Rainier

I agree on Presti. He’s the best GM in the sport and seems to be a few steps ahead of everything at all times…selecting coaches, draft talent evaluation, talent development, salary cap changes/nuance, always winning trades. He’s kind of in a class by himself IMO. And you’re right, I don’t remember a team this well positioned with a current roster loaded with talent and a superstar, plus an extreme amount of draft capital. He’s a basketball business savant, at least compared to his competition. I have a hard time liking the OKC team though. They’re the latest example of a PR campaign that focuses on making sure the NBA media praises their defense, which allows them to play borderline dirty defense at all times with a much lower ratio of foul calls than they deserve. Any other team that tries the same stuff they get away with is staring down the barrel of foul outs and flagrant calls. Very unfair advantage. Golden State had this same advantage at their height, but not nearly as annoying because Steph (fun to watch) was not SGA (see below) Ironically, their star player, SGA, is the league’s preeminent foul merchant (now that Embiid is hurt). His entire offensive strategy is designed around unusual footwork and balance in order to get a defender to commit to jumping, so that he can then lean into them on purpose to draw a foul. It’s everything that is making me dislike the NBA boiled into one player. Harden did it before him. Embiid did it before him. But he has gone so far that the announcers (Doris Burke in particular) are calling him “foul merchant” and “free throw merchant” on national broadcasts during the playoffs. It’s a strategy that works, but I hate watching it. I was very happy when Dallas beat them in the conference finals last year. And they’ve only gotten worse with the dirty defense and SGA’s foul baiting. So, I’d love to see the Pacers win. Seems unlikely, but we will see.

I really hope the Pacers can pull it off. My brain tells me to get ready for OKC to steam roll the Pacers, but I will still hold out hope. To me, the most interesting part of this situation is that all-time choker Paul George is basically the lynchpin for both of these teams as they are currently constructed. Him stabbing the Pacers in the back allowed the Pacers to get the pieces to obtain Haliburton and the draft capital to get Nembhard and others. Him being a dodo and declining a $200M extension in Indiana and then signing a $137M extension in OKC (really stupid on his part) allowed OKC to trade him to the Clippers in what has to be top three dumbest trades of all time: perennial choker Paul George traded to the Clippers for SGA the foul merchant and a bunch of picks that ended up building this ridiculous roster they have now. The mechanics of all of that stuff and what Presti was able to get for OKC in that trade is unbelievable. Always a good idea to bet against Paul George.

Agreed. Plus no moat and seemingly infinite competition.

Congrats. Great return on a small restaurant/bar. Honestly, the ability to exit at all with a profit is impressive.

I tend to view yields at this 6%+ level to be attainable either in 1) risky/depleting/cyclical situations (like OGM stocks) or 2) when there’s general macro uncertainty and everything drops in price. Obviously, higher quality companies yielding in the 3-4.5% range today are more reliable and there are plenty of companies that could be expected to increase up to 6% over the next 5-10 years without the potential volatility of a lot of the names I’m listing below. Funds/ETF (Like most high yield funds, I struggle to see how they achieve much, if any, price appreciation. So I just view them almost like fixed income in the particular asset class. For a buy and hold forever mentality, they make a lot more sense when there’s a meaningful market correction where it’s possible to buy the normalized yield at a discount) - BANX - UTG - AMLP (or equivalent) Individual Companies (some of these OGM names are likely to be highly volatile) - LTC - EPR - NVEC (the price has drifted higher recently, but it’s been 6-8% periodically in the past few years) - PBR - EC - CRLFF - SOBO - FRHLF - VTS This is not investment advice. Please do your own research.

Not sure if these are off the beaten path, but saw them in a Barron’s article that was promoting a “long shot investment idea” list from some group called Bespoke Investment Group. No idea who Bespoke is and I don’t have any opinion (good or bad) about these companies. Just posting these as 1) I’m trying to learn a little more about the UAV tech/software space and 2) I hadn’t heard of these companies. I apologize if these are well known already to everyone. - PDYN - Palladyne - AMPX - Amprius Technologies - MRCY - Mercury Systems - KTOS - Kratos Defense & Security Systems

I’m an American living in the US

The CRE loans may end up being a decent safe haven over the next couple of years for well run banks. The regulators are fully entrenched with extend and pretend on CRE and have been for a while, so a bank is going to have to be in really bad shape regarding CRE for it to bubble up from the regulatory side of things. But when they run into widespread credit issues, they’ve still got to put up reserves where necessary, bog down lenders or workout groups (i.e, higher non-interest expense), and find other avenues of lending if the regulators discourage CRE growth. And no matter what a bank says, if they are pursuing new growth in excess of a small multiple of regional GDP growth, that means they are increasing their risk profile. There are different risk spectrums for these regional banks in terms of CRE exposure. Some are very conservative, with portfolios that basically pose no credit risk at all. This sounds far fetched, but there is a segment of this segment that foregoes some amount of growth during the hot periods. As an example, investment grade multifamily construction has two main tiers of financing from regionals. The first group of banks typically have the AAA lenders in the market who are viewed more or less as a partner in the deal process (along with equity, developer, and legal teams). They do nothing but multi family construction and know as much about submarkets, GC’s, zoning, etc as the developer does. Pre-pandemic, this group commanded 65% LTC (not LTV) and some level of recourse. Today, this group commands 45-55% LTC. There is also a feeder system for risk diversification, as all of these AAA lenders know each other and they know which conservatively run smaller banks to make up bank groups to buy syndications or participations. So, you’ll also find a few smaller banks punching way above their weight in terms of CRE asset quality because of this. This group only deals with the top level of developers, which are sometimes public or near public, but often they are basically extensions of very well-capitalized family offices. So, they’re often very patient, methodical, friendly capital. Not that anyone desires to walk away from 50-55% equity, but this type of equity is extremely reticent. Loans virtually never default, as the patient capital will write checks or pledge cash to make banks comfortable. The second group of banks is somewhere higher on the risk spectrum. Obviously riskiness varies with each loan, but let’s say that pre-pandemic this group was commanding 80% LTV (not LTC, so you might have less than 20% cash equity in a deal compared to the guaranteed 35%+ in equity in the case of the first group of banks). Currently, lets say they average 75% LTV. There’s lots of other ways in which this group is inferior (from a risk standpoint), but just let the delta in equity serve as a proxy for the delta in every other risk category (banker expertise, recourse, developer experience, submarket quality, equity reliability, etc). It’s a unique situation in which the less risky borrower profile also comes with a less risky project/equity profile. This might seem counterintuitive, but when you factor in the concept that the best groups of developers and equity are most likely those who’ve made it through several cycles, it becomes more obvious why all parties (AAA banker, AAA developer, AAA equity) are all aligned with the idea of ample cash equity and conservative projections. Long story short (sorry for rambling)…my point is that these are two very different scenarios (first bank example vs the second example). However, the duration on the two loans will be virtually the same. It will be something like a 3-year construction loan, with 1-2 years of mini-perm. And probably a couple of years of extension options. So, 5-7 years. That is almost universal, no matter how much credit risk is layered on the loan or what the interest margin is. You can extrapolate this across virtually all CRE asset types (construction or term), with different nuances for each. And as you get to office, retail, industrial, hotel (none of which have Fannie money as an exit strategy, which keeps bank-funded multifamily durations lower than other CRE asset classes), you tend to see durations pushed out longer for higher quality loan assets. That doesn’t alleviate duration issues or interest rate risk. And I know the banks don’t get to enjoy the equity upside of a highly successful project. But I do like to counterbalance the interest rate risk concerns with what might get glossed over in terms of the credit profile. The overarching concern with banks the last three years has been interest rate risk. But I think we are likely to see that shift in the next couple of years back to credit risk. There’s a lot of nastiness in some of these CRE portfolios plus there was a frenzy for commercial loans post pandemic, since those loans bring low rate deposits (and growth > GDP only comes with increased risk). Plus “private credit” has proliferated across the regionals. In other words, credit standards have taken somewhat of a backseat and have likely eroded somewhat.

I’m curious, who are the other 4 companies with substantive annual meetings? Fairfax? Constellation?

Apparently Berkshire requested 13F confidentiality on one of its purchases. Any speculation on what it might be?

Yeah transferring funds periodically to a Fidelity HSA is the most logical solution. They treat it like an IRA basically, so you can access individual stocks, options trading, etc.

This is a sticking point though. You can’t self-direct in most HSA accounts. A lot of them force you into a low interest rate bank savings account basically (UNH/Optum’s business model). If you are going to constantly be tapping the HSA to pay for immediate medical expenses, then this would make sense. And a lot of employers won’t let you setup contributions directly to your choice of HSA provider; you can only use the one bundled with the insurance provider (again, see Optum/UNH). But if the only reason you have the account is to take advantage of the triple taxation benefit, then it sucks. However, you can transfer funds to whatever HSA provider you want. The problem is that the providers make it purposefully cumbersome to do so. I was lucky enough to have an employer for a long time that let me just choose what provider to directly contribute to. But otherwise I just let the funds accumulate and make a distribution once a year.

Yes, this is right. Max out the contributions, never distribute anything, pay for medical costs with my own (post tax) cash. The beauty of the HSA is that the contributions are pre tax, the gains aren’t taxed, and the distributions aren’t taxed (as long as you use them for healthcare costs). Everyone will always have some type of healthcare costs, and the range of what you can use them for is extremely liberal. The obvious caveat is that you have a higher deductible. If you are young or just don’t need to go to the doctor often, then it probably works out to be beneficial. If you have a big family or know of some huge medical expense, it might not. I run the math every year with assumptions for the family’s medical expenses plus compounding the tax-free HSA contributions versus compounding the post-tax deductible savings and the HSA has won out so far. One other factor is that a lot of employers will contribute some portion of the $8,500 HSA funding. Kind of like a 401K match.

One of the most fascinating things about UNH (to me at least) is that they have a $17B bank buried inside of their company. Its liabilities are almost entirely HSA accounts, which by their nature are some of the most sticky and reliable low cost deposits in the US markets. On the lending side, it’s a traditional commercial bank. Interestingly, if you are the crusading type and have a lot of hate for UNH, these HSA accounts are also annoying. They offer no investment offerings (other than the low interest deposit account) and make it very cumbersome to transfer funds into a decent HSA that has real investment options. They benefit from the fact that the vast majority of the public are ignorant to the extremely beneficial tax status of the HSA account. As far as I know, it is the best tax-advantaged account in the US, and I would spitball that probably 90% of all HSA funds are tied up in low interest savings accounts.

I’ve encountered many people who didn’t know that there are no penguins in the arctic. Or that there are no polar bears in the Antarctic. In fact, I’d guess that most people who I’ve talked to where the topic has come up were surprised about penguins not being in the arctic. I think for some people, when they hear or read the words arctic and Antarctic, it just kind blends together unless they really stop and think about the difference. Also, I don’t think a lot of people don’t visualize a map/globe in their heads when they are talking about locations. The ignorance may also have to do with your home location. Like if you live in the southern US, northern Canada is about as foreign to you as Antarctica is (unless you travel to northern Canada).

Some of the best fiction books of the past 20 years. The first tv series was stellar. Great acting and a superb soundtrack. I imported the blu ray of The Mirror and The Light and will be watching as soon as it gets here.

Is this what Berkshire almost bought recently?

Understood on the taxable versus tax-advantaged accounts. I just don’t want to mistakenly buy something in a taxable account and end up with a problem.

Yeah, I got enamored with the nature of the business and the captive fee. But didn’t research the quality of the related insurance exchange. Thanks for the insight. I sold it today without much of a loss. I’m glad I posted about it.

Does anyone know of a list of companies that are PFICs? I like EXOR and Fairfax India. As I was researching them I learned that they may be PFICs and the tax headache that can cause. So, I was wondering if anyone knows whether there is some type of resource that lists public companies that qualify as PFICs?

Thank you. I read an overview of the business model last week and looked at the last couple of annual reports. It kind of seemed like a captive broker (i.e. the Erie Exchange policyholders are forced into a fee with ERIE). I assumed the publicly traded ERIE was setup by Erie exchange management at some point as a way to profit from the policy writing since the insurance company is some kind of co op owned by the policy holders. But now maybe the sustainability of the 25% fee is in question due to policy losses. I appreciate you and Dinar bringing it up. I sold this morning and I’ll watch it for a while. It still sounds like a good business model, but the fee has to be sustainable.

Thanks!

Thanks for the heads up on that. I hadn’t heard about it. His blog posts all seem to be behind a paywall? Is the short thesis based on accounting issues or something else?

Same for me. I love the businesses and have been reading (and appreciating) dealeaker’s commentary on these names for a while now. They’re just so expensive. Finally bit the bullet. Bought a sizable (for me) basket position of WTW, AON, GSHD, and ERIE over the last few days.

Maximize tax advantaged accounts from day 1. All of them. 401k, IRAs, HSA (and never spend the money on healthcare, just let it compound), 529…, Kids are as tiring and time consuming as you think they are. But people are not lying to you when they say they’re still more than worth it. Also, even though you don’t like kids in general, you will really enjoy hanging out with your kids (no matter their age). PhD’s and fancy alma maters are not signals of actual proficiency or of virtue. So, really think about the words coming out of people’s mouths and their actions versus their credentials. Major in and pursue a career in something you want to do every day. As long as you’re majoring in/pursuing something that is analytical and can reasonably pay the bills at the beginning, you’ll be fine if you work hard. There’s a path to financial success in virtually every industry for people who work hard. Work on your people skills and don’t forsake networking. All else being equal, older people are generally more interesting to talk to and learn from. You are able to spot trends pretty well, so lean into that and don’t be risk averse in pursuing something or investing in something that others can’t see the future of.