Source: Forum
#3 Corner of Berkshire and Fairfax.
This is a new discovery for me, and so far, I'm really liking it. The people in the forum seem to be extremely knowledgeable and helpful, and I plan on utilizing it much more in the future. There really are a lot of interesting ideas being bounced around, so, I thought it would be well worth the share, let’s get to it!
What to expect
This is another great site for the two main purposes we’ve discussed in the previous two posts so far. In case you haven't had the pleasure of reading those yet… the two main purposes are; Idea Generation, and Idea Confirmation (or rejection, more often than not…). This is what must happen before we get into the more serious research stage of finding our next great investment idea. It can help us to close in on that next amazing company we’re hoping to own. After all, that’s what we’re trying to do here right? Own the absolute best companies, at the absolute best possible prices. This is another site that I think can help us achieve that goal. Sounds simple enough right!?
Sometimes to move forward, you must first go back...
This is Part 3 of the 5 part series, and if you somehow started here, first of all, Hi, thanks for reading! Second, please read the intro, and the other two posts that came before this one. They really are amazing resources, and you don’t want to miss them (I even threw in some bonus resources in Part 2 for good measure…)
Here they are:
Part 3: Well, that’s this one…
Part 4: Coming soon… (Dec. 6, 2016)
Part 5: Also, Coming soon… (Dec. 13, 2016)
Let’s get back to business...
What the heck is the Corner of Berkshire and Fairfax?
Well, It’s a Forum. What’s that you ask? Well, it’s a group of like-minded people, all in one place, talking about a specific topic that they are all interested in. In the case of this forum, it’s for Value-oriented investors, looking to bounce ideas off each other. This site does have a One-time fee, but you won’t need it for what we’ll discuss below, it just helps save lots of time... If you want to become a full member and actively participate in the discussion, it’s a one-time fee of $29.99 CAD (which is basically free for you lucky Americans). I recently signed-up so I could use the benefits that the full membership provides). Once (if) you buy the lifelong membership, you get unlimited posting privileges, as well as the use of the search bar. This can be well worth the price if you use the site in the way I’ll describe below, but you can also just travel around the site for free, and find the companies you’re interested in the old-fashioned way, by simply searching through the topics and pages until you find the company you’re looking for. (though $30, might be worth the time saved).
Berkshire and Fairfax
As you may have noticed, this forum's top two post are where it gets its name, and is a focus of discussion. In case you don’t recognize the names, they come from two powerhouse companies, built with similar philosophies. They are; the world famous Berkshire Hathaway, and the similar (much less famous) Canadian company Fairfax Financial. One company is run by the most famous value investor of all time, Warren Buffett, and his extremely intelligent partner Charlie Munger. The canadian company is run by a very interesting fellow named Prem Watsa (who is considered by many, to be the Canadian Warren Buffett. Now you might see why they named the forum after these two companies, they are run by value investing gods, and are sometimes treated as such.
How these companies Operate
Both companies operate in a similar manner, in that they both use the insurance companies they own as the foundation of their businesses. Insurance companies have a very special characteristic, that make them great investment vehicles. They have something called a Float, and with that float, the managers are able invest that capital into other businesses, with the hope of achieving better than average returns over time. The float, for those interested, is basically money that was paid to the insurance businesses, in premiums, that haven’t yet been paid out to cover claims. As such, this money can be invested in other businesses as the manager sees fit. For example, Berkshire Hathaway has around $88 Billion (with a B) in float, which means they can use that money to invest, in any way Warren Buffett deems appropriate. Kind of awesome right!? That’s a lot of buying power.
Why Use a Forum?
Good question. The main reason would be for generating discussion around a topic you’re interested in, whether it be about economics specific to a company, or just a stock you’re looking into. A forum can be an excellent place to get a group of like-minded people together, working with similar investment goals in mind, all helping each other along the way. Usually everyone is more than eager to help, and you can get many different perspectives on a single idea.
For Example:
Let’s say you decided you like what Mohnish Pabrai was investing in, and wanted to do some more work instead of just blindly following. As you probably remember, In Part 2 we found out he was investing in LUV. You think it’s a great company, and are looking to cross all the T’s and dot all the i’s before you make your final decision. So, you decide that instead of just relying on yourself and Mr. Pabrai, you want some outside opinions on the investment idea as well (since you can’t really know why Pabrai bought LUV in the first place). So, you go to a trusted forum, and post a question to the group about what they think of LUV as a company, or maybe what they think the Value of that company might be. Now, instead of just your perspective on the idea, you can get an entire value investor army's worth of perspectives on the potential investment. Some of which have been investing for decades, and they bring that experience with them when they comment or reply to your question.
What topics the Forum offers
The forum offers a concentrated variety of topics. The first two being the companies to which the forum gets its name (Berkshire Hathaway, and Fairfax Financial). They also have a General discussion area, Investment ideas section, Strategies, Events and Meeting Notes, Books, and Archives (and the Terms of Use which everyone should read at least once before they start to post or comment).
(Source: Corner of Berkshire and Fairfax)
As you can see, some topics are much more popular than others. The two most popular of which are: General Discussion and Investment ideas, both of which, garnering more than 110,000 posts a piece. Yowzah!
If you wanted to learn more about the companies that Warren Buffett is buying or selling, simply click on Berkshire Hathaway and see what people are discussing. They will discuss why they think he’s making an investment, or if it’s someone else in the company making the purchases (known as T & T…) The main two categories I find myself visiting most often are the ‘General Discussion’ and ‘Investment Ideas’ posts.
Idea Generation
This is always the starting point to any investment you’ll ever make. It starts with an idea (and hopefully, a good one!) Finding ideas to dig into, is easily done for free on this site, and can require very little work on your part. The way I do this is by clicking on the ‘Investment Ideas’ tab and seeing what pops up. If something catches my eye, I’ll read through the thread and see what the forum thinks about the idea. If the investment idea gets a ‘pass’ in my mind, then I cross reference against the sites mentioned in Part 2, and see if any of the Guru’s are buying. Simple as that. There are lots of ideas being bounced around here, so check them out, you never know what you may find.
Let’s see what people are talking about today...
(Source: Corner of Berkshire and Fairfax)
As you can see, there are lots of different investment ideas being discussed. Some of them were originally posted years ago, while other ideas will be brand spankin new. When you click on one of the topics, you will be brought to the first ever post on that topic, from the original poster (postee?). It will have been discussed from that first post date, up until today, with sometimes thousands of posts in between. Take a look at AAPL, There are 5945 replies to the original post and over 800,000 views, let’s check out when that thread began by clicking on it…
This is the first Post on the topic of AAPL, and it was back in Jan 2011 (probably close to when the Forum was formed). If you look at the top, where it says ‘pages’ you can see that there are now 595 different pages discussing this company. If you click on that ‘595’ you will get the most recent posts on this topic. I like to look back and see what people were thinking about the company originally, where it has gone since then, and how their investment approach to the company, and the company itself may have changed over time.
Obviously AAPL is an extreme case, as it is an overly popular company with a huge following, so the average post won’t get nearly as much attention, but it’s still kind of cool to think that you could create a topic that could potentially lead to hundreds of thousands of views (819,155 in this case), and thousands of replies. That’s some serious discussing going on.
Idea Confirmation
After we generate an idea, the next step is to get the green light on the idea, in as many ways as possible. This forum can be an excellent testing ground for the ideas you will generate (by using Part 1 and Part 2), and there are a couple of ways to go about doing so.
The first, and free way to do this, is by just clicking through the ‘Investment Ideas’ page until you find the company you’re looking for. This may take some time, but when you find it, you can see what the average value investor thinks about that company, sometimes both in the past, and the present. Note: if you register for the site, you have the privilege of using the search bar. This helps to cut down on the time it takes to search for the company you’re looking for. Just type in the ticker symbol of the company you want to find and ‘Poof’ there it is.
The second, and potentially more powerful way, is to post the idea to the forum and see what everyone thinks (though you’ll need to be registered to do this). You should first search for that company before you post it, to make sure a topic thread doesn’t already exist. If the topic does exist, add your thoughts on the company by replying to the thread. Be sure to talk about why you’re looking into the company and ask what others think about your thesis. If the company hasn’t been posted yet, make sure you use the ticker symbol in the title, and give a brief description of why you’re looking at the company, and why you might like it.
People don’t like the idea
Don’t get discouraged, they’re doing you a big favour here. Remember, the point of posting your idea is to get feedback, and you want to get both positive and negative feedback, otherwise you may lose objectivity. It’s not uncommon, and certainly not a bad thing, to receive negative replies. Warren Buffett's investment partner Charlie Munger says to ‘Always Invert’, which basically means to look at both side of the story; the positive, and negative side of any of our investment ideas. You’re likely to be tempted to only focused on the positive aspects of the business you’re looking into, it’s kind of human nature… So, If people respond with a mostly negative look on the company, that’s great! It can save you the trouble of trying to do so yourself. More importantly, it can help keep you more objective and grounded with an investment idea, which I know for me, is often the hardest thing to do. It’s easy to get excited about an idea we have, so if we get some negative feedback on that idea, it can really bring us back down to earth, and keep us focused.
Now that I have some feedback, what do I do?
Well, you have a decision to make. And really there are three possibilities for you to consider:
You believe your investment idea is still a valid one, and so you need to do more research (I’ll show you my favourite sites for this in Part 4, and Part 5).
You’re unsure about the investment, but still think it may be a potentially great company. In other words, you still need to do more research. Or,
The people on the Forum showed you the light, and you now think the company is either waaaay overpriced, or it just isn’t as good of a company as you first thought it to be, so you stop right there, and go back to using the idea generation techniques we’ve covered so far (that’s really the fun part anyway, right?).
Join the conversation, and help others
Now that you've joined the forum, and posted some of your own ideas, you can pay it forward and help others with some of their ideas. You won't know the answers to all the questions people ask, but you may be surprised at the amount of help you will be able to lend to others. Maybe someone posts a company you’ve already done a ton of research on, and you can shed some light on how the company operates. Or, maybe you work in the industry someone is doing some research on, and you can help them with the ins and outs of how that industry works. The whole point of a Forum in my mind is for the ‘Diversification of Ideas’. Everyone has a different point of view, different background, and different thought process that, when put together, can really help everyone to learn and grow. It’s like one big mutually beneficial organism, and can be great if you just get involved. What’s the word I’m looking for? Ah yes, it’s a Symbiotic relationship. Sorry, that one took me a minute… I guess I really need to watch more Animal Planet…
Summary
Phew, that was fun right!? Lots of interesting, new ways to find some great companies. Let’s go over what we, well, just went over…
I first showed you what to expect out of this Forum, and the two ways I use it (idea generation and confirmation). Next we discussed exactly what a forum is, and why we would want to use one. We talked about where the Forum got it’s name (Berkshire Hathaway, and Fairfax Financial), and how those two godly companies operate using their insurance businesses float, Which I thought was interesting. We talked about how awesome a forum can because you get multiple different perspectives on the same idea, from a group of like-minded people, all with similar goals, who are really there looking for help, and to help. We discussed how exactly we can generate ideas, using this forum as well as confirm (or dismiss) some of the ideas we may already have.
We went into something that I find to be very important in my own investing, that Negative feedback can, in fact, be a great thing! We next went over what our options are after we have read the opinions about the company we’re interested in, and received the feedback from others (really only two options, continue on, or move on). Lastly, I talked about how important it can be to get in the conversation, and pay it forward, by helping others whenever you can. Next we summarized everything we went over… haha, Yup. That’s it!
Some other great forums to check out
The Value Investors Club This is a great forum if you want to get really deep into value investing. There are a lot of out of the box ideas from absolute world class investors. You can even submit your own idea, for a chance to win $5000. Submissions also get you a membership. But you can browse the site for free just know that new ideas have a 90 day delay.
The Investors Podcast is an excellent resource for anyone who invests. This is a great forum and overall great website. You can join in the conversation with regular investors just like you. They also have a great podcast, and other learning materials, as you may be able to tell by the name.
Thank you so much for reading this far,
I hope you found this to be extremely useful, and I hope to see some of your topic posts and discussion in the future, at the Corner of Berkshire and Fairfax.
We’ll talk again soon,
~Ryan Chudyk~
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The 5 Absolute Best Resources for any investor Part 1: It Starts with Magic…
The 5 Absolute Best Resources for Any Investor. Part 2: Focus on the Guru’s
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