Cigarbutt

For the long-term followers. https://www.carriermanagement.com/news/2017/12/06/173704.htm https://www.canadianunderwriter.ca/insurance/sedgwick-cunningham-merger-good-canadian-adjusters-1004124838/ From memory, the last significant capital event was in 2012 with a recap transaction when FFH kept a minority stake. Looks like the sector is consolidating.

Looking into Fairfax again. At the stage where am trying to reconcile the "on the offensive" stance versus cash levels. What does it mean? Interesting times.

Multi-variable questions with many perspectives. Historically speaking, even if conceptually appealing, it is difficult to see some kind of correlation between corporate taxation and GDP growth, so other factors likely play a more important role. When looking at trends for net profit margins in the last 20 to 30 years, it appears that gradually lower effective rates have played a contributory role and this may be projected forward? A potential corollary is that firms, in general, have been able to "capture" the benefits of lower taxation. Of course, this can be good for the investor but a Laffer curve type of reasoning may apply because too much of a good thing is not a good thing. What the company will do with increased net earnings is also important. In the last 10 to 20 years, not much has been invested in expansion capital expenditures. Under present circumstances, one would expect increased return to the shareholders through dividend and share repurchase. A similar pattern would be expected for repatriated funds. Perhaps helpful to look at the average effective tax rate of the firm that you are looking at because the effect of enacted changes may be less than expected using statutory rates. On a more mundane level, if history is any guide, even if less corporate taxation is "good", that means less government revenue which means lower expenditures (absolutely out of the question in political circles these days) or higher debt. So, there needs to be a cost/benefit analysis. Here's a link which discusses some relevant points. https://www.advisorperspectives.com/commentaries/2017/02/03/impact-of-lower-corporate-tax-rate At this point, my take is that firms will benefit (to varying degrees) short term but I see a net negative long term.

The era was indeed different when value investing started to take shape. The idea, at times, was to "investigate" firms because many would tend to under-report the value of their assets. Negative goodwill of sorts. Here are a few links that are centered around Mr. Graham but that also provide some historical perspective. The focus first was on bonds and maybe this has something to do with the margin of safety concept. https://www.ivey.uwo.ca/cmsmedia/3065497/ben-graham-father-financial-analysis.pdf http://www.valuewalk.com/wp-content/uploads/2014/06/bierig.pdf http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Benjamin%20Graham/2001%2001-13%20Graham%20-%20Forbes%20Greatest%20Investing%20Stories%2C%20Chapter%201.pdf https://archive.org/details/principlesbondi01chamgoog

Still at the looking for facts stage. Thought the following was relevant. http://blog.yardeni.com/2017/11/corporate-taxes-facts-vs-fiction.html

Interesting. Will order the book. Came across this: http://www.freemoneyfinance.com/2010/11/the-warren-buffetts-next-door.html which is about a review, comments and an interesting answer from the author. Don't think this should be approached as a "recipe" for success. Some people get lucky but there may be something useful to learn about long-term "luck". Also nice to try dissect the essential elements that come form different strategies working out over time. Of course, we don't tend to hear about those who fail unconventionally. A similar book is Free Capital by Guy Thomas which I liked and which describes the experience of 12 private investors who compounded nicely over time using completely different strategies. European flavor. https://www.amazon.com/Free-Capital-private-investors-millions/dp/1906659745/ref=sr_1_1?ie=UTF8&qid=1512153471&sr=8-1&keywords=free+capital

Aberhound, Interesting post that triggers a reflection on different types of reasoning: deductive, inductive and abductive. Brain involvement from toxoplasmosis can be explained by the presence of cysts concentrated in the amygdala, an area of the brain important in the regulation of attitudes, behaviors and smell. By the way, the parasite is single-celled and can be transmitted through contact with cat feces. I submit that strangers who might just have travelled light-year distances may come up with more sophisticated schemes. From a guy who lost his comb: “A little knowledge can be dangerous. So is a lot.” Still, you raise interesting points and often fiction surpasses reality. https://www.ipsos.com/sites/default/files/news_and_polls/2015-06/6902-topline.pdf https://www.thesun.co.uk/news/3035417/ufo-hunters-claim-george-bush-awkwardly-dodged-tv-talk-show-jimmy-kimmels-questions-about-government-alien-files/ Maybe, this re-enchantment with UFOs has something to do with secularization and the new cultural cycle we’re in. Ricardo Montalban, who starred as Khan, used to play Mr. Roarke in Fantasy Island with Tattoo. In that show, the mysterious Roarke granted fantasies. I really loved the series. But there were supernatural overtones.

Did not plan to come back here but re-visited an article written by Mr. Benjamin Graham who "could not understand how securities were valued in the later 1950s". https://www8.gsb.columbia.edu/sites/valueinvesting/files/files/DOC003.pdf For some reason this article came across my desk at the same time as an issue leading me to President Eisenhower's Farewell Address to the Nation (1961). Excerpts: "But each proposal must be weighed in light of a broader consideration; the need to maintain balance in and among national programs – balance between the private and the public economy, balance between the cost and hoped for advantages – balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between the actions of the moment and the national welfare of the future. Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration." ... "Another factor in maintaining balance involves the element of time. As we peer into society's future, we – you and I, and our government – must avoid the impulse to live only for today, plundering for, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without asking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow." An hypothesis is that the comments from the past simply come from another epoch and only have historical value. Another hypothesis is that Mr. Graham's 1974-5 comments may have an unusual degree of relevance in our time. Haunted by the absolute/relative valuation conundrum. The problem is that one of the options is moronic.

Thinleyw, Looked at this (partly identified firm...) in more details. The "lease" arrangement is relatively unusual. The initial 10 yr lease was initiated in 2003 and was deemed to be modified shortly after in connection to a significant investment in leasehold improvements by the lessee. Various disclosures suggest that the lessee effectively has ownership of the "improvements" which are very long term in nature and there were 4 10-yr renewal options that could be applied "unilaterally" by the lessee. At least under US GAAP, this combination of circumstances means that the capitalized asset is being amortized over the useful life of the assets and not over the period leading to the shorter term of the renewal date. Numbers disclosed concerning amortization and the relative absence of change that occurred at the last renewal (2013) would tend to validate this conclusion. I would expect then that, given an unexpected termination of the lease or non-renewal in 2023, the legal title to the "capital leased assets" may go against a simple writing down of the asset to zero. Interesting case overall in terms of value. The possibility of unlocking of value is highly correlated to a potential catalyst. If looking for potential validation of the underlying assets realizable value, there are potential digging avenues. For instance, access to appraisal value through insurance protection contracts (property/casualty) or through land/property tax documents. My limited experience has shown that the value discovered in those documents can show higher (sometimes more reliable) values than what is reported on the balance sheet. Of course, if you are in a scuttlebutt mode, eventually playing the 18 holes may do the job. Good luck.

If you like the character, you may like: Since we may have this galaxy to ourselves.

Each contract is different and if the lessee has to return the "property" to the lessor, you'd have to look at the specific terms of the contract (disclosed?). I would guess though that both lessee and lessor have a long term mindset and either the term of the lease is very long or renewal is quasi-automatic (for personal or contractual reasons). Who would significantly invest in leased premises if you have no guarantees about what happens at renewal?

Not much info but will give it a try. Given that you have signed a contract for some kind of commercial lease, significant changes after may trigger a re-assessment of the deal terms and reporting. So, unplanned significant leasehold improvements that occur during the lease contract may require to record the "investment" as an asset to be amortized over the economic life of the of the asset or until the end of the lease. Let's say you rent a relatively large office under a typical commercial long term loan resulting in an operating lease and, after a while, you make a significant investment to upgrade and have a Starbucks-like café integrated to the office. My understanding is that the lease may "become" a capital lease and the new capital investment that you "own" (leasehold improvements) is capitalized, recorded as an asset and amortized. Makes sense?

This thread has a lot to do with the hypothesis that book value for BRK is becoming less relevant as a valuation input. My understanding is that this may be true in the sense that book value will eventually reflect the unrecognized intangible value now. A relatively simple way to deal with this "lag" effect is to put a higher multiple of the IV/BV ratio. How much higher depends on your analysis but, in my book, the difference is relatively small. Of course, over time, small differences do compound. However this higher multiple due to the unrecognized potential may not apply to the whole market. Last time I looked for the S&P, price to book was around three to one. If you apply a simplified way that Mr. Buffett has described over the years to use this parameter as a valuation input, the "coupon" on the stock index would be around 4% (retained portion compounding at 12%). The yield on USA 10 yr Treasuries is 2,33% this morning and the 30yr is 2,76%. The yield on cash this morning is 0%. Ceteris paribus. Simple but not easy.

SlowAppreciation, Thanks for bringing up the brooklyninvestor link. Convincing data about the relative disregard for bonds. Reviewing this, came across that, from another era: http://fortune.com/2011/06/12/buffett-how-inflation-swindles-the-equity-investor-fortune-classics-1977/

Earlier in this thread there were questions about trends and correlations: http://politicalcalculations.blogspot.ca/2017/11/are-turkeys-calling-market-top.html#.WhQcDbpFzuh Turkeys have gotten bigger, haven't they? This has a spurious look but, if the correlation holds, maybe turkeys will keep on getting bigger. Have always enjoyed physics but perhaps what they need to fly is simply to get bigger. On a more serious (?relevant) note about the price, yield and "expectations": http://markets.businessinsider.com/news/stocks/veolia-successfully-issues-a-3-year-bond-with-a-negative-yield-1008324867 Veolia is a French-based transnational utility which is BBB rated. The 3-year bond's yield is -0,026% and the issue was massively over-subscribed. With certain assumptions going forward, as there may be more room for the credit spread, the quality of the investor base expects a profit. Today, I will get myself a new financial calculator. (and a turkey)

Your points are well taken and I want to move on. "If you can make a case for widespread persistent shortages and thus inflation & mean reverting interest rates, these guys would be correct but they have not made such as a case. If you have heard one I would like to hear it." Here's a recent link: https://www.hussmanfunds.com/comment/mmc171009/ I know, Mr. Hussman has been "wrong" for so long etc My take is that he tries to explain that low interest rates explanations suffer form double counting and suggests that low interest rates may point to a low growth environment. You can't have your cake and eat it too argument. I think it makes some sense. The issue for me is that, lately, I haven't found securities with a sufficient margin of safety; that's my problem. I am happy that others don't have this problem. And this is not about looking for macro "signals". I'm simply trying to understand. Interesting times.

You may be right in a lot of ways. In investing, the rear-view mirror is always clearer then the windshield. Who can say what's in store: a dreaded black swan?, a new Gilded Age? or just sideways muddle through? Who cares in a way. Historically, one has to care only rarely and caring has a price. The bottom line for expectations about the next few years is that the outlook for returns is colored by our interpretation of present levels and our interpretation of fundamentals (also sentiment) going forward. This is art and science. As far as the ERP "concept", Asness, Arnott and Bernstein, Gross (Bill), and others have given rational explanations about the possibility of (much) lower ERPs than "conventionally" accepted in general and even negative numbers for certain relatively long periods. I can provide specific references about this but suggest that it is probably not worth your time unless you have a quasi-autistic interest in the matter. To keep the discussion on solid ground, here are some interesting (and perhaps relevant) historical facts: -the time it took for an index to reach back to the same level, DJ 1929 to 1954 (yes 25 years, but more like 16 to 17 years if you think in total returns) S&P 1968 to 1979 (time of relatively high inflation, ouch) I know, this is retrospective cherry picking and dividend yields were relatively higher during these periods of the past but these two periods represent about 30 to 35% of the last century when the going forward ERP for the typical investor was closer to zero or even negative. In terms of low interest rates, if they remain low, stocks may be cheap but, to make a long story short, I submit that there may be an element of double counting here. For instance, if you buy a house and get an unusually low 5yr rate on your 95% value mortgage, a reasonable assessment of margin of safety may have to include scenarios whereby interest rates may be different down the road. I am assuming here that the "value" of the house itself is not overvalued because of the low interest rate "environment"... For additional perspective, debt can be thought of as forward consumption brought today. This would imply that you will eventually consume less (especially if recent debt accumulation has been unusually high). So, if recent returns have been unusually good, irrespective of interest rates, future returns may be unusually lower. The fact that there is no place to hide is not sufficient, in itself, to justify higher valuations. Long post as I have spent quite some time on this issue in the last few months, which is unusual. Opinion In terms of "framing issues", if I would run a fund now, I would close it and distribute funds (not because of retrospective reasons) because I think that, for the next +/- 10 years, there is an unusually high risk of disappointing returns and, to link with this thread, if history is any guide, I would submit the opinion that, for the typical market participant, there is an unusually high risk of permanent capital loss. This is a zero-sum game against the average. That's why I'm here. I expect that future posts will eventually focus on the flip side of the coin.

Thought the following is interesting in terms of expectations: http://www.collaborativefund.com/blog/were-all-out-of-touch/ http://www.lse.ac.uk/fmg/documents/events/seminars/capitalMarket/2008/1032_S_Nagel.pdf What's the point: Your investing experience (especially the recent one (recency bias), and actually going through booms and busts even a long time ago) will have, in general, a significant impact on your risk/return expectations. So, the decision to index/invest or not, for the typical investor, has a lot to do with when you were born and when you started investing. Of course, as individual investors with strong egos, that does not really matter. The trouble/challenge/fun aspect of this is that you find out how you did only looking retrospectively. The future, as always, remains uncertain. Focus on process, they say, not results. The first step though is to win the genetic lottery. http://tonyisola.com/2017/11/if-you-are-reading-this-you-already-won-the-genetic-lottery/

OK. Just beware of adventurous curve fitting. http://www.philosophicaleconomics.com/2013/12/valuation-and-returns-adventures-in-curve-fitting/ "But, admittedly, the metric doesn’t deserve the reputation for predictive precision that the chart, by chance, affords it."

"Why do you think he would be difficult to deal with?" Nothing personal against Mr. Thiel. Just wanted to convey that innovation tends to be disruptive. It depends how one values stability. Bias: prefer incremental changes.

"What is the best place to park short term to medium term cash part of this anti fragile portfolio?" You just have to find a security that will provide a safe, consistent and high return that will not be influenced by an adverse currency exchange volatility and that is not a Ponzi scheme. :) "I'm amazed there is even any debate about this. Taleb literally talks about this in his books. He made his own money by seeking extreme payoffs with a small portion of his portfolio." Maybe it's not a debate but more variations on a common theme. Historical example: WWII ranked as the most destructive in human history (although debatable, could be considered a black swan). 400 000 Americans died. But the United States emerged from the war stronger than when it began as the Eurocentric international order fell apart and as the nation's GDP doubled between 1941 and 1945. I submit that this would meet one of the definitions of Anti-Fragility.

Let’s see if we can agree on a few things. From the graphs (and basic math), we can infer that the major factor explaining (did not say causing) the change in % investor equity allocation is change in share price. The author shows that there is a tendency to have an inverse relationship between % investor equity allocation (and therefore share price) and returns going forward. This is just another example of valuation tools (stock market cap/GDP etc) used to infer forward returns. For example: (graph using marketCap/GVA) https://www.hussmanfunds.com/wmc/wmc170306.htm And I agree in principle. But these subsequent return "indicators" are not true "predictors", they are variables that will reveal self-fulfilling prophecies associated with the direction of prices in the context of mean-reverting financial variables. If you don't "believe" in mean reversion, just think of this concept as variations along the trend. There is nothing to suggest that % investor equity allocation is the single greatest predictor, as the author suggests in the title. In fact, the two lines on the graphs will continue to show a tendency to converge but the correlation may weaken intermittently. See recent update related to an alternative presentation that you provided in this discussion. https://www.marketwatch.com/story/why-rising-stock-ownership-by-us-households-may-be-a-bad-omen-2017-03-16 Now to go back to the thread, if you look at these types of analysis, the expected subsequent return over the next 10 to 12 years should gravitate towards the range of 0 to 2% per year. Quite unusual. No? Now, if your time horizon is 10 to 12 years and you reasonably expect that kind of return when you invest in an index fund, then everything is OK. But I doubt that the passive investing pool of investors truly understand the implications. Don’t want too pound too much on the issue but correlation is not causation. Some time ago, I read an article showing a correlation between breast cancer risk for women and the number of bathrooms in the house. The first thing to do is to rule out spurious correlation (statistical fluke). If a “true” correlation, before moving to a house with no bathrooms, it may be helpful to try to figure the driving force(s) behind this correlation. Referring to the link on reply #46, the driving forces behind rising share prices (and % investor equity allocation), in the last 20 to 30 years, have not been based upon fundamentals but on PE expansion and increased net margins. Disclosure: believer in long term mean-reverting tendencies. Also liked that book: https://www.amazon.com/Unexpected-Returns-Understanding-Secular-Market/dp/1879384620

If a concern, building an "AntiFragile" portfolio may involve holding some "AntiFragile" securities, holding cash or somehow hedging risks. At the company level, it represents the two sides of financial flexibility: to be able to survive AND thrive. Although appealing in nature, true Antifragility has a cost. As Taleb states: "redundancy is ambiguous because it seems like a waste if nothing unusual happens." I would submit that a P+C insurance firm that keeps a high (or very) high cash balance would reach the definition as it could withstand a blow to the asset or liability side and still be able to redeploy funds to opportunistically invest in securities and/or to participate materially in an ensuing hard market. Another area these days would be the firms that belong to an oligopoly and that have relatively low leverage as chaos may represent an opportunity to gain market share.

no_free_lunch, "Only question is what to do for someone with an existing portfolio. What time of allocation would you use then?" I only wish I had an answer. We all have to come to our own personal decisions. Maybe I don't know what I'm doing or maybe it takes character to sit there and do nothing with all that cash (Munger). I hate to think that I'm a know-nothing but it's possible. Want to learn and that's why I'm here. In the meantime, will continue to search companies (properly?).

When/if you enter a financial planner office, there is usually a big picture on the wall showing how equities "out-perform" over time. A way to see the forward looking equity risk premium is to evaluate the return that you will (expect to) obtain from investing in the market, over a specific time period, above the risk-free rate. Question for you now: -what risk-free rate (level) should you use? (Remember that risk-free rates are negative in many places these days) Of course, it does not really matter if you rely entirely on your inner score card and have a very long term focus.