Smazz

I dont think it will have as much as the fear mongers were trying to achieve. The hard assets/trademarks etc will prob be allowed to continue along their course with ownership changing hands. Its basically skimming along the ocean floor here with respect to most aspects of the buisness so the ripple, I believe is not going to be anything like the sunami we saw over the last 6 months. The continuation of the housing debacle and credit market will be more of a catalyst.

Looks like the fat lady is clearing her throat!

Im pretty much on par with your thinking Viking. My holdings are not the same in % but I agree with the general statement. BTW, I got my best sleeps in MArch! ;D

I have also owned and rented. I will tell you, (hindsight being 20/20) if I would have (instead of buying that rental property) purchase with proceeds 25% FFH, 25% BRK 25% RY and 25% MCD (just an example - without having to know to much) I would be infinitely better off. Not to be debby downer but the truth is people dont realize Realestate increases mostly with just inflation and has a depreciation aspect. Yes, they throw in "someone is paying your mortgage" but the reality is, most rental homes are occupied maybe 50-60% of the time and the added costs and frustration... to me, it was not at all worth it. Note: This is just want to give you my own opinion - every situation is different.

yep. Like the saying goes "if it was easy, everyone would be doing it" ;)

writing the calls is actually opposite buying the calls. Yes, its like the shorting but you make if the stock goes nowhere (which I think it will do at best), you get the premium unlike shorting where you are "supposed" to pay interest.

I dont know if yours is a true question or rhetorical but what happened to Chrysler is what I thought would happen. I wrote about it in a thread months ago. About the writing the calls - I would be talking about some short term close to money but they arent paying enough to convince me.

Hey, its all good - Im tuning in ;D

I was actually considering writing calls.

I just want to say that the title of this thread may break the record for most times being the Subject if a topic..lol...

Edit: Let me rephrase my question: Does anyone have the info on Equity hedges currently? Are there absolutely no hedges remaining on the equity portfolio?

I am also not waiting for a hardening market because, since all things in life strive for equilibrium, with every insurer to go under, you will also have opportunities for revenue go tits up as well especially in this current environment. What I do like, as Munger posted, ORH abiltity to do decent (as I see it)CR numbers in a not so great (not hard) market.

anyone else have thoughts - feel free to piggy back.

Thanks again for this Mungerville - I appreciate your view points - Im sure others will also. Mungervilles Post on ORH from the Bloomber on Pabrai thread: (http://cornerofberkshireandfairfax.ca/forum/index.php?topic=441.30) What gives me optimism is really pretty simple. The underwriting is under control so a combined of 100% is achievable and has been achieved in recent years in an average market for reinsurance which I think is what we have in 2009 - not hard, but not as soft as 2008 at least in reinsurance. This isn't the reason, I'm just getting that out of the way. So, with that out of the way, imagine this is a mutual fund you are invested in. 1. Now imagine this mutual fund having a guaranteed minimum return of 8% after-tax buying at $40 per share just to start off with zero risk using none of the assets; 2. Then add some of the best investment managers in the business to that mutual fund to take the assets of say $1 dollar which you can buy for 90 cents (i.e. book value is $45 and price of stock is $40) and invest where they see fit - say undervalued stocks, MBS, junk bonds and you get the full return from that in a market that is semi-disfunctional; So that's pretty damn good so far - an 8% head start after-tax, and assets for 90 cents on the dollar on top of that. 3. Now on top of this, let's say they get a little over-enthusiastic about the economic situation and misread a bit and buy stocks and other risk assets a little early and then the bear market resumes. So you lose some of your assets, but because the wreaks havoc on the entire industry's already somewhat depleted capital base, a hard market for reinsurance occurs. So you lost some assets, but now with a combined ratio of 90-95%, buying at $40 per share, you get an extra yield of 3-6% after tax added to that initial guaranteed yield of 8%. So you are at 11-14% yield in this "dire" scenario. On top of that you still have the assets invested in now very undervalued securities with the opportunity to buy more. ------------------- My first point is the big kicker because that is one hell of a head-start. ORH's equity capital or book value is $2.7 billion but... it owns $2.3 billion in muni bonds the great majority of which are guaranteed by Berkshire Hathaway which are pretty rare securities as Berkshire only guaranteed $15.6 billion of these in total - see p. 13 of Berkshire's 2008 annual report, 6th paragraph. So, in my view there is zero credit risk there. Furthermore, for those who care about mark-to-market volatility, they still owned $1.8B notional in CDS at year-end 2008 at Odysee so that will more than take care of any m-to-m volatility/credit risk or perceived credit risk in those munis as well as the 0.3 billion in convertible bonds ORH held at year end. On top of that, they have 1.2 billion in US government bonds. So they have a rock solid bond portfolio of 4 billion on book value of 2.7 billion which you can buy for 90 cents or $2.4 billion. The $4 billion yields $280M pre-tax or $200M after-tax on your purchase price of $2.4 billion for the whole company. That is a risk free 8% after-tax head start using float that costs them nothing. So its like a mutual fund with a guaranteed 8% return, with no risk, tax sheltered because you already paid tax, and where you still have not started investing the net assets of yet. The second point speaks to buying the net assets at 90 cents with great management investing the assets. The third point is really important because if the markets turn down from here, and ORH loses book value because of its equity investments, we should almost be guaranteed a hard-market and expanding market share going forward as the competition will be on its knees and moreover the equity values will be wound up like springs being so low. So we have a counterbalancing effect that is very significant. And part of point #1 and point #3 talk to the two very important advantages of a well run P&C business: i) no cost no maturity investment leverage - who the hell can get that these days other than institutions supported by the government?, and ii) the countercyclical aspect built into the business - when investment returns get crushed, underwriting profit typically increases thereafter and for those that are ready, they can really expand their market share on top of that to get more float. Take all that together and add a talented investment team and your worst-case scenario has to be an annual return of well north of 10% even in the worst economic and/or market environment. 8% is locked and loaded to start after all. So that's the downside and that's how I like to think and that's pretty damn good for the downside. So if that's the downside, what is the highly likely return?

Good write up Mungerville thanks. I didnt give the Munis the proper consideration when I last looked at it especially with respect to the remaining CDS. again, great write up.

Isnt it funny the accolades they throw at him now? Damn, people, this is the same guy he was for the last... well forever. They are making it sound like Prem was a hermit - so thats why they didnt talk about him/to him before but geeze.. he sure was getting alot of ink here for a long time wasnt he? I dont know, thats just the thought that jumps out at me.

Al, are you trying to find high spots to get out of the Leaps?

Im not saying you are wrong Mungerville, just curious on what area you find gives you cause for the optimism in this particular year? I also hold ORH.

My point was not about Pabrai in specifics - mine was just piggy back on a previous post in general on money management. I dont own any Parbai funds, never really followed him too much - dont even know his historic numbers. On the general subject, I will say there are quite people here who did extremely well in 2008. Finding what you think makes sence and not worrying about concentration if you can stomach it.

The flip side is other holdings seem to be riding the wave. If you feel more confident in FFH or subs and see a higher IV - great time to make a move assuming you're allright with the increased weighting. Im noticing ORH seems to go counter the CAD/US

thanks Al, will take a look.

Yes, I remember telling this to certain people before the dot.com bubble had exploded. I said something to the effect of "if your going to advert your returns in good times, you're going to have to be congruent and do them all the time - not just when its convenient". Yes, many many people leard humility real fast.

Can anyone offer "stupid guy" notes for me on any aspects of DIP some of us may not be aware of? Or is it all mostly wisiwig?

sorry, but the name alone just makes me laugh!

should be interesting with the mark to market changes also.