Myth465

Buffett issued the class B and it is a different class of stock. He still maintains control of the stock and will until he passes by holding the class A and converting any stock sold or given away to class B / C. He also issued the B when Berkshire was overvalued and basically said so. He said it wasnt cheap and he wouldnt be buying it. He now claims that it was fairly valued but, actions speak louder then words to me. A company is supposed to sell stock high and buy it back low. Thats the key to successful allocation. Prem knew the stock was overvalued and never sold a share. His only way to close the gap on the overvaluation was to issue shares and try to buy something that was deeply undervalued. You have to take advantage of the market. Thats the name of the game.

These guys are amazing capital allocators. I say hold your shares and watch them work. http://www.bloomberg.com/apps/news?pid=20601087&sid=aecq.uTk63M4&refer=home California Build America Bonds Hand Buyers $212 Million Gains Up 5% out of the gates with a 7.55% tax free yield. This Broke State Could Reward You Handsomely California recently issued $5.23 billion of 25 and 30-year BABs that pay an annualized rate of 7.4%. But with the Fed reimbursing it for 35% of the interest, the state will only be responsible for 4.8% in the end. To get a similar yield in the in the corporate bond market, an investor could buy bonds of Amgen (Nasdaq: AMGN), Norfolk Southern (NYSE: NSC), or Verizon (NYSE: VZ), three solid companies that shouldn’t be going under any time soon.

I listen to Peter Schiff's podcast weekly and am listening to Ron Paul's End the Fed. Their branch of economists is quite interesting. I believe they simply dont want the government to have the ability to monkey with the money. I think they would support any logical way of accomplishing this goal. They want to tie to money to something that is fixed or only increases with significant effort to find (gold and other commodities, IE something that cannot be printed or electronically generated). I agree with several of their argument from a political standpoint but am not sure how they could be implemented practically or what type of ramifications they would have. Basically the believe that if the government had to pay for things it promised then many things would be looked at differently. Currently the government can more or less do anything it wants and the outcome is largely hidden from the average American though inflation, deficient spending, and a weakening dollar. Interesting stuff but, not very useful from an investment point of view. Schiff is credited with calling the crisis, but not profiting from it. He believes the dollar will continue to weaken and other economies will decouple at some point leaving the US to sort out its own mess. He also has an invested ideological interest in the outcome which may distort his analysis. Prem on the other just wants to avoid risk and profit from his investments and seems more agnostic about what the government does.

It doesnt seem like Warren is contradicting himself. I think you are focusing on the soundbite and not what he is saying. He likes bargians and would prefer to hold them forever (but, wont if there are better deals out there or if the Market Value to Intrinsic value gets out of wack). Derivatives are weapons of destruction primarily because both sides were booking gains and the auditors were comfortable with it. I also think he meant this similarly to most other things such as writing insurance (writing for growth in premiums can be destructive depending on how you do it)

I would have let Roger Lowenstiewn right it.

It seems to me that the only people getting money at low rates are people who dont really need it.

I think you guys are being a bit too hard / sensitive. Its a little tongue and cheek and sarcastic but, doesnt seem to bad. Plus he might be British.

Here is a very interesting read about CNA's history. It seems like they are have relied on the investment gains to overcome the underwriting losses. http://www.wikinvest.com/stock/CNA_Financial_(CNA) Seems like a heads / tails I win case. If the CEO can turn around the underwriting then you have a great insurer and if not you have a fairly decent discount to book as a buffer.

Hey I was thinking the same thing and created a thread to discuss CNA and L. Its in the General Section. They seem to be a Fairfax without the investment gains and have brought in a new CEO from Chubb which I am hoping fixes that. I would expect either consistent underwriting profit or fairly decent investment performance and CNA has neither. ---- On FFH, I own FFH leaps which are up significantly and will cash in at some point. I have seen a 20% drop in their valuable but, have gotten used to FFH. I am guessing in December it will rally for no reason then fall on the next Q. ORH behaved the same way for some reason. You just have to pick your spots I guess.

I have been watching Loews since the posting in the Asset Allocation Thread and would like to get a discussion going on them and CNA in particular. I just bought some Loews today due to the discount in NAV and great Management. I like Loews primarily because in my opinion its a significantly discounted stock with free call options on energy. Its is deeply undervalued when you take into account the CNA BV component. What does everything of CNA as an insurer. They seem to be a Fairfax without the investment gains and have brought in a new CEO from Chubb which I am hoping fixes that. I would expect either consistent underwriting profit or fairly decent investment performance and CNA has neither. I like most of the other pieces of Loews (not crazy about the hotels though) but, cant wrap my arms around CNA. Why the big discount to book. I have only reviewed the Quarter in passing, but would like any additional detail from other board members.

So, you mean private hospital emergency rooms are obliged to take care of these people? Who pays for the services then? What about cancer treatment or dialysis or HIV? These are not emergency procedures - where do these patients get their treatment on an ongoing basis? What about major organ transplants - are the uninsured simply told to go home and wait to die? Yes, More or less. Laws require that patients be stabilized (what ever that means). So you go to a hospital, get treatment for a day or so, get a bill, and trash it. Now your credit is ruined (usually not very important for those without insurance) but, the government picks up the tab for the emergency care. Outside of this I dont believe any treatment is available. Here is an interview with a former insurance executive. This is a fairly left leaning organization but, they tend to have there facts in order. - http://www.democracynow.org/2009/7/16/former_insurance_exec_wendell_porter Excerpt 1 ---- AMY GOODMAN: What turned you? Why did you change? WENDELL POTTER: I changed because over the last two or three years I began seeing more than I’d ever seen before and became more knowledgeable of how health insurance—how health insurance companies make money, how they maximize profits. The companies that I worked for were two of the biggest for-profit health insurance companies. And over the past fifteen years, since the last time we had this debate, the health insurance industry has consolidated to the point that now there are about seven very large for-profit health insurance companies that dominate the market. They have begun shifting their business model away from managed care, which, frankly, I used to think was a great model, a great concept, for the delivery of healthcare. But they’ve moved—they’re moving away from that to what they refer to as consumer-driven or consumer-directed care, and it really is just a euphemism for shifting the financial burden from insurers and employers onto the shoulders of working men and women. I saw that happening. But I also saw how—you know, the things that they do to maximize their profit, which really boils down to dumping the sick. AMY GOODMAN: What do you mean, “dumping the sick”? WENDELL POTTER: Two different ways that they do this. In the individual insurance market, we’ve seen quite a bit of news coverage, especially in California. When insurance companies who are active in the individual market—and this means when you don’t get your insurance coverage through your workplace, about the only option you have is to buy it directly from an insurance company, and usually it’s much more costly than it is through—if you buy it or get it through your employer. Once you file a claim, if you are unfortunate enough to get very sick or have an accident and file a claim, you very often will find that your insurance company will go back and look at your application to see if there might be a chance that you either didn’t disclose something that you knew about in the past or inadvertently didn’t disclose something or might not have known about a pre-existing condition. They’ll use that as evidence that you were committing fraud, and they’ll revoke your policy, or they call it “rescinding” your policy, leaving you holding the bag, making you completely responsible for all the medical bills. That’s one way that they dump people who need insurance the most. Another is, if you are employed, particularly with a small business, and your insurance—your employer gets his or her insurance through one of the large insurers, and if just one person in your company files a claim that the underwriters think is too high, if it skews what they think is the appropriate medical experience or claim experience, when that business comes up for renewal, they very likely will jack up the rates so much that your employer has no alternative but to leave and leave you and all of your coworkers without insurance. Either that or they may cut benefits or try to shop for coverage somewhere else. But the end result is, you may find yourself dumped into the rolls and the ranks of the uninsured. Excerpt 2 ----- AMY GOODMAN: Was there a seminal moment when you were head of communications at CIGNA that really made you start to look? And how were you isolated there from, well, most people in the country, you know, who were increasingly talking about the massive problems of healthcare and access to it and being cutting off, the dumping of the sick, as you put it? WENDELL POTTER: I was very isolated, along with most insurance company executives who deal with numbers all the time—profit margins and medical loss ratios and earnings per share and how many millions of members you have, or things like that. It’s just—they’re just numbers. And I didn’t really associate that with real people as much as I should and as much as most insurance company executives should, until I went to visit my relatives in Tennessee. And while I was there, I happened to learn about a healthcare expedition that was being held at a nearby town across the state line in Virginia. And I was intrigued, borrowed my dad’s car and drove up to Wise County to see what was going on there. And this expedition was being held at the Wise County fairgrounds, and it was being put on by this group called Remote Area Medical that got its start several years ago taking volunteer doctors from this country to remote villages in South America, where people really don’t have any access to medical care. The founder realized pretty soon, though, that the need in this country is very, very great, and he started holding similar expeditions in rural communities throughout the country. And this one was nearby. I decided to check it out. I didn’t have any idea what to expect, but when I walked through the fairground gates, it was just absolutely overwhelming. What I saw were people who were lined up. It was raining that day. They were lined up in the rain by the hundreds, waiting to get care that was being donated by doctors and nurses and dentists and other caregivers, and they were being treated in animal stalls. Volunteers had come to disinfect the animal stalls. They also had set up tents. It looked like a MASH unit. It looked like this could have been something that was happening in a war-torn country, and war refugees were there to get their care. It was just unbelievable, and it just drove it home to me, maybe for the first time, that we were talking about real human beings and not just numbers. AMY GOODMAN: And so, what did you do with that? WENDELL POTTER: Well, it took me a while to just really process it. I came back to work. I knew at that time that I couldn’t continue doing what I was doing. It just didn’t seem like it was ethically the right thing for me to do. My first career, I was a journalist, and I had been in PR, though, for many years. And I came to realize that much of what I was doing now—or then—in my PR career was just the opposite of what I was trying to do as a journalist. But still, you know, I had mortgage payments. I had other bills to pay. And it was just—it was difficult to work through this and figure out what do I do and how do I—what do I do next?

Some of you guys really dont seem to understand. Why do you want for profit companies deciding who lives and who dies. They are have a strong motive not to provide care or to only provide care to those who dont need it.

How about 911 dispatcher? Shouldn't that be run for profit? Or how about police protection, shouldn't that be run for profit? And shouldn't the fire department be run for profit? That's why I can't stand this socialist country -- people don't deserve a police force unless they can afford security fences and armed private security guards. Great point and thats my problem with these debates. People are either retardedly capitalistic (though no one wants to privatize the army, even though we have effectively) or believe that we should have a nanny state where no one can do wrong, get hurt, or has to work. There has to be some middle ground. We should be trying to solve these problems, not pushing ideologies. I would put healthcare on the side of rights or basics which should be provided. It shouldnt be the best of care and shouldnt cover everything under the sun, but there should be some basic super cat and maybe even preventative care.

Interesting but ineffective analogy. 1. Healthcare is a matter of life and death. - Not something you really want to mix with for profit inmo. 2. Healthcare is the leading cause of bankruptcy. 3. You cant really realize the importance of it until you are disconnected from your great job and have to obtain it on your own or until your insurance company denies you vital coverage.

Thats my problem with it as well. People talk about free markets but, health care isnt one. Most insurers operate as Monopolies or Duopolies. Most of the insurers of scale dominate 1 or 2 regions and are except from laws which are aimed at breaking down Monopolies. I also dont think I want capitalism involved in life and death. It should be similar to education. You should have a respectable option for schooling (arguable in some cases) and have the choice to purchase better options if you are whiling to pay for them.

Im for a public system. But there argument is similar to the post office. They believe that the public option will be subsidized which will give it an unfair advantage. They believe it will basically run at a loss to put the other providers out of business and will have too much bargaining power.

Very interesting guy.

Im in the early stages of research but, Loews seems to be the best no risk play on Natural Gas Available. You are getting 4 billions in natural gas assets, and a set of hotels for free. The stock value is represented by DO, The Insurer, and the Pipeline company.

Thanks for the link. After reading it im not worried at all. I have the upmost respect for Bruce Berkowitz and he used to sit on the board and may own up to 24% of the company. I also believe just about all of Ashner's recent share purchases are underwater and think he has enough money on the line to move the share price. I dont know what would motivate him to screw over shareholders. They have been raising money since late 2008 in preparation for this and so far the money has been put to use at 17% YTM. I dont like equity issuing but, he cant do preferreds and is leveraged a bit. Ashner has also backstopped just about every offer which tells me that he is putting his money where his mouth is. I wont be buying shares and I like that he has pledged to pick those up. You have properties and securities which pretty much justify the buy. You then have a man who has been doing this for a while investing money into an asset class he knows well that is significantly undervalued and will be for some time. He was in REITs a bit early but, quickly moved to preferreds and so far has made money oh just about all his transactions. Concord hasnt worked out too well but, I see value there and I get 10% to watch him work. Seems like a good.

I think you are right but, the key thing for me is Ashner has a significant amount on the line in the form of shares. He may be playing both sides of the fence but, that doesnt bother me as much. He owns 2.5 Million shares and Bruce may eventually own 24% of the company. Bruce used to be a board member, so I consider him an insider. I am thinking of investing in NEN which was posted on VIC and one of the GPs is playing both sides. I just want to make sure they dont have a huge heavily incentive to completely screw me over.

Here are my last few investment updates on FUR and my most recent thesis for buying. There is also a thread which has a discussion between TX, Myself, and Other Board members which recently discussed FUR. Short story is the CEO has more ideas then cash and the FAIRX is a strong backer. They want to get more cash into FUR to take advantage of the CRE collapse. He raised up to $100 million and bought shares, preferreds, his own discounted debt, and loans and is now all in. FUR also has 2 joint venture loan platforms which have caused huge writedowns over the last 3 quarters. They are now both at $0 and he is cherry picking assets from one of them. The next Q should be a great 1 due to no write downs and the huge rebound in Realty Stocks. HRP is another REIT I owned and it is up 100% with a current yield of 7%. FUR has a yield north of 11% and hasnt moved (likely due to the write down). Based on yield, assets, and FFO - I would say FUR is slightly undervalued. The real value is the CEO having $150 million in assets to play with. He is buying realty stocks and mortgage loans, and will move to buildings once there value comes down. This is interesting because Bruce wants to start an Income Fund and FUR is far too small for him to really be messing with. They keep pumping more and more cash into it however and the CEO owns a huge chunk. If FAIRX goes to 25% then things could get interesting. Also FUR wants to have the ability to issue additional preferreds. I wonder who might be buying those? Maybe Bruce B a former board member who wants to start an income fund. ---- Here are logs from my Investment Log 09.18.2009 - Sold some HRP for FUR. I still like HRP's prospects and love its yield but, I will get a similar cash on cash yield in FUR and FUR has not run up much. FUR has a lower FFO Multiply and has a better chance of generating one time and reoccurring gains on asset management and loan transaction. I see it as having a bit more upside with similar yield. 09.15.2009 - I just relooked at the loan transactions and they have gone from interesting to Brilliant, The loans were bought at 17% YTM and sold at around 9%. So very little capital was tied up and all they do is collect and pay interest to earn this return. I believe they will be able to cherry pick assets from Concord for quite a while and Lexington is still paying shares in dividends and will likely decline to participate. 09.12.2009 - Posted by txlaw on Corner of BRK and FFH, very interesting post. Yeah, the loan transaction you mentioned is definitely interesting. The return on equity for the loan based solely on collecting and paying interest is close to 40% . And if everything goes well and the building owner prepays the loan a couple years out, then we're talking about a 3.7x return on the equity invested. If things go poorly, FUR gets the building, which should cover the amount borrowed if necessary. Great risk/reward outlook with this transaction. Clearly a margin of safety there. I've been following FUR for two years now and have slowly averaged down in the REIT for my dad's account. Note that Fairholme owns a stake in FUR, and I wouldn't be surprised if Berkowitz uses FUR as a platform for the coming distressed environment in commercial real estate -- meaning that the REIT may issue new equity to Fairholme and other institutional investors to buy up properties that go into foreclosure. Valuation as of 07/09 FUR generates FFO (Funds Flow from Operations) of about $31.6 Million dollars each year and was purchased at around $160 Million Dollars. This gives it a value of 5 times FFO. There is also around $100 million dollars in the hands of a capable REIT Investor and 2 loan platforms (Concord and Mark Realty which may not be total zeros). This is another work horse position and I feel comfortable with the purchase price. FUR is below book and has capable focused Management with tons of skin in the game. This is similar to FFH & ORH. I will wait for obvious overvaluation and will watch and learn from management.

I have done almost no homework on this one but, my guess is Berkshire is here for the battery business. The pantent would be the competitive advantage there. I think the car selling business is just a lottery ticket.

you definitely were right. I dont think I can subscribe though. I have already gone all in on FUR. The short term hit sucks but, I am sure Ashner has good plans for the money.

Thanks for the link, interesting Video.

Thanks for the link, very interesting 2 hour listen. Singleton seems like he was a pioneer and I will definitely be reading the book about him and Teledyne.