twacowfca

Some of the best investing advice comes from books that are not about investing per se. Some of my favorites: From Benjamin Franklyn's autobiography and related writings: franchising, network effects and this gem. "Make no investments except such as have intrinsic value". Shakespeare: My favorite is from the Merchant of Venice. "My ventures are not in one bottom only entrusted. Nor to a single place. Nor is my entire estate upon the fortunes of a single year. Therefore, my money makes me not sad." The Bible. Especially this one about focused investing when Jesus was asked, "What is the kingdom of heaven like?" He replied, "There was a man who was a merchant in pearls. He searched the world for valuable pearls. And having found a pearl of great value, he sold everything he had and bought that pearl."

Of Permanent Value Why Stock Markets Crash The Intelligent Investor The Davis Dynasty The Essays of Warren Buffett The General Theory of Employment Interest and Money (cpts 12, 14, 15, 16) Against The Gods The Remarkable Story of Risk Margin of Safety Outsmarting the Smart Money You Can Be a Stock Market Genius

The Davis Dynasty is excellent, not only for understanding insurance companies, but for seeing the cycles and other historical patterns in the market. It's on my top ten list of investment books. :)

It went POOF! And good riddance IMO. :) One of the cardinal tenets of value investing is having trustworthy management. That is sadly lacking with a certain unmentionable company.

If you like owning MFC and you would like to buy it with an increased margin of safety, selling a put would be something to consider. The downside would be opportunity cost (something better comes along in the meantime) or exposing yourself to unanticipated risk (something bad happens to the company or the market in the meantime). Therefore, you might want to pass unless the put you would be selling is expensive). The BS implied volatility compared to the historical vol can be a useful clue about the relative dearness or cheapness of an option. Puts are generally dear now with the recent high volatility in the market. High volatility is usually fleeting.

The question is option trading focused rather than being focused on the value of the underlying security or hedging or mispricing in the option market. These would all be appropriate topics for discussion, IMO. The judicious use of options may sometimes provide a cheap source of nonrecourse leverage or help lock in a future long term gain when a stock shoots up above it's intrinsic value. Or, selling a put, especially when its implied volatility is high, can be a nice way to get paid for waiting for a great company to come down to a bargain price. :)

TWACOWFCA, where do you get the WSBASE information from? Is this your own custom PDF/XLS graph, or is it available publicly? Thanks, bargainman. It's our composite graph. The data is published weekly by the St. Louis Fed, usually on Friday before noon. :)

You're very welcome. Glad the graph was helpful.

We got the latest weekly update of the WSBASE at 11:30AM today showing the second weekly increase in the monetary base. Therefore, we sold all of our S&P 500 puts for nice gains, averaging about 5 X . This action is not based on a prediction that the market has necessarily found a bottom. In fact, bearish animal spirits can overwhelm the monetary trend. However, spikes in volatility are usually fleeting, and recent history shows that the market has turned up two to four weeks after a downward trend in the monetary base has reversed and turned up. TWACOWFCA :)

Yes, it is conditional. Generally, with a long term view, there is a high, positive correlation with a short lag. However, in very bullish or bearish markets, the market can take on a life of its own and shrug off the trend of the monetary base or greatly accentuate the trend. The recent high correlation of the monetary base and the S&P500 as the market has risen steeply suggests that this has not been a bull market, but rather a recovery dependent on the unprecedented monetary stimulus. If so, the market may be very sensitive to declines or even flattening out of the moving average of the monetary base.

Here's the latest update of the composite WSBase/S&P500 graph as promised last night. Twacowfca

I got a copy a few years ago when MOS was selling for "only" $600, now at $1,000. It's well worth the price if for no other reason than getting an appreciation of his obsessive concern for downside protection in the mindset that investors who survived the Great Depression might have had. Klarman avoids "investing" in art, rare coins, or rare books. He generally avoids buying things that won't deliver value if there isn't a greater fool available to take it off your hands at a higher price than you paid for it. Therefore, one should not pay $1,000 for the book if it's value is uncertain. Try getting a copy on an interlibrary loan. It used to be available through that service a few years ago. :)

I especially liked his quote, "We make our money when we buy something, not when we sell it." Meaning that he focuses on the future look through earnings and not the potential price appreciation. Couple this with his strong discipline to always sell as full value is approached and you've got: Margin of Safety. :)

The S&P500 and other equity markets are now closely tracking the recent downward reversal in the trend of the monetary base after the usual lag of a few weeks. I'll post an update of the composite graph tomorrow.

Thank you, granitepost and especially tariqali for the notes on the Li Lu lecture. I agree with Charlie: Li Lu apparently is THE ONE! His methodology is the same as what we have used most successfully. His execution has been superior. The intensity and thoroughness he brings to gain profound understanding of a potentially greatly undervalued business in a short amount of time, particularly from the view of "What have I missed", is superior to the extended amount of time we have often spent to gain full understanding of deep value opportunities.

That's an astonishing Horatio Alger boy makes good type story about Li Lu. When asked yesterday at the AGM about how well the four Chief Investment Officer candidates had performed recently, Warren was vague, repeating his statement of last year that they didn't exactly cover themselves with glory and were down about 50% during the market meltdown. He went on to say that they had all had nice rebounds since then, apparently recovering most or all of their mark to mark losses or perhaps then some. Then, Charlie chirped that one candidate (here, I had a slight impression that that person may not necessarily have been one of the four official shortlisted candidates) was up 200% from the bottom without using leverage or shorting. To the best of my knowledge, this could only be Li Lu as mpauls and maxthetrade have described him. I also got an impression from non verbal cues that there was some wait and see type of disagreement between Charlie and Warren about whether or not Li Lu was THE ONE. If my impression was correct, this apparent scepticism may be related to the lack of a very long term track record by Li Lu or perhaps because Li Lu's recent returns were greatly influenced by a large holding of BYD or the recent bubble in the Chinese market. mpauls, and maxthetrade PLEASE PLEASE comment on this!

Loss reserves are set aside prior to the hurricane season (or indeed, prior to any claim). If you believe that the reserving is conservative, then on average it shouldn't matter or actually be slightly better to buy before hurricane season (claims)? Trying to out-guess the market price of the issue could in my view be considered purely speculative and anecdotal on par with "sell in May ..." - not to say it might not actually be best. Couldn't it be likened with a wager, where you have the following options: to get $60 now (conservative loss reserve) and have a 50% risk of paying out $100 in some time from now and 50% probability of paying out $0. to pass on the event and get nothing. And if one passes, then one also passes on the other everyday earnings in the period. Cheers Please explain what you mean by saying that reserves are set aside before hurricane season. The Bermuda Re companies I'm familiar with don't do this to the best of my knowledge, although the better ones are quick to set aside IBNR reserves.

There is always a certain amount of attrition in the customer base. When business is good it makes sense to replace these old customers by acquiring replacement business. New business is often unprofitable at first if you don't view it from the usual practice of deferring the acquisition cost. Also, new customers generally make more claims than seasoned policyholders because of adverse selection, not knowing the new customer as well as the old customer etc. There is a balance here. Passing on much new business has certain dis-economies too. The expense ratio will increase. WWWD? WEB passes on much business when the market turns soft, and then makes out like a bandit by writing much more when the market turns hard. :)

The deepwater platforms are one of their sweet spots because they generally ride out strong hurricanes without much damage. If they do have exposure to this event, they'll more than make it up in the next year or two from the subsequent hardening of rates in this class. Any exposure they have would almost certainly be a relatively small piece of property damage claims for the rig itself. :)

Excellent summary! :)

In the wake of the financial crisis, the government doubled the monetary base, mainly by increasing reserves in the banking system. That has never happened before to such a degree. The monetary base part of the money supply has the most immediate affect on the financial markets, providing the basis for increasing liquidity, lending etc. The recession has now ended and credit may soon be starting to flow in an increasing stream. this will accelerate to an unsustainable rate as if the floodgates were opened if there isn't a reduction in the monetary base in the not too distant future. However, the recent downtick in the monetary base may be temporary because The fed has said that they will keep interest rates low for most of this year. Nevertheless, there is so much surplus that it may be possible to reduce the base without risking another recession as the velocity of money now seems to be increasing. If you can predict exactly when this will hit the markets with full force, you're a better man than I. When this happens, it will not exactly be bullish for the stock market.

This composite graph, from January 7, 2009 through last Friday, April 23, 2010, shows how change in the S&P 500 has lagged change in the monetary base (WSBASE) by a few weeks. The recent sustained decline in the WSBASE prompted us to hedge most of our portfolio in the last few days by increasing cash and buying S&P 500 puts.

Drawbridge let fall, 'tis The Lord of us all the dreamer whose dreams come true! __ Kipling

Thank you, Shai. You are always so kind. Here are a few immature interpretations on the result. I have been following the company for a few years. 50% revenue increase in the first quarter, IMHO, is highly unusual. Why? Because 1st quarter is usually the weakest quarter. In fact, in the 1st quarter of 2009, revenue increased by 25%. So the comps are quite strong actually. How can Delti possibly increase revenue by another 50 percent? A few guesses here: 1. the harsh winter lasted well into the first quarter. 2. the North America business is extremely strong, and weak euro helped the lift of revenue. While many people questioned the viability of Delti's business in NA on this board, its revenue increased by more than 50% last year. If this were to happen in any companies in US today, I guess the company will hire a bunch of PR firms to promote it and the valuation would be 6-8x revenue. Delti simply said in its annual report that it does not expect the NA business have any meaningful impact in the near future. The company is so bad at PR that every year the annual shareholder meeting lasted less than one hour, very very few questions. 3. and finally here is my speculation. Delti is experiencing an extraordinary and fundamental change of consumer demand for tires on the Internet and it has a huge advantage over any competitors on operation efficiency, business process automation, technologies and most importantly, low price. And if I am correct, the growth is set to accelerate in the next few years. But this is only my speculation. I have been thinking about the revenue growth and I could find no reason to totally justify it. I bought this stock at 13,15,20 and 26 and I wrote about it on the board when the stock price is 29. If my guess about the fundamentals are correct, Delti can have another double in two years. Hopefully I am right. Fan Our business involves direct response advertising. Our sales are directly related to the response rate to our advertising and to the attractiveness of our ads that may sometimes double the response rate when we improve the pull with better copy or after trying new things. Has Delti made changes in their advertising recently that may seem small but might have large impact? Or have they perhaps increased their ad spending that has only been less than 10% of their gross profit? ps: Shai is the kindest guy I know, but he's under a different name. :)

Thanks, Fan. Great tip! Blessings. :)