed-rate) costs $2,124/month or $25,500 a year.

A rough guesstimate of all the non-mortgage expenses listed above for a $300K property comes to between $8,000 and $9,000, so let's take the lower number. (Insurance and other costs vary widely, too.) $8K + $25K = $33K in expenses against $18K in annual income. A $15,000 per year loss is not a good business proposition.

So let's drop the price down to $150,000. The mortgage drops to $1,224/month or $14,600 annually. Let's shave another $1,000 off the property tax (too bad for the city/ county depending onrising property tax revenues) and assume all non-mortgage expenses can be reduced to $6,000 per year. $14.5K + $6K = $20.5K versus $18,000 rental income: we're down to a $2,500 annual loss.

So let's ratchet the pruchase price down to $130,000. Now the mortgage is only $13,000 a year and the non-mortgage expenses, well let's say they're down to $5,500 a year. $13K + $5.5K = $18.5K against $18K in rental income. Hey, we're finally getting close to breakeven here. An actual, honest profit is just around the corner.

So let's assume a purchase price of $126,000 for the house which rents for $1,500 per month ($18,000 a year). Now at long last we can anticipate a modest profit--unless of course the property sits vacant more than a few weeks out of the year.

Real estate investment pros have a rule of thumb for establishing fair value of rental property. Multiply the annual gross rental by between 6 and 10; that gives you a "business" estimate of the value of the rental. In not-so-great neighborhoods, a multiple of 6 is standard; a house that rents for $18,000 a year would thus be worth $108,000. A moderate neighborhood would fetch a multiple of 7--magically, our $126,000 number. Premium neighborhoods (where it is presumed you can raise the rents) may be worth 8 to 10 times gross annual rents.

So even in a wonderful neighborhood with terrific schools and other assets, a house renting for $18,000 a year is worth no more than $175,000--as a business proposition. Of course you can pay more, but you're paying for "blue sky," not an asset that can be sold on the open market as a business proposition.

It's easy to multiply a number by 7. That big house down the street that rents for $3,000 a month/$36,000 a year? At the real "bottom," that house will sell for about $250,000 (or less). That condo which rents for $1,200/month/$14,000 a year? $100,000, tops. And so on.

And what's a time-tested method of figuring that price? Seven times gross annual rental income.

CA SDI questions. Can we deduct from Schedule A itemized state taxes ?

Are you asking about deducting SDI that you paid, or having to report SDI benefits (disability benefits) that you received?Disability benefits that you receive from the state (California) are nontaxable and you do not need to report it.For the SDI insurance contributions you paid through your paycheck as a withholding, you can deduct them against your federal tax (if you itemize) as a state tax deduction if the contribution appears on your W-2 as "SDI" or "CASDI". The alternate, voluntary program that appears as "VDI", "VPDI" or "CA VPDI" is nondeductible.

Intelligence is the capacity to perceive the essential , the "what is". J Krishnamurthi

MUST READ

It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

See debt

Should change the name of this blog to foolishcontrarian.blogspot.com based on AMR debacle. If had bought a house would have looked more of a genius than I do now :(

God's sugar daddy
LEAH McLAREN

"His earliest virtues," Lauren Templeton explains, "were thrift, an industrious nature, wild curiosity and a quiet self-assuredness."

The law office overlooked Winchester's main square, so Harvey could see the courthouse where auctions were held when the bank foreclosed on farms. "When the auctions failed to produce a highest bidder," writes Lauren Templeton in Investing the Templeton Way, the book she and her husband, Scott Phillips have just published, "Harvey Sr. would leave his office and bid … usually able to buy farms for a few cents on the dollar.
"Uncle John's observation of this practice as a young boy is likely the very first seed of this most famous investing approach, which he coined, buying at the point of 'maximum pessimism.' "
Of course, "buy low, sell high" is an old stock-market maxim, but it takes courage to follow through. And as Mr. Templeton has wryly put it, "usually God favours the people who try to do good. So, when you find the crowd is desperately trying to sell, help them and buy. When you find that the crowd is desperately trying to buy, help them and sell. It usually works out."
This kind of gutsiness got him his start as an investor. In 1939, he was young and living in a seedy Manhattan walk-up when he took an almost unthinkable risk. He borrowed $10,000 and bought $100 worth of every stock then valued at less than $1 a share on the New York Stock Exchange. It looked like madness, but Germany had just invaded Poland and he felt the looming war would drive up the market. All but four of 104 stocks he bought turned a profit.
His ability to calculate risk and sense a payoff proved uncanny and consistent. Sixty years later, the same man who bought low as conflict loomed sold high just as the tech bubble was about to burst.
It also may have been the seed of his mythic frugality. Despite his vast wealth, he flies economy class and long ago renounced his citizenship and took up residence in the Bahamas, a tax haven with a wonderful climate.
Lauren Templeton says "the accumulation of money was merely a way for him to measure his progress. He wasn't out buying Rolexes, that's for sure. This is a man who made $200-million off Kia automobile stocks, but for many years thought a Kia was too expensive to buy. Bargain-hunting affected every part of his life."
"He's like John D. Rockefeller, who said, 'God gave me my money.' "
Canadian researcher Elizabeth Dunn reported this week that people who spend their money on others feel happier than those who spend it on themselves. According to old friend and finance colleague Foster Friess, this applies to Sir John. "I don't think he went out of his way to accumulate. It's just something that happens to people who are committed to serving others. It's not something he sought, but something that came to him because of his serving attitude.
"His faith dictated that the money wasn't really his anyway but that he was merely a steward of it. So that is probably why he was motivated to spend it in a way he thought would be pleasing to God."
"In general, the problem with our culture is narcissism, solipsism and selfishness," says Steven Post. "Sir John has always said to me, 'Just love and let everything else take care of itself.' He agrees with Abe Lincoln, who said we have to focus not on what we know, but on what we don't know.
"So, what I'm financing is humility. I want people to realize that you shouldn't think you know it all."

Wow, Bear Stearns being bought out for $2 a share. Fucking scary. You never know.. Stay away from what one doesn't understand. Thankfully did not venture into financial shares because of lack of understanding. One exception is CNA, hope they will be ok.

What happens tomorrow, where does AMR go? Did I make a huge mistake with AMR too?
Scared but holding on, think it should still be ok.

I think I may have made a mistake with AMR. Either they go into bankruptcy or should go back to 16-17 if oil falls a bit. Spinoff may yield some positive too. But debt load should have warned me. Bought CNA for retirement acct.

Not looking at account anymore due to AMR, did buy more but am on a lot of margin now. :(

Oh well, back to the poorhouse..

Emory's Goizueta Business School and McCombs School of Business at UT Austin w/Mr. Buffett.

• Charlie and I operated mostly with 5 positions. If I were running 50-200 million, I would have 80% in 5 positions, with 25% for the largest. In 1964 I found a position I was willing to go heavier into, up to 40%. The position was American Express. In 1951 I put the bulk of my net worth into GEICO.
• Over the past 50-60 years, Charlie and I have never permanently lost more than 2% of our personal worth on a position. We’ve suffered quotational loss, 50% movements. That’s why you should never borrow money.
• Snickers has been the #1 candy bar for the past 40 years. If you gave me $1 billion to knock off Snickers, I can’t do it. That’s the test of a good business.
• To focus on what you don’t have is a terrible mistake. With the gifts all of us have, if you are unhappy, it’s your own fault.
• If you have a lot of people that would hide you, then you can feel pretty good about how you’ve lived your life. I know people on the Forbes 400 list whose children would not hide them. The most powerful force in the world is unconditional love. The more you try to give it away, the more you get it back. At an individual level, it’s important to make sure that for the people that count to you, you count to them.
• You like people who are generous, go out of their way, straight shooters.
• The philosophy either takes immediately or it doesn’t at all. The reason gets down to temperament. People want to make money fast, but it doesn’t happen that way.
• There is always some introduction of moral hazard when government decides to act in favor of the common good versus letting someone fail. I would be disinclined to second guess the Fed, they have more information and are trying to do what’s right.
• Tell me who your heroes are and I’ll tell you how you’ll turn out to be.
• What we are seeing is a huge repricing and evaluation of risk, correcting for problems of the past. I don’t know of good credit propositions that are going unfulfilled. There’s lots of cheap credit for sensible deals, which I don’t define as anything that happened over the last 12, 18 months. Comparatively, this is not a credit crunch. In 1982 the prime rate was 22%.
• We’ve made lots of mistakes, but they don’t bother me. We are in the business of making many decisions and there are bound to be mistakes.
• It just doesn’t pay to dwell on the bad things. Finding the right spouse is 90% of it. If you are lucky on health and lucky on your spouse, you are a long way home.
• I recommend an index fund for these sovereign wealth funds. It gives them exposure to the US market, but they won’t get taken by salespeople with bad deals.
• I don’t think there is much being overlooked now, but I’m forced to look at big things. In 1951, I used Moody’s and S&P manuals as my sources of information. I went through them page by page.
• It’s also important to avoid managers who use leverage. It’s the reason that investors with 160 IQs flame out.
• Behaving decent is a large part of it. I tried to be useful and visible. I gave him stock tips and kept up with him. Almost always good things come from good behavior. It’s good to have a willingness to pitch in when you aren’t going to get credit for it.
• I just naturally want to do things that make sense. I don’t care what other rich people are doing. I don’t want a 405 foot boat just because someone else has a 400 foot boat.
• My wife was responsible for bringing up the children. In my own life I did virtually no social functions or meetings that I didn’t want to do. I’ve not seen many males having to make tough choices. But women are the ones who have tough situations.