twacowfca

Generally not more than six to twelve months. But well worth the wait. You might ask them to send you the issue that went out a few weeks ago if they have extra copies. :)

Awesome article! Possibly the best macro perspective I've ever read! Thanks very much, Zorrofan.

I think it's a slam dunk that this will be agreeable to both political parties. CISCO's CEO has been the point man for big companies that want to repatriate their overseas earnings. He was the chief moneybags for Boxer's successful US Senate campaign. Soon it will be payback time. ;D

Strongly, but respectfully, disagree. Legislation can have a profound impact on investment returns. Examples are too numerous to cite. Also, recent analyses have shown a moderate effect with better economic returns when congress has been divided than when controlled by one party. Capitalism generally works better when government, like medical doctors, first does no harm. Strict laissez faire isn't optimal, particularly when there are no restraints on the excesses of financial markets, but less government allocation of resources and more market allocation is how productivity generally advances at a high rate. When one party controls congress and the White House, the stage is often set for a recession or a subsequent bubble and crash. :)

I love Lithium-Ferrite batteries, even used them in one of our retails products. They are everything BYD or A123 says and will be a perfect fit for cars . I'm affraid the capacity won't be there for a 500km car tough. What I expect by breakthrough is something to bring the electric car up to par with gasoline/diesel engine. BYD is an interesting growth story, no moat, but great tailwinds. BeerBaron Is the lithium-ferrite battery not different than the lithium-ion iron phosphate technology? Can lithium-ferrite batteries be recharged?

Unlike gold, which over the centuries has depreciated in real terms about 1/2% per annum, timberland has had positive real appreciation of about 1 1/2% percent per annum over the last 600 years. :)

The Secretary of the Flat Earth Society accepted an invitation to a scientific demonstration of the Earth's curvature in the middle of the 19th century. The demo was on a clear, still day on a glassy, smooth canal in England that ran straight for eight miles. The curvature could be seen clearly through a telescope as a vertical marker pole on a shallow boat sank away from the viewer as the boat traveled down the canal. Was the skeptic convinced?

"Almost" don't count. :-[

Good points about the constraints against BRK's gobbling up insurance companies. Interestingly, in BRK's last Chairman's letter, WEB talks about buying BNF and how good their prospects are and then about some of BRK's other equities. Then he touches on their insurance businesses and says in passing that they are better businesses than others. :)

Combs returns are better than good, compared to his benchmark. To date, according to the tables Schroeder presents, the financial benchmark is down 40%, and Combs is up 50%, gross, before fees. Thus, an investment of $100 in the benchmark in 05 would now be worth $60. An investment of $100 in the fund Combs managed, less fees, would now be worth $150. Relative results: 150/60. :) More importantly, the results are robust, not dependent on a handful of big winners. He was long a fairly large number of the better financial stocks, and he identified some of the worst turkeys for shorts. His long picks significantly beat the index each year. :)

BV/SH is often a good method for valuing financial companies, but only if the BV is solid. Fully diluted BV/SH is better. This takes into account the potential dilution and the money received for the warrants if exercised. Right now, there would be little or no negative effect on BV from exercise of warrants because all TARP warrants are out of the money. Exercise of warrants currently would not dilute BV/SH significantly in many cases because most banks are not selling at a premium to stated BV. There may have been a charge against BV when warrants were issued to the government, but with all the funny money accounting allowed for banks, this should be verified. Example: about half the recent earnings reported by big banks was from adjustments to their loan loss reserves. Try "taking that to the bank"!

Lack of liquidity often leads to a discount in valuation for lightly traded options and warrants, but this should not be a problem with most TARP warrants because of the size of the issues. Long term leaps or warrants are often attractive compared to owning common stock, but only if there is good reason to buy the stock itself. It's generally not a good idea to buy warrants if one would not buy the stock. :)

Thanks, mpauls, for the interesting table. The price of gold had been artificially depressed as it was pegged to the depreciating dollar between the early 1930's and 1965, the start of the series. Had this not been the case, and the series had gone back to the 1930's for real estate and gold, the percentage returns for gold would have been less than for real estate, about 4% to 5% per annum, instead of the 8% return that gold had from 1965 through 2010. Real estate and gold compounded at a much lower rate than BRK during the period as you show. This later series is not representative of returns from the centuries of records of gold prices because it's a trough to bubble series. Even the longer series from the 1930's isn't representative of the complete historical record because it ends in a bubble. The full historical record shows that gold prices have lagged inflation by about one half percent per year. :)

Not sure what you mean by this? I think I understand what you are saying. By paying a dividend it will reduce their retained earnings? I understand the point, but if they are making 20-30B per year, I don't think they will be able to efficiently reinvest all of it. Will work out better to pay out. I personally think the best option for shareholders and holders of the warrants will be for them to buy back shares (if they are allowed) while prices are anywhere near where they are now. When they get the ok from regulators I hope they aggressively buy back shares rather than hike the dividend initially. That's a good point. Buybacks at an attractive stock price, below IV, may be more tax efficient than returning value to shareholders through dividends, but that wasn't what I was trying to convey. Most warrants don't allow the warrant holder to receive dividends when they are distributed, although some warrants have that nice feature. In a situation such as the TARP warrants, the value received by the warrant holder, a reduction in strike price corresponding to the amount of the dividend paid above a certain threshold, to compensate for the loss in BV in the underlying security after payment of a dividend, will not be as great as the value of the dividend above the threshold would be to the shareholder in a tax free account. The shareholder would be able to reinvest the dividend and earn interest that would compound. However, the holder of the warrant who received a reduction in strike price would not be able to do this. The value of the corresponding reduction would not compound through the remaining life of the warrant. This will be a considerable difference for a warrant that does not expire for some years after a dividend is paid. :)

That is true and well thought out twacowfca. It will be a straight dollar per dollar conversion. Perhaps what you lose on the dividend compounding you gain on the tax deferral? You get to keep the money invested rather than paying tax on it and paying tax on the compunded amount as well. Yes. However, The advantage would be definitely in favor of receiving a dividend in a tax deferred or tax free account. :)

There's a non obvious downside to a reduction of strike price in lieu of dividend. The value of a strike price reduction won't compound from that point in time until the warrant expires. :(

Reactions recently published an interview with Gen Re's Ted Montross. The full article may be available in another day or so. In the interview, Montross says, "Interest rates are at all time lows. The US 10 year Treasury note yields 2.34% today. The industry’s return on equity at a 99% combined ratio is in the single digits. The actual combined ratio is probably 103% to 108% for 2010. To achieve a double digit ROE (return on equity), the combined ratio has to drop to the low 90s." Montross says the problem is that interest rates are being held artificially low and the risk of inflation (possibly severe inflation) in the next five years is enormous. Comparing today’s main indicators with those of the previous soft market, Montross says theoretically the soft market should be over. But the industry is in denial. “The industry’s underwriting cash flow was negative in both 2008 and 2009. The ratio of paid to incurred losses has jumped to 105%, exactly where it was in 1998, the heart of the last soft market,” he says. “Underwriting expenses climbed to 27.4% in 2008, the same level they reached back in 1999." “The reported accident year combined ratios are worse than the calendar year combined ratios. As prior year reserve development transitions from positive to negative, the relationship will reverse,” he says. “[Meanwhile], reported primary rate levels for commercial business are back at levels last seen 10 years ago.”

The quality of free trial subs should be measured by their conversion rate to paid subscribers, not merely by their absolute numbers. An increase in free trial subs with no substantial price reduction or degradation in the conversion rate would be a very good thing, in general. Which is it?

Harry, Netflix has always been in my "too hard" pile. How were you able to determine that they would be able to transition to streaming video and maintain a dominant position?

I don't think that property insurers like LRE reserve in advance for losses that have not been incurred. However, they're very conservatively reserved for past losses, and there should continue to be significant reserve releases in the future. Nevertheless, underwriting earnings have been the big driver of their profits. :)

As used intelligently by people like Prem, WEB, and Seth, derrivatives are generally prudent. As used by most novices, generally not. Caveat emptor.

That's a very good point, sdev. We do have a tendency to seek confirmatory evidence for our enthusiasms. Thanks for the reminder to do a reality check. Nothing is certain in investing, except for some amount of loss eventually on all types of securities, given enough time. Lancashire is not merely likely but certain to experience a big loss sometime in the future. Brindle has a 20 year record, including his time at Lloyds, without a losing year, but he recognizes that there is an element of good luck in that record. Lancashire state that they expect that one year in eight or ten will show a loss. Their current risk profile is better than this IMO because their projected maximum 100 year loss has come down from @ 24% to 26% of equity in the first two years after their IPO to 16% recently. But there is no question that they will eventually have a bad year. A big cat could put a big hole in their balance sheet tomorrow. Any investor with a short term horizon who would be distressed by a big loss should run not walk to the nearest exit. But for those with some tolerance for risk, please be aware that the best predictor of extraordinary future returns is exceptional, long term, past returns that have been consistently high under the same management. :)

Know when to hold 'em. Know when to fold 'em. Know when to walk away. Know when to run. You never count your money when you're sitt'n at the table. There's plenty of time for count'n when the dealing's done. :)

Good post, FFHWatcher! I completely agree with you. My strong disagreement was with the notion that the merit of an idea could be judged by whether or not the price of the stock recommended went up or down soon after the idea was posted. This is not what you and some of the other posters have implied. I like graphs, but when I review price graphs frequently, I'm sometimes tempted to nibble at a stock on the way down instead of waiting for a big decline. What I do instead is take all the good ideas I find and put them in my Bloomberg iPhone app which has a graph of up to 5 years for each stock. I review these periodically to see if anything looks very interesting. I think it's a very good idea to review periodically how recommendations have performed, bearing in mind that the best ideas going forward may be among the ones that have performed the worst. :)

My approach is 180 degrees from the direction of this thread. Rarely, have I found a great stock like LRE that was off the radar entirely on my own or tagged along very successfully immediately after someone first recommended a stock. More often, the great buys have been stocks bought by outstanding value investors that have tanked after their purchase. Thus, my biggest winners were big losers with a relatively short time frame of reference from the time the stock was first bought or recommended by someone else. Here are a few examples of such big winners: #1 USG. Made a relatively small buy after WEB bought it. A few months later, after thorough study, bought 14 times as much after they went into Chapter 11, and the stock price tanked. Sold at various multibagger prices on the way up. #2 Nextwave. Recommended by Meryl Witmer at @ $6.00; then the stock tanked about six or seven years ago when the US Supreme Court agreed to hear the FCC's case against them. Read the briefs, and it became obvious that it was an extremely high probability that they would rule in Nextwave's favor. Loaded up at @ $2.50 and more later at higher prices as the thesis played out. Received @ $8.36 when they exited cpt 11. #3 FFH This story has been told; no need to reiterate. #4 Star Gas. Monish had bought a lot of their stock, and then it tanked when SGU had to recaptalize. Monish doubled down in the recapitalization; we bought in for @ $2.50 because they looked much more solid after the recapitalization, and oil prices were moving in a favorable direction. Sold it about a year later for about a one bagger. The point of all this is not how smart I was; these ideas were all scoped out by some of the best value investors of all time. All I did was dig deeper to see if their ideas were still valid after those stocks tanked, and then, if so, load up. :)