Dan Sweet

Quick update…

Yes, I still plan to post on this blog.  Recently real life has consumed all the time I have had available and then some but this blog will come back to life very shortly.

In the past 4 months I have bought a house, watched my little girl grow up, changed lots of diapers, put together a primer on social media for incoming MBAs, gotten my MBA from Notre Dame, seen Joe Montana and Obama at graduation, moved from Indiana to Ohio, grown a lawn from seed, bought my first lawnmower, mounted my plasma on the wall, bought and returned many curtains, bought and assembled several more pieces of IKEA furniture, lost money shorting commercial real estate, bought a new car, filed an amended tax return, and made way to many trips to Lowes and Home Depot.

I start work at P&G in eleven short days an am very excited for it.  Alright, I’m out for now.  Lots more house organizing and stuff buying to do.

Warren Buffett on the best investments for young investors now? (12 of 12)

This is the final post in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

What do you see as the best investments for young investors now?

Do the internet equivalent of what I did with Moody’s books.  I found 15-20 companies in an afternoon looking through a 2004 guide to Korean companies published by Citi.

Example: Dehan Flour Company.  Earnings of 12k historically and 18k most recently.  200k book  value with 100k in marketable securities.  Selling for 38k won.  (2x earnings!)

Look for good fundamental businesses.  Selling for 2-3x earnings.  As long as you choose companies with great balance sheets you can’t lose.  In the U.S. I’d just choose 2-3 companies.  In emerging markets I’d probably diversify a little more.  A 5x return in 3 years would be doable.

Read Graham’s Chapter 8 of The Intelligent Investor on Mr. Market.  The market is the best place to make a lot of money without being very smart—and that’s what I was looking for.  If you bought a farm for $600 an acre you wouldn’t get upset if another farm sells for $550 an acre.  The farm doesn’t know what I paid for it.  Mr. Market is the best partner to have.  He’s psychotic, he’s drunk.  Sometimes its ridiculous.

The idea that the market is there to serve you and not to instruct you is the most important idea to keep in mind.

Liquidity should not suck you in.  Ask yourself, “would I be happy with this purchase if they closed the market tomorrow for two years?”

What you need is the right business, run by the right people, at the right price.

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Warren Buffett on derivatives (11 of 12)

This is the eleventh in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

How do you feel about derivatives?

Derivatives create big positions people don’t understand.

Classic case is detailed in the Brady Report from October 19, 1987.  130/30 is the new hot thing.  Portfolio insurance was the thing then.  “Dynamic Hedging”  Basically the lower it goes the more you should sell.  Institutions had to sell at certain levels and everyone knew it.  Less than 2% of the market was on this kind of auto-pilot program-yet crashed the whole market.  Derivatives have created huge amounts of capital that are forced to move automatically.

They offer opportunity to me but a lot of people can get hurt.

A greater portion of the market is poised on a hair trigger to respond to given messages.

Federal Reserve margin requirements are 50% for you and me.  So many ways around that. “total return swap” for example.  Long Term Capital Management had a $6 billion position with no capital put up.  Whatever happens in the market is exacerbated by derivatives.

Banker’s Trust screwing P&G—like 8 variables those companies didn’t understand.

We will make a lot on derivatives but I will know every position.

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Warren Buffett compares railroads to the Cubs (10 of 12)

This is the tenth in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

Which railroads do you like and why?

Rails had a bad century—just like the Cubs.  Rails used to have 1.5 million employees.  They are getting more done now with only 200k employees.  Competition ruined the business.  Excess capacity is a terrible thing.  Rising oil prices hurts truckers 3-4x more than rails.

RR business just eats up capital (not good).  Coke vs the bottlers.  I’m in the right one.  RRs use too much capital to ever be great.

There is a slight advantage for the West Coast in terms of future growth prospects.  I like them because they are bigger and easier to put more money in.

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Warren Buffett’s thoughts on the Fed in October 2007 (9 of 12)

This is the ninth in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

Is the Fed doing a good job?

They can’t solve everything.

Dropping the rates a lot is less of an option with the dollar situation—$2B/day flowing out.  Bernanke’s hands are somewhat tied.  Brazilians have been supporting the dollar recently as their currency has become worthless.

Perceptions lag reality.

Gold and oil are up a lot but much of that is just our perspective and the result of the weak dollar.

Current account deficit is unsustainable.  Bernanke just said it. Greenspan said it in 2003.

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