Packer16

One thing you can do is take a look at there situation determine an appropriate AA (stock/bond mix) then put them in index funds until you see something that is clearly mispriced. This way they are getting the market return while they wait for an undervalued opportunity. I think this opportunistic approach makes much more sense than sitting on cash waiting for something to happen which has a high opportunity cost. Packer

Happy Birthday and thanks for all you do for this board. Packer

Does anyone have experience with S&P Ratings on Cat bonds and how close there modeling is to appropriately conservative modeling for underwriting? TIA. Packer

The 45% allocation to alternatives that pension funds/endowments currently have. This is in my opinion is an expensive way to get returns that you can get from other asset classes for less than 5 bp (indexed stocks and bonds) or focused funds with a little more in fees. Packer

The problem with these is that although they have good value strategies, they have either closely matched or underperfromed in some cases significantly (Longleaf) versus the S&P 500 over the past 10 years. This is why I think the large stocks that make up Longleaf's and Sequoia's portfolios are pretty efficient. Ellis' article will be published in the CFA Journal next month. Those that are CFAs can get access to the article on the CFA site. Packer

You are correct in the mutual fund format. There are others including some here that provide that type of product in a partnership format. I think a benchmark of these types of products would be returning money when few bargains are available and allowing more investment when the bargains are plentiful. Packer

Charles Ellis has written a great history of active performance management and has observed that smart managers have arbitraged away most of the excess return of the largest 300 US stocks. I for the most part agree. What we may see after the alternatives mania is a movement to index funds for most institutional money combined with opportunistic managers that provide concentrated exposure to mispriced securities. Fairholme is the only manager that provides this type of offering today. Packer

Is there any way to buy a CDS on these cat bonds? Packer

Yes a steward thinks and acts like an owner as his compensation is in part based upon the performance of the business. My issue is when the CEO acts like the owner of many private businesses feels the company is his private fiefdom that he can what he wants. This is not the case. The CEO is hired by the board of directors as fiduciaries of the shareholders. The real issue is with the BoD who has neglected there fiduciary responsibility. The CEO also has a fiduciary responsibility beyond making himself wealthy and I think that is part of the problem. We have too many folks trying to get rich quick with no one telling them no and too few fiduciaries. Packer

I think the real question is what is the CEOs role? The correct role is steward not owner. The implication for ownership is you can do with it as you will independent of consequences. A steward is responsible first to grow the value of the firm under management not for himself but for someone else and let the someone else provide rewards commensurate with the value added. The looking out for number one baloney really leads to destructive behavior especially when it is present at the CEO level because it becomes the culture and folks are focused on makng sure they get there due versus doing what is good for the organization. Packer

I guess it depends upon what you want to do. If you want to win a court case, provide evidence to an auditor in a financial reporting analysis or provide an analysis to the IRS then it is useful. You do not need a DCF analysis to identify an undervalued stock as there are easier ways to this via multiples. Packer

You are correct abut a bond but the number of unknown variables is relatively small (discount rate and terminal value if distressed) vs. many in a DCF such as growth rates, margins, taxes, working capital, cap-ex and terminal cash flows and capitalization rates (multiples). I value companies for a living and like the previous poster said you get just about anything out of a DCF. Even when you benchmark the assumptions, you will still develop a large range due so many factors that can change not to mention the factors out of the company's control that effect value. Some times we will use a capitalization of cash flows to reduce the complexity. Packer

My test is do I learn something new or something I can apply in a new way to a different circumstance. Or something maybe not noticed in the first reading. For example from the II, what is the percentage of outperforming the index did Ben Graham think that looking for undervalued stocks no longer became fruitful? 5% from page 34 of the II. Packer

I think Mark's book is right up there with Intelligent Investor and Security Analysis. It talks about real world situations and really makes you think. What other book (other than Security Analysis) has as many bright, talented and articulate commentators that were able to "amplify" Mark's message. Packer

I think the early US is a good model. It took over 100 years (1776 to early 1870s) to develop a national identity after having a fiscal union. Didn't Germany have a similar situation with a trade union that led to a unified Germany. Before these countries unified there were many skeptics but compromises and common interests were found in order to build these unions. I think the same will happen in the Euro. Packer

I guess I have heard more encouraging information from Greece from folks like Wilbur Ross who recaped Eurobank with Fairfax. Maybe he is being buffaloed but I think with both Prem and Ross investing in Greece they may be onto something. Packer

I really question the impact of the "unemployment" numbers. If these were comparable to the US in the 1930s then these economies would be like the US in the 1930s (Hooverville's and all). From what I have heard and seen although these are problems they are not to the US 1930s level. Young people out of work can move to places were there is work (isn't this what East Eurpoean folks do)? The extremist parties have won votes but have they won a majority. Far from it. Packer

For those who think the Euro is unsustainable, what will drive folks out or cause it to fail? Right now I don't see any incentive to break up only incentives to stay together. Packer

The scenario for a leaver would be grim due two factors (one short-term and one longer term). The short term issue is the loss of savings for many of leaver's countries citizens and the collapse of the banking system. This would have a huge disruptive effect on that country's economy. This would be more disruptive than removing a peg which countries have done in the past. The second one is incentives to reform (more tax collection, lower state benefits and sale of state assets). Staying in the Euro keep the reforms on track but leaving provides no incentive to continue. It is also not to good for the remaining stronger countries as it makes there goods and services more expensive versus international rivals. If these countries did not export much this would be a reason to split the Euro. Thusfar, the political will still appears to be there for union as are the economic incentives. Packer

I think this is going to help Europe. This worked in Sweden in the Depression, it is working in the US/UK today why will it not work in Europe? My biggest concern was deflation in Europe but with this I think that concern is less. One thing that helps monetary stimulus is an efficient way to deal with debtors (which the US/UK has the best system followed by Europe then Japan). Also if you look at the Euro there are very incentives to keep the system as is. If Germany and other strong nations form there own block they will make themselves uncompetitive. So the strong countries have a huge incentive to stay. The weaker countries also have an incentive to stay, the exit would drive there economy off a cliff. What incentives are out there stronger than these that would cause a rift? Packer

I agree. The buy decision is also hard as in most cases I can find a cheaper non compounder that even has some growth. I have a hard time buying MKL and other compunders that can compete with a 50 cent dollar today. The only exception was Dhando Holdings at BV. Packer

What I find interesting is there are multiple jurisdictions this is being tried at so the possibility of one ruling in the plantiff's favor is higher. If this happens then this would be a catalyst for a higher stock price. Packer

I think size has already effected them. The 5-year rolling growth rate has fallen to the low double digit growth rates from mid/high double digit growth rates 10 years ago this is also comparable to other investment options today some Infrastructure MLPs and real estate cos. The question in my mind is will the growth rate decline to the high single digit range where some of the comparable firms will become more favorable. Packer

BNL is Braodstone Net Lease and private NNN firm I described under the interesting income alternatives thread. Packer

I really like the BRK approach but how can fair value always be higher than market price? At some point in the past fair value has to be have been reached or is there not a problem with fair value? Packer