Myth465

Lol, now thats good news (I wonder how much legs it has, in terms of the nation). I always thought that fracking would be a problem and wanted to avoid the shale areas. When a man can light the water coming out of his tap on fire. You know you have a problem. Thanks for the Link. SD just became a slightly better investment.

Good point on the gulf. I remember the first huge run up in Gas was due to Katrina, didnt realize how big of a game changer the shale and other onshore gas has been. I dont have much faith in nat gas. We need a monumental shift and not just less people drilling. There are a huge amount of rigs availalbe and the moment gas hits $5, $6, or $7 anyone with marginal production below that will drill the prices back down. We need nat gas vehicles, old nuclear and coal plants to be closed, electric vehicles to spike demand, or a huge amount of gas going offline for more than a few months (maybe a ban on fracing due to water issues). All of these are speculative and may require a long wait for higher prices. What I love about SD, is we have oil which is a world wide commodity and has a much tighter supply / demand ratio. SD doesnt have to play the bet on gas rebound game, they can wait and pick there spots between liquids / gas / and oil. We win regardless (unless oil usage drops off a cliff). It seems like a much better play then MCF or some of the other Gas names. Also I like the execution, SD seems to be competent operators. They just need to fix the capital structure. Hopefully the Kingdom is built, and now they can keep on to making money...

LRE earnings Release. Great as expected. http://www.lancashiregroup.com/lre_group/media/releases/2010/2010-08-05/

I plan on adding leaps after I review the report and call. Though I think this may be a long type deal so I will probably go in the money and plan on exercising / rolling them over. I dont see a recovery for gas anytime soon (everyone is drilling and hoping others stop so prices go up, The only hope for us is a hurricane in the gulf). I like SD because of the oil with the nat gas kicker. I dont think the market is really grasping how fast they can ramp up cheap oil production. $70+ oil should take care of the debt issue overtime.

Ken Rogoff on Charlie Rose http://www.charlierose.com/view/interview/11154

Its a tough decision. Half the position was in a Roth account and I have significant tax losses from 08 (though this will exhaust them). It became a massive position because my average price was about $1.70 or so. I thought we would get to $7 or so based on the earnings release, but it doesnt look like that will happen over the next few weeks. My breakeven is about $6 but I freed up 20% of cash by making the switch and have options which represent the same ownership but at 25% of the capital requirements. I figured if nothing happens by March, nothing will happen. I think ATSG deserves a higher CF multiply and have 230 days or so for them to get it. In the mean time I can use that capital to offset the premium which will be erroded overtime.

Interesting share price reaction. I am thinking of buying, anyone else?

Thanks for the reminder Parsad. They always seem to come when I am about to do something crazy or over think something. I will stick to my strategy and will look to keep my cash position at a decent level, unless a huge deal comes along. You are right that we don’t have statutory requirements and what not, and can afford a haircut. It may even be beneficial if we have a bit of cash available. In times like this I review my investment quotes and came across these 2 gems. One is old, and one is new but both give great advice for these times. Warren Buffett - "An argument is made that there are just too many question marks about the near future; wouldn't it be better to wait until things clear up a bit? You know the prose: “Maintain buying reserves until current uncertainties are resolved,” etc. Before reaching for that crutch, face up to two unpleasant facts: The future is never clear and you pay a very high price for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values." Levy Harkins - "Certainty - You pay a very high price for it in the investment world and then you hardly ever get what you paid for."

Thanks it was a great read. I enjoyed the part about the coming muni problem and his quote on clarity.

Thanks for the link, I own a tiny bit via leaps.

You have to look at CF or EBITDA (minus interest and maintenance) due to depreciation. I am fairly happy with the results. ATSG has transformed into SSW and is still growing. By my count we have somewhere north of $100 million in FCF, maybe around $120 million or so each year. I think ATSG is still undervalued. Its still highly leveraged but I think it deserves a modest 5 x FCF vs. 2.8 (or so) it gets now. I sold my shares earlier and the month, and own a similar holding of March options. ATSG became far too large of a position, and I had to do something.

I think things are getting slightly confused / muddled. What’s something is worth and what one is willing to pay are 2 different things. I would part with my FFH shares at 1.5 book. I wouldn’t be buying at that point. I believe we are all saying that we want Mr. Market to pay us 1.5 book value for FFH. Not we want to pay 1.5 book value for FFH. At 1.5 BV it’s a fair deal. At book or below it’s a great deal. Value investors go for great deals, and then sell them to Mr. Market when they become fair / bad deals. I think everyone here is willing to hold FFH at up to 1.5 BV barring any hidden gains. At that point we will likely have to reconsider.

There's the rub--do we have any evidence that he has "good underwriters" employed currently? I would venture that there are many weak links that could have been eliminated. Lol, Interesting point. One I cant counter actually. Other companies seem to do better here. Yes I would. If Bruce was levered 4 to 1 or 3 to 1. Maybe not Bruce, but if Pimco's Bill Gross had 4 to 1 leverage on a bond portfolio I would pay 2x book for it.

... for Buffett, but not for most people. You also need a lot more money to invest in order to become wealthy with stocks than with other assets. Buffett started with $100, and if he were only investing his own money, even at 21% per year for 50 years he'dl have "only" around a million dollars. The way that Buffett got wealthy was by the leverage effect of investing other people's money. Real estate investing provides another form of leverage, which in some ways is riskier but also easier for the typical person to obtain. I know a lot more people that have become wealthy via real estate than by the stock market. Very true but for me at the moment its not worth the time. If you have money coming in via a Job then you have a choice to make concerning capital allocation. For most RE is the best deal, for me at least this year its going to have to be stocks. Also RE is like any other investment. It makes sense at the right price. Where I am its close but doesnt make sense from a time perspective.

First I have to give Prem credit. Most insurers with great underwriting are trading at .80 book value and we are standing at 1.05 BV. Delisting from the NYSE was a great move, and has removed a lot of volatility. Unfortunately we don’t have the fat pitches on FFH stock / options that we have become used to. Second the article is pretty much how I look at FFH and similar to how I look at Lancashire (but underwriting instead of investing). I think both deserve 1.5 BV over the long term, and both will get it at some point. Till then buy, hold, and add when under book value. We aren’t going to get it anytime soon though with a soft market, and top underwriters trading below book. Third, I and many on this board am pretty agnostic when it comes to profits. We count cash and want there to be more next year then the current one. That’s all well and good though, but we need Mister Market for 1.5 BV, and Mister Market cares about underwriting. Insurance Analysts view investment gains as one time deals, and can’t really annualize or model them. Good underwriting and, a solid bond portfolio which throws off cash consistently are much easier, than lumpy one time CDS, Bonds, and Equity gains. Prem is holding his line. He said he will be ready for the hard market, and appears willing to let the expense ratio grow as the top line declines. I applaud him. It sends the wrong message to fire good underwriters to keep the CM below 100% and will cause adverse underwriting in the long run due to underwriters writing to keep business. This principled stance, the positive reserve developments over the short term, the amazing Equity results combined with the hedges, and the solid bond yield all make me wise I never sold and will have me buying fairly soon. Plus if the world falls apart, Prem will be there awash with cash to help put it back together. Too many ways to win, and only really 1 way to lose (Huge Black Swan Event, which would likely take down more than just FFH).

My brother and I have discussed moving into Real Estate here in Houston. My folks did it in the 80s and it turned out ok. You could start with $20k and keep buying properties and renting them out. Eventually you could end up with 20 properties and a nice set of tax losses to offset other income. I have thought about it for a while, but believe Buffett was right. Someone asked him why he didn’t do real estate and he said he makes money in stocks, and it’s much easier. It would take 2-3 months (a lot of headaches) to buy a house and the risks are huge. Then if I were to move it would be even more annoying. The leverage is nice, but I prefer to just buy FUR with 10% of my money. I would rather let Ashner do the work, and focus on deep value with the other bit of my money. Klarman says REITS are overpriced, but is hoping to find deals in commercial real estate. I would like to buy a property as an inflation hedge but don’t think it’s worth it. I prefer the freedom. The only way I would buy one is if I walked into a bunch of equity and could pull capital out of the purchase vs. putting it in.

Still extremely obvious though. If there were other companies at better prices then good Managers / Owners would be buying those instead. If I am buying a stock, it typically means I think it’s one of the better risk adjusted values available. Depending on the situation (maybe they have to pay a dividend for tax reasons, or they have too much debt and need to delever, or they have capital allocation skills and should be buying something else), I would want Management doing the same.

I think Biglari sees himself (probably rightfully so) as a restaurant expert. I also think most investors tend to focus on a few industries. I like hard manufacturing, commodity businesses, and insurance companies. I also like service companies, with low capex requirements, and business run by Owner Managers. I would have a hard time owning a restaurant; I don’t really eat fast food and find most of them to be fades. I also think the American public will be broke for a while and would hate to own a business directly dependent on them. I have seen others who mainly do banks, or insurance companies, or consumer staples. I am sure he knows what to look for after turning around 2, and having invested in 3 -5. He can also add value by given advice to operators. I don’t know why he doesn’t focus his capital though on trying to take over / fix 1 vs. investing in 2 or 3. I also would have assumed he would have wanted to diversify his revenue stream. If we have a slow down / fast food scare or black swan, he will get hit on the investment side, and the operation side.

http://www.charlierose.com/view/content/11150 Listening Now.

Im kicking myself for not buying leaps on ATPG. That would have worked out well. Now looking at the bonds based on a VIC tip. What do you all think?

Loews had a decent quarter and an interesting call. As an auditor, I like to hear Jim Tiches rants on FASB changes and find him to be a very interesting leader. They appear to be building a huge cash pile and it will be interesting to see what they do with it. CNA also appears to be turning and may pay back preferred shares sooner rather than later.

Great Post Bronco / Ericology. I think sometimes people can get a bit too academic with these sorts of things. I think when repurchases make sense it will be extremely obvious to both Owners and Managers (both would be buying with their own cash).

Thanks for the article, great read. Also thanks for the book recommendation. I have added it to my growing list.

Looks like the boat is turning at CNA. They had a great quarter with a good combined ratio. Specialty appears to be a crown jewel, and they appear to be turning around the other division. I still need to review the call to get some color on the liability / float sale to Berkshire. It will cause a lose quarter, but I think it was a move in the right direction. The float isn’t adding much value for CNA and it’s probably best to selloff the risk. Hopefully it also helps them get an upgrade at some point. Hopefully things keep improving. The only downside I see is Aspen and other insurers look to be much better and are trading at a similar discount to book. I also don’t see a similar FFH hedge on the equity portfolio so they will get hit should we get a pullback. I really need to find the downtime to dig further into SUR, and a few of the others on my watch list.

Thanks alot for the link. Very interesting ride. Prem Watsa - Our conclusion is that the economy either stays relatively flat as it de-levers, or the economy slips and the resulting crisis of confidence contributes to a double-dip recession. Interesting Prem seems to buy into the range bound thesis but is also preparing for a double dip. I think the new normal / range bound thesis is where we are headed (I guess more hope than think). I think it’s the best option and know we can make money during that period trading value. I have positioned my portfolio accordingly and hold 25%. I am also willing to trade when I see deeper values, and am quick to sell on overvaluation. My only issue is how does a small investor protect against a double dip, cash is great but seeing your portfolio shrink is still tough especially if there is no corresponding rebound months later. What are you guys doing aside from cash or gold (I don’t like gold; it just rubs me the wrong way). I think Prem has a point; fear will take hold at some point and we will get a deep pullback. Can one get long dated protection as a small investor for a fairly cheap price? Also Parsad was right FFH is definitely a buy and hold, I think, similar to Berkshire, in 20 years we will think $400 was quite cheap for a FFH share.