Viking

I wonder if we do not have buying opportunities of a generation in insurance; I am talking about the exceptionally well run companies (not the companies that are underreserved which means BV is overstated). Buffett told us what he thinks about BRK's valuation. My guess is we still need an really bad year for catastrophe losses and for a bunch of excess capital to disappear before we get into a hard market. Currently my favourite is BRK. Others on my watch list are FFH (hedged) & WRB (no exposure to Europe); I am hoping they trade below BV. I also am starting to follow ACE (large, diversified, well managed). Most of the re-insurers look crazy cheap. I have followed PRE for years but they have new management and have had some issues with their French aquisition; I also do not understand what exposure they may have to Europe should things there get worse. With a basket of these companies hard to see how one does not do well over the next 10 years.

I have owned GVC on and off for the past couple of years (started following when I saw Francis Chou has purchased). As an FYI, I think Francis has been reducing his position in GVC (although I may be getting GVC confused with HF). I like what management has done. Growth pre-2008 was fueled via aquisitions & debt. When the downturn in 2008 hit management cut costs and used free cash flow to pay down debt. Last year the company started buying back a small amount of stock (given the low share price and lack of cheap aquisition opportunities). With debt now very manageable and free cash flow almost back to 2008 peak levels management this year initiated a dividend and is again purchasing some shares. My watchouts for GVC is its management structure (majority owned by a small group led by Sam Grippo if memory served me correct), very low trading volume (making it quite difficult to buy or sell stock in any volume), declining industry (newspapers), and elimination of tax loss carry forwards (earnings up till now have pretty much been tax free; not so moving forward). Bottom line, the company is well run, cheap and profitable.

beerbaron, I am also looking for top quality stocks in Canada (like a MSFT, KO etc). Strong franchise, big moat, low debt, good to great management etc. VERY difficult! I do think Canadian banks are a good option; right now I hold BMO and likely will add RY as it seems to be the most unloved of the bunch. I looked into POW; my concern is their life insurance business should long rates stay low and equities weaken further. I have followed TS.B since FFH (and Chow) purchased a few years ago. The stock traded over $15 a couple of months ago and today traded as low as $7.60. It has a $0.50 dividend (+6% yield) that looks reasonably secure. They sold their 20% stake in CTV earlier this year and paid down debt (now just over $100 million); compared to 2008 they have significantly delevered their balance sheet. My concern is the underlying business. I would love to buy CN but it is not cheap enough yet. I am undecided what to do with the cyclicals. I like WFT and CFP but they are not cheap enough for me yet. Big oil is also something I will spend some time on.

Not buying yet. My guess is people are only now starting to question earnings expectations for next year (and that they have to come down). Economically sensitive stuff is now getting hit (including the CAN$). When I see the 'safe' stuff (i.e. MSFT, ABT, KO etc) get hit hard then I will get greedy. Also, it looks like the S&P will be reaching a new low today... I am not a chart guy but I would expect this will create more negative sentiment in the short term.

bichaud, the only thing that surprised me in the whole interview was Buffett's comments on Europe near the end. He is normally quite positive about most issues and he is clearly worried about Europe. He also feels we are near the end - at a point where hard decisions need to be made (I loved Charlie's comment about kicking the can down the road and then Buffett commented they better not kick it too hard). Buffett said the Euro banks were encouraged to hold sovereign debt (did not have to hold reserves against it) and this let the banks lever up and earn an extra bit in earnings per share. He also commented about the challenges of forming a currency union without following it up with a political or fiscal union. Hard to see how Europe manages through this one without major issues developing.

DCG, I also sometimes wonder how Prem evaluates management when making a purchase. Perhaps they take a basket approach (buy a couple different companies) to achieve some basic diversification and really do not try and get too cute with management. Regarding underwriting, yes, FFH says all the right things. However, it takes many years to really know how good a company is at underwriting. At this time, based on past results, I would give FFH an average grade when it comes to underwriting (not terrible and not great). Now that their ship has been righted I would be disappointed if FFH did not trend over the next few years towards being a great underwriter. Time will tell.

My key takeaway from reading Prem's comments is how much he is in the minority. I have not read much in the gerneral press that explains things the way Prem has. I think most people on this board are close to being fully invested with minimal hedges. Do we know an ugly 'second down leg' is coming? No, of course not. And history does not repeat exactly but it does tend to rhyme... The other wild card is these things take years to play out; I can see how over time markets and investors get burned out (and cashed out).

The biggest overhang on the stock is what happens when Buffett is gone (notwithstanding the current economic issues). I think this announcement provides some important clarity on how capital allocation decisions will be made post Buffett. Another brick in the wall... In the near term with (BV = $66-67/share) we can expect buybacks to happen to the $72-74 range. I will be interesting to see how close of a trading range the stock trades in moving forward.

European leaders must now make some decisions as it is apparent that the Greece can has been kicked about as far as it can be. The problem is the choices that they must pick from are all very bad. Politicians will pick one of the very bad options ONLY when a gun is placed to their head. And that is the rational decision if you are a politician. The challenge with this strategy is we have a political crises (future of Euro, inability to make fast decisions), an economic crisis (world falls back into recession) and a bank crisis (Euro banks are insolvent) and if one piece blows up it threatens the other two... Europe may announce something this weekend and markets may applaud next week. I just do not understand how, in the coming months, we do not get more bad news. I know we are supposed to be value investors and not market timers. Sorry, until I see blood in the steets I will remain cautious. There is only a whif of panic in the air right now. People are still complacent (stocks for the long haul). A previous posted commented rightly so that those sitting in cash today will likely still be sitting in cash when the market bottoms and will still likely be in cash during the next bull market run. This is actually something that I think about and struggle with a fair bit.

I liked reading Grantham's comments posted yesterday; I also re-read his last quarterly letter. He suggest most investors are not ready for the fireworks ahead (he references the bear market of the early '70's). We frame future expectations from past experience. In 2007 & 2008 this was a terrible strategy. As stated many times before it looks to me that Sept 2011 is shaping up to be another of those inflection points where it is highly likely we will see things we have NEVER experienced before. I am not trying to be melodramatic. I am just trying to stay true to my first and second rule (capital preservation). Time to buy? I will get more interested when the S&P falls below 1,000.

BRK is trading today at around book value. Why pay anything close to BV for TRH? Instead, spend that money buying back BRK stock.

The longer these guys have to work with Buffett and learn the better I will feel about the investing function at BRK going forward; time also gives BRK an opportunity to ensure the right candidates were picked.

Governments will not make the final necessary changes (as they will be VERY unpopular) until they feel they have a gun to their head. The markets are focussed on Greece at present and it is pretty apparent that default is coming. After Greece is savaged, and similar to 2008, markets will then focus on the next weak link (pick one... Ireland, Portugal perhaps Spain). Bond yields will spike and another will likely default. And then they will relentlessly move on to the next weak victim like a pack of hyenas tooking for the next kill. What made 2008 very scary was that it played out for so long and one domino knocked over the next domino and so forth. It was not predictable HOW bad things were going to happen or even WHICH companies would be the losers or the survivors. At a marco level it was clear that bad things were likely going to happen.

Sanj, I do agree with what you are saying. The key is understanding what constitutes 'cheap'. Since 2000 US stocks in aggregate have been going sideways. Companies are growing earnings. The multiple that the market is willing to pay for those earnings has been dropping. I just wonder if what we think is cheap (based on benchmarks based on the past) does not continue to get driven lower. After all, something is only worth what soneone else is willing to pay for it. I am trying to find that balance between being a value investor, preserving my capital and being respectful of what the future may hold. We certainly live in interesting times!

It looks like Greece is in an unsustainable situation. Europe does does remind me of how things were in 2008 with US banks. In 2008 we knew trouble lie ahead we just didn't know how it would all play out. The US political situation is a mess; with the election coming next year the two parties WILL NOT work together (unless markets go into free fall and the economic situation gets even worse); the markets understand this. Bernanke also is trying to stay neutral. My read is the downside risk to equities is quite high and the probability of it happening is also quite high (more than one would normally expect). I think there is a reasonable chance that the 'smart money' decides that the US Congress and Bernanke need a stock market sell off to get more stimulus approved. Throw into the US mess the mess in Europe and we have an especially wicked situation. In response, I have been getting more cautious. I am now at 20% stocks (mostly BRK but also MSFT & BMO) and 80% cash. I will not be upset if I miss a bull market rally. Right now my focus is on capital preservation.

misterstockwell, I agree. I actually sold a few things the past week to lock in some smallish short term gains. Back to about 65% cash, 20% BRK and 15% MSFT, BMO, TEVA & GLW. I expect the coming week to be very interesting; with people returning from holidays, volume and volatility should increase. I will be happy to pick up more BRK under $68. S&P below 1,000 will get me even more aggressive. Having the kids back in school will also make it easier to focus, think and do research. My wife still doesn't understand why I can't multitask better (research an investment and be a dad at the same time). :-) I know... problems, problems!! :)

I have not been following FFH closely for the last year or two. I think they still hold some CDS positions... the kicker would be if they were for European banks. Does anyone have any insight?

BeerBaron, I think the answer for insurance comapanies and reserving is do you trust management. That is why I stick to BRK, FFH. I like what I hear from WRB. PRE has a new CEO and they have struggled recently so I am not sure.

What makes things interesting is some are suggesting that there is a high degree of variability among companies (some have excess capital and others have none) meaning another large catastrophe hit and will likely start to see who has been swimming naked. Berkley says the hard market will happen when CEO's start to fear they do not have enough capital and suddenly begin to cut back on business and raise prices (one of those 'whocoodanode'? moments).

What are people thinking about insurance / re-insurance stocks? Looks to me like we are near the cycle low. Time to buy and hold on for the ride. 1.) BRK: trading at BV (near historic low), this is my favourite no brainer pick. I just need to decide how concentrated I want to get (currently 30% of portfolio). Should stock continue lower I will not hesitate to move to 40%. 2.) WRB: despite arrogance, like Bill (not sure why). Looking to get back in at or below BV (sub $28). 3.) FFH: need to review and understand all the puts and takes (hedges etc). Looking to get back in at 0.8 or 0.9 x BV. Spoiled in past years by stock swings. I have been following PRE for years and they are dirt cheap P/BV = 0.65. My concerns are how good the new management team are and possible exposure to Europe. Ace is a company that looks intersting to me. Management looks quite arrogant but they look pretty savvy and stock has not sold off like PRE. Looks cheap not crazy cheap.

Perspective is a beautiful thing; this is a key strength of Buffett's.

Here is a great summary of the issues in Europe with a potential solution (split Euro into two zones). Hard to see how things in Europe do not get worse before they get better. The key challenge is the uncertainty as hard decisions will not be made in advance (not politically possible). It will take a crisis to hit, for people to feel like therre is no other option, for the tough decisions to be made. Hard to see how financial markets don't get even more ugly as Europe burns. seekingalpha.com/article/287823-going-dutch-one-possible-solution-to-the-euro-debt-crisis As an example, I was looking at the re-insurers (Partner RE, Munich Re etc). They are trading at historic lows which would suggest a decent margin of safety. However, when I overlay the European debt markets and the Euro I have no way of understanding the puts and takes. Bottom line I am not looking to buy companies tied to Europe.

Makes one appreciate one of Buffett's comments in the recent AR about how to value BRK: how well retained earnings are re-invested over time. Makes BRK look even better. Watching HPQ makes one wonder how to value all that cash that many tech companies are holding. MSFT and GOOG recent purchases also gives one pause.

DELL is in the process of trying to reinventing itself. Will they succeed? Is anyone drinking the Kool-Aid? It has net cash in excess of $4.00 per share. Earnings this year are expected to be $2.00/share; RBC is forcasting similar earnings next year. Cash flow is huge and they continue to buy back stock. Expenses are increasing and revenue WE ARE TOLD will follow with a lag; services with deferred revenue. TRUST ME! They are exiting lower profit businesses and this will hit their top line for two more quarters. I like Michael Dell (not sure why). Do we trust management? Perhaps this is the key question to answer. I got interested when it fell below $14.00. Looks like decent margin of safety at that level. Perhaps we will get another leg down as we move into September as sentiment looks to be pretty poor.

The S&P500 traded as high as 1,134 in April 1998; today it is trading at 1,191. 13 years later the average is flat with inflation running 2 to 3% per year. Grantham says fair value for the S&P is 950; perhaps the bear market is not over yet. Does this mean most stocks in the S&P have been value traps for the past 13 years? Should the bear market continue for another 5 or 6 years (normal when looking at history) does this mean most stocks remain value traps? Clearly, the market multiple (what Mr Market is willing to pay) is coming down over time. Should this continue then most stocks will remain value traps. The key lesson in all this to me is the importance of margin of safety when investing. And patience. And the value of having cash.