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Smazz

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    GM Jun 1 puts

    in General Discussion

    Posted

    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.

    Your market call?

    in General Discussion

    Posted

    I think people who were having trouble sleeping when the market bottomed out in March have been given a wonderful opportunity to make some adjustments.

     

    My read is that this is a dead cat bounce (perhaps similar to 1930).

     

    My porfolio is 75% cash with ORH currently being my largest equity position. If markets continue to rally, ORH will do phenominally well. If markets drop I have the cash to once again get aggressive. If markets go sideways ORH simply does very well. Risk/return tradeoff works for me.

     

    I still believe that capital preservation continues to be the priority. It will take years for this mess to play itself out. I expect extreme volatility to continue and over time expect that this is what will finally cause the avg investor to bail (i.e. stop the pain as their gains keep turning into worse losses). Until I see clearer signs of capitulation I will continue to be cautious. With patience I am confident another fat pitch will come along this year...

    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

    Any landlords on here?

    in General Discussion

    Posted

    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.

    GM Jun 1 puts

    in General Discussion

    Posted

    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.

    GM Jun 1 puts

    in General Discussion

    Posted

    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.

    Good ORH write up from Mungerville -thought it deserved its own thread

    in General Discussion

    Posted

    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?

     

    BNN Interview with Prem

    in Fairfax Financial

    Posted

    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.

     

     

     

     

    Bloomberg on Pabrai-now he won't say returns-normally does, doesn't he?

    in General Discussion

    Posted

    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.

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