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The instrument was equipped with a heated electrospray ionization source, and the analysis was performed in positive ionization mode. MS data were acquired on a benchtop QExactive mass spectometer Thermo Fisher Scientific, San Jose, CA. The operating parameters were as follows ion transfer tube temperature 400 C, sheath gas 80, auxiliary gas 30, and spray voltage 3.
A full-scan MS method with mass ranging from 50 to 1000 m z and resolution of 35,000 was used. The instrument was calibrated using the positive ion calibration solution, which comprised a mixture of caffeine, MRFA peptide, Ultramark 1621, and n-butylamine in an ACN-methanol-acetic acid solution. This calibration was performed before acquiring data for each 384-compound batch; the same external calibration was applied throughout each batch. The samples were injected in the following order 60 minutes, 30 minutes, 15 minutes, 10 minutes, 5 minutes, and 0 minute, to minimize carryover effects.
Data analysis by TraceFinder 3. The TraceFinder method developed contained all the necessary information to run the instruments data acquisition as well as the parameters required for processing, data review, and reporting as an automated workflow. Before each acquisition, parent molecular formulae for the entire batch of compounds were imported into TraceFinder.
The software automatically calculated the exact m z of the M H ion. Parent compounds were identified by their m z values with a mass precision of 5 ppm. The signal-to-noise ratio was set above 10 to eliminate interference peaks. For each batch, 1152 output Excel files were obtained. The Validator software extracted the response data for each compound and produced the following results plots of percent remaining versus time, and Ln versus time; regression analysis of various combinations of data points by the utility and ranked by quality of the fit r 2root mean squared error and calculated t 1 2 and CL int.
Validator Software. To facilitate the calculation of CL int from the response data generated by TargetLynx and TraceFinder software, we developed the IQC Validator software to perform automated fitting and ranking of calculated CL int values. The ranking serves an important function in that it allows the user to quickly validate the fitted data with minimal effort. For a given set of time points in minutes T and the corresponding response values, all 57 possible combinations of T are used to perform Ln linear regression fit.
Each fit in turn is evaluated based on the scoring scheme in eq. 3 3where N is the number of time points, is the Pearson s correlation, and is the root mean square error. The best possible score i. The score is the normalized score that is used in the final ranking, with 1 being the best possible fit. This scoring scheme, when sorted in descending order, identified the most likely fit and calculated t 1 2 and CL int.
The IQC Validator has been implemented in the Java programming language as a desktop client. Figure 8 shows a brief overview of its main user interface. A simple workflow is as follows the user loads in a data file, in either Excel or text format, of time points and response values.t 1 2score, etc. TraceFinder automatically detected and integrated peaks from each raw file and provided an Excel output file, which included IS response, target compounds response, retention times, chromatograms, and sample details.
For each loaded sample, the user selects the best possible fit by any combination of visual inspection and or calculated parameters e. The selections made by the user are saved to a relational data base management system and can be accessed at a later time. All experiments were performed with both data acquisition methods, and the results were very similar t 1 2 values 10. Results for the UPLC High-resolution mass spectrometer HRMS method are described.
Method Validation. Five commercial compounds with different t values were selected as controls to test the qualitative and quantitative performance of developed method. Calibration curves for these control compounds were prepared, and peak area ratios compound IS versus their nominal concentrations were plotted. The calibration curves were linear over the concentration range of 1 to 5 1000 nM for the control compounds Table 1. The intraday and interday precision for QC samples were below 7 and 11 for all control compounds.
Intraday precision and accuracy were determined by measuring three different quality control QC concentrations 10 nM, 50 nM, and 500 nM three times in one day, and the interday precision and accuracy were determined by measuring concentrations of three QC samples over 5 days. The intraday and interday inaccuracies were below 8 and 13. Reproducibility assessment for control samples. Half-life values of the control samples across nine 384-well plates based metabolic stability assays were measured by UPLC HRMS.
Half-life categories 10 30 min high. The robustness of the UPLC HRMS method was determined by comparing peak responses of the IS across three batches i.three 384-well plates or 3456 sample injections. 5 which were within acceptable limits data not shown. The response was consistent within the same batch as well as across different batches Fig. The sensitivity of the HRMS instrument in detecting peaks for test compounds with 98 turnover is shown in Fig. Instrument calibration was performed before each batch analysis and mass accuracy 2 ppm was sustained throughout each batch run without need for recalibration or use of an internal reference Fig.
These results indicated that the UPLC HRMS method developed was reliable, sensitive, and robust. Peak response for albendazole. Peak area of the IS, albendazole, was plotted A across three batches i.three 384-well test plates. The mean and S. for the three batches B. Sensitivity of the HRMS instrument A 0-minute chromatogram and B 60-minute chromatogram for buspirone 98 turnover generated from full-scan data acquired with the Thermo QExactive.
Mass accuracy of the QExactive. Mass deviation of the IS, albendazole, across nine test plates was measured by comparing the theoretical m z value to the observed m z value. The mass deviation was measured twice, once at the beginning of the batch with the first sample and once at the end of the batch with the last sample i.sample 1152. The reproducibility of the liquid handler system was investigated by comparing the t 1 2 values of control compounds, included twice in each 384-well plate across multiple plates.
Ln response over time of the control compounds across three experiments were plotted to demonstrate the reproducibility between and within experiments Fig. The results show excellent reproducibility within plates and between plates Fig. The percent coefficient of variation for the t values of buspirone, loperamide, and ketoconazole between experiments was between 15 and 25which is significantly below the 2-fold acceptable limits.
Since antipyrine and carbamazepine are stable compounds, no SD was reported. Drug concentration-time profiles for control samples Ln response of control samples were plotted against time. Letters a and b in the legend correspond to duplicate samples within the same 384-well test plate. Automated Assay Workflow and Throughput Speed. The total preparation and incubation time for each 384-well plate experiment was 2 hours. The automated assay workflow for the high-throughput metabolic stability assay is summarized in Fig.
The automated liquid handler system increased efficiency, reduced error, and increased walk-away time for the scientist. Each incubation plate produced six 384-well plates, with six time points 0 60 minutes for each of the 384 compounds. Adjacent wells were combined from each plate, thus converting six plates into three, which reduced the UPLC HRMS acquisition time by half and further increased the efficiency of the method without compromising the quality of the data.
A typical extracted ion chromatogram for a sample that contains two test compounds and the IS is shown in Fig. Under optimal conditions, two 384-well incubation plates can be assayed in a week by using one robot and one UPLC MS instrument. The UPLC HRMS acquisition was allowed to run overnight and the time required for each batch 1152 samples was 2 days. Once the acquisition was complete, TraceFinder detected integrated peaks and provided separate output files for each sample.
These 1152 files were then imported into the Validator software which automatically extracted data from all samples, generated plots Fig. 8and calculated t 1 2 and CL int. These software tools completely eliminated data extraction time and drastically reduced data analysis time. Workflow schematic for the high-throughput metabolic stability assay. Extracted ion chromatograms of the parent compounds in a single sample containing ketoconazole, loperamide, and the IS, albendazole, based on accurate mass with mass tolerance of 5 ppm.
For each sample, the analyst has the option of selecting the most appropriate regression fit with the help of Ln response or remaining versus time curves as well as fitted and calculated parameters. Overview of user interface of the Validator software. Once the regression fit is assigned, the data can be saved and exported for further analysis modeling and simulation.
Compound Library. About 3000 compounds were tested using the newly optimized high-throughput method. Most of these compounds were a part of NCGC NIH Chemical Genomics Center pharmaceutical collection, which encompasses publically available approved and investigational drugs Huang et al.2011 and contains more than 2400 compounds that have been approved for clinical use by US, Canadian, Japanese and European health regulatory authorities.
The remaining compounds tested were from NCATS annotated collection. Molecular properties of compounds, such as logP, topological polar surface area, molecular weight, and Lipinski rule of 5, were calculated using Chemistry Development Kit descriptors tool The Chemistry Development Kit Chemistry Development Kit download SourceForge. org analytical platform Warr, 2012. As seen from the plots, a large portion of compounds have t 1 2 values greater than 60 minutes, belong in the 251 500 mol.
Figure 9 includes plots of the distribution of molecular properties and the CYP3A4 t 1 2 of our test compounds. range, and most of them do not violate Lipinski rules. We did not find any direct correlation of calculated t 1 2 values with the preceding molecular descriptors. Whereas much microsomal metabolic stability data are available in literature, this is, to our knowledge, the first time that such an extensive compound data base is being tested with an individual isozyme.
A detailed presentation of the data as well as in silico model development will follow once CYP3A4 CL int values for the remaining 2000 compounds have been determined. Distributions of molecular weight, experimental t 1 2logP, topological polar surface area, and rule-of-five RO5 violations of the metabolic stability data set generated using KNIME analytical platform. Discussion and Conclusion. A joint team comprised of members from the IQ Consortium and the NIH National Center for Advancing Translational Sciences undertook the task to measure and publish a data base of CL int values for compounds by major metabolic enzymes, for the benefit of advancing drug-design efforts with regard to metabolic stability.
Advantages include enabling advanced computational human metabolic models for individual metabolic isozymes; improving hit selection by high-throughput and computational screening; improving computational models for predicting human pharmacokinetics and enhancing lead optimization by guiding structure modification. For such data to be generated, a high-density assay format was required. Therefore, a high-throughput assay using automation, 384-well technology, rapid UPLC separations, high-resolution MS as well as MS MS using MRM quantitation, and an automated data analysis method was developed and successfully applied.
The t 1 2 values of control compounds between runs exhibited more than 4-fold variation. Initial pilot experiments with the automated liquid handler produced highly variable results. Compounds in the peripheral wells of the plate had t 1 2 values slightly different than if the same compounds were plated somewhere in the middle of the plate, a phenomenon known as the edge effect.
This problem was rectified by preheating the incubation plate and enclosing the liquid handler system during the experiment to ensure even heat distribution across the entire plate. Air entrapment in the narrow bottoms of the 384-well plates caused random splashing and mixing in adjacent samples. This issue was completely eliminated by reducing the dispensing speed of the liquid handler.
Since DMSO concentration affects enzyme activity Di et al. 1 in the final incubation.2003the final concentration of DMSO was kept below 0. The enzyme was purchased in bulk quantity to completely avoid interbatch variability. Of the 3000 compounds tested, the UPLC HRMS produced reliable data for 2642 compounds with an 88. 1 success rate. There could be several reasons for not obtaining reliable data for the 358 undetected compounds such as weak signal, inefficient ionization and adduct formation.
Some compounds that undergo ionization in the positive mode may form M NaM Kor M NH4 adduct ions Ortelli et al.2000; Li et al. TraceFinder can be programmed to identify whether any of these adducts are present for the 358 compounds that were not successfully detected. The method described in this article has several advantages over existing published methods integrating automated incubation, automated data acquisition, and automated data analysis.
The high-throughput high resolution MS method also has several advantages, including 1 4-fold higher capacity 384-well format than existing 96-well formats, 2 efficient testing of large number of compounds with minimal labor and supervision, 3 avoiding individual compound optimization as the same generic method can be used to acquire data, and 4 significantly reduced time for data analysis. Additionally, by using HRMS in scanning mode, it is possible to interrogate the data afterward for a preliminary look at metabolite structure information.
In conclusion, we have successfully established and validated an automated high-throughput metabolic stability assay. This system can be used as a rapid assessment tool for initial screening of novel compounds. Future efforts will focus on developing in silico tools and characterizing additional compounds with the system using CYP2C9, CYP2D6, and other major CYP isozymes.
The authors thank Paul Shinn Compound Management, NCATS and the IQ Consortium Drug Metabolism Group members for their inputs in experimental design Drs. Authorship Contributions. Participated in research design Shah, Kerns, Obach, Wang. Conducted experiments Shah, Kerns. Contributed new reagents and analytic tools Nguyen, Xu. Dennis Dean VertexJim Kerns AstellasPrashant Desai Eli Lillyand Christopher Keefer Pfizer.
Performed data analysis Shah, Kerns, Obach. Wrote or contributed to the writing of the manuscript Shah, Kerns, Nguyen, Obach, Wang, Zakharov, McKew, Simeonov, Hop, Xu. Received June 8, 2016. Accepted July 13, 2016. This work was supported by the Intramural Research Program of the National Center for Advancing Translational Sciences National Institutes of Health.
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Chromatographia 52 445 450. Sakiyama YYuki HMoriya THattori KSuzuki MShimada Kand Honma T 2008 Predicting human liver microsomal stability with machine learning techniques. J Mol Graph Model 26 907 915. Shen MXiao YGolbraikh AGombar VKand Tropsha A 2003 Development and validation of k-nearest-neighbor QSPR models of metabolic stability of drug candidates. J Med Chem 46 3013 3020. Shui WLin SZhang AChen YHuang Yand Sanders M 2011 Driving efficiency in a high-throughput metabolic stability assay through a generic high-resolution accurate mass method and automated data mining.
Protein Cell 2 680 688. Warr WA 2012 Scientific workflow systems Pipeline Pilot and KNIME. J Comput Aided Mol Des 26 801 804. In this issue. Automated High-Throughput Metabolic Stability Assay Method. Tweet Widget Facebook Like Google Plus One. Abstract Introduction Materials and Methods Results Discussion and Conclusion Acknowledgments Authorship Contributions Footnotes Abbreviations References. ASPET s Other Journals.
Copyright 2020 by the American Society for Pharmacology and Experimental Therapeutics. Table of Contents Table of Contents PDF About the Cover Index by author Editorial Board PDF Front Matter PDF. Government work not protected by U. Publish date July 10, 2017. An Interview with Famed Value Investor Guy Spier. It was probably due to his book, The Education of a Value Investor. In it he recounts everything from his lunch with Warren Buffett to how he s beat the market for two decades and counting.
Guy is an extremely generous person who does not mind sharing his knowledge with others and occasionally enjoys playing chess competitively or to pass the time. Guy runs the Aquamarine Fund, which is closely modeled on the Buffett partnerships of the 50s. He earned his MBA from Harvard Business School and has been a successful investor for the past 25 years. In his latest annual report, he discusses his decision to pass on investing in Amazon in 2012.
I found his analysis fascinating, so reached out to him about an interview. He responded almost immediately, and the result is a 2 hour interview, which I ve included below. We talk about everything from Warren Buffett, to Amazon, to competitive chess. Topics covered in the Interview. Chess and the area of pattern recognition Warren Buffett and his confidence with the stock market Why the fear pattern is important when it comes to investments and the economy Investing in debt and equities The insiders game who wins and who loses What is indexing and why it matters Value Traps Buying Amazon stock What is the biggest danger value investors have.
Bill Ackman vs. First Union Realty Amazon s purchase of Whole Foods Different types of reading to keep up-to-date Reading physical newspapers vs. obtaining information online from apps, blogs, and social media How to approach the world of investing intelligently Where some of the best investing insights come from Deciding what investors to follow and the reasons why Recommendations of research tools for individual investors Using stock screens to research companies Tony Robbins and the self-help culture The Aquamarine Fund.
Resources Mentioned in the Interview. The Tim Ferriss Show Entrepreneurs on Fire The Internet Chess Club Chess24 The Education of a Value Investor My Transformative Quest for Wealth, Wisdom, and Enlightenment Aquamarine Fund Trello Stratechery The Information Factiva Dataroma Capital IQ Money Master the Game 7 Simple Steps to Financial Freedom Awaken the Giant Within Value X. Guy Spier Interview Transcript. Guy I ll send you this file once it s done.
I know that podcasts are all about the highest quality sound and I know that s a Hiel PR-40 mic and you have a pop-thing on it and it looks so great. Are you using a USB or is that going into a. Rob I use and by the way, I m hearing feedback on my end. Guy What does that mean. Rob I can hear my own voice. I don t know if that s getting picked up on the recording or not. Guy I have no idea but it s really hot here and we don t have air-conditioning so I don t know. If I put some did that feedback go away now.
Rob Yeah, I think it did. Guy It was feeding out of the microphone and into the speakers. Your sound is feeding out of the microphone and into the speakers basically. Rob When I bought this microphone and I know nothing about this stuff I just assumed it would have a USB plug on the end of it and I could just plug it into my computer and I was wrong. Then I did some research and ended up buying a Steinberg UR-22 which is just a box and you plug the mic into it and then out the end of it there is another cord that converts it to USB and I just plug it into my computer.
Anyway, I think what you also have is reflection of the desk so it s not as high-quality audio but I think what I love about the podcast medium is that there s an intimacy to it which is just incredible. You re right up there close with your audience. Rob That really took me by surprise. I ve been blogging for 10 years. I started the podcast almost four years ago and when I was blogging I d get an email every now and again from someone who had read an article but it wasn t very frequent.
I don t recall when I first heard of Guy Spier. When I started podcasting, I got a flood of email. I ve gotten to the point now where I read every single email. I tell people that and it s true, but I don t give substantive responses because I can t. I would spend all day responding to email. What I do instead is take a lot of the questions people ask me and answer them on the podcast.
I ve had meet-ups where we ll meet up at coffee shops here locally in the Washington, DC area. So yeah, there is definitely a connection you make with your listeners that you just don t with the written word. Guy Yeah, it s quite incredible and I ve thought about podcasting mainly because of the fun of connecting to people and the incredible closeness you get to them.
I record a podcast with somebody and two or three hours later somebody is emailing me about it and I m blown away. I was going to ask you, what fills the bank account if you re not selling advertisement which I think is great, by the way. Rob The blog basically drives the business side of it the website. It s also very it s a medium that s very there s a high longevity. At times I ve thought about advertising on the podcast and I came really, really close just a couple of months ago to signing a deal to run ads and it just didn t seem right.
It s not that I ll never the day could come when I decide to advertise on the podcast. I don t want to say never but part of me just thought, you have to know when you have enough. I have enough so I just view the podcast as something I enjoy doing and a way to give back that s not motivated by money. I really enjoy listening to Tim Ferriss podcasts.
They re great. There s an element to which he s pushing an angle where he s kind of just pushing some particular thing. And, there I am with whatever it is I m doing and I suddenly realize I ve listened to a few minutes worth of him plugging something. There s something that s not completely pure about that. At the end of the day people have to put bread on the table so I guess it s is okay.
I don t know what you think of John Lee Dumas, JLD. He, as well, has just got a wonderful podcast and it s really inspiring. Again, this applies to the podcast because he s making money out of them as well. He s getting affiliate fees. Rob The truth is, Guy, I don t listen to a lot of podcasts which is maybe ironic, I don t know. I ve listened to both of theirs and I joined John Lee Dumas he had a forum for podcasters when I was first getting started.
He publishes his income online and is making six-figures a month. I think he and his girlfriend moved to Puerto Rico not long ago. Maybe for some of the tax advantages there but he s obviously built up a tremendous business. And Tim Ferris, depending on who his guest is, I think his interviews are some of the best out there. So you re based in DC and I m honored that you wanted me to come onto your show.
Rob You re honored. I m honored that you said yes. I wasn t sure I would even get a return email when I reached out to you. You emailed me right away and I m grateful. And look, I ve got a whole card full of questions. One of the things we want to talk about is Amazon and I m sure you saw that they just signed a deal to buy Whole Foods which I may ask you about.
But yeah, if it s okay I ll jump right in. Rob I want to start with what I think has got to be the most important topic we ll discuss today and that is whether you still play chess. He keeps asking me for games so I play him. Guy You know, I play with my son. I have a question mark in my mind though. Every time I play him, I play him as well as I iq option gratis.
I don t want to shield him from how well I play which is not all that well. I want to go online and play but it s such a time-sink. The last time I went online which is probably more than a year ago I got so depressed at my rating I had people at a chess rating of 900 beating me so I don t know that I can say I regularly play chess anymore.
Rob When you play online, where do you play. Guy The Internet Chess Club is the place I ve enjoyed playing. I could open that up anytime and start playing. They have a great app which is sitting here on my desktop. It s easy with Blitzin. If you like playing we can play each other. I could pull out a game right now.
Rob I d love to actually but I don t know if I m set up with the Internet Chess Club. I play at chess24. Guy And what s your rating. Rob It s funny you should ask. Guy Did you hear that. Guy I just loaded my Blitzin to see what s going on there. Rob Right now my rating is 2,100 on chess24. Guy You re a very good player. I have never gotten that high. My highest rating ever is about 1,600. Rob Well, if you had asked me a couple of days ago my rating on chess24 could very easily been 1,700 or 1,800.
I tend to go through spurts where I win a lot and then lose a lot so my rating can fluctuate by 400 points or so, on Chess24. I d go and play a bunch of 900 rated guys and play really badly or intentionally lose or make a sacrifice where I had no chance of winning up against and watch my rating go down to about 1,200. Guy Actually, when I playing with people with a 1,500 or 1,600 ratings, something I used to enjoy doing would be to deliberately take my rating down.
Then I d get all of these guys challenging me to a 1,200 rated game and I d smash them really good laughs. So the most satisfying thing for me and I m talking to you now, I have enormous respect for you. To play to 2,100 if I m not mistaken, 2,500 is Grand Master. You ought to be able to beat me at every game we play just based on 2,100 compared to what my rating is. I love open games. I love breaking open anything no strategy left and just pure tactics. When I was playing a lot I really used to enjoy pawn storms.
To get a kings opening and then just figure out a pawn storm and to watch and feel the impending sense of doom the other player feels as his defenses are totally ripped to pieces I m sorry I m just diving deep into it. There s a player called Bronstein, whose games one can look at. He always played open games and, of course, the open games are always a wild ride because there are always twists and turns of fate that you d never know how the hell they re going to go.
Just talking about it is kind of fun. What really annoys me is when people play this closed, sort of, trench fighting. I always try to rip those things open. My play is very much in the direction of a duffer in that I find it really, really hard to keep my wits about me and keep a cool and level head as the game gets exciting. When I followed it closely, I just never enjoyed the way Karpov played.
I never, ever enjoyed it. And even then, the thing is, the way Kasparov would play is he was a much more dynamic player. Even he realized that in order to win you really have to button it down and that just makes the play less interesting, it seems, to me. But no, I don t play near as much or enough. There is something about playing on a real board in a real open session. I don t know if you have anything like this in Washington, but in New York City there are these amazing places where you can go and just pick up games.
Rob Yeah, in New York City well, now St. Louis has become more of the chess capital of the US because of the great things they ve done there at the Chess Club and the Chess Hall of Fame, but New York is probably still the dominant location for Grand Masters. I think I read you were a member of the Marshall Chess Club at one point. I ve played there. There are great places to play there in the park. In fact, I m playing in a tournament that starts tonight but, no, it s not like New York City.
Guy But good for you that you re playing. I can t honestly claim that I m a regular chess player. I wish I could but I can t. I ve got Blitzin open right now. But, I ll just go and lose a bunch of games if I go and play laughs. Rob I was trying to download Blitzin and get it set up so we could play but I don t think I can iq option gratis that and talk to you at the same time. I tried and failed.
In your book, The Education of a Value Investoryou talk a little bit about chess and bridge games and their relationship to investing. I wanted to explore that a little bit, if we could. One thing about chess I ve really gotten back into the game a lot in the last year and will listen to Grand Masters. He s ranked 14th in the world. You can watch him on chess24 play speed chess with different players and he ll iq option gratis about the game as he s playing. Of course, he s winning virtually every single game.
The thing I ve noticed is you ll see a position and in my mind I m trying to calculate as I m following the game Okay, he can move his knight there and the other side will move their bishop there, and then he can move his rook He just instantly sees a three, four, or five move combination and he talks about it. Peter Svidler is one of them. In a blink of an eye he sees it. I know he s a Grandmaster but still, how do you calculate that quickly. At first I wondered, how in the world he could calculate that.
After watching him for awhile I realized, you don t. He s not calculating at all. He just sees the pattern. He recognizes the pattern, thinking fast and slow for example. I m thinking slow and probably coming out with a bad result. He s thinking fast because he doesn t really have to think at all. It made me wonder, are there patterns you see as you re evaluating companies or industries in selecting investment possibilities.
Are there patterns that you ve recognized over time that can help you identify investing opportunities. Guy I don t think I m particularly good at it but I think there are patterns of human behavior that I can certainly start to recognize even though I m not necessarily good at managing myself in those patterns. I get very concerned with situations where there is an enormous amount of controversy.
What I really love is situations where there is an enormous amount of fear and that fear is not rationally based. I think people are just not looking there. I haven t come across those situations too often but I can see that happen very, very clearly now and I know if I m operating in a place where that s the case. That s why I think Warren Buffett is so confident that no matter what direction the market has turned and how overvalued things get and how competitive the investment gain gets, there are always going to be pockets where people are just fearful and don t want to tread.
And, if you re willing to tread there, then you ll do fine. I just remembered, a way to reinforce that pattern for me, was in the height of the financial crisis Warren Buffett bought shares of Goldman Sachs. And, it s just incredible because all mayhem was breaking loose and he dove straight into the middle of it and bought shares of Goldman Sachs. There was very little certainty about the way things were going to unfold. I think that was an example of him saying, This is a valuable company.
There is a lot of uncertainty around it but these guys are smart and will figure it out. And I m buying into that uncertainty. And I m buying into that fear. Which, by the way, you re probably going to bring it up later, is exactly what is really hard about companies like Amazon and Netflix and which doesn t exist. The emotional pattern you need to get in to buy Amazon or Netflix right now is to say, Yes, those guys are all exuberant about the future of this company but I m even more exuberant.
You re buying on top of other peoples exuberance and that s a very, very different place to say, buying Goldman Sachs in the middle of the financial crisis. It s not an analytical pattern but it s an emotional pattern. I think that what s hard when you look at analytical patterns. I wrote my annual report about bundling.
Economies are bundling or scaled economies, share. And what s really frustrating about that is that often other people see those patterns as well, if not better, than I do. So I m coming late into that game. But the fear pattern is a really, really valuable one. I think once you do extraordinarily well without such good analytical abilities in general, you ought to buy off a fearful buyer.
You want to be a buyer when other people are fearful. And there s no fear. I think there are some people that would never be able to beat you or me at chess because they re not analytical thinkers. But, they get a sense of that. They get a sense of where they want to be. There is a guy I met not so long ago who lives in Geneva of all places, who is a retailer. At the time, he was putting all of his money into Canadian real estate.
And actually, it was really clear that commodity prices had come down. The tar sands oil was no longer profitable so Canada was suffering but he was buying real estate in downtown Toronto. He had a sense that that would turn out fine over time. He was shifting his whole real estate portfolio into Toronto real estate. And, he didn t know that much about Toronto real estate but he knew he was buying into a situation which wasn t entirely distressed, but there was fear.
There was lack of liquidity and people in Canada were very, very unhappy. But he wasn t buying some speculative he was buying into real estate where he knew, one way or another, this would work out for him. So he wasn t being as greedy as he possibly could. He wasn t buying into tar sands companies that were losing enormous amounts of money and filing for bankruptcy. I think he was buying downtown Toronto real estate. Yeah, I think there are patterns and you get better at it.
Rob You mentioned the book, The Manual of Ideaswhich in some ways I see almost as a book of patterns. I think of Deere Company, which Berkshire owns, but with crop prices down and http://forexfactory.site not buying equipment they struggled. The one I use, that I guess is really the fear pattern but is when a company s stock is beaten down for cyclical reasons. But, there s no way that s a permanent situation.
That s going to change. To me that s kind of like low-hanging fruit. You don t know when. That just seems to me like an easy decision. Guy Actually, I ve not really studied Deere Company but I think having met somebody who used to work for Sargenta, companies like Deere Company and farming companies are in the business of organizing the farming supply chain. Thus, participating in the earnings of agricultural land and helping agricultural yields improve and helping the returns to farmers improve.
They re kind of surrounding the farm. There are four or five suppliers who surround the farm and make money effectively in partnership with the farmer. The fact that they re in a position to make and sell equipment to the farmer means they re in an ongoing financial relationship with the farmer and in a position to propose all sorts of other solutions to their farms. Unless you think that farms are going to disappear which is not the case then Deere Company will have opportunities to make money.
But it s worth saying that you still want to know that they re not open-leveraged. There are a whole bunch of other things one wants to know. There may be marginal supplies of farms which don t make it through this cycle. Another pattern and again, Warren Buffett is the master of it. I was sitting at the Berkshire meeting during the financial crisis and I own shares of Shaw Harley-Davidson and I discovered that Buffett or Berkshire Hathaway had become a lender to Harley-Davidson.
He was asked that question at the annual meeting and he just said, If we don t have to make a bet on exactly how well Harley-Davidson will do, then we don t want to have to make that bet and we re offering perfectly decent returns at a more secure place in the capital structure so we took it. So this idea of, you don t want to be on the margins of economic activity you want to be at the center.
You want to be in the things that humanity can t do without. It was inevitable that Berkshire Hathaway would end up in power generation, for example, because that just drives everything. That s another pattern is the decision I m making taking me closer to the core of economic activity or is it taking me to the edges. Am I buying derivatives and options or am I buying debt ownerships in companies. And he s constantly moving his portfolio towards the center.
At the time he made his investment in Washington Post, I don t think any of us ever thought this was I mean, we talked about one-newspaper towns and this was considered to be at the core of advertising, the core of how you reached consumers and the ability to advertise in a local newspaper was one of the most important ways in which retailers reached potential consumers.
That s just been completely blown apart. You have to have an awareness that on a regular basis the companies you might think are at the center may not be in the future. Actually, when it comes to power distribution, I don t think it will change. Power used to be generated by a small number iq option gratis very large power plants and increasingly power is being generated by wind plants and solar plants.
Solar installations on people s roofs, heat exchanges, and so forth. It becomes a far more distributed generating capacity in which, if you own the transmission as a power company you re probably fine, but if you just own centralized generating capacity you may not be fine. The world is changing all the time. Rob And that sort of distribution is happening in industry after industry. I should say too, and I apologize to you and the listeners also I ve been fighting a cold for 10 days so I m trying my best not to cough into the microphone.
You mentioned Harley-Davidson. Does your fund invest in debt at all or is it all equities. Guy I can invest in anything I like, Rob. My regulators here or the people who represent the regulators have a hard time understanding that. I keep on having to pull out my fund documents to show them the investors have agreed and understood that I can invest in anything.
Having said that I can invest in anything most of the time, I m invested in the equities and securities of publicly-created companies because I think that offers the best risk reward. Debt securities are lovely but you re not going to get a significant reward out of them. You might get a few percentage points better than the bond rate. In equities you can double and triple your money if you re in the right places. That s where the risk reward is really, really good.
So long as you re in conservative funded companies, the value of your principal ought never be in doubt. Although, I had my head handed to me a couple years ago when the equity of a company I thought ought not to be in doubt, ended up being worthless. Yes, I invest in equities, securities as I m sure most of your listeners do which is the right place to be if you re saving for retirement or saving for the education of your children. That s where we all ought to be.
Here s another pattern. This comes from an interview I did attend the Daily Journal meeting which is where Charley Munger holds court once a year. Somebody was asking him about some investment path I think was venture capital and he just looked at him and said, Look, that s an insider s game. I ll never win at that insider s game unless I work 20 years to be an insider.
He talked about, if I m not mistaken, real estate as well. Real estate is a very local insider s game in the vast majority of cases. I was glad they had become a lender but slightly miffed that he hadn t bought the shares. We all understand that there is a retail location, for example, that s just never worked. And often it s not easy to understand. I m thinking of a Chinese restaurant that opened up on a corner not far away from where I live, where just nobody s been able to make a retail operation work there.
I feel bad for the current occupier s because they haven t made it work either. So he distinguishes between those kinds of businesses where insiders are winners almost always but outsiders are winners almost never and investment opportunities where the playing field has been leveled so that outsider s can also win. In our local neighborhoods we will understand the nuances of the planning commission and what going on, on a particular corner.
That s clearly a question he asks himself very quickly when he s assessing something. He just doesn t plan things where insider s can win against outsiders. He doesn t feel any sense of remorse or envy over the money venture capitalists are making or that blockbuster movies make or the real estate people make in their local markets.
He s waiting for those opportunities where he can say, I m an outsider but I ll do fine in this. If you take the publicly traded equities, and the best example of that is indexing. Indexing is a game where an outsider can win if you just stay put and do dollar-cost averaging. You re defined to it, not by law, but you re defined to win. There are plenty of other publicly traded securities where the information that I m getting is the same as the information everybody else is getting so I have a chance of playing on a level playing field.
There are some publicly traded securities where it s not a level playing field. It ought to be but it isn t. So that s a pattern. Rob Turning from patterns to Amazon, just to kind of tee-up this question, I ve said on this podcast, and I ve written on Forbes, that I think Amazon is a wonderful company. I have their credit card, I m a Prime member. It doesn t give a pattern of whether to invest or not but it is a simple pattern that allows us to decide whether we want to proceed down a particular route of analysis to see if we want to make the announcement.
I watch their videos. I listen to their music. I buy from Amazon more than I should. And I ve also said that I think it s a lousy investment because of the valuation. So, imagine my surprise when I m reading your annual report I m showing Guy throughout the video I got it. And in it you have and this is not new. Your approach is a little bit different this year but I think it s great. You sort of do a case-study or postmortem.
In this case it was two stocks that you considered buying and passed on. One was Valiant, and I don t think we need to spend any time on that unless you want to. But obviously, you dodged a bullet there. But then Amazon you regret not buying Amazon. I think you were comparing 2012 is when I think you considered buying and someone I think it was Nick Sleep, was very bullish on Amazon.
Guy Yeah, it was Nick. Rob If you compare the price in 2012 to today, I think any of us would wish we would have purchased it because back then it probably had a market cap of about 88 billion. And today it s 450 billion or 500 billion. I think anyone would have liked to buy if you just focused on the price but help us understand as a value investor, why you viewed Amazon as a good investment in 2012. The answer I m going to give you is one I will need to listen to myself.
The biggest danger we have as value investors is that we fall into value traps. Guy I think you ve teed this up in a beautiful way. There are plenty of things that are cheap on some metric scales that is actually not going to make this much money. The obvious value trap and there are many different kinds of value traps. I used to get very excited when I looked at small-cap companies and I d see that they were trading at some ridiculous multiple of earnings.
The value trap there was where the management and the board of directors are using the company kind of as a retirement plan. In theory, the management can be removed and you could release all that value and pay somebody a lot less money to do the same job. In practice, it s impossible to remove the management.
There is value embedded there but you re never going to be able to get it out. There was this famous case with Bill Ackman and a real estate company. It was called, First Union Realty, I believe. He went and decided to fight the management on the fact that they were doing this and the management turned around and said, If you want to do this to us, we ll destroy the value.
By the time he won, he had lost because the value inside the company had been destroyed. We re buying into outside passive minority investors, but buying into vehicles where we re unlikely to change the course of event and unlikely to make any significant changes to the way the company is being run so we have to buy into a vehicle that s capable of becoming more valuable ideally, and sharing that value with all of the other shareholders. That s a hard thing to find. There are plenty of companies that are just not growing and if you own a company that s not growing first of all, the margin of safety has to be greater.
If they re not reinvesting money at a good rate of return if you buy a dollar bill and in 10 years time it s still a dollar bill, even buying it for 10 cents on the dollar may not be cheap enough given you may have to sell it at a discount. Whereas, if you have a dollar bill that s growing very rapidly, you might even want to pay a dollar for it if it s going at 30 percent PR.
The company is small enough and they control enough of the shares that iq option gratis re sucking an enormous amount of the value that has been created in the company out as direct payments to the management. That is part of the analysis we have to do and it s dangerous for the growth of one s wealth to be invested in one or another kind of value trap. I guess this is all a long way of saying that we have to Warren Buffet said somewhere that growth and value are joined at the hip.
They re all part of the same thing. All intelligent investing is value investing. There is no great honor in buying a company that just has cheap metrics for the sake of buying cheap metrics and holding out some flag that says, I m a true value investor. You have to be willing in fact, you re better off engaging with better businesses and trying to understand how that value is growing and whether we want to own and pay up for that better business.
That s just a very long way of saying that just because you or I consider ourselves value investors doesn t mean that we throw out of consideration, a company for which we have to pay up. Obviously, then the question is how do much do we pay up for that business. In the case of Amazon, there is a very strong argument for paying up.
Going back into the world of value traps, I m going to take you through, if you allow me for about four or five minutes, the analysis of an investment I had which was kind of a value trap. I discovered this company called, RLI Replacement Lens Insurance company that regularly wrote combined ratio of well below 100 which meant that just from the insurance operational side, they were highly profitable and you didn t even have to worry.
The vast majority of insurance companies were unprofitable on the insurance side but they make their money on investments. I figured out that you wanted to buy insurance companies who had low combined ratios were comfortable as underwriters. Researching their annual reports we know that one of the things he talks about regularly is how his insurance operations make money purely on the underwriting side.
I owned RLI Insurance for about four or five years and the share prices were going nowhere which, of course, was more than a mind of frustration for me and I kept trying to figure out why. A big part of the reason why was because they just couldn t grow their sales. They couldn t grow their insurance underwriting and when I dug deeper into why they couldn t grow their insurance underwriting it made an enormous amount of sense in that the way they got comfortable underwriting was to find the buyer who had nowhere else to go.
They had an unusual insurance problem to solve that couldn t be solved by the normal and competitive markets. It needed an entrepreneurial underwriter who was willing to underwrite that unusual risk. So the buyer would pay an enormous amount of money for that insurance but you can be sure as hell that they were very reluctant to pay.
And if they could possibly get away from paying it, they would. The company was consistently losing customers. You could have a business that is very, very profitable because they find a way to charge a lot for something but they cannot grow. Warren Buffett understood that and when we see the reason why Warren Buffett likes Geico Insurance so much is that they managed to make an underwriting profit along side of under-pricing of their product relative to their competitors.
They under-priced their product, they charged less than their competitors and they make money. That creates the dynamic of continuous growth because Geico has grown every year for the last 20 years I ve followed it. I m pretty sure of that. There may have been one or two years where they haven t grown but they grow expecting that it s amicable for a commodity product you have to pay less for that people will end up finding their way to Geico.
Coments:10.02.2020 : 22:58 Mikus:
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17.02.2020 : 23:48 Gardagar: