February 28, 2008                       (Notes to Murray Stahl at NYSSA on September 24, 2007)

1. Sits in office all day, doing nothing but thinking of weird stuff.

2. Look for a long product life cycle. This minimizes the chance of earnings disruption.

3. Look at qualitative aspects of financials. He used R&D as an example. Two companies, both have similar eps. One has heavy R&D, the other doesn’t. Being very generic here, but thinks R&D Company has better metrics, and ability to grow in long term. Went in depth, but you probably get the drift.

4. Not a great believer of talking with management.

5. Read autobiographies. You can get clues of management. If you like their lifestyle, you can get investment hints. Etc etc.

6. “The time that exists for pensive reflection is not optimum.” Meaning, sit down and think about weird stuff. Think, reflect, don’t always study and work.

7. How do I find ideas?

a. Make list of negative articles – meaning time to buy is on maximum pessimism.

b. Use corporate earnings as a coupon. I think he means earnings yield. (Earnings / Price). Equity Yield Curve. Focus on this.

c. Try to have a margin of safety. Look at papers, reports, news and negativity.

d. Greater the uncertainty of the company, greater the discount rate that should be used. Going from memory here, but I think he uses 15% to 25% as discount (cap) rate.

8. Sell criteria

a. If I am wrong. Sell. Maybe a misjudgment of entire circumstance. Look for permanent erosions of ROIC.

b. Mistake in thinking long product cycle, actually being a short product cycle.

c. Discomfort with leverage.

9. Look at Value Line grids each week for ideas.

10. Thinks investors are conservatively biased.

11. Can’t think of any companies that are excessively overvalued.

12. Said we should read essay, “Infinite Bear Market.” I googled quickly, couldn’t locate.

13. Believes USA standard of living will be just fine.

14. Look at Net Margins.

15. Feels value investors have limited opportunity. Markets are typically fairly valued. So many value investors, wealth of information, that markets really have become more efficient. He thinks in time, this will revert back to value investors having their day. Just too many of us.

16. Loves international exchanges, and NYSE. Even mentioned LAB (which incidentally, as I type this, seems to have done well in the last few weeks. What hasn’t (other than my portfolios)?

17. Does not like Pfizer. He said P/E ratio is low because future profit margins will decline. Limited number of new chronic ailments. We get older, we get greater diagnosis (hence he likes labcorp and quest diagnostics), but ailments don’t grow. Only so many finite ailments. Blockbuster is a $2B drug (I think annually). He feels chances of hitting blockbuster are low (only 25 so far) and blockbuster effect not great to size of Pfizer. Triumph after taxes and costs if blockbuster happens, but not ridiculous changes. Of course Lipitor coming off patent in next 4 years.

18. Currencies important.

19. You want pure investment in currencies. Hence strive for sales and productions in foreign currencies and limited in US Dollar. Look for foreign companies who sell in specific foreign countries. Hence avoid Coke’s, etc. When you practice this, you have a put option on the US Dollar. Someone questioned, “what if china nationalizes, as an example.” Murray felt if that were to happen, Internationals would nationalize first. Intel or Coke plant would nationalize before say Bank of China. If that were to occur, you might have time to sell Bank of China (using ficticous example.) If that were to happen, US stocks would get crushed. Hence, you aren’t receiving proper risk reward buying INTC or KO. China company direct has risks, but also great potential reward.

20. If you love a sector, but a money manager. They will work off the leverage. Visa versa as well. He calls money managers and Stock exchanges Croupiers. I ask myself in a never-ending note to myself, “ what happened to investment companies in 1920’s.

21. Apply logic to investments. Used the Pfizer example of limited and finite chronic ailments. Whereas aging baby boomers will need diagnosis.

22. Loves China. China is inescapable. Says invest directly, not through international conduits. He cited AIG. They do great in China, but rest assured Chinese Life Insurance Company or Chinese Airport will be supported greater by the government.

23. I asked about Brookfield Asset Management and BAM Investments, which make up about 6% of his portfolio. He basically didn’t answer. He said here is what they do, but didn’t answer. He said go international, they are not international. He likes 15 – 25% cap rates, and as far as I can tell BAM uses 6% cap rates religiously.

Respectfully submitted,