Fowci
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Posts posted by Fowci
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Actually everything is after tax. 80k @ 10% is almost the same as 150k @ 50%. You can make half as much and still end up with the same amount.
Do you realise that marginal tax rates only apply to the income above the threshold?
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I did quite well out of Tower a couple of years ago but got lucky to get out when I did. I wrote about the company when I owned it - see here:
https://fowci.wordpress.com/2013/06/08/tower/
https://fowci.wordpress.com/2013/11/30/tower-insurance-buyback/
Basically the long tail of claims from Chch just kept growing and was hurting them pretty bad.
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I thought this was interesting, hopefully you do to.
http://video.cnbc.com/gallery/?video=3000444163
Lots of interesting stuff, but man can Icahn ramble!? He's pretty old so you give him some leeway, but he just stumbles from one topic to another, occasionally throwing out gems.
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That is a pretty devastating takedown.
Alpha over long periods is incredibly difficult, implying that alpha over short periods is also incredibly difficult, but we often confuse luck for alpha.
Makes me happy most of my money is in passive or quant value ETFs.
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I have nothing add. If you think they are using growth to cover up loss than pass on it. Its a trap. ;D
Thanks. It's a matter of degree - they're still profitable when adjusting for this, just not as profitable. I'll wait to see if the price comes down once listing is complete (in a few weeks).
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what kind of risk do they deal with ? Where is the balance sheet? looks like a growth trap. Things like these could grow for years until on day it blows up.
http://www.cblinsurance.com/investor-centre/financials/
Lots of financials there. Here's a pic of the 2013 balance sheet:
http://s15.postimg.org/tpmjo9whn/image.jpg
And from the IPO offer document so you can see the growth:
http://s21.postimg.org/mnijlaavb/growth.jpg
It will be listed on the New Zealand and Australian stock exchange.
They operate in niche areas, like French builder's liability insurance.
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I'm looking at a very interesting insurer.
The insurer is small, has exceptional underwriting profitability, and is growing very quickly. It's priced at approx 10x earnings.
However, one particular issue is that it continually reports positive prior year claims expenses. So its 2013 income statement looks like this:
http://s28.postimg.org/81foejwjt/image.jpg
That looks pretty damn good. But in the notes, you see this:
http://s28.postimg.org/7amy8ru6h/notes.jpg
So the notes are saying that of the total net claims expense (after subtracting reinsurance reimbursements), 7.6m of 45.8m are reassessments of previous years. That's a full 17% of the total claims expense.
This might not be particularly worrying except that the company is growing very quickly, as in GWP growth of like 30% a year. It would seem that if they habitually underexpense claims, this will distort underlying profitability. But when they stop growing, the bowwave of underexpensed claims will catch up and reduce profitability.
Does that make sense? Anyone got any thoughts?
By the way, the company is IPOing at the moment, and is called CBL insurance. I'm still very interested in the company. Management are keeping most of their shares, and there's still growth runway (they're only $300m market cap).
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I must have been in the minority that was not at all impressed by the video. Half of it ruined the substance of the argument by including things like carried interest and Donald Trump. What the heck do those things have to do with the market?
When we had the last crisis, the yield curve was inverted and you had no liquidity in junk bonds for various reasons. It'll probably happen again at some point but he didn't say what would cause it. Of course no one knows what will cause it, but he didn't give anything that could help identify a catalyst.
I could totally understand shorting a junk bond ETF. There's not enough liquidity in that market during stressful times to give you an accurate market price. But that's a completely separate issue from saying there's danger because junk bonds are frothy, etc.
Agreed. Just seemed like a rambling old man to me.
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The best annual letters are from Constellation Software in my opinion.
Just looked up the stock and read the 2014 letter. The letter was very good, and the stock.... well that's simply an insane compounder.
Know any books/longform articles about these guys? I'll read the letters this week.
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CSTM, MU, CHK and BRK/B (Berkshire is now as oversold as it was at the 2009 and 2011 lows, despite only a minor correction).
Can you explain your thinking behind your view that BRK is as oversold now as in 2009/2011? Thanks.
BRK is now as oversold as it was in 2009 and 2011 on the multi-day money flow index, a good long term contrarian indicator how much capital flows in and out of a stock. Often times, this happens in a later stage of the bull market when a stock after a strong up movement becomes highly oversold after a 6 month consolidation or correction period, only to use this as a springboard for a rapid move upwards.
BRK/B is definitely not as undervalued as it was in 2009 or 2011, but is still reasonably priced, with an intrinsic value around $167 per share. It should be noted that the p/b ratio becomes increasingly less relevant, since the percentage of BRK/B's free cash flow derived from non-insurance operations grows rapidly and will continue to do so in the future, so that using a 1.2x p/b multiple yardstick will cause many lost opportunities to buy the stock cheaply, as that particular ratio will only be reached during severe market distress.
The 1.2x becomes a red herring with each year passing. Earnings, especially retained earnings, ballooning while BV is marked to original cost makes the 1.2 look silly. All they are saying is that they won't buy back shares if it isn't a 50 cent dollar. Just like anything else they'd buy.
Retained earnings are included in book value - not quite sure what your point is?
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It is diversifiable if the stock is efficiently priced. If it is not then you can get excess returns by investing in it. I think some posters focus on those securities that are in dark corners of the market where there are pricing inefficiencies. The Kelly formula can provide a benchmark of how much you can invest in one of these to reduce the risk of ruin.
Packer
If you use your insights and hard work to identify mispriced securities, then that's all well and good. But that does NOT mean you're getting paid for diversifiable risk. You're getting paid for your insights, and you have made the implicit judgment that that compensates for the company specific risk. My contention is many value investors underestimate how significant company specific risk is (and of course overestimate the value of their insights and hard work, but that's a universal human mistake)
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You bring up an interesting question about being rewarded for company specific risk. I think you can be rewarded if you can identify the cases where the potential upside more than compensate for this risk. On average you are correct but as value investors we are suppose to differentiate when the price is reflecting this risk versus not.
Packer
By "Risk", do we mean,
1) company could go to zero?
2) we didn't know 1)
Or something else, like,
3) the security may not reach my price objective?
4) in my targeted holding period?
I mean that you're not being compensated for the risk that the company's factory could explode, an earthquake could wipe out some stores, etc. These are real risks you take on when you buy a company, and there is no compensation for this risk (because it is completely diversifiable, and thus unpriced). By not diversifying, you take on that risk and it is not compensated. But most value investors ignore this risk.
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In an effort to combat confirmation bias, please let me know how, where, and why value investors are wrong.
I'm most interested in themes and patterns rather than specific examples of the form "company XYZ is a bad bet due to ABC". What is the best evidence against the efficacy of value investing in general?
This isn't specific to value investing, but there's a lot of overlap between value investors and diversification = diWORSIFCATION LOL!
Many value investors are woefully undiversified and have massive overconfidence bias. "Why would I choose a worse idea than my top 10?" Maybe because you're quite often wrong, and even when you're right, company specific risk is a risk that you really are not getting paid for.
Anybody else play poker?
in General Discussion
Posted
Started my investing capital from 3 years play from 2005-2008. Made pretty good money grinding NL$1-$2 and NL$2-$4. Games got so tough in 2008 that I just stopped playing (finished university too). Tried playing a bit later in 2011 and games were insanely tough. Must be impossible to beat above $5 buyin games now (for me at least).
Was fun and very profitable (hourly rate from 2005-2008 is still higher than my hourly rate now and I've got a pretty good job!), but ultimately quite empty. No social interaction, no adding value to society.