budlab

MOATS : Competitive Advantages of 70 Buffett and Munger Businesses

2012-01-20T13:49:00.000-08:00

MOATS : The Competitive Advantages of Buffett and Munger Businesses discusses the "competitive advantages" of 70 selected businesses purchased by Warren Buffett and Charlie Munger for Berkshire Hathaway Incorporated. This is a very useful resource for investors, managers, students of business around the world. It also looks at the sustainability of these competitive advantages in each of the 70 chapters.

find it here: http://www.lulu.com/spotlight/4filters

The MOATS book introduction audio mp3 file: http://www.frips.com/moats.mp3

audio file of Wells Fargo, WFC chapter from MOATS book:
http://www.frips.com/wfc.mp3

audio file of the Johnson and Johnson chapter from MOATS:
http://www.frips.com/jnj.mp3

audio file of the Costco chapter in MOATS http://www.frips.com/costco.mp3

audio file of the American Express chapter: http://www.frips.com/axp.mp3

The IBM Chapter from MOATS. Why did Buffett buy into a technology services
company after so many years? http://www.frips.com/ibm.mp3

Here is a 1 min : 32 sec audio file of Warren Buffett talking about an
economic castle and its moat http://www.frips.com/wbmoat.mp3

Herman Cain May Change World View On Taxes

2011-10-24T09:34:00.000-07:00

Who ever thought that a conservative man from Georgia running for President of The United States could affect taxation and democracy debates around the world?

Herman Cain's 9-9-9 Plan is a Vision for Economic Renewal that can be good for America and the world's economies. He believes that the natural state of our economy is prosperity. Freedom from excessive regulation and excessive taxation ensures that.

Cain believes that in order to return to prosperity, Government must get off our backs, out of our pockets and out of our way.

His Economic Guiding Principles include:

1. Production drives the economy, not spending. Production is the engine, consumption is the caboose. We can not spend our way to prosperity. Government spending is like taking a bucket of water from the deep end of the pool, pouring it in the shallow end. Then they HOPE that the water level will CHANGE.

2. Risk taking drives growth. Business formation and job creation are dependent on entrepreneurs taking risks. Investors who fund those entrepreneurs likewise take risks.

3. Measurements must be dependable. A dollar must always be a dollar just as an hour is always 60 minutes. Sound money is crucial for prosperity.

UNITE, never DIVIDE; UNITED around ECONOMIC GROWTH

Cain states that when one party is so focused on spending so that the other must focus on cutting, we must unite around economic growth. Unite income tax payers with payroll taxpayers so we all pull for low rates Unite those wanting to eliminate deductions with those seeking lower rates. Unite the Flat-Taxers with the Fair-Taxers.

Price To Value - Chapter Seven: Phil Carret’s Ideas

2010-04-10T06:13:00.000-07:00

Price To Value - Chapter Seven: Phil Carret’s Ideas

CHAPTER SEVEN: Phil Carret’s Ideas
from the new book Price To Value (Acalmix)

Philip Carret founded Pioneer Fund in 1928, six years before Ben Graham wrote the 1st edition of Security Analysis. Carret also wrote a useful and enlightening book called “The Art of Speculation.” And, Warren Buffett stated that Philip Carret “had the best truly longterm investment record of anyone I know."

What made Carret so successful in investing? I asked Frank Betz, of Carret Zane Capital Management, a similar question. Frank shared a partner's desk with Phil Carret as his personal assistant from the mid-eighties until Phil's death in 1998. Carret was then over age 101, and he was still commuting most days from his Scarsdale home to the mid-town NYC office of Carret and Company that he founded in 1962. There he was still functioning fully in the management of client portfolios. Betz recalled that Phil was a voracious reader not only of dozens of corporate annual reports and daily newspapers, but of an eclectic variety of books ranging from philosophy, history, biography and economic subjects. Phil Carret always claimed the most useful information he gleaned from this was from his concentration on the detailed footnotes appended to annual reports.

While Frank was already a long experienced money center banker, analyst, and investor when he was recruited to work for Carret by Phil's son Donald, I wanted to know how this interaction affected his own approach to investing. Frank believes that “working with Phil Carret, significantly sharpened my senses.”

Frank Betz also remembers that Carret would warn others against following fads in investing, and he often cited one of the most important characteristics of successful investors is patience. In the preface of his book, Phil Carret wrote, “The man who looks upon speculation as a possible means of avoiding work will get little benefit from this book. It is written rather for the man who is fascinated by the complexity of the forces which produce the ceaseless ebb and flow of security prices, who wishes to get a better understanding of them.”

“Successful speculation requires capital, courage and judgment. The speculator himself must supply all three. Natural good judgment is not enough. The speculator’s judgment must be trained to understand the multitudinous facts of finance.” Like mine, it was Carret’s hope that his book would assist his readers.

At the 1996 Berkshire Hathaway Annual Meeting, Warren Buffett said: "The main thing is to find wonderful businesses, like Phil Carret, who's here today, always did. He's one of my heroes, and that's an approach he's used. If you've never met Phil, don't miss the opportunity. You'll learn more talking with him for fifteen minutes than by listening to me here all day."

Let us take a brief look at Carret’s somewhat contrarian view on oil. “Oil is produced in thousands of oil fields on every continent in the world. The temporary absence from the market of a single country - even a country as important to oil as Iraq or Kuwait - will have only a temporary effect. Other oil producers can boost their output quickly. And in the United States, we have abundant supplies of natural gas, which can serve as a substitute for oil to a considerable extent.”

More importantly, take a look at Phil Carret's "12 Commandments of Investing":

1. Never hold fewer than 10 different securities covering five different fields of business;

2. At least once every six months, reappraise every security held;

3. Keep at least half the total fund in income producing securities;

4. Consider (dividend) yield the least important factor in analyzing any stock;

5. Be quick to take losses and reluctant to take profits;

6. Never put more than 25% of a given fund into securities about which detailed information is not readily and regularly available;

7. Avoid inside information as you would the plague;

8. Seek facts diligently, advice never;

9. Ignore mechanical formulas for value in securities;

10. When stocks are high, money rates rising and business prosperous, at least half a given fund should be placed in short-term bonds;

11. Borrow money sparingly and only when stocks are low, money rates low and falling and business depressed;

12. Set aside a moderate proportion of available funds for the purchase of long-term options on stocks in promising companies whenever available.

We see that Phil Carret exercised safety-based commandments. And, the last one appears to be targeted towards “intelligent speculation.” There, he advised setting aside a proportion of available funds for long-term options on stocks in promising companies whenever available. With careful study and patience, Carret knew he could predict good outcomes. Philip Carret died on May 28, 1998, at age 101.

- - - - - - -

“Price To Value” is about Intelligent Speculation and Decision Framing. Readers will benefit from this book if it stimulates better thinking into the most important factors crucial to decision making. These decision framing ideas can be applied across different asset classes. First, the book presents the four investing decision filters in simplified terms. Then, it extends these ideas by looking into the intelligent speculation ideal described by Benjamin Graham in his tenth lecture of 1946.

Bud Labitan's books are available on Amazon.com and Lulu.com

http://stores.lulu.com/4filters

The Book

2008-07-11T21:13:00.000-07:00

What we view as tough times may soon be viewed as "buying opportunities" for Warren Buffett and other value investors. After all, some of their best purchases were made during the stagflationary period of the 1970's.
I think Buffett and Munger invented an amazing Behavioral Finance Formula or Process that is underappreciated by the business and academic communities. On paper as early as the 1977 BRK annual letter, their work in designing a mixed qualitative + quantitative formula may be worthy of a Nobel Prize in Economics and Behavioral Finance. So, in my new self-published book "The Four Filters Invention of Warren Buffett and Charlie Munger" ( www.frips.com ) I examine each of the basic steps they perform in "framing and making" an investment decision. I made this book a small and focused look into this amazing invention within "Behavioral Finance."Buffett mentions the Four Filters this way: "Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag."

In my view, the genius of Buffett and Munger's four filters process was to "capture all the important stakeholders" in one "multi-variable" equation. Imagine...Products, Enduring Customers, Managers, and Margin-of-Safety... all the important stakeholders for business success in one mixed "qual + quant" formula...The genius of the Munger and Buffett collaboration. And, quality bargains at 50 cents on the dollar may soon appear; Use the Four Filters!

Thanks for your interest in my book and helping to promote awareness of my book. Here is a 10 minute audio book summary: http://www.frips.com/4fsummary.mp3

Behavioral Finance

2008-06-17T12:43:00.000-07:00

A handful of readers have looked at my book as a reiteration of ideas. So, I wrote some these words to a reviewer of my book. Then, I realized that it helps to explain "the essence" I tried to express in my book:

Thanks for your positive words and review of my book. I appreciate yours and all the feedback I get. If possible, kindly mention to your readers that I intended to make this book a small and highly distilled look into this amazing invention within "Behavioral Finance."In my view, the genius of Buffett and Munger's for filters process was to capture all the important stakeholders in a "multi-variable" equation or formula. Imagine... Products, Enduring Customers, Managers, and Margin-of-Safety... all in one mixed "qual + quant" formula. In my view, that is the real genius of the Munger and Buffett collaboration.

Perhaps Munger does not get enough credit for this amazing formula because he enjoyed some of the profits and distributed some to family and charities along the way. However, their record speaks for itself. And, Buffett is always ready to mention that "Time is the friend of the wonderful business, the enemy of the mediocre. You might think this principle is obvious, but I had to learn it the hard way. In fact, I had to learn it several times over... It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner."

So, my book, "The Four Filters Invention of Warren Buffett and Charlie Munger" is really a subtle tribute to their collaborative genius in Behavioral Finance. And, let me be the first in line to nominate both men for a Nobel Prize in Economics.

However, the significance of their ideas in Behavioral Finance will most probably be eventually recognized like the ideas of Rev. Thomas Bayes. Posthumously. As Bill Gates is keenly aware, "Bayesian Probability" is vitally important to Microsoft Windows software. ( http://en.wikipedia.org/wiki/Thomas_Bayes )

Abridged book on seekingalpha.com

2008-03-24T06:45:00.000-07:00

How do we improve and optimize our investing decision making? How do we develop a better understanding of a company, its products, its present, and its future?

http://seekingalpha.com/article/69566-the-four-filters-of-warren-buffett-and-charlie-munger

Look for the book soon.

The Four Filters Invention of Warren E. Buffett and Charles T. Munger

“Understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements, available at a bargain price.”

CHAPTER ONE OF FIVE: UNDERSTANDING

2008-03-06T11:45:00.000-08:00

The Four Filters.

What I Learned from Warren Buffett.
By Bud Labitan

CHAPTER ONE OF FIVE: UNDERSTANDING

Over the years, I have read most of the books about Warren Buffett, his teacher Benjamin Graham, and his business partner Charlie Munger. I have also listened to many hours of audio lectures and interviews. During this time, I have been consistently interested in how Warren Buffett frames an investment decision and how he arrives at a winning investment prospect.

Warren Buffett has talked about the Four Filters in several ways, but the sequence is always the same: “Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.” Buffett has also phrased the four filter process in this way: “When buying companies or common stocks, we look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements, available at a bargain price.”

These ideas sound so simple. Many people hear them at the Berkshire Hathaway annual meeting in Omaha each year. Yet, few people have stopped to think about the importance and effectiveness of each individual filter.

This is a small and valuable book that concentrates on the four sequential filters that will make anyone a better and more skillful investment decision maker. It is dedicated to Janine Rueth and Victoria Labitan. In this book, I squeeze “all the lean beef” into five chapters: “the Four Filter chapters and a summary chapter.” The final summary chapter will tie the filters together and demonstrate, with enthusiastic attitude, why these filters work to maximize the probability of investing success from both a mathematical and a practical point of view.

In developing understanding of a company and its products, Buffett framed the diligent mental process this way: “If I were looking at a company, I would put myself in the frame of mind that I had just inherited that company, and it was the only asset my family was ever going to own. What would I do with it? What am I thinking about? What am I worried about? Who are my customers? Go out and talk to them. Find out the strengths and weaknesses of this particular company versus other ones.”

Like a detective, he begins by asking himself basic questions. He looks for simple things that he can count. He looks for companies run by able and owner-oriented people.
Said Mr. Buffett, “Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.”

I have played with the four filters and twisted them into 4 clusters this way:
1. Products 2. Customers 3. Management 4. Margin of Safety

Why do the filters work? I will give you a hint - Elaboration and Elimination.
In terms of mathematical probabilities, think of each stop along the four filters as a mutually exclusive and additive event. If a company passes a couple of filters, it is, by the process of elimination, farther to the right on a normal distribution curve, from an “investment prospect” point of view. If this were a field of racing horses, movement along each step of the Four Filters path, the prospect or suspect enters a subset of “better than average” horse. In my view, practicing these steps will make you a better thinker.

The majority of Berkshire Haathaway companies have important competitive advantages that will endure over time. For Warren Buffett and his shareholders, it is comforting to be in businesses where some mistakes can be made and yet satisfactory overall performance can be achieved.

How were these four filters developed? Over the course of their investing experiences, Warren Buffett and Charlie Munger have had many discussions about the qualities of both bad and good businesses. Warren Buffett’s advantage is passion and attitude for sensible investing. He learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values. Sound owner-oriented business principles, along with time, training, and temperment have mabe them even better investors.

So what does Ben Graham add to filter number one, understanding? Graham, according to Buffett, added three basic ideas that can enhance our intellectual investing framework.
Graham’s ideas can help us do reasonably well in stocks.

Buffett on Graham:
His three basic ideas - and none of them are complicated or require any mathematical talent or anything of the sort - are:

1. that you should look at stocks as part ownership of a business,
2. that you should look at market fluctuations in terms of his "Mr. Market" example and make them your friend rather than your enemy by essentially profiting from folly rather than participating in it, and finally,
3. the three most important words in investing are "Margin of safety" - which Ben talked about in his last chapter of The Intelligent Investor - always building a 15,000 pound bridge if you're going to be driving 10,000 pound trucks across it.

I think those three ideas 100 years from now will still be regarded as the three cornerstones of sound investment.

In developing our understanding of a company and its products, Warren Buffett advises students to “Think for yourself.”

He reads annual reports of the company he is looking at, and he reads the annual reports of the competitors. He has said that annual reports are the main source of the study material needed or understanding. Of course, he also cautions students to focus on their own circle of competence. Notice the filtering process of his statement here: “Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management, and limited exposure to hard times.”

Just as a good leader has been tested by tough times and has a solid followership, a good company will have a loyal followership or customer base. The wonderful ones will have some sort of pricing power.

Charlie Munger understood the importance of thinking about the “Wonderful Business” early, while Warren Buffett was still buying cheap “Cigar-Butts.” Shortly after purchasing Berkshire, Buffett acquired a Baltimore department store called Hochschild Kohn. That was purchased through a retailing company called Diversified Retailing that later merged with Berkshire Hathaway. They now consider this, as well as the original textile company purchase an investing mistake. But, they both admit that they have learned from their mistakes. Now, when buying companies or common stocks, they look for first-class businesses accompanied by first-class managements. They look to what managements do more than what managements say.

Along with learning about GEICO’s low cost advantage from Lorimer Davidson, Warren Buffett learned some things from studying Phil Fisher, Philip Carret, and Henry Singleton. Buffett met Phil Fisher in the early Sixties, after reading his first book. Phil Fisher was a deep thinker into the nature of managements and their business growth potential. According to Buffett, “His ideas, like those of Ben Graham, were simple but powerful, and I wanted to meet the man whose teachings had such an influence on me…It's been over 40 years since I integrated Phil's thinking into my investment philosophy.”

So, part of developing your “circle of competence” is reading, learning, observing and integrating sound ideas into your investment philosophy. According to Buffett, he and Charlie Munger “just read the newspapers, think about a few of the big propositions, and go by our own sense of probabilities.”

Buffett and Munger’s Goal at BRK:
Our long-term economic goal is to maximize the average annual rate of gain in intrinsic business value on a per-share basis. We do not measure the economic significance or performance of Berkshire by its size; we measure by per-share progress.

How do we develop a better frame of reference and make better investing decisions? As you now know, Filter One is to “Develop a Better Understanding” of the company and its products. I got interested in looking at how Buffett and Munger frame their decisions when I was in business school at Purdue University Calumet. This is a quick summary about my views on their “framing.”

Framing in behavioral finance is the choosing of particular words to present a given set of facts. And, framing can influence our choices. Tversky and Kahneman described "Prospect Theory" in 1979 using framed questions. Tversky and Kahneman found that contrary to expected utility theory, people placed different weights on gains and losses and on different ranges of probability. They also found that individuals are much more distressed by prospective losses than they are happy by equivalent gains. Some have concluded that investors typically consider the loss of $1 twice as painful as the pleasure received from a $1 gain. Others believe that this work helps to explain patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty. An increasing body of literature on framing supports a tendency for people to take more risks when seeking to avoid losses as opposed to securing gains.

Takemura (1992) showed that the effects of framing are likely to be lower when subjects are warned in advance that they will be required to justify their choices, and when more time is allowed for arriving at their choices. Luckily, Buffett and Munger seem to have arrived at practical use of these optimal framing ideas earlier than most.

They try to keep this simple. Notice this example from the latest 2007 annual report:

The Pritzker family decided to gradually sell or reorganize certain of its holdings, including Marmon, a company operating 125 businesses, managed through nine sectors. Marmon’s largest operation is Union Tank Car, which together with a Canadian counterpart owns 94,000 rail cars that are leased to various shippers. The original cost of this fleet is $5.1 billion. All told, Marmon has $7 billion in sales and about 20,000 employees. We will soon purchase 60% of Marmon and will acquire virtually all of the balance within six years. Our initial outlay will be $4.5 billion, and the price of our later purchases will be based on a formula tied to earnings.

A simple valuation example here will demostrate this bargain purchase in a well run company. For fun, lets do a fair "replacement cost" estimate on the 94,000 railcars alone.
94,000 x what? Made out of steel, the boxcar cost about $45000 a copy in 1980. A buddy of mine, says that $90,000 would be a fair price to pay for a mid-age mid-use rail car which can be depreciated over about 40-50 years. So, 94,000 x $90,000 = 8.46 Billion.... just in railcars alone. Furthermore, consider that the Marmon Group is composed of 125 different companies. And, I may be understating the replacement cost of a mid-age mid-use rail car.

Buffett and Munger have employed the principles taught by Dave Dodd and Ben Graham. In my view, Buffett and Munger overcome the conventional framing effects thru rational and thorough business analysis. They simply avoid getting into judgments in some fields. Warren Buffet has said: "If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter." I call their approach the compounding success theory because I imagined how their sequence of rational decisions push the probability of investment return success into the upper percentiles.

In my masters paper, I must admit that I got too wordy. I have come to realize that the Four Filters encapsulate the most important contributions of John Burr Williams, Benjamin Graham, Phillip Fisher, Warren Buffett, and Charles Munger. Each of the great investors learn from knowledgeable others.

While everyone may take a little different approach to measuring both quantitative and qualitative value; in my view, each of the Four Filters delivers something especially valuable. They help get us closer to the real "intrinsic value" of a good business.

Book: "The Four Filters"

2008-03-05T06:29:00.000-08:00

I am working on a new book called "The Four Filters: What I learned from Warren Buffett."

Think: "Practical Best Practices in Behavioral Finance"
My book would be half the size of Charles' "Getting Started in ValueInvesting," and it would focus narrowly on the merits of the "behavioral science"aspects of Warren Buffett's approach.
It could be read on a plane trip across the country.

For sample of my writings, see:
http://www.frips.com/cst.htm

I will describe how the Four Filters relate to Behavioral Finance and how the Four Filters enhance the investment decision making process.

USG

2008-03-03T13:57:00.000-08:00

As some of you know, I am bullish about USG. It has gotten its asbestos exposure behind it. And, it has emerged from restructuring as a new and dominant player that is building its protective moat. So, for you quantitatively inclined, some of these present numbers are opportunistically deceptive. BRK owns about 20 percent of the company, up from its initial investment into 15 % of the company.

USG Corporation (USG), through its subsidiaries, is a manufacturer and distributor of building materials, producing a range of products for use in residential, non-residential, and repair and remodel construction, as well as products used in certain industrial processes. The Company's operations are organized into three segments: North American Gypsum, Building Products Distribution and Worldwide Ceilings, the net sales of which accounted for approximately 48%, 38% and 14%, respectively, during the year ended December 31, 2007. The Home Depot, Inc. accounted for approximately 11% of USG's net sales in 2007.

USG Corporation , USG has a (5-year annual average) net income growth rate of negative 11.3 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does USG have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

USG has a current market price is 33.18 Using an assumed growth rate of -4.5 percent, the estimated Intrinsic Value is 18.67 per share from ValuePro.net, and there does not appear to be a bargain or 'margin of safety' present here. However, using an assumed growth rate of 7 percent, the estimated Intrinsic Value is 68.36 per share from ValuePro.net, and this may or may not indicate a bargain of 35 dollars. Is it a possible Value Trap? If the growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .49 , and a possible margin of safety of 51 percent.

The current price/earnings ratio = 42.6 It's current return on capital = 2.09. Using a debt to equity ratio of .56, USG Corporation shows a current return on equity = 4.12

Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Automatic Warning, ( above 0.5 ) on this current debt to equity level of .56

Does USG Corporation make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is USG the best place to invest our money today? What about growth in Free Cash Flow?

Excerpts, comments, and news items: http://finance.yahoo.com/q/h?s=USG
Portions of this report are generated in budlab software on 08-03-03 . Budlab software was designed to help me produce a report that emphasizes conservativism and rationality when making an investment decision.

Recession and Opportunities

2008-03-03T13:20:00.000-08:00

Our country appears to be in an economic recession. This will be a painful time to many families and many businesses. Eventually, our country will pull out of this recessionary or stagflationary time into another growth era.

From a Value Investing point of view, quality bargains will be revealed. This will bring equity purchase opportunities because markets tend to overreact. Looking for "mispriced opportunites" is the foundation of sensible investing.

Be on the lookout for QB. Quality Bargains.

Wally Weitz

2008-03-03T11:39:00.000-08:00

Is Wally Weitz the next Warren Buffett ?

Elimination Process and its Effects

2008-03-03T11:10:00.000-08:00

In my last article at Gurufocus.com entitled, "Best Practice: The Elaboration Effect" I attempted to tie in concepts from the practices of Warren Buffett and Charles Munger that explain why they appear immune to the convestional framing effects. Link: http://www.gurufocus.com/news.php?id=3051 This next best practice is called "The Elimination Process and Effect" Using the process of eliminating bad and mediocre businesses from investment consideration have pushed their probability of success automatically into the higher percentiles of long term investing success.

How is this done? Chiefly by performing the four filters:

1. Understand the Business and it Products.

2. Is there a Sustainable Competitive Advantage

3. Able and Trustworthy Managers

4. A Margin of Safety if the selling price is significantly below the Intrinsic Value.

In building an A.I. interactive model of WB's Investing Brain, one approach is to use probabilities and elimination. Which words have appeared most frequently in Buffett's writings to shareholders? While this is not a complete study, this sample below shows the "word frequency" from my old compilation of the BBF, Buffett Business Factors. I will add a few comments to point out some patterns I detected.

FREQUENCY, WORD, COMMENT

386, business
No shocker here, the underlying business is always more important than stock's market price.

250, not
This one caught me by surprise at first until I remembered WEB talking about the importance of the human mind casting out less than desirable purchases. In the talk to MBA students in Tennessee, Buffett mentioned the reason why great chess champions can beat IBM's best supercomputers. An experienced chess champ has the ability to cast off a lot of information noise.

180, earnings
A lot of focus on real free cash flow

155, value
And the sustainable competitive advantage therein

146, businesses
386+146 = 532 times !

141, about
A preposition meaning connected or associated with. WEB and CM have lot of experiences to form pattern comparisons

140, capital

122, investment

99, managers
There is a lot of talk in the writings about able and trustworthy managers and numerous examples

96 , market
This is interesting mainly because the concept of market get mentioned so much further down this word frequency list.

I came to the conclusion that if a truly smart machine interpreted the essence of the discussions portion of his shareholder letters, the conclusion might read something like this:

"Mr. Buffett focused on the importance of individual businesses and what not to value. Because of the frequent use of the words business, not, earnings, value, about, and capital, we can conclude that this piece of literature is a cautionary tale about factors to avoid when making an investment."

Therefore, in addition to the Elaboration Process and Effect, another important Best Practice for investors is the Elimination Process and its Effects on your portfolio.

http://www.gurufocus.com/news.php?id=9509

A Bargain Purchase

2008-03-03T09:14:00.000-08:00

From the 2007 BRK Annual Report...

For fun, lets do a fair "replacement cost" estimate on the 94,000 railcars alone.
94,000 x what.?

Made out of steel, the boxcar cost about $45000 a copy in 1980. A buddy of mine, says that $90,000 would be a fair price to pay for a mid-use rail car which can be depreciated over about 50 years.

94,000 x $90,000 = 8.46 Billion.... just in railcars alone. Furthermore, consider that the Marmon Group is composed of 125 different companies.

Charles Mizrahi's Book: Getting Started in Value Investing

2008-03-03T08:47:00.000-08:00

I had the privilege of proofreading early drafts of this book, and I am happy to report that Charles Mizrahi has written a great book called Getting Started in Value Investing. It is a clear guide written by an author with many years of experience in writing newsletters and managing money intelligently.

This book serves as a clear guide from the basic beginning steps to the "things to watch out for" ending summary. I recount his rational guide path here: Chapter 1 begins with the misconceptions of Value Investing. Chapter 2 follows with the basics of sensible value investing. Chapter 3 warns us about Mr. Market. Chapter 4 covers Great Companies, and explains why they may become great investments. Then, in Chapter 5, Mizrahi explains why good managements add more value. Chapter 6 covers the issue of competition and the importance of enduring competitive advantages. Chapter 7 covers the Essential Valuation Variables that matter and Chapter 8 brings these numbers to life. Chapter 9 explains the critical issue of Price of a Stock versus the Value of the Company. Chapter 10 examines our own psychological biases. Then, in Chapter 11, Charles Mizrahi summarizes the essence of the Graham-Dodd-Buffett-Munger style of equity value investing.

While everyone may take a little different approach to measuring both quantitative and qualitative value; in my view, each of these eleven chapters delivers something especially valuable to the reader. They help to get us closer to the real "intrinsic value" of a business. When Charles first told me of his project to write an introductory book on Value Investing for the Wiley investment series that is based on the Warren Buffett value approach to stock investing, I challenged him to swing for the fences and cleverly twist it into a book that could yield enduring value like Ben Graham's classic, The Intelligent Investor.

I think that this book delivers because it gives us useful and valuable information in each chapter. The Mizrahi kids should be proud of what their dad has crafted. This book should be in every library. Since "Getting Started in Value Investing" delivers sound investing principles, and it is written in a clear paternal style, it has a good chance of becoming a bestseller. Charles Mizrahi clearly explains the core of the Graham-Dodd-Buffett-Munger style of equity value investing.

Since "Getting Started in Value Investing" delivers sound investing principles, and it is written in a clear paternal style, it has a good chance of becoming a bestseller. Charles Mizrahi clearly explains the core of the Graham-Dodd-Buffett-Munger style of equity value investing.

Why did Buffett and BRK buy stock in Kraft ?

2008-03-03T08:37:00.000-08:00

Why did Buffett and BRK buy stock in Kraft ? Let's examine the reasons together.Brands? Costs Controls? Expanding Markets? Share Buybacks? Irene Rosenfeld?

Berkshire Hathaway, bought more than 132 million shares of food company Kraft, according to a document filed with the Securities and Exchange Commission Thursday. Kraft Foods Inc. (KFT), through its subsidiaries, is engaged in the manufacture and sale of packaged foods and beverages in the United States, Canada, Europe, Latin America, Asia Pacific, the Middle East and Africa. The Company manufactures and markets packaged food products, consisting principally of beverages, cheese, snacks, convenient meals and various packaged grocery products. The Company operates in two segments: Kraft North America Commercial and Kraft International Commercial. It has operations in 72 countries and sells its products in more than 155 countries.

Kraft Foods, KFT has a (5-year annual average) net income growth rate of negative 4.71 . The company is looking forward to a 7-9% forward growth rate. What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? It's current market price is 29.31

The estimated Intrinsic Value, using an assumed 7% forward growth rate, is 43.39 per share from ValuePro.net, and this may or may not indicate a bargain of 14 dollars. Is it a possible Value Trap? If the 7% growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .67 , and a possible margin of safety of 33 percent in a good company with good brands selling at a fair price.

The current price/earnings ratio = 18.2 It's current return on capital = 5.41 Using a debt to equity ratio of .77, Kraft Foods shows a current return on equity = 9.32 Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. You cannot conclude that consulting firms are better investments than refiners just because of their ROE.

Generally, capital-intensive businesses have high barriers to entry, which limit competition. But high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Automatic Warning, ( above 0.5 ) on this current debt to equity level of .77

From 2007 excerpts, the company expects that revenue will grow 3% to 4% on an organic basis in 2008 and that "we'll hit our stride" by 2009, said Chief Executive Irene Rosenfeld in a written release. "We'll fully realize the financial benefits of our investments and deliver our long-term targets of at least 4% organic net revenue growth and 7% to 9% EPS growth." In addition to "rewiring" the company, Rosenfeld said Kraft intends to "reframe" its product categories to make them more relevant to consumers, to better exploit its sales abilities and to drive down costs.

One key is to expand the focus in larger, faster-growing categories. As an example, Rosenfeld cited moving away from dying sectors like processed cheese slices and into sandwich, snacking and high-end cheeses. Also important is grabbing market share away from restaurants, she said, vowing that Kraft will strive to provide "restaurant-quality food at home in the office or anywhere ... at a fraction of the cost." Frozen pizza's a case in point. With brands like Jacks' and Tombstone, Kraft has long been a major player in the $4 billion category. Then, about 10 years ago it went after the $11 billion chain business with higher-end offerings like DiGiorno. And now, Rosenfeld said, "we are setting our sights on the $20 billion local pizzeria" category.

Does Kraft Foods make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth.

Finally ask: Is there a bargain relative to its intrinsic value per share today? In terms of Opportunity Cost, is KFT the best place to invest your money today? I do not know enough about KFT, but, I am open to talking and discussing Kraft.

Buffett Answers Questions

2008-03-03T08:30:00.000-08:00

Bank of America

2008-03-03T08:04:00.000-08:00

Why did Buffett and BRK buy 8,700,000 shares of BAC between $48.34 - $50.14 per share?

BAC also buying Countrywide Financial. While Countrywide reported one in three of its subprime mortgages were delinquent at the end of 2007, and the company lost $422 million in the fourth quarter, BofA chief executive officer Kenneth Lewis has said Countrywide's financial results were consistent with the bank's due diligence and agreed-upon purchase price of $4 billion. The purchase will make Charlotte, N.C.-based BofA (NYSE: BAC) the nation's largest mortgage lender and loan servicer. The deal is slated to close in the third quarter.

Perhaps, my generated report below will also help you better understand this purchase.

Bank of America Corporation (Bank of America) is a bank holding company. Bank of America provides a range of banking and non-banking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. In December 2006, the Company sold its retail and commercial business in Hong Kong and Macau (Asia Commercial Banking business) to China Construction Bank. In October 2006, BentleyForbes, a commercial real estate investment and operations company, acquired Bank of America Plaza in Atlanta from CSC Associates, a partnership of Cousins Properties Incorporated and the Company. In June 2007, the Company acquired the reverse mortgage business of Seattle Mortgage Company, an indirect subsidiary of Seattle Financial Group, Inc.

Bank of America, BAC has a (5-year annual average) net income growth rate of 9.87 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does BAC have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

BAC has a current market price is 38.84 Using an assumed growth rate of 7 percent, the estimated Intrinsic Value is 92.89 per share from ValuePro.net, and this may or may not indicate a bargain of 54 dollars. Is it a possible Value Trap? If the growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .42 , and a possible margin of safety of 58 percent.

The current price/earnings ratio = 12.It's current return on capital = UnavailableUsing a debt to equity ratio of 4.16, Bank of America shows a current return on equity = 10.8

Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Automatic Warning, ( above 0.5 ) on this current debt to equity level of 4.16

Does Bank of America make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is BAC the best place to invest our money today?

What about growth in Free Cash Flow?
Excerpts, comments, and news items: http://finance.yahoo.com/q/h?s=BAC

Portions of this report are generated in budlab software on 08-03-03 . Budlab software was designed to help me produce a report that emphasizes conservativism and rationality when making an investment decision.

WFC

2008-03-02T13:11:00.000-08:00

I reviewed WFC and some reasons why Warren Buffett may like its long term prospects.

Wells Fargo & Company is a financial holding company and a bank holding company. The Company provides retail, commercial and corporate banking services through banking stores located in 23 states. It provides other financial services through subsidiaries engaged in various businesses, principally wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency and brokerage services, computer and data processing services, trust services, investment advisory services, mortgage-backed securities servicing and venture capital investment. The Company operates in three business segments: Community Banking, Wholesale Banking and Wells Fargo Financial. In April 2007, First Data Corporation acquired the Instant Cash Services business, from Wells Fargo Bank.

Wells Fargo, WFC has a (5-year annual average) net income growth rate of 7.14 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does WFC have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

WFC has a current market price is 31.44 Using an assumed growth rate of 8 percent, the estimated Intrinsic Value is 48.47 per share from ValuePro.net, and this may or may not indicate a bargain of 17 dollars.

Is it a possible Value Trap? If the growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .65 , and a possible margin of safety of 35 percent.

The current price/earnings ratio = 13.2 and a Price/Book= 2.18

Using a debt to equity ratio of 3.21, Wells Fargo shows a current return on equity = 17.2
Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding.

Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Automatic Warning, ( above 0.5 ) on this current debt to equity level of 3.21 However, you will recall that Buffett is tolerant of debt if it is being used to generate more intrinsic value.Does Wells Fargo make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised.

In terms of Opportunity Cost, is WFC the best place to invest our money today?What about growth in Free Cash Flow? Cash from Operating Activities: (2007 was not yet stated) 32,094.0 -9,333.0 6,485.0 31,195.0

To succeed in this industry, a company has to have sustainable competitive advantages in seven key areas: geography, products and businesses, distribution, sales and service culture, efficiency, brand, and most important, people. WFC is strong in all of them. WFC is a national company in wholesale banking, insurance, mortgage lending, and consumer finance. The 23 states in the Midwest and Western United States in which we distribute our full range of financial services products-from Ohio to Alaska-are among the fastest growing markets in the world's best economy. Its community banking franchise includes a leading presence in 12 of the nation's 20 fastest growing states: Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Texas, Utah, and Washington. Fifty percent of the projected population growth, the next several years, is expected to come in those states.

Excerpts, comments, and news items: http://finance.yahoo.com/q/h?s=WFCAs of 12/31/2007 Warren Buffett's BRK had 289,259,868 shares of WFC.My general impression is a fair bargain of about 30-35% in a quality company with good long term prospects.

Portions of this report are generated in budlab software on 08-02-24 . Budlab software was designed to help me produce a report that emphasizes conservativism and rationality when making an investment decision. I appreciate hearing your views.

networking link

2008-03-02T08:55:00.000-08:00

Here is my linkedin page:

http://www.linkedin.com/in/budlab

2007-02-17T10:09:00.000-08:00

The Last Mayor of Hammond; The First Mayor of Competition Indiana
Define reality and provide hope.

I was listening to a speech by the President of American Express that I had downloaded from the internet. This fresh idea popped into my mind. Someday, the Last Mayor of Hammond will probably become the First Mayor of Competition, Indiana.

The idea of Competition, Indiana is a bit of a utopian idea, but it is one worth thinking about. The President of American Express said to his audience: "The role of a leader is to define reality and provide hope." And, the reality of Northwest Indiana is that some areas are prospering and some areas are dying a manufacturing economic death.

So, what is the answer when cities like Hammond and Gary have rising levels of empty residential units and declining manufacturing jobs? Compete and prosper or decline. In this global economy, we will not be able to compete on labor costs. However, we will be able to compete on quality, place of distribution, marketing, and premium differentiation.

We need to transform most of Lake County into Competition, Indiana. Competition, Indiana would be a whole new city designed to compete with the rest of the world's growing metropolitan areas. The basic infrastructure is in place. We have a strong and diverse population to draw skilled and educated workers from. We also have two good colleges in Purdue Calumet and IUN, and numerous other resources.

Who can articulate and coordinate these ideas? Perhaps we need a new version of Elbert Gary. Elbert Henry Gary (October 8, 1846–August 15, 1927) was an American lawyer and corporate officer. He was a key founder of the United States Steel Corporation in 1901, bringing together partners J. P. Morgan, Andrew Carnegie, and Charles M. Schwab. The city of Gary, Indiana, was named for him when it was founded in 1906.

Someday, the Last Mayor of Hammond will probably become the First Mayor of Competition, Indiana. And, if Intel is going to sell an 80 core processor, Businesses in Competition, Indiana can build and market hardware, software, auto parts, and toys that use these new powerful chips. In fact, with less control from downstate, Purdue Calumet and IUN have the capability to partner on some public/private ventures and add great educational content to youtube.com Online today; wjobcalpress.com is a great starting point.

Gary-Chicago Airport? Bull! Think bigger. Welcome to the Competition Indiana International Airport! The Midwest's first hyperspace airport.

Define reality and provide hope. And, stretch your imagination.

Best Practice: The Elaboration Process and Effect

2006-10-14T20:17:00.000-07:00

Best Practice: The Elaboration Process and Effect
By Bud Labitan
Labitan Partners, llc.
October 14, 2006

The investing ideas of Benjamin Graham, Warren Buffett, Charles Munger, and Phil Fisher are sensible and tested by time. And, there are many good books that cover their history and investment processes. In 1995 I read: Buffett : The Making of an American Capitalist by Roger Lowenstein. ( ISBN: 0385484917 ). This is how I started to learn about intrinsic value investing. Buffett and Munger’s long-term economic goal for Berkshire Hathaway is to maximize the average annual rate of gain in intrinsic business value on a per-share basis. How do we maximize our returns on each decision we attempt to make? There are many sensible ideas to read about in learning to be a better investor. In my view, serious students of sound investing should read the writings of Graham, Buffett, Munger, and Fisher. In this article, I focus on one specific process within successful decision making. I also relate this idea to the field of Behavioral Finance.

I hope that this article will help you become a more thoughtful and productive decision maker. Framing in the field of behavioral finance has been described as the process of choosing particular words to present a given set of facts. And, how a question is framed can influence our choices. Tversky and Kahneman described "Prospect Theory" in 1979 using framed questions. They found that contrary to expected utility theory, people placed different weights on gains and losses and on different ranges of probability. They also found that individuals are much more distressed by prospective losses than they are happy by equivalent gains.

Generally, studies in Behavioral Finance help to explain patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty. People tend to take more risks when seeking to avoid losses as opposed to securing gains. In 1992, Takemura showed that the effects of framing are likely to be lower when subjects are warned in advance that they will be required to justify their choices, and when more time is allowed for arriving at their choices. In a paper of 2003, this was described as “The Elaboration Effect.”
( http://www.plan.cv.titech.ac.jp/fujiilab/pdf%20files/eyegazeCFM.pdf )

Reading about the Elaboration Effect got me thinking: How does Warren Buffett frame an investment decision? Mr. Buffett has stated that he is guided by a set of sensible investment principles. He has also stated that he uses four main filters. These filters include understanding, enduring competitive advantages, trustworthy and able management, and a bargain price. Perhaps, this Buffett quote provides a good view of the proper starting frame of mind: ”If I were looking at a company, I would put myself in the frame of mind that I had just inherited that company, and it was the only asset my family was ever going to own. What would I do with it? What am I thinking about? What am I worried about? Who are my customers? Go out and talk to them. Find out the strengths and weaknesses of this particular company versus other ones.”

The Elaboration Effect refers to the inhibition of common framing effects when decision makers are asked to elaborate their decision making process. The process of elaboration appears to work because one allows himself or herself to eliminate less than optimal choices. Buffett has always told students to be able to "explain why you are buying a stock." In my view, Warren Buffett knew the benefits of practicing "the elaboration process/effect" when framing a decision long before Satoshi Fujii & Kazuhisa Takemura wrote about it in their 2003 paper.

Seeking and finding rewarding ideas like these is an exciting challenge. I believe that we can use the elaboration process to help us make more rewarding investment decisions. Use good guiding principles, best practices, and a positive attitude to help you develop an enhanced investing frame of mind. In Warren Buffett’s words: “Our advantage, is attitude. We learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.” While Warren Buffett has described “The Margin of Safety” as the three most important words in investing, Buffett has also given credit to Charlie Munger for understanding the power of a “wonderful business” and its enduring competitive advantages. Looking for the wonderful business is one of the best practices to use. This is an important concept to remember when elaborating your thoughts about investment possibilities.

2006-09-03T08:55:00.000-07:00

Intrinsic Value Investing Training Wizard 3.0

Intrinsic Value Investing Training Wizard looks like a Microsoft wizard form, and it will take you through the 4 Buffett "investment filters" as well as links to various online resources. · Company links (understand the firm and its products) .· Any Sustainable Competitive Advantages?· Managment Effective and Trustworthy · Link to intrinsic value estimator and a crude TVM-IV estimator.

http://www.softpedia.com/get/Others/Finances-Business/Intrinsic-Value-Investing-Training-Wizard.shtml

The Cost of Lying and the Indiana Toll Road Lease

2006-02-05T08:15:00.000-08:00

Have you ever wondered how much a small lie can cost all of us?
A few messages earlier posted at
http://groups.yahoo.com/group/NWIGOPAC I included an article on
"Hedonic Adjustments" to economic data. One economist claimed that the CPI or Consumer Price Index is understated by around 2.7 percent.

For the purpose of this article, let's suppose just 2 percent.
I will illustrate to you how lying on one end of government can cause
a gross miscalculation and actually "cost or tax" our people of Indiana.

The Indiana Toll Road 75 year Leasing Deal has been describe in the
newspapers as worth 3.8 billion dollars, plus billions more for
infrastructure upgrading.

In theory, I agree with the basic principles behind this initiative.
Mainly, that business can run a toll business more efficiently than
government. However, my main concerns revolve around having it 1.
properly indexed to future inflation, and 2. having a buyback or
buyout provision for our kids generation between 25 and 75 years down the road.

For purpose of simplification, I will run the numbers on the 3.8
billion dollar near "present value" benefit. And, I will illustrate to
you how lying on one end of government ( Hedonic Adjustments to the
CPI ) can cause a gross miscalculation and actually "cost or tax" our
people of Indiana.

If the CPI is understated by just 2 percent, that 2 percent lie can
produce a compounded 432 percent difference over 75 years. How? Take an excel spreadsheet and start with 1.02, and compound that amount over 74 years. That compounded 1.02 grows to 4.32 over the next 74 years. 3,800,000,000 times 432 equals $16,451,151,696.

That is over 16 billion dollars. So, unless this deal is more
properly indexed to inflation and the real CPI, it may end up costing
the people of Indiana nearly $12,651,151,696.

12.6 billion dollars. While I am not a professional politician, I may
have saved you from being "taxed" over 12 billion dollars. All I ask
for is that you consider voting for me in the 1st Congressional
District Republican Primary in May of 2006.

Bud Labitan

Indiana Competition

2005-12-13T13:30:00.000-08:00

George Will recently wrote that Indiana likes having the nation's highest portion of workers, 20 percent, in manufacturing. Apparently five days before Delphi, the Michigan-based automobile parts manufacturer, entered bankruptcy, Gov. Mitch Daniels, who believes that 'conservatism can be active,' called Delphi. Daniels praised Indiana as a paradise for even more Delphi operations. I am glad we have a proactive governor. However, with the odds stacked against manufacturing costs in the US, how can Indiana accelerate the move from "Industrial Work" to "Knowledge Work" ?

Furthermore, why should we even consider challenging incumbent candidates like Senator Dick Lugar? Competition. Competition is the stimulus that makes all of us perform at a higher level. We want our elected officials to perform at higher levels of productivity. The lack of competition in communist regimes inhibited their economic social and political growth. Competition also spurs you to imagine and brainstorm new ideas. Ideas like: How can Indiana accelerate the move from "Industrial Work" to "Knowledge Work" ?

I felt bad about the 30,000 GM workers losing their jobs. What can a modern vibrant American economy offer them? I recently thought aboutthis problem while considering a run for the 2006 US Senate seat from Indiana. As a young Republican Moderate, what could I do to help these folks? Brainstorm and Broker multiparty deals?

I met with a few local GOP leaders a few weeks ago at Charlie's Ale Restaurant in Munster, Indiana, and they informed us that Senator Lugar is going forward for his sixth term in the Senate. So, it is unlikely that my senate candidacy can go forward unless the Senator changes his mind. But, with a grin towards game theory, it was an interesting and somewhat nutty exercise in stimulating ideas that trickled down to Indianapolis.

Here is one idea I came up with. Since there are huge amounts of genetic sequences yet to be classified, Imagine if a Senator Bud Labitan(R) from Indiana, could broker and encourage a deal between Lilly, Microsoft, and GM to develop a simple plan to convert 30,000 "GM line workers" into gene-segment analysts or "knowledge workers." Also, imagine that these workers are all connected on a networked X-Box 360 running a simple research software application (developed by Lilly, Microsoft, and GM) from their homes, within 6 months. Microsoft knows competition. In time, the X-Box360 will sneak into American living rooms and control more automated functions. So, why not try to turn it into a modern workstation?

This goofy-sounding hypothetical temporary WPA-like program would actually help accelerate the discovery of genetic instructions. And, just like road building, new innovations would be developed as the projects progressed. Setting the proper incentives and time limits to government subsidized programs like these could facilitate the transfer of work groups back into a stimulated private sector of biotech knowledge work. If such a big conversion of industrial to knowledge work were brought about successfully, we would all benefit from more medicines and better health products developed.

Our Party can lead or "be lead." Pulling our party closer to the middle is vitally important to the future successes of our party's candidates. In my view, younger blood is needed for the healthy political competition of ideas. An elder statesman like Senator Lugar will not be inclined to tease Clinton and Obama, like Arnold went after his California "Girly-Men." I would have liked the opportunity to debate as well as "tease" Clinton and Obama as a senate equal on the good issues. Playing to the media, "the Indiana Oak" may help bring more good humor back to the GOP and help maintain "mass appeal" in the middle. Without more of the middle plus competition for additional minority support, out GOP is in for a spell of losing.

Introduction

2005-12-12T12:15:00.000-08:00

This is my first blog at this site. Previous postings are located at http://groups.yahoo.com/group/PUCMBA/

The purpose of this blog is to post and debate a variety of interesting ideas. I hope you find them useful.

MBA on a Interactive Video "Game" Disk With Artificial Intelligence
October 27th 2005

MBA on a disk

What will education be like in the future? A mix of gaming and education may be the answer. The basic idea is to put a full "Core MBA Curriculum" on a High Density Disc and deliver the core content clips dynamically back in "Madden NFL Football Game Style" with user-customized interactions and system generated video animations.

Its competitive advantage over potential rival products would be an A.I. inspired hidden helper system that uses Bayesian Probabilities for anticipating linked concepts in management education. This MMBA logic engine would also be designed to weave together case simulations that merge real and generated video clips to engage a user like a well designed Madden NFL football game. Thus, it would offer a customized learning and review experience based upon the user's prioritization of interests.

As gamers age, they will want new challenges that also provide insights into their real world work experiences. A MMBA game, delivered in the rich style of EA's Madden NFL Football could deliver both high quality gaming and education experience at faster user-customized rates. Since thousands of students enter business and management education each year, a new and recurring base of potential customers comes along annually.

---