LIVE NOTES From Value Investing Congress

Value Investing Congress with Whitney Tilson, Bill Ackman, et al. First presentation on the mortgage crisis (you can download here). Bottom line:

We are in the early stages of bursting of great mortgage bubble.  Still to come:

  • Defaults on pick a pay loans (Option ARMs, Wachovia)
  • Defaults on Home Equity Loans (HELOCs). These are junior to regular mortgages (100% wipeout).
  • Forced selling associated with both.

Historically mortgages default rate is 1%-2%. Now, even best loans written in 2005-2007 are high single-digit defaults.  The worst loans–2/28 low docs–already as high as 50%.

Defaults on crap loans will be highest in history by a mile. Currently defaulting at 5% a MONTH.

Prime losses will be much worse than people think. WaMu alone will be $30 billion. Total $1.5 trillion. Banks have only written down about $500 billion. Need to take another $1 trillion losses.

On a positive note: “Single best period to put money to work in history of our careers”

Carnage spells opportunity. Obviously be short financials. Obviously don’t invest on margin.  Look for things that are incredibly mispriced.

Best stock ideas:

  • Echostar
  • Berkshire Hathaway (15% undervalued)
  • Fairfax

Echostar (SATS)

No analyst coverage. 50%+ controlled by Founder.  A sum of parts business.

  • Owns satellites, makes boxes, owns Sling Media
  • Company currently valued at satellites plus cash.  Get everything else for free.
  • Trades at 65% of book
  • Sum of parts = Worth $51-$62

Berkshire Hathaway

Intrinsic value $157,000 at beginning of year, $178,000 in a year. They are now investing capital faster than anytime in history. $50 billion so far this year.  (Down 5% this morning).

If ever a time to buy this stock it’s now.

AS OF 10:30, WE HEADED BACK TO OFFICE TO WATCH MARKET CRASH. AT 11:40, Bill Ackman will explain how he figured out that Wells Fargo would counter-bid for Wachovia.

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