ExpectedValue

http://finance.yahoo.com/news/Biglari-Holdings-Proposes-To-prnews-664688558.html?x=0&.v=1 Biglari Holdings Inc. (NYSE:BH - News) today announced a proposal to acquire 100% of the issued and outstanding shares of common stock of Fremont Michigan InsuraCorp, Inc. (OTC Bulletin Board:FMMH.OB.ob - News) that it does not already own for a purchase price of $29 per share in cash. The purchase price represents a 41% premium over the closing price of Fremont's common stock on October 11, 2010. Biglari Holdings is presenting its proposal to the Fremont Board, expecting its Board to exercise its fiduciary duties and therefore meet with Biglari Holdings to reach a mutually satisfactory transaction.

I think the key is to identify companies that are in the best of their class and hope that something comes along which knocks the price down, at least temporarily. Look at what happened to Fuchs Petrolub. They are the world's leading independent manufacturer of lubricants, they have a great operator in place -- third generation of the Fuchs family (they owned 25% of stock, were using buybacks as well). They are honest, capable, and incentivized to make sure shareholder value grows. http://highway6.com/images/66462904591544e379e9ca1accb6611d.png But during the crisis the stock cratered, falling below $30. Sales did drop temporarily, but the company was really misunderstood (they can actually pass on costs when prices rise) and at the time with low analyst coverage and people thought they were too exposed to the autos market (they aren't). The company was debt free and traded at something close to 5-6x normalized FCF. The business had never had a loss in its 75 year history. But investors still panicked and the price tanked. Anyone who bought at the lows was richly rewarded, it closed above $80 today... I would much rather buy companies like Fuchs when they hit their lows than go dumpster diving with net-nets where I might have to deal with dying business models and incompetent management teams. So going forward I think the key is to just become very familiar with great businesses (large and small) and monitor the events there closely. Try to look for signs of potential margin expansion or change that could improve the businesses as well.

I don't think it is as clear cut as that. For example, you bought Coke in 1980 and sold in 2000 you'd have almost 4,343% return. More recently, buying AZO (838%) in 2000 or MCD (455% -- not counting dividends) in 2002/2003 would have been phenomenal investments. In pretty much all instances, there was a kind of paradigm shift in how the company was run to emphasize metrics like ROIC and shareholder value which paid off immensely to stockholders. In all of these instances because of the long holding period you would have benefited from lower taxes as well. So there is a big difference between just buying and holding a stock, hoping to collect a dividend versus making a calculated investment based on a shift in how the company is being run. I feel like Buffett does the latter quite a bit, or at least with Coca-Cola. So to me, if you can spot a company that is already cheap, high quality, and following a shift like some of the above mentioned businesses -- why not buy and hold for 20 years? I think in general, it is a good idea to study what's gone on at those companies so that hopefully in the future you can recognize the same pattern as it comes up in a different form. For me, I try to invest in a variety of companies where the investment horizon varies. Some stuff I hold because of a catalyst that should unlock value in 6 months. Other stuff I could see holding for years.

Martin Fridson's Financial Statements Analysis: A Practitioner's Guide is a pretty good way of sharpening your analyst skills. I like how the book is written, it leans a bit more towards finding accounting errors, but it is great. I am doing a post series where I summarize some of his ideas and then use current examples: http://streetcapitalist.com/2010/10/11/adversarial-accounting-juking-the-stats/

I think the ultimate winner is going to be SSD but who knows how long that transition will take. Most of my friends switching to SSD are power users (software developers, employees at tech startups). They tell me that even though you end up with less space, it is not a big inconvenience. They tend to use cloud services for listening to music (rdio, mog, pandora, hypemachine) and services like netflix/hulu for video. This decreases the need for a big hard drive. NodNub I agree. Hybrids will probably do well for an extended period of time since people will still want big drives for backing up and archiving data. Seagate is a nice bet in that space given its current valuation.

I think there are reasons beyond fragility to adopt SSDs. They make computers boot up and access programs/files on the hard drive at much faster rates. Friends with SSD drives can turn on the computer and be surfing the internet in just 10 seconds.

http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil Interesting article, they have a bit of a longer podcast which deals with it in more detail: http://www.npr.org/blogs/money/2010/10/01/130267274/the-friday-podcast-how-four-drinking-buddies-saved-brazil

The King Of California: J.G. Boswell and the Making of A Secret American Empire http://www.amazon.com/gp/product/1586482815/ref=pd_lpo_k2_dp_sr_1?pf_rd_p=486539851&pf_rd_s=lpo-top-stripe-1&pf_rd_t=201&pf_rd_i=1586480286&pf_rd_m=ATVPDKIKX0DER&pf_rd_r=0PW67WGPNEQKMSAYCK6K That book is worth checking out if you are interested in the company.

I just don't know Rick. These are some pretty big risks: We have a history of losses and our future profitability is uncertain; the failure to maintain sustainable profitability could have a material adverse effect on our business, results of operations, financial condition and cash flows. Since our inception, we have incurred significant net losses. Principally as a result of ongoing operating losses, we had an accumulated deficit of $772.5 million as of June 30, 2010. Our goal is to operate our business in such a way that profitability is sustainable over the long term. Nonetheless, we may be unable to sustain or increase profitability in the future, which in turn could materially and adversely impact our ability to repay our debt and could materially decrease the market value of our common stock (and as a result, the value of our convertible senior notes). We expect to continue to make significant capital expenditures and anticipate that our expenses will increase as we seek to: • continuously improve our manufacturing operations, whether domestically or internationally; • service our debt obligations; • develop our distribution network; • continue to research and develop our products and manufacturing technologies; • implement our demand creation initiatives, which may include project financing and strategic acquisitions; • implement internal systems and infrastructure to support our growth; and • retain key members of management and other personnel, and hire additional personnel. We do not know whether our revenue will grow at all or grow rapidly enough to absorb these costs and our limited operating history under our current business strategy and new management team makes it difficult to assess the extent of these expenses or their impact on our operating results. If we fail to achieve profitability, our business, results of operations, financial condition and cash flows could be materially adversely affected. We receive a significant portion of our revenues from a small number of customers. We historically have entered into agreements with a relatively small number of major customers throughout the world. Our five largest customers represented approximately 42%, 46% and 50% of our total revenue for the fiscal years ended June 30, 2010, 2009 and 2008, respectively. Any loss or material reduction in sales to any of our top customers would be difficult to recoup from other customers and could have an adverse effect on our sales, results of operations, financial condition and cash flows. We may incur future restructuring charges and long-lived asset impairment losses. We have recorded long-lived asset impairment losses, including impairment losses for goodwill and intangible assets, and employee severance and restructuring charges. Generally, we record long-lived asset impairment losses when we determine that our estimates of the future undiscounted cash flows will not be sufficient to recover the carrying value of the long-lived assets. During 2010, we recorded substantial long-lived asset impairment losses and wrote off the entire balance of our goodwill and

I think ENER faces some real difficulties. Cash is down almost 50% for the year while losses are accelerating. Someone on VIC referred to ENER as a 'truly crappy company' worthy of being shorted today (see comments of the RAX write up)

Yeah, to me, brokers are the best way to go. They have high retention rates, generate healthy amounts of cash flow, and good ROIC (even in a soft market). If the market turns, they can benefit from multiple expansion and since they aren't really capital intensive their business is pretty resistant to inflation. I just think Marsh and Aon probably diluted their operations (branching into consulting) a bit too much to make the soft market easier so Willis would be a better pick.

One thing to keep in mind is that previously, the ok yield environment helped insurers earn their way out of the soft market. If you look at insurers historically, over the last 35 years, only 5 years have been profitable for the underwriting arms. Most of the income over that period has come from their investing arms. In a way, insurers are like leveraged bond funds. Now that yields have come down to historic lows, ROEs should compress. It will be interesting to see how insurers react. There are only a handful that have truly savvy investment arms so I wonder what the rest will do.

Out of the names you listed, I think WSH is probably best. They give you the most leveraged way to play a turn in the insurance market. Aon's most recent deal dilutes the impact of the insurance broker biz.

If you read WEB's statement about LVLT, please note what he didn't say. He didn't say they have a great business or even a good business. He says they have trustworthy managers, financial resources and liquidity. I don't think he bought their stock directly, but other financial instruments. ps. Thanks, Value Carl, for providing WEB's statement. Yep, Buffett bought Level 3 bonds: http://www.businessweek.com/magazine/content/01_28/b3740105.htm He tends to do this whenever a company is facing financial distress. In the 1980s he did a load of convertible deals, then in the recent financial crisis he did those 10% preferred deals. To me, it is pretty interesting that he will always go after these sorts of deals rather than buy the beaten down equity.

Over the same period of time shown on that graph, the population of the world has increased from 3.7 to 6.7 billion people... If you expect that trend to continue and that living standards will rise globally - farmland might be in greater demand. So even though I wont invest in it, I dont think it is so crazy.

I think there is a big difference between buying farmland and buying a house in Florida.

Packer is probably looking at levered free cash flow.

Looks like Frontier has paid the same dividend amount for a while but that their FCF is trending down. Might be worth looking into to kind of model out the life of the business and how much cash can be returned to shareholders.

I have a modest proposal for usernames on this board. On this board we often refer to the real personages associated with names Munger, Watsa, Buffett etc. I find it tiresome to constantly include disclaimers in brackets to differentiate between posters that choose a username that is the exact unaltered name of the original person. I propose that users of this board not choose usernames that are verbatim copies of first or last names of famous people often discussed here. such as Warren Buffet, WEB, Buffett, Munger, Charlie Munger, Prem Watsa, Seth Klarman etc. Variations on these names that differentiate the post author from the REAL person would be fine. (accepted examples would be "mungerville", "watsa_is_randian_hero", "buffettologist", etc) Cheers, nodnub I agree, it is pretty annoying - maybe Sanjeev can use this as a consideration when approving new users?

http://online.wsj.com/article/SB123981155929121475.html Perspectives from Irving Kahn, Walter Schloss, and Seth Glickenhaus

I think size could potentially be an advantage for Berkowitz in this environment. He can deploy it into workouts like GGP where the returns are more market neutral which would help. When you get to that size you need to find ways to invest that help you from being just an ultra concentrated version of the S&P 500. I don't know if his mutual fund structure prevents it, but if he could do preferred deals like Buffett he'd be in a good spot. I think that during crisis big funds don't necessarily need to be buying at the absolute bottom -- being able to loan out money at 10% in a low interest rate environment is pretty good.

Myth makes a good point. You can have all the free cash flow in the world but if you dont invest it wisely its worthless. If MSFT upped the dividend or buyback things would be different.

I also enjoy cheap grocery shopping. I like that my local grocery store includes a cost per ounce for most items. I always get a good laugh when I see how in certain instances they charge you more for buying in bulk. I noticed this happened frequently with Red Bulls, they were cheaper per can than on a 4 pack basis.

Actually USB received some of the best lost sharing agreements with the FDIC. Again, to understand USB you really need to focus on the processing business. Their loans aren't great but they can earn their way out of problems with the processing biz. They were one of the few banks to remain profitable during the financial crisis.

USB is a great bank. Whoever managed to buy it at its low during the financial crisis made out like a bandit. You have to remember that they have a really wonderful processing business that can help them out during financial downturns. It warrants a premium for them. They are also absolutely adored by the FDIC that relationship allowed them to get first pick on a string of wonderful FDIC takeovers of failed banks. My view is that in 10 years we will see a string of bank rollups and the banking landscape will be one inhabited by a handful of large players. I see USB as being one of those consolidators and they will benefit immensely because of it.