Excerpted from an email which Whitney Tilson sent to investors

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1) Below is a spot-on cover story in this weekend’s Barron’s about how attractive Berkshire Hathaway is today:

“In effect, the world is Berkshire’s oyster,” Buffett wrote, noting that it “is perfectly positioned to allocate capital rationally and at minimal cost.” Jain’s catastrophe-reinsurance operation, for instance, is doing less business now because alternative sources of coverage, notably catastrophe bonds, are undercutting traditional reinsurance. Berkshire is putting its money elsewhere. The company is investing heavily in both Burlington Northern ($6 billion of capital expenditures this year) and utilities ($6 billion).

…Berkshire can’t possibly replicate its 20%-plus annualized performance of the past 50 years, but the next half-century should still be impressive. With its ample earnings power and strong balance sheet, it’s likely to remain an above-average company capable of high single-digit annual shareholder returns for the foreseeable future. With or without Buffett, Berkshire probably deserves a place in investors’ portfolios.

I added to it last month for the first time in quite a while and presented an update at the 12th Annual Value Investing Seminar in Italy earlier this month – see attached. As you can see on page 19, I peg intrinsic value today at $267,000/A share, or 27% above today’s close of $210,725. Full presentation below.


berkshire2) It’s remarkable (and troubling) how narrow this market is becoming. Here’s an analysis from a D.A. Davidson report, with figures through 7/17:


I recreated this chart with figures through today’s close:



market-gains-by-stockSo, five stocks plus the biotech sector account for all of the S&P 500’s YTD returns (with dividends reinvested; without them, the S&P is up 0.42% YTD) and then some – ex this, the S&P 500 would be down 0.8%.


Below is an article in today’s WSJ on the same theme, with similar stocks:

Just a few companies are driving the gains in major U.S. stock indexes this year, raising fresh concerns about the health of the market’s advance.

Six firms— Amazon.com Inc., Google Inc., Apple Inc., Facebook Inc., Netflix Inc. and Gilead Sciences Inc. —now account for more than half of the $664 billion in value added this year to the Nasdaq Composite Index, according to data compiled by brokerage firm JonesTrading.

Amazon, Google, Apple, Facebook, Gilead and Walt Disney Co. account for more than all of the $199 billion in market-capitalization gains in the S&P 500.

The concentrated gains are spurring concerns that soft trading in much of the market could presage a pullback in the indexes. Many investors see echoes of prior market tops—including the 2007 peak and the late 1990s frenzy—when fewer and fewer stocks lifted the broader market. The S&P 500 is up 1% this year while the Nasdaq has gained 7.4%.

Other indicators are also flashing yellow. In the Nasdaq, falling stocks have outnumbered rising stocks this year, sending the “advance-decline line” into negative territory, a phenomenon that has come before market downturns in the past, investors and analysts said.

Last Monday, as the S&P approached a record, nearly as many stocks hit one-year lows as one-year highs, according to Ned Davis Research, another sometime precursor to rocky times and a flip from 2014 and 2013 when the market rose more broadly.


3) If you are looking for proof that there is a massive bubble in tech startups in Silicon Valley, read this. This has to rank up there as one of the dumbest ideas I’ve ever heard. Amazon is going to CRUSH them! In fact, Amazon is already taking steps to do so – when I went to order some stuff on Amazon today, it offered free shipping on orders over $35 – exactly matching Jet.com:

Online marketplace Jet.com Inc. has almost no revenue, years of likely losses in its future and a strategy that includes underpricing mighty Amazon.com Inc. on millions of items. Jet also has perhaps the highest valuation ever among e-commerce startups before their official launch.

That is no contradiction in Silicon Valley, where investors keep pouring money into audacious business experiments filled with big-splash potential. Jet is the buzziest e-commerce arrival of the current boom, with $225 million in capital raised in the past year and a timer on its website counting down the seconds to Tuesday’s opening of Jet to the public.

More than just about any other current startup, Jet seems reminiscent of the dot-com boom era, when e-commerce companies assumed giant losses before breaking into the black.

Anticipation runs so high that Jet’s founder and chief executive, Marc Lore, is in talks with investors about raising hundreds of millions of dollars in additional capital by year end, according to people briefed on the discussions. The infusion could increase the online retailer’s value to $3 billion from $600 million.

“People want to put money to work,” says Mr. Lore, 44 years old. “I get a call and people say: ‘Hey, can we talk?’ Yeah, I’ll listen.”

Yet ambition is already colliding with reality at Jet, which promises members-only “club price savings on pretty much everything you buy” for a fee of $49.99 a year.

5) An interesting puzzle that tests confirmation bias: http://www.nytimes.com/interactive/2015/07/03/upshot/a-quick-puzzle-to-test-your-problem-solving.html


6) A wise article by Jason Zweig:

Combing through my archives the other day, I came across a speech I gave in October 1999 to the Foundation Financial Officers Group, an organization of portfolio managers and other executives at some of the largest private charitable foundations.

In the speech, given in the midst of a raging bull market, I looked back at the worst bear market in memory and urged the audience to ponder whether something similar might happen again.

That kind of thought experiment might not be a bad idea for investors to try nowadays, too…

…And that’s why I was delighted when Bruce Madding and Larry Siegel asked me to compare 1974 with 1999.  I think these two times are polar opposites.

  • Then, risk meant losing money.

o    Today, it means underperforming the average.

  • Then, stocks were terrifyingly risky.

o    Today, they have no risk at all.

  • Then, history showed that a 100% stock portfolio was an asinine idea.

o    Today, history shows that anything less than a 100% stock portfolio is an asinine idea.

  • Then, broad asset diversification was considered a matter of life and death.

o    Today, and I am quoting the treasurer of a state pension plan with more than $25 billion under management, “Asset allocation is crap.  It doesn’t make any sense for anyone to have any money in a bond fund.”  Close quote.

  • Then, a price/earnings ratio for the stock market of 7 to 10 seemed generous.

o    Today, a P/E somewhere between, say, 31 and 100 seems about right.

  • Then, oil prices were headed sky-high, while stocks were doomed to drift through purgatory for decades.

o    Today, inflation is legally dead—and the manager of an Internet stock fund said in a recent interview that he expects to achieve a compound annual return of 35% for the next twenty years.  And today, the Dow belongs at 36,000—or is it 40,000?—or is it 100,000?

7) Regulators let all the real criminals go scott free (in the past months, I’ve read (actually, listened to) The Lost Bank: The Story of Washington Mutual-The Biggest

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