Myth465

I sold my FFH Leap today. In retrospect I should have exercised it at $399, collected the dividend and sold. I lost about 15% but have gained long term holding status. I see FFH treading water at best over the next 6 months and couldnt risk loosing my gains due to a hurricane or some other cat. Options are tough because you cant hold or really double down much. I plan to buy a few shares, and will move in and build a full position on any weakness. Thanks for the advice guys, with my luck FFH will run to $400 on some strange news.

I wouldn't put a range on BPs liability. Its a known unknown. The US Attorney General is meeting with the State Attorney General to see what crimes have been broken. The public is pissed and everyone is looking for blood. My guess is unlimited and unquantifiable at this point. Many said $10 billion 4 weeks ago. What if those waters cant be fished for 6 years due to the oil and disbursements. What will the fisherman, hotel owners, other O&G operators, restaurant owners, and people who live near the ocean get. How long will they get it. BP just got about some fisherman sick because they don't want them to wear masks during the clean up. What happens when a hurricane comes through. The disbursement being used is banned in the UK and the EPA told BP to stop using it. BP said no. What happens if the relief well isnt finished prior to hurricanes spawning in the gulf. From what I have read there is a 0% chance of the first hole drilled hitting the spewing well. They will have to drill 3 - 8 holes to hit the current one. Just too many ways to loose. I think. http://www1.voanews.com/english/news/usa/US-Attorney-General-to-Survey-Oil-Spill-Damage-95319984.html Why would you want exposure to this, when BP and RIG have driven down every oil and gas stock. --- I think RIG will ultimately be fine, but cant say for sure, reports are already coming out which are saying that they screwed up. I know for a fact though that Ensco, Diomond, Seadrill, Pride, and Noble will come out fine and they are just as cheap. I cant imagine a situation where RIG rebounds and the ones listed above do not, but can see several situations where the opposite happens. http://www.scribd.com/doc/32187785/GoM-JPM I dont know whats on either balance sheet, because I am missing the legal and environmental liability number, which is a very important and growing number. DO is off 8% today and I know they will be around in 2-3 years. RIG, I hope but I am guessing they will take the biggest hit from this affair. Its not about killing the industry. There will be blood, its about who's. BP, RIG are more likely than anyone else. I see offshore drilling resuming, but think it will be a wild ride over the next few weeks. Drill Quip, HAL, Cameron, Ocean-erring are being hit each day for 3-4%. Sooner or later one is going to be worth buying. --- My general argument is both may come out fine. But they have driven down other players who either have no liability to this mess, or may gain from it (equipment manufacturers). Thank them for their incompetence and buy the other players vs speculating on where they will be and how it will play out.

I think contrarians taking positions in BP and Transocean are fooling themselves. It reminds me of Bill Miller with the financials. It may workout but I am guessing Obama will take them all down if he goes down because of this. If the story about the 10k barrels a day and giant plumes of oil under the sea are true then BP is ...... Berkowitz talks about killing a company, Well BP and RIG are 2 of the easiest companies to imagine dying right now. Again they may workout but they have brought down entire industry so thier are plenty of fish in a barrel right now. Every oil filed service company is on sale, but I am guessing they get a bit cheaper.

Here is some research some may find useful. http://www.scribd.com/doc/32187785/GoM-JPM

Thanks for the tips guys. HCC appears to be a top notch company and has a great comp structure. They also have a VIC writeup if anyone is interested. I plan to review a few of the annuals over the next few weeks, but it appears to be a safer bet than CNA. With the rockiness of the markets it may be wroth it to move up the quality curve. I am looking to hold less then 20 names and already own FFH, LRE, and CNA (via Loews). I really like HCC and will likely replace CNA with it keeping my exposure to them via Loews. Is Aspen really worth the look with so many insurers already? The baseline numbers look good, but they dont appear to have the investment skill of FFH or the underwriting nimbleness of LRE or HCC. I think Berkshire is in a league of their own and outside of them I have not found anyone who knocks out the park on both investing and underwriting. I am comfortable that LRE nor HCC will get into trouble on the investing side, and FFH will do well enough on the underwriting side.

321 years. Very interesting. Thanks for the link.

The main reason why I think it applies only to FFH is because a 20% discount on all shares is not a discount. We will just have to buy more shares and the price will fall to the prospectus price.

Thanks for the tips. I may end up doing a Bermuda and FFH basket of 2 - 4 insurers. I like CNA but its huge investment portfolio will really wipe around book value, and I believe it will take them a few years to trade up to book value. They have had crappy underwriting for 20 years and the market will want a long timeline before it rewards them. I like the new CEO and believe they are headed in the right direction. I may leave my exposure to them in Loews and go with a few other Bermuda insurers. I should have some cash from the FFH Leap sales. Thanks for the tips. I will start looking into those this week. What are you doing in relation to hurricane season? I want to have a toehold into 2-5 insurers prior and if its a rough one and they sell off I can really double / triple down.

I dont know what the top ones are, but I own / am watching 4 insurers. CNA - Cheapest by metric, 68% of book. I sold to raise capital but will buy soon. FFH - Best investor, probably trading above book value now. I own leaps. Selling the leaps, will buy a sludge of stock, and will buy more after the season. LRE - Best underwriter, trading below book. Buying back stock, this season should be a good test for them. Will buy more after the season. HALL - Seems like a great company but no longer cheap. On the watch list.

Premium Jackups are in decent demand right now and Deep water may have supply demand issues over the short term due to the ban. RIG could have zero liability, but will spend millions and millions defending themselves. They are named on every lawsuit (my guess). I also assume that somehow they fucked up and are liable in some way. Also my guess is BP and other customers have noticed that RIG basically threw everyone under the bus and pointed the finger. That cant bold well for business. They also have a less than stellar safety record, which will start to receive much more consideration in bids. Noble is mostly jackups. Ensco has a great Deepwater fleet coming online, DO is number 2 in the space, and Pride and Seadrill are more or less pure players. All are off by 30% and all have $0 liability towards horizon. RIG is off by 35% or so. Is really worth it when you have so many "better" deals in the same space. I own Ensco and DO via Loews. Ensco is the best in the space in my opinion, which isnt worth much. Checkout their presentations online for additional detail. They are also awash with cash.

Ensco has been very shrewed but was buying back shares at a high price and then stopped during the financial crisis. I didnt like it but cant fault them. They have upped the dividend and resumed buybacks. I dont know what they are doing now but they could use cash to take out 20% of their shares at this price. They also basically have no debt. I now also know why the drillers fell today and why PDS and the land drillers rallied. Obama has formalized and extended the driller ban to 6 months. Day rates will be cut and things could get very interesting. It should be very interesting to watch this all unfold. I missed the boat a bit on PDS but will be buying soon, I thought I had more time with this one. If I was buying more I would focus on Loews/DO and Ensco. Ensco is overcapitalized and is looking for uses of the cash, hopefully they are buying shares, and are definitely looking into M&A. I also like that they didnt want to overpay for Scorpion. Ensco has stressed that they have some of the lowest costs (great designs, and no debt) and can run their fleet at much lower prices then some of the new entrenches to the market. Now deep water drillers are getting day rates which may not cover interest, and may be faced with cancellations due to the ban. There are a few companies like Scorpion with 2-3 Deep Water rigs and tons of debt, imagine if these rigs are all drilling in the US. I also would imagine that jackup rates will also fall further straining things. Ensco and DO (via Loews) are awash with cash and looking to spend. Sounds like a perfect storm, we could have 6 months of acquisitions and buyouts then a flood of new projects in 6 months. From my past investment in Loews, I know they dream about these types of situations and this is how Diamond Offshore was built. Interesting times.

Speaking of Rig, we need you Calonego in this thread -

I have owned Ensco for 2 years and have lost money on it (mainly due to my love of options / leaps). It remains mines, and Robert Rodriguez highest conviction pick. It reminds me of ATSG, I have lost money on it for years but feel that now is the sweet spot. I also work in oil field services (not the drillers). Buying today has a bit of a political bet factor. The US has placed a moratorium on offshore drilling and the stocks will flounder till that is lifted. My guess is the Gulf is given the green light with higher safety requirements, but we dont get much of an expansion anywhere else except for perhaps some shallow water. The risk is that they ban deep water outright, but I dont see that happening (the gulf is already wrecked and we need oil). Here is an interesting article from James Altucher (there is a video) - http://finance.yahoo.com/tech-ticker/article/495818/Sad-Truth%3A-We-Need-Oil-Drillers-%22More-Than-They-Need-Us%2C%22-James-Altucher-Says I think Ensco and Diamond are the best run in the space and all have been hit hard by the Horizon ordeal. Ensco is trading at 4x cash flow and has the best safety record, a great / growing fleet, and $1 billion in cash. I thought with the top kill working that the stocks would move up so I rushed to buy today. I sold my $60 Ensco options to harvest tax losses and bought the $35 leaps. Ensco is also trying to buy Scorpion which appears to be a great move. I wanted to buy before all of this was factored, so I bought today. It could go down more, but at 4x cash flow ... I noticed DO hit its 52 week low and I am hoping Loews is buying more, this would be a great use of their excess cash. I may buy DO but have a full position with Ensco and am building one on Loews. I have attached my write up (its not very good), and would highly recommend checking out slides on Ensco and Scorpion. They have excellent presentations for each of them on the Website. The Scorpion one highlights how old the current Jackup fleet is worldwide and also shows that premium fleets are rewarded with long term contracts and higher day rates. One of the fallout from this disaster is an emphasis on newer better equipment. If Ensco can still Scorpion away from Seadrill at a decent price then things could really get interesting. Most importantly what are your thoughts? I have been in Ensco since $70. I feel that 10 - 15x CF is the right multiple and never thought we would see 4x. I may be a bit over attached to it. This is a very interesting topic seeing that I bought today. I have a fairly decent size cash position and am a bit annoyed by the rally. The most hated stocks right now are the offshore drillers. Here are the presentations - http://www.scorpionoffshore.com/investor/pdf/01.10.08.pdf http://www.scorpionoffshore.com/investor/pdf/01.10.08.pdf I really like Scorpion and hope they dont overpay. I also hope they are buying back stock at this point. Ensco in my opinion is the easiest to understand, best operators, and best value. Diamond has the best record on capital allocation (maybe due to Loews).

I havent watched the cycle for more than 2 years. Do stocks trend up after the season either way. My fear is in September we get a massive set of storms and FFH's stock gets knocked down. Then by Jan it doesnt recover and I have to look in losses. Then it picks back up in Feb or March once everyone sees the hard market. I am comfortable with the stock but dont want to lose 20% of my gains on leaps. If FFH moves down 3% then my leaps move down quite a bit due to the leverage. With the rocky markets I dont see much upside over the next 6 months but quite a bit of downside which is why I am thinking of selling. The gain has finally hit the long term requirements.

I have FFH 2011 Leaps and am thinking its time to offload them. 1 or 2 bad storms and my gains could disappear. I am thinking of selling the leaps and buying a smaller chunk of shares for a core position.

If you have named yourself the Buffett of the xxx. Then that speaks volumes.

This is the most interesting post I have read all week. May have to rethink a few things, I work in oil and gas so I might have to hedge a bit. I see nat gas falling off the face of the earth. All the solutions are loooooooooooooonnnnnnnnnnnnnggggggggggg term and the drillbit is very short term. Oil I think has longer legs but this Greece / Korea thing has killed prices in a matter of weeks.

I think its a matter of survival. Not doing the deal is akin to betting the farm on gas prices. We got $9 hedges and CF per share looks amazing, but that will fall off at year end and we will be looking at $4 gas with everyone drilling much more. I think Tom is a bet the farm kinda guy, but that margin call may have killed some of his recklessness umm, spirit. I would do much the same if I owned 10 percent of the company. With oil he can literally drill till he is blue in the face. Even $40 oil has great CF.

Sounds to me like you are picking and choosing which Buffett you know / like. The Buffett I know thinks a mispriced asset is a mispriced asset.

Sandridge got killed today and I think now its time to buy. I am looking at the options. My only concern is that the ARD deal may not go through. ARD has been dragged down all month and it may be the better deal at this point. The CEO went on Cramer and for some reason the stock is down 10%.

The interest or carry costs seems a bit high, but they are eight year options. I typically like to buy slightly in the money to leverage my bet. Typically I dont pay too much above breakeven. I usually do a thumb in the air valuation and buy when it seems cheap. 8 years though is an eternity and if Buffett is half right one will be laughing all the way to the bank. Hopefully we get a day of capitulation for Wells sooner or later. I think we just had one for SD and I will be trying to buy those options tomorrow.

I would love to buy these at the right price, talk about long term options.

Um.. what 'classic buy and hold value investors'? usually the classic buy and hold variety are the growth investors and the Bogleheads. The classic value investors sell the stock when it hits intrinsic value! Buy when it's at 50% of IV, sell when it's at 90%. That's the 'classic' Graham Value investor no? Buffett's whole 'buy to hold' bit only came after he was influenced by Fischer and Munger, and after he had way too much money to be trading in and out of stocks all the time. I guess I'm splitting hairs, but I agree with the rest of your statement. Agreed, the value traders are the true Gramham and Buffett of yesteryear value investors. I have some owner manager stocks I plan to hold for the long hall (FUR, FFH, SSW, LRE) and eventually Loews. But if they get crazy expensive they are gone. I know Buffett and understand him, I aint managing billions and can sell when I want. Truth be told, I have been hurt more by holding then selling.

Greenblatt has shown that options / leaps can be fairly profitable. Many here have retired off FFH leaps and Prem uses puts to hedge his portfolio. I think you have an idea of what true value investing is, but most here tend to follow Buffett and Klarman, there are no bad assets, just bad prices. Buffett doesnt have much faith in derivatives but a mispriced asset is a mispriced asset. That being said I am net down on options / leaps, that speaks more towards my investment skill though.

All that means is an outside firm took shareholder money to say the plan looks good.