onyx1

Welcome to the board Ross, and thanks for an insightful post! What about costs? SSD clearly have performance benefits. SSDs have taken over the handheld device market but that is because HDDs cannot compete with the compact nature of a SSDs. Currently, desktop's and laptop's (where imporvements in access speed would be a big plus) OEM's are still using 2.5/3.5-inch HDDs because SSDs cannot compete with HDDs on cost. For other applications such as storage area networks, video surveillance, DVRs & DVD recorders and long term storage of personal media content, it is unclear to me how the demand for compact size and/or access speed evolve if there is a significant tradeoff in cost. What do you see as the current economic tradeoff for the improvement of speed, and how will that change over the next five years? Both WDC and STX believe that demand for SSDs will outpace that for HDDs in the coming years but will remain a small portion of the of the total storage market on a unit basis over the next four years. FYI, I have a position in WDC based on the thesis that overall storage demand will continue to grow, and that if SSD do take over the storage market, it will take many years for it to happen.

I saw WDC on one of my MFI screens yesterday and though I am not normally a tech investor, I am spending some time looking as well. Companies that offer 40% trailing FCF/EV yield are usually reserved for businesses that are about to die. Yes, SSD's will replace HDD's over time especially in portable devices. But demand for storage is growing and has never been higher (think high res videos & photo's, databases, cloud technology, backup services, DVR's, etc.). The key here seems to be that the market is not a zero-sum game. Management sees demand for storage growing at 10-15% per year. WDC doesn't appear to be in hospice. They doubled their top line in the last 5 years and margins have never been higher. Even then there is some additional margin of saftey with P/TBV of 130%, and no net debt. Aside from the fact that WDC is in a commodity business with no barriers to entry, a few other things temper my euthusiasm: Lack of significant insider ownership (<1%) Increasing share count over time They are hoarding cash Option issuance and lack of significant share repurchases/dividends

Thanks for posting...he is an original thinker.

...on Biglari compensation proposal. http://www.earthtimes.org/articles/press/place-august-24-2010,1413561.html

Think of them as simply being long or short the stated asset/index. The exposure is the same as a cash, but with a TRS the execution is synthetic. TRS's are designed for creditworthy institutions to gain exposure without the need for an initial cash outlay. Very popular with hedge funds and others seeking leverage and those who seek to avoid the 50% margin rules. Mechanically, Firm A will contract with Firm B to receive the total return of an asset/index (this will include movement in market price, dividends and any other distributions); in return Firm A pays Firm B Libor plus a negotiated spread on the outstanding balance. Typically these contracts are settled at maturity, and cash margin is exchanged during the contract period as the market price moves up or down. These contracts be set for any term and pricing is negotiated. They aren't affected by volatility any more or less than when you buy the underlying cash asset. The beauty of TRS's contracts is flexibility. They can be used on any asset for any term at a price negotiated with only one counterparty. Don't know the extent to which FinReg will change all of this.

http://www.realclearmarkets.com/articles/2010/07/20/worry_over_the_wealth_gap_is_wasted_98580.html Based on some of the posts I have read here over the last few years, this article probably will not go over well. But I found it too compelling and well reasoned to ignore. Enjoy!

Here is a link to his book, "Ascent of Money". http://www.amazon.com/dp/1594201927/?tag=googhydr-20&hvadid=2670571435&ref=pd_sl_6yftfm0z07_b Good for anyone wanting a historical perspective of money and markets.

Sorry, "cash" was a poor word choice. I meant to convey that generally currency devaluation and inflation transfers wealth from the older rich (usually they are net lenders) to the younger poor (usually they are net borrows via credit cards and mortgage debt). For those who have cash, I hope they read your study!!

He won't admit it, but I believe Krugman advocates massive government spending because he knows that the inevitable devaluation of the currency will provide a backdoor solution to his wealth re-distribution goals. With devaluation, those with cash will loose, and those without it (or even better, those in debt) will win.

Help, someone let me out of this casket!

I agree, I wish every 10-k disclosed reserve development by accident year.

Each one year re-estimate reflects the most recent development from all prior years, nothing is left out or missing. The most recent one year re-estimate includes 1999's 10th year change, 2000's 9th year change, 2001's 8th year change, etc.. All ten years of 1999's 20.8% over reserving are incorporated as they developed one year at a time. All nine years of 2000's...same...and on and on. The set of annual changes will give a good idea about trends, and whether the firm is chronically under/over reserved. That SUR was conservative by 20% for reserve estimates set in 1999 is a good thing (for investors of course). But aside from association, it tells me nothing about what transpired with new policies written in the next decade. It is a dangerous leap of faith to assume because the management team in place in 1999 under reserved by 20%, that the current management has systematically done the same thing in 2009 and therefore current reserves are also 20% too high. Anyone making this assumption is fooling themselves.

Well if I knew SUR was underreserved by 21% hell yes I'd give it a huge weight!! :o But unfortunately, that development cannot be projected upon today's reserves (any more than one can project the required addition to 2002 reserves of 14.7% so far). If historical reserve performance is what you are after then the best to way get it is a year-by-year % calculation of development from the prior year. The cumulative nature of the calander year triangle makes this very straightforward and all prior years get incorporated as you move forward in time.

OK. And since the triangle is cumulative all those subsequent years are incorporated into the yearly percentages shown above. The 10 year average is -1.7% per year. (Mix in a little CPU and you get a Std Dev of +11.2%). What this means to me is that historically, SUR has on average set reserves slightly conservative. This is a respectable number relative to other long-tail insurers (ex. similar averages for MKL= -0.4%, BRK= -.5%, CNA parent = +2.7%). However, I don't see the reserve conservatism as consistent enough to give it much weight in valuation. Concerning to me is the fact that the CEO has been in place since 2003, got $2mm last year, but doesn't own any stock. Total management ownership is only 0.3%!

Harry, Please help me understand how you arrive at the figure. My calculations are significantly different than 14% per year for SUR. Specifically, here are the last 10 years of one-year later re-estimated net reserves as a percent of the initial reserve (all data from page 9, 2009 10-K) : 2000 -5.2% 2001 3.6% 2002 4.1% 2003 23.6% 2004 -0.2% 2005 -9.5% 2006 -1.9% 2007 -1.7% 2008 -14.1% 2009 -15.7% where, for example 2009 is calculated as: Net reserve 12/31/2008 345,033 Re-estimated 12/31/2009 290,751 Change -54,282 % change -54,282/345,033 = -15.7% and 2008 is calculated as, Net reserve 12/31/2007 322,346 Re-estimated 12/31/2008 276,845 Change -45,601 % change -45,601/322,346= -14.1% The average for all 10-years is -1.7% per year. Thanks for bringing this up as a point of discussion.

This Thursday from Ken Peak, CEO Contango Oil & Gas: “The question on many minds these days is the impact of the Gulf of Mexico oil spill on the industry and in our case, Contango specifically. Obviously no one knows, but I will venture an opinion since it goes to the core of our business model and future. I am certain we will face increased regulatory and permitting costs and scrutiny. I believe we can deal with these challenges. I am certain we will face an increased emphasis on safety, and in particular, redundancy in 'fail safes'. I welcome these new standards, but believe everything we are currently doing already meets a very high threshold of safety adherence. Hopefully, it is recognized and understood that no human endeavor is ever, and can never be made to be, absolutely, totally and flawlessly 100% fail safe. “There are two areas that give me great concern. The first is the concept of unlimited environmental liability for a spill, or a limit so high that a debt-free company with an approximate $1.0 billion market cap like Contango is in essence, asked to 'bet the Company' every time we drill a well. The move in recent days by some in Congress to retroactively change the law regarding environmental liability does not give me great confidence in our government. Nor do comments about 'boots on throats'. The second area that causes great concern is the thought of going to jail for a judgment error or equipment failure – especially if the MMS approved the procedures that were being followed. “There is at the moment, an enormous amount of understandable emotion and anger together with political populism spewing forth along with the Gulf of Mexico spill, but I believe, and hope, that once the spill is contained, that serious reflection and thought will be brought to bear on how the nation, coastal states in particular, and the livelihood of tens of thousands who depend on a vibrant offshore exploration industry, can beneficially coexist.

Thanks for posting. What puzzles me about statements like this is why they don't seem to understand the obvious. William Berkley has a simple and plausible explanation for the current irrational pricing. Much like super-sharp poker player who wastes some of his winnings at the roulette wheel because he can "afford" to lose some bets, the insurance industry acts the same. Basically, aggressive pricing will continue as long as companies have (or believe they have) redundant reserves from prior years that can be released to make the current accident year look better than it really is. When these redundant reserves are exhausted (or perceived to be) fear will overtake greed, irrational pricing will stop, and the market will harden. Only in a fear based market will underwriting losses and poor investment results affect pricing (not a greed based market like we have seen for the last 5 years). Anyone who wants an answer as to why 2008 investment returns, or 2005 cat losses, or 2009 low interest rates didn't harden pricing should listen to his most recent presentation. I can't think of a better use of 30 minutes for anyone involved in this industry. (Bonus: you will also get a good sense when we will next see a P&C hard market) http://ir.wrberkley.com/events.cfm What does this mean for an investor in insurance companies? Everything. Reserves are easily manipulated and companies naturally save for a rainy day when times are good and withdraw reserves when times are tough. There is no other business that depends as much on trustworthy management. Reading a stack of K's/Q's for metrics is not enough. Without understanding what motivates management and how that squares with their actions over previous cycles, an investor can easily get lulled into commitment of capital that in hindsight looked too good to be true.

I've had some success at Kinko's. Upload a .pdf file, choose the cheapest white paper and binder (comb), and use double-sided b&w printing. It's ready in 1-3 hours for pickup at my local franchise. Quality is very good. Downside is cost. For example, MRH's 172 page 10-k is $18.47. For overall convienence this is the best solution I have found. Someone smarter than me could probably find a way to cut the cost (change fonts, or printing only parts of the 10-k). https://printonline.fedex.com/StartNewJob.do?printProductId=custom&lid=choose_polindex_custom

No doubt the value metrics and the unmatched franchise make MSFT appear quite attractive. The hang-up for me is that management has never appeared to have the maximization of value per share as their number one priority. Ballmer's stake alone is over $10bln so one can hardly blame him for being affected by the law of diminishing marginal utility. It's unclear to me what the answer would be if Ballmer were to have to choose between a) 20% share price increase, but smaller company size, or b) 20% company size growth with no increase in share price. When possible I'd much prefer an investment in a company with an owner/operator who has a $20mm stake looking to grow it to $40mm.

Thanks for posting Twacowcfa. I was on the fence about buying some protection right before the FFH meeting, and your graph was the final catalyst. Bought SPY puts and sold them a week ago 7x the price I paid. Best, onyx

ROFL Agreed!

Thanks Cardboard. I was interested in this quarters impact. Since favorable development in the last 5 years has really improved CR's, I have a habit of breaking out the prior years to get a feeling for the current years performance. Some, like FFH, provide this level of transparency even on a quarterly basis, but unfortunately other don't.

Re Chubb, would like to know what impact, if any, came from prior year development. Press release doesn't appear to give this information or offer accident year CR.

Thanks for getting the ball rolling Dazel. Great idea, I will match as well up to $1000.

Insurers Say Airlines Not Covered For Volcano Disruption http://online.wsj.com/article/BT-CO-20100416-709857.html?mod=WSJ_World_MIDDLEHeadlinesEurope