StubbleJumper

If the market went down 10%, I'd buy a cup of coffee and watch it for a while longer. I am in the camp that the broad market is overvalued by 30-40%, so a 10% decline does not provide much incentive to blindly buy equities. On the other hand, going from bottom-up, some of the most attractive names that are discussed on this board are so ridiculously undervalued that a 10% haircut does not really change the decision making process either (ie, BAC, AIG, ELF and FFH are so cheap right now that an additional 10% off doesn't really change anything). SJ

So far it appears to be mainly a very heavy rain event, with high winds...but not crazy-high winds. Most places on the North Atlantic shore are accustomed to getting 60 mph winds once or twice per year, so 75 or 80 isn't a huge stretch. As I recall, $6.3b of insurable damage would put it roughly on par with just one of the four horsemen of 2004 (Charlie, Ivan, Francis and Jeanne), so the forecast damage level will be barely a blip for insurers. But it is going to be a big storm, and the north east will probably be basically shut down for a few days.... SJ

I'm not surprised that few others on the board hold the bond. Every P&C insurance company bears a certain risk of blowing up due to a series of uncorrelated events, poor risk management or a poor investing environment. With FFH, that risk is small, but it still exists. Why would we lock ourselves into a 25-year security at 8% and expose ourselves to that risk? At least with the equity, there is a real prospect of 15-20 percent returns to compensate for the remote potential of incurring a permanent loss of capital. SJ

Hmmm... So they're getting $260m from selling Cunningham Lindsey and now they're looking for $200m more from debt markets. So what are they doing with the $460m? There is no meaningful amount of debt maturing any time soon and the subs are generally well-capitalized with strong dividend capacity so hold-co cash could be easily augmented without going to the market... Is Prem getting ready to do some "Christmas shopping?" Wonder what's on his Christmas list? SJ

Please don't tell me you are as stupid as Jon Stewart and think that balancing the budget equates to extinguishing the debt lol Debt Growth = 0 and GDP Growth > 0 => Debt/GDP trends to 0 with a balanced budget just normal inflation reduces Debt/GDP over time … put some real growth and it trends to 0 reasonably fast. You got all of that from the original post?

Please don't tell me you are as stupid as Jon Stewart and think that balancing the budget equates to extinguishing the debt lol Nope. I have a strong grasp of public sector economics. I just failed to understand what conclusion I should draw from a photo of a president in front of a balanced budget chart when that president has been retired for 12 years. -does it mean we should vote for Clintons at all possible opportunities? -does it mean that Clinton's effort to balance the budget was misguided? -does it mean that the two guys who came after Clinton are/were losers? -does it mean that Clinton viewed the world through rose-coloured glasses? -does it mean that the world has changed since Clinton? What conclusion did you draw from that photo? I still don't get it.

Ahhh, so he was merely pointing out the obvious? I thought that there was some insight that completely escaped me

I don't get it. What am I missing here? We all know that Clinton balanced the budget a hundred years ago, but that's all ancient history now. What point are you attempting to make?

Okay, so they want to lobby congress for favourable tax treatment. Why does that cost $1 million in a single donation? And why is it not being undertaken through an industry association which is financially supported by numerous insurers who have common public policy interests? Just as Buffett has suggested that owners ought to focus on "look through earnings" I say we should also focus on "look through donations." My share of ORH's donation is far more than I would ever want to contribute to any US politician...and I do not see the prospective financial return to justify it. SJ

A million bucks? Jesus Christ, that's like 5-cents per share! What the hell are these guys thinking? Giving away 5-cents per share to politicians! At least give it to a worthy cause (of which there are many!). I can at least buy the notion of "doing good by doing well" but what is this?

Seems like a good place to put all of that Lindsey Morden money!

Yeah, I'd say that the prospect getting meaningful money out of the lawsuit is remote. My way of thinking about it is that the expected value equals: Probability of winning in court X Value of the ultimate award X Probability of winning the dozen appeals that will be launched X Probability of sufficient assets being available to make payment X Time value of money for the next 10 or so years - Costs of litigating Plug in the probabilities and the award amounts based on your subjective assessment of the situation, but if you're like me, you'll get a result somewhere close to zero. SJ The primary purpose of the lawsuit was served the day it was announced in 2006. Arguable if the market has priced FFH correctly now, but it was certainly wrong then. Does this not explain how many on this board made their big bucks on FFH? If I look back at the last 7 years and FFH has done the "heavy lifting" of my investment performance. This is real money I've already made, not a probability calculation of what I will be making when the lawsuit is decided. Someday, I would like to hear from FFH (Prem) some more "color" on their decision to leave the NYSE. I believe they are related. FFH suffered mightily from their 6 year foray into the NYSE(2002-08). "Nothing good came out of it" about describes it. FFH strategy today is all about "other than USA" (Canada, Asia, Eastern EU etc.) I agree entirely about when the value was obtained from the lawsuit. I also presume that you agree with me that we should not hold our breath for a meaningful cash windfall on a going-forward basis? SJ

Yeah, I'd say that the prospect getting meaningful money out of the lawsuit is remote. My way of thinking about it is that the expected value equals: Probability of winning in court X Value of the ultimate award X Probability of winning the dozen appeals that will be launched X Probability of sufficient assets being available to make payment X Time value of money for the next 10 or so years - Costs of litigating Plug in the probabilities and the award amounts based on your subjective assessment of the situation, but if you're like me, you'll get a result somewhere close to zero. SJ

Sanj, First off, I must confess to being a tightwad bastard careful with my money, which might contribute to a bias in my thinking. That confession having been made, I would observe that a successful message board is a living creature with new people enthusiastically joining and spurring a great deal of conversation, experienced posters offering knowledge and wisdom, and then there's a category of posters who lose interest in the subject or who feel that they no longer learn anything new so they quit participating. All of this is an organic, un-managed process where posters come and go which ensures the constant renewal of a board. The problem that boards sometimes run into is that few new members join to replace those who move on. In the specific case of the Motely Fool, I would observe that they began charging an annual fee about 10 years ago, which significantly reduced the number of new members who joined. Over time, many of the fora died out as experienced posters left and very few new enthusiastic posters joined due to the prevalence of tightwad bastards people being careful with their money. For the record, I'd say that this board is easily worth a multiple of the small annual fee that you are contemplating. However, to a new poster, that value proposition is less clear. My concern is that people will either simply lurk (which does not contribute to the conversation, and the lack of [naiive?] newbie questions may forestall threads that would otherwise be very productive). Anyway, I understand the problem that you are facing and I'm not sure that I have a better solution to offer, but I would suggest that the fee be a measure of last resort. SJ

Didn't they purchase Greek bonds about 18 months ago? I'm guessing that one hasn't worked out exceptionally well, but the REIT is at least backed by real estate that has presumably had meaningful value for the past 4,000 or 5,000 years.... SJ

Wow! They are increasing their consumption tax from 5% to 10%? I hope that the republicans and democrats are taking careful notes, as a similarly sized measure might help in to fill the budget black hole the U.S.

Scope kills all of the bacteria in your mouth, even the ones that fight infection and disease. Why would you continue to purchase mouthwash that kills helpful bacteria? You wouldn't. The marketing campaign for the new mouthwash would inform you about the benefits of certain oral bacteria. http://en.wikipedia.org/wiki/Oral_ecology As mentioned, oral bacteria also help fight disease-producing germs that try to come in through the mouth. These bacteria work with our immune system to keep our bodies disease free. For example, some of these bacteria produce organic acids that kill the organisms that cause intestinal problems.[2] Without these good bacteria, our immune systems would be constantly bombarded by airborne and saliva-transferred germs. Bacteria are also needed to control the growth of fungus. “Balance between all the different bacteria and fungus are critical” or else the “fungus overgrows and takes over.”[10] So, ironically, though bacteria have the potential to harm us, our mouth and the good bacteria in it are the body’s first line of defense. Sure, I buy the argument that one product might be better than the other. What I am questioning is whether the introduction of the novel product would completely alter our oral hygiene routine. By that, I mean that it is somewhat difficult to believe that people would abandon the daily routine of brushing and rinsing, and instead use a new rinse that is required only twice per week. In my case, I tend to think that I'd continue brushing and continue using some sort of daily rinse...even if the daily rinse were some variation of the new product (at a higher price). All this to say that I'm having a hard time seeing how the newer superior product wouldn't result in incremental revenues (because you'd price it higher), but I acknowledge that it might cannibalize the existing rinse sales. In other words, it would be an incremental return from product differentiation in a market that is otherwise characterised by undifferentiated products (ie, Scope and Listerene are pretty much interchangeable). Now if they could just invent a wash that would completely eliminate the need to floss..... ::)

Hopefully P&G will not buy the patents... BeerBaron I don't get it? Why would it be bad if P&G bought the patents? They certainly have the production, distribution and marketing capacity to profitably deliver such a product to consumers.... Well, it does threaten the cavity-fighting toothpaste market. And a mouthwash that is effective for 4 days after a single rinse might threaten the twice-a-day rinse market. People buy fancy toothbrushes that vibrate or have special "reach" capability. They could be tempted to just buy the patent and never roll out a product. I'm not sure that people would stop using Crest or Scope just because this product kills the worst bacteria. There's nothing quite as nice as brushing your teeth in the morning. More likely that they'd roll out the product and price it at a point where they'd earn equivalent or higher profits from each user (hey, I'd consider paying $100/year to beat the tooth decay problem). My suspicion is that insurance policies would probably provide coverage for the initial years, as it would be a no-brainer to reduce their costs. After the patent expires (and there would probably be less than 15 years to exploit it), then every Tom, Dick and Harry could probably produce the stuff at a price competitive with current mouthwashes. Eventually P&G would have to drop their prices in preparation for patent expiration, but it could be a great run for the first 10 years.

Hopefully P&G will not buy the patents... BeerBaron I don't get it? Why would it be bad if P&G bought the patents? They certainly have the production, distribution and marketing capacity to profitably deliver such a product to consumers....

Yep. I always say that you should be prepared to drop some good money when buying your bed because you use it 6 or 8 hours per day.

Sanj, Good observation. There's little reason to seek out thinly traded or obscure securities when there are cheap behemoths staring right at us. Not only could people have swung at BAC when it was $5, it's still <$7 over the past week. FFH was kind of like that too. It lingered at ridiculously cheap prices for quite some time. No need to rush into a decision, as there is plenty of time to get comfortable before diving in! SJ

Obviously, the cost and returns from real estate is location specific. However, there is an old adage that applies to nearly all assets which is, "There's no such thing as a bad asset. It's a question of pricing." My observation for housing is that you'll generally get a positive return if you are not paying more than a 10:1 price-to-rent ratio. That gives you a pre-expense cap rate of ~10% before property taxes and repairs (which as others have noted tend to be surprisingly expensive). If you can end up with even a 5% net cap-rate, then that's not too bad (ie, 5% basically risk free after tax is equivalent to 5% / (1-tax rate) = ~7-8% on a pre-tax basis. But, the key is to not pay too much for the asset to begin with. Prices in Canada seem to be in the range of a price-to-rent ratio of 15 to 25, depending on where you live. At that price, it's pretty hard to get a fair return on your investment. SJ

Did you include estimated annual maintenance expenses in your cap rate? If so, could you please share that rate? I am currently evaluating buy/rent decision and kind of conflicted on this one. I currently pay $3000 monthly rent on a house that the owner would be willing to sell around $575K. It is a 10 year old house, property taxes of $6K. Assuming home owners insurance and other costs that I am not paying to be about $2k, I get a cap rate of about 5%. Assuming about 1% in annual maintenance costs, I get a cap rate of 4%. Vinod Vinod, Your cap rate is lower because it's not 1999 anymore. :-) Back in 99, I had no trouble finding houses that would give me a cap rate of 6-7% even after 1% for maintenance. Of course, five-year mortgage rates were 5.6% at the time, and everybody thought I was nuts for not going "all in" on Nortel. ::) Today, I don't think I'd be a buyer because the price-to-rent ratio has gotten silly over the past 5 or 6 years. SJ

Investment? You bet. I bought it several years ago, and have been "receiving" imputed rent ever since. When I bought it, the effective cap rate would have been ~6-7% after tax with effectively no risk since I am my own tenant. My view at the time was that getting a ~6-7% after tax return would be similar to the broad return from the stock market, but that there would be no volatility and effectively no risk because I am my own tenant. My thinking at the time was that I hoped that the eventual selling price of my house would simply track inflation, and the that only real benefit from it would be my residency there. Things have worked out much better than I expected. In addition to the imputed rent, I have had a price increase of about 7% per year, which far exceeds inflation. In Canada, that capital gain on a principal residence is tax free, and my imputed income is in after tax dollars, so it's worked out well. I would not buy a house at today's prices. SJ

Was the ridiculous tornado activity during Q1 or was it Q2? The mid-west really got hammered, and presumably C&F will have a piece of that? SJ