twacowfca

We used more than half the cash we raised last Friday to buy more Munich Re early this week, increasing the size of our second largest holding by 50%. Warren's remarks in the TV interview several days ago indicate that the probability for a major acquisition is not high because approval by a board of directors is often difficult. Nevertheless, Munich Re appears to be a compelling value in view of their over capitalization and the prospect that they may benefit more than many other insurers if recent tragic events support hardening in property rates.

Andy has self published recent editions. Suggest you contact him to see if he can mail you a copy. If not, ask him for the date of his next press run. He'll probably have a number of copies available for the book vending at the upcoming AGM. :)

Alek, I had the same intitial thought when I heard that the tsunami knocked out the backup cooling systems. ( I mean, who builds a reactor on the seashore and doesn't plan for tsunamis). This is no excuse---but it's important to remember that a magnitude 9.0 earthquake releases 1000 times more energy than a 7.0 Or is it 100 times more energy?

twa, what does fri/completion monday mean? it sounds technical, as in TA, charts, moving avg crossovers etc and besides, i thought you gave alot of weight to movement in the monetary base in your investment decisions, which has been in an uptrend....just curious. i paired about 10% of my holdings recently & have about 30% in cash but that was strictly a valuation call. nothing fancy. Sorry for the confusion. We sold about 80% of our non core holdings Friday and the remainder Monday. We do give a lot of weight to change in the money supply. But when there is fire in a theater, customers don't even think about whether it's raining or sunny outside when they head for the exits. This could merely be a market adjustment, but if enough people think the sky is falling, it can be a self fulfilling prophesy. With lots of cash, the only downside is a little missed opportunity cost if the markets make a quick rebound.

Nope. They hold very high quality US assets with a short average duration. :)

Last Friday with completion Monday went to cash on all but our core holding.

Earthquake coverage for residences is almost entirely through a government scheme or absent. Sadly, many, if not most, houses that were destroyed by the Tsunami won't be missed by their residents. Most commercial losses will be born by Japanese Insurers. Retrocessional coverage will certainly be impacted above some of the higher attachment points of policies issued by international reinsurers. RMS should have a first estimate of exposure tomorrow morning. The 100 year Japan earthquake PML for Lancashire is about 9% to 10% of equity, but their attachment points are fairly high. A loss of this magnitude would be about the size of the combined losses they experienced in the first half of 2010 from the Chile earthquake plus Deepwater Horizon. So far, this earthquake doesn't appear to be a 100 year PML event, not counting Tsunami damage, despite the tragic loss of life. I think flood losses may not be covered on most retrocessional policies. Even so, losses could continue to rise because big losses often exceed modeled estimates. The big international reinsurers should take a smaller percentage hit to their equity than the Lloyds and Bermuda companies that have substantial exposure to earthquakes, up to about 7% according to some wild early guesses.

That's a good excuse if one is looking for an excuse. However, if one is looking for a way to improve, read The Predictioneer's Game.

More than one? What's the sex ratio? (that's the technical term) >100:1? Ladies, we need more of you!

How do you get derivatives like these? My knowledge of derivatives equates my knowledge of plumbing. I take it this isn't just a two year call option. Investment banks will create these for you if you are considered to be a sophisticated investor. You may or may not get an attractive price on one of these, sometimes depending on whether or not the bank is a market maker in the stock. Market makers may sometimes offer incredible bargains on derivatives if they are engaged in delta hedging in a stock and its derivative(s). Otherwise, sift through the various warrants that exist on some stocks. If you find that a stock you like has an interesting warrant outstanding, consider buying it after thoroughly understanding its terms instead of buying the stock. The various warrants resulting from the bank bailouts are very interesting because they are very long term and they have substantial protection against loss of value from the payment of dividends on those stocks. However, you shouldn't buy a warrant if you wouldn't buy the underlying stock.

I was thinking about it.. What about having calls or leaps on a company. ex:SSW and to hedge by selling calls on an index ex:S&P500 ? Here's how we hedge with a barbell strategy. We have long term core holdings that are goosed with non-recourse, long term total return or mostly total return derivatives that require no MTM collateral. These are equivalent to owning the underlying securities with a long term low interest rate loan that doesn't have to be repaid if the market value declines. This gives the upside of owning certain stocks, but limits the downside to about one third to half the notional value. This frees up cash that averages more than half the amount that would be required if we owned these stocks with no leverage. The cash is ours no matter what happens to the market or model value of the derivatives on the stocks. This is our margin of safety, and we usually keep this in fairly liquid investments such as near cash, workouts, arbitrage or other situations like deep values with a catalyst that are not very correlated with the stock market. I would not recommend this strategy unless the derrivatives are very long term, and the underlying companies very likely could and would return substantial value to shareholders during and after a market meltdown. However, if that is the case, I think this strategy will have less volatility and greater upside than being fully invested in equities. That has been our experience as we survived the 08 - 09 unpleasantness in the markets in very good shape and had cash available to pick up bargains at the market bottom. :)

Bulls make money, bears make money, sheep get fleeced. The rally may have some legs though - :) These inflows have to go somewhere. Agreed. The pedal is to the metal on the money supply. Market is up, but doesn't look like a bubble. . . . . . . Yet :)

See: A Hedge Fund's Trades Mimic Insider Trading in the Feb 27 issue of Bloomberg Businessweek. It seems that quite a number of SAC's trades mimic the subject and timing of the insider trades that Galleon has been charged with making. :P

I think "lying" means or implies intentional misstatement.

I think Bruce will be right in the long run. How long is long?

I think we need to assign both of you to shovel out the donkey pen. 8)

T2 are not exactly gullible, but they do put a lot of faith in the people they tag along with. When these deals start to sour, the leaders of the parade whistle in the dark as they find themselves walking through a graveyard. They pretend everything is fine as scary things start popping up. Then, they cut and run when the big goblin jumps out at them, leaving those in the rear to face the beast alone. I wouldn't want to be in a lifeboat with any of them. Contrast their behavior with WEB's. For example, how he rescued USG not once, but twice.

That takes humility, not knowledge. In my case, I was too smart to learn that lesson, except by falling on my face more than once. Ouch! Failure can be the most powerful reality check. As an uncle, you'll be wise to let him fall down, while cautioning him not to learn that way while he's rock climbing.

Myth, you might get my vote if you were running for public office, but I doubt you would get more than 1% of the vote on that platform, running for office in a union. Unions are mainly about getting higher pay, better benefits and, especially in our affluent society, increased job and retirement security. Most of my relatives are or have been teachers or other educators. I'm the oddball, but my business is also educational. Most teachers would be appalled at the media image presented by the union activists in Wisconsin, but they would understand their desire to protect existing benefits because teachers have often been the first to suffer cuts when states attempt to balance their budgets.

WEB understands RE very well, but RE isn't always a bargain. However, 10 years ago he bought many RE cos for his personal account. Also, the stock tip in his wallet that was auctioned a few years ago was for a REIT. A co that is about to be or in the process of being converted into a REIT is practically a sure thing to appreciate in price because the dividend rate will be much higher than the maximum possible rate before the conversion.

Bronco I think you are on to something. Buffett seems focused on buying businesses he knows will be around in 20 years. You can quickly see the difference between him talking about BYD vs. Sees or Burlington. I dont think he likes complicated competition and prefers monopolies, and duopolies. It was very insightful when he said a good business is better than cash. I think many people gloss overit and think its gradpa Warren speak, but I have really spent sometime thinking about it and it makes perfect sense. I can now see why he held onto Coke despite the over valuation. Cash comes and comes for BRK, but there is only one Coke. I will churn and burn until I have the same problem (He still could have bought puts on Pepsi though). Actually, all of his largest holdings have been around for over 100 years. :o

Your philosophy is good, and I like your concentration on insurance because that's where the money is. In other words: many insurance companies potentially have optionality to return all their earnings in cash to their shareholders without losing their competitive position. Most other businesses have to reinvest a substantial amount of their earnings merely to maintain their competitive standing. The amount of money available to shareholders in most businesses is even less than "owners' earnings" because maintaining competitive standing often requires more than replacing depreciated assets. Maintaining a healthy company frequently means having what are really expenses that are often catagorized as investments. For example, a company that is starting to lose its edge may buy a more cutting edge competitor to keep from falling behind, but ultimately may not increase its market share enough to compensate for the price of the acquisition. However, failing to have made the acquisition might have made their competitive position untenable. This is the Catch 22 of most businesses. Insurance companies that don't have much fixed costs, such as agents and lots of staff they have to feed, are in the opposite situation. They can pass on business if rates aren't acceptable and return even more than their current earnings to their shareholders in dividends or share repurchases when business is poor. This can actually help improve their profitability because the business they pass on will be less profitable than the business they retain. However, Most other businesses with substantial fixed costs will have to chase sales in a downturn to have enough revenue to make payroll and meet other more or less fixed costs. Then, when business gets better, they may have to hoard their earnings to catch up on forgone expenses/investments. There is a big potential bonus for shareholders who own a good P&C company with low fixed costs: the return of capital in a general business downturn when it can be reinvested most profitably with many bargains available for purchase. :)

LOL. :D What ever happened to the woman in the big hat who used to invite board members to call her so she could show them a really sweet place where they could deposit their assets?

Interesting results from the poll. There is no pattern to the results; no skew or up or down trend; nothing approaching a normal distribution; no kurtosis. This implies that the information content of the board's wisdom on this subject is low, despite the investment acumen.

It's a tossup between Bronco and Value Carl. Help! I can't decide! :o