twacowfca

Good news! Howevermany lives will be saved, it won't likely be as many as would be saved by simply taking aspirin! I reviewed a recent study as I was editing a new book we are publishing. Study results showed that patients with advanced prostate cancer who took aspirin or other anticoagulants had 10 year prostate cancer specific mortality of 4%. Those taking no anticoagulant drugs had 10 year prostate cancer specific mortality of 22%! The beneficial effect was stronger for aspirin than for prescription anticoagulants. :)

Do I detect iphone envy on the board? ;D

Same statement is true for every stock that trades someone always thinks its undervalued or they would not buy it the sellers motives are myriad but the buyer ALWAYS thinks it is undervalued. yes I know what you mean. But, how about the times an ETF or index fund has to buy or sell-I would think they would buy or sell indisciminate to price + value. Forced buying by an index fund, ETF or closet indexers plus other funds that are usually motivated to avoid tracking error vs their peers is a great trade. Seth Klarman has a small group that specializes in such trades associated with rebalancing of indexes. We have a few trades on that will probably be exited with a market at close order today with the annual rebalancing of the Russell indexes which occurs after the market closes today. :) Not to mention people getting carried away with momentum or emotions or trading charts...there are lots of people out there that don't ever consider what fundamental value might be.

(1) I'd say that Coke doesn't just spend more than its competitors -- it's spends more intelligently. (http://www.nytimes.com/1990/01/26/business/company-news-coke-disney-pact.html) Children in the happiest place in the world think back and think of Coca-Cola. (2) Tylenol's spending was arguably front-loaded while it was under patent and created a brand name effect. In other words, it's sort of like the Tiffany's blue box effect.(http://www.neurosciencemarketing.com/blog/articles/is-branding-dead.htm) People may perceive the brand to provide more pain relief specifically because of an association to the Tylenol brand name and not to, say, CVS or Walgreens brands. Expectations are half the battle with pain relief. Real changes occur in the brain when a substance is taken with the anticipation that pain will be relieved, mood lifted, things go better with _____ (fill in the blank). :)

Many thanks from us as well. :)

Irish banks Was that deliberate fraud or mostly reaching for yield? I don't know the situation of the Irish banks. Bear in mind that there is often some wrongdoing that is uncovered in the wake of a company's demise that wasn't material to their failure. Incidental fraud is minor league, compared to deliberate fraud. Think of Lehman Bros., who tried to hide their deteriorating condition, compared to Parmalat or Madoff, deliberate frauds "from the git go". DW

It's also astonishing to see otherwise rational members of this board arguing that Chinese companies listed offshore in Canada and the US should be presumed innocent of fraud until proven guilty. Imagine that 50 companies are known to be controlled by the mafia, but only 10 have been proven to be frauds. Would anyone seriously believe the others are not likely to follow the same fate through their common denominator?

Up 20% to 30%. ( Not precise, cause: "You never count your money while you're sitt'n at the table" ). Most of the gains are LRE and no-collateral, total return derrivatives on LRE that accentuate the movement of the price. MTM gains on LRE are almost irrelevant because it's a long term hold, and the current 30%+ premium to book takes away one of management's options: repurchasing shares when the price is near BV. Other positions are up on average less than half the gains from LRE. Went to a large cash position a couple months ago after closing out the speculation on Intel and Microsoft related to the unusual, major rebalancing of the QQQ's. Why? "Sell in May and go away" seemed prudent after the huge bull run, even though The Fed is still goosing the money supply. Cash is OK now because the prospective ending of QE2 may be a drag on expectations. A big pull back would be a great opportunity, but, sadly, that probably won't happen unless The Fed reverses course. ( Unlikely, in my opinion. ) :)

Ben, your comments are much appreciated by this long term poster. Occasionally, a single poster may become obsessed with a particular company, and this may distort the perception of the quality of the posts in general. I usually ignore the Level 3 thread, but this thread was originated by Sanjeev. This fact, apparently, is not visible on your RSS feed. In this thread, however, I find it especially interesting that Marks has bought Level 3 because he is an astute investor, and Level 3 is in a business that has huge leverage, not only through their capital structure, but also by virtue of long lasting supply constraints if demand in their industry ever catches up to capacity. The prospect of an intersection of the supply and demand curves in their industry has been a Chimera for many years, but you never know . . . .???

Strangely, I think there has been an IRS rule that the reimbursement for personal use of a corporate jet should be equivalent to about the first class ticket fare, not the cost of operating the jet. ???

Should there be a Lady Bing award for fans?

Haha, your post literally made me LOL. You guys really don't like Hempton. Fair enough. But that doesn't mean you should forget basic mathematic probabilities when his name comes up. I mean, this is a message board named after two INSURANCE companies, after all. The odds of the roulette wheel hitting red on one spin is about 47.4%, after rounding. Saying uncovering a fraud is "no different" than hitting red on the roulette wheel is akin to saying that 47.4% of large corporations are frauds. This assumption, if correct, has wide implications for the capital markets I suspect! :D Actually, Accounting firm Deloitte recently did a study and found that from 2000-2007, about 3.9% of US stocks with a market cap above $100 million were "subject of enforcement actions reported by the U.S. Securities and Exchange Commission" (AKA, they were frauds). Hempton's uncovered frauds were mostly much bigger than $100 million, and the odds that a larger company/firm is a fraud is smaller, and Hempton's frauds had more fraud and illegal activity than many on the Deloitte report, but we'll be super liberal and assume that just throwing darts at a stock board has a 3.9% of hitting a fraud. Thus, the chances of randomly uncovering 3 frauds in a row (with no skill, all luck) is about 1 in 16,700. The odds of correctly predicting red on a roulette wheel 3 times in a row is less than 1 in 10. (1 in 9.4 actually). So saying uncovering 3 frauds in a row is "No different to being in a casino & correctly predicting red 3 spins in succession" is, to borrow a word, misleading. You have a good point about the statistics of accounting fraud. Very few companies in developed countries set out to commit fraud deliberately. What usually happens is that reality doesn't match expectations, and the managers massage the numbers. Then, results continue to be disappointing , and there is more manipulation. The next time they cross over the fraud line. This leads to coverup and more elaborate fraud. FFH's circumstance fit the pattern of a company that might be tempted to commit fraud. That they did not speaks to their admirable character and says much about the character of their accusers.

That was certainly an option, but that would have gotten rid of a big chunk of float that would have potentially enabled them to earn their way out of trouble by doing what they do best: investing. Had they sold 100% of their two best substantial companies, they would have had more liquidity at the holding company, but little capacity in the normal course of investing to support the crappy business and run off. The potential grand slam home run with the CDS was yet to come. Also, when that option of selling their good businesses was posed to them in a question at the AGM in the spring of '06, Prem answered, "You wouldn't like the price we would get." Recall that that was only a few months after Katrina et al. when Odyssey Re and Northbridge had taken a beating.

Again, FFH was not quite in extreme straits where walking away would be an option. I don't think they would have even considered that as a last resort. A company that does that in insurance becomes a pariah.

FFH was never insolvent nor illiquid, but the short sellers thought they were approaching that state, and tried to speed up that development by questionable if not nefarious means. Realize that FFH is a holding company and that some of its subsidiaries had gotten in trouble. The easy out for FFH would have been to turn over one or more of the troubled subs to their regulators and attempt to walk away from those problems. However, doing that would have created its own set of problems: outraged regulators, policyholders and rating agencies, not just with a troubled subsidiary but horrible reputational problems for the holding company. FFH chose the better, but painfully difficult way of supporting all of their subs while working closely with the rating agencies to meet their concerns. Things never got so bad that the regulators of their subs became overly concerned.

BRK'S agreement with Lloyds was to take on about 6 or 7 billion dollars of assets and estimated liabilities and get that monkey off Lloyds back. However, that contract provided that if ultimate claims should accumulate over the years to the amount of something like $13B, BRK had the option of putting that monkey back on Lloyds. That cap makes the potential losses to BRK finite. Lloyds still has latent liability, although it looks increasingly unlikely that they will ever have to carry that monkey around again. :) If future loss development is as was predicted, BRK gets billions in free float to invest for many years. If loss development is adverse to the extent of $13B, BERK still gets the use of that float at a reasonable cost of perhaps about 5%/year. :) Re: insurance companies having liquidity problems. It happens. Chanos' first big expose was that Baldwin United appeared to be paying current claims by dipping into reserves that were supposed to have been set aside to pay claims for past loss events. It took about a year, but their regulator finally determined that was what they were doing, and the regulator seized that company and put them out of business.

Here's some info ( if not complete answers ) related to your questions. 1) Properly reserving for long tail casualty lines may be difficult to impossible at times. Lloyds of London almost closed up and bankrupted many of their "names" for that reason. Sometimes, lines of business such as asbestos and environmental ( A&E ), for example, experience claims that increase by a degree of magnitude or more within a few years. The failure to properly reserve for these unforeseen situations doesn't have the same culpability as would be the case with a company that deliberately under reserves for predictable losses. 2) Even now, Lloyds is operating under finite insurance ( within parameters ) provided by BRK. Finite insurance for loss events that have already happened, but the final amount of the loss is indeterminate, is OK as long as there is significant risk transfer. Finite insurance can be a way to buy time to see if ultimate losses will be better or worse than they seem to be at a particular point in time. This can provide a cushion to earn enough to pay claims or it may turn out that the use of finite insurance was, in retrospect, merely wishful thinking. As losses continue to develop, it appears that the huge amount of retrospective, finite insurance that Lloyds bought from BRK is going to work out satisfactorily for both Lloyds and BRK. :)

Also proper reserving was a moving target back then with reserves for A&E, for example, being all over the place with various reinsurers.

Tilson didn't exactly say that he was wrong about the short thesis. I think he said that FFH was the only short position they had closed out and then gone long. Let's be honest with ourselves FFH fans. We were in deep doo doo a few years ago. What saved the day was the ethical conduct of Prem and crew plus the help of long time supporters like Cundill, Hawkins and Markel. The short thesis was not so much wrong that this was a company in trouble as was the subsequent feeding frenzy of those sharks. Their offense lay in assuming that a company in trouble must be doing something illegal. Therefore, they crafted a scenario of fictional misconduct that is now being revealed as libel as the truth comes out in court.

But, it is a mark of intelligence that when you steal, you steal smart! Go watch a Steven Spielberg movie! :)

The 70% of float + BV = IV rule of thumb may reflect the idea that there are some restrictions on the use of float having to do with liquidity to meet obligations to pay claims. Otherwise, Warren's observation that growth in interest free "permanent" float is better than an equal increase in pretax earnings is accurate. Berkowitz' method of valuing a growing stream of float from good underwriting as an interest free loan is perhaps better than that rule of thumb, given the strength of BRK's culture. :)

Property rates are hardening at June renewals, according to Alterra's Becker. Cat exposed rates are up about 10% to 15%. Non cat exposed rates where there has been recent loss activity have seen increases of 5% to 10%.

The idea of deferring acquisition costs is the norm. It's reasonable and appropriate in theory, but sometimes problematical in practice because low quality insurers may use DAC to hide problems. The basic idea in the most simple form is to use DAC to defer the up front payment of a commission made to an agent who sold the policy over a period of time as the regular payments made by the policyholder are made. However, problems may arise, for example, if the policy was sold to an unqualified buyer.

I checked the recent issue. It felt skinnier than last time I checked it a few years ago. Sure enough, the warrants are out, and now it only has stocks and convertibles. Bummer. :(

"Charlie" username is an infrequent poster on this board. This post was copied from another less appropriate thread at Sanjeev's suggestion and reloaded under the new, better heading. :)