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oec2000

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Everything posted by oec2000

  1. Australian wines cost more than they do in the US too - as I found out on my trip there last month. It used to be that London and Tokyo were considered expensive cities but I met people from these cities who complained that Sydney is more expensive now. Having said that, the nice thing about Australia is that the price you see is the price you pay unlike here in North America where taxes and tips are extra. So, menu prices are about 40-50% more than in Vancouver, adjusted for the 30% taxes and tips you have to add on here, the difference is not so great. One positive you forgot to mention - you get great coffee in Australia, very un-Starbucks. Btw, do you feel that Australians are more tuned in to what is happening in Asia (China in particular) and the pace of change there. Although people are more aware these days, I feel that many North Americans still haven't grasped the significance of what is happening in Asia - it's frustrating to see the petty bickering that goes on here that is so parochial.
  2. Isn't it true also that the high we get from making money has similar effects on the brain as cocaine? Explains Buffett's love of stocks and coke (the legal type)? :)
  3. The impact of surrenders is not straightforward and even though in some situations insurers make money from surrenders, generally speaking surrenders are not a good thing for insurers. Because of new business strain (caused by high upfront costs), surrenders in the early years of a policy result in losses. This is a negative. After a policy has been in force for a while, surrenders do throw up gains for lifecos via the release of surpluses. (Policy reserves in excess of cash surrender amounts paid out.) While this provides a short term boost to profits, there is a negative long term impact to the insurer - because they lose the future profits from the policies. These lost revenues then have to be replaced with revenues from new policies which introduce the drag of new business strain. The most negative and dangerous impact of surrenders is when interest rates rise sharply. Policyholders holding policies bought when interest rates were lower (thus providing lower rates of implied return) now have an incentive to surrender their policies and reinvest in higher yield instruments. Because this happens at a time when interest rates are elevated and therefore investment values are depressed, the insurers are forced to liquidate discounted investment assets to pay off policyholders. There is another negative dimension. Healthy policyholders (i.e. those still insurable) are more likely to surrender than those who are uninsurable - this will end up skewing the mortality risk of the insured lives that stay on the book. In any case, my original post was in response to a comment about using life funds as float. The danger of unpredictable surrenders is what makes life insurance float risky and thus less attractive than general insurance float. This is why neither Buffett nor Watsa are interested in life insurance float. In fact, I believe Prem used to work at Confederation Life which experienced such a run (must confess my recollection is vague and someone else may be able to give a better account of what happened). I would add that term life as well as life reinsurance policies do not have these problems because they work more like general insurance. I don't think, however, there are companies that do only these types of business. Wonder why Buffett or Watsa are not interested in this form of float - what I am missing?
  4. The two key problems with life insurance float are: 1) They are subject to runs - policyholders can surrender their policies. With P&C business, once the policies expire the money is locked in as float until claims have to paid out. So, the life business is not unlike the banking business where you borrow short and invest long. 2) Life insurers are committed to very long term pricing. If they get it wrong, they will be screwed for a very long time (as we are seeing MFC experience over the past few years). Also, for some products, they commit to very long term fixed returns to their customers. These fixed returns cause problems when you have severe economic environments when interest rates go either very high or very low because policyholders can act selectively against the insurer. The current economic environment where we might have a prolonged period of abnormally low rates which oculd then be followed by a period of high inflation and interest rates is excatly the mix that is not good for lifecos. Their spreads suffer when rates are low; and they are vulnerable to surrenders when rates go high. Investing the float without certainty of the duration of liabilities is a major problem.
  5. They are not stupid, just realistic. The PM knows that if they cannot implement the austerity measures successfully they will be back asking for more help eventually and the austerity cannot be carried out without the support of the people. Greece's problem are indicative of the problems facing other countries if they do not arrest the trend of rising debt/GDP ratios soon. The 50% debt haircut brings Greek sovereign debt down to 120% of GDP for now - but unless they can balance the budget going forward, this ratio is set to rise again. The perverse thing is that if they balance the budget but do it at the cost of causing an economic contraction, the debt ratio still rises! What is scary is that Italy is already at 120%, and the less indebted countries in Europe will have to increase their ratios to provide the support needed to the EFSF and their own banks. So far, except for the Greek debt writedown, none of the schemes proposed in Europe solve the fundamental problem of overindebtedness - they are just rearranging chairs. Even the Greek debt haircut has to deal with unintended consequences of Greek banks and pension funds getting hit on their bond holdings - presumably the Greek govt will have to borrow to fill up these holes! It's a crazy situation. Probably explains why Prem remains worried.
  6. It would be nice if everyone could be all things to all people. The reality is that we are all composites of good and bad. Rather than wishing for something idealistic that will not happen, why not be glad that we have people who excel in different things, character faults notwithstanding. We are infinitely better off in a world where Jobs, Churchill, Gandhi, Buffett, Mandela, Franklin, Princess Diana, etc focused on what they did best. The work of the great humanitarians would more than offset the pain caused by the "assholes." This would be certainly be a more interesting world than one in which Diana and Jobs wasted half their time doing things they were bad at, such as creating electronics and helping AIDS and landmine victims respectively. The Theory of Comparative Advantage works.
  7. I found this disturbing: "We have assembled, with support from Capital Economics in London, foreign debt to GDP ratios that are comparable to the U.S. debt to GDP ratio. The debt figures in these ratios include both private and government debt; thus, they are measures of aggregate indebtedness. These statistics indicate that the euro currency countries as a group, the United Kingdom, Japan and, interestingly Canada, are all more deeply indebted than the United States. This should not give the U.S. solace, nor detract from our severe problems. However, the greater debt in these areas may serve to provide backhanded support for the dollar. More critical is that all major countries are destined to experience slower growth because of excessive indebtedness. The latest readings indicate that debt to GDP ratios are about: 450% for the Euro zone and the United Kingdom; 470% for Japan, and 410% for Canada. Thus, the Euro Zone, UK, Japan,and Canada ratios are 100%, 100%, 120%, and 60% higher, respectively, than the U.S. debt to GDP ratio of 350%."
  8. Last time I checked, it did not appear that either current management (i.e. those who have not been suspended) or the auditors really knew what was going on in the company. Do you think they know whether the company is solvent?
  9. I totally agree, and this is what annoys me most about politics around the world. The lack of adults in the room. Its very interesting because you get elected by promising to lower taxes and increase entitlements. We all know that wont work long term but its what they do each session. One day it will give though. This is one adult worth listening to. :) (The Jamie Dimon of Canada?) http://www.theglobeandmail.com/report-on-business/read-ed-clarks-speech/article2207111/
  10. You should check out his other book reviews on Amazon - very high quality and informative. (Thanks, James! :))
  11. All investors (including Buffett and Watsa and I presume all of us here) invest with selfish intentions of making money - it is simply unfair to imply that only short sellers have selfish intentions. No one is claiming that shorts are altruists out to help the world. But we cannot deny that the actions of both longs and shorts can contribute to the greater good (e.g. when the longs provide capital to good companies and when the shorts expose dishonest management). I understand and share your distaste for unscrupulous characters who short, distort and collude. However, there is a tendency for the negative "rush to judgement" of shorts who go public with their positions. Unless there is evidence of wrongdoing, shouldn't we practise the principle of "innocent until proven guilty?" Where is the evidence that Carson Block deliberately singled out healthy companies for attack and spread false rumours? Why do people think that shorts would deliberately choose healthy companies to attack? No matter how unethical they are, it doesn't make sense to choose a healthy company to short over an unhealthy one. The simpler explanation - that shorts, like longs, occasionally make mistakes in their analyses - seems more plausible to me. That's a false analogy, because a hit and run sees the victim severely injured for a period of time. A negative writeup on a company, although it distracts management, doesn't affect the core business. Alfred Little's blog ramblings don't make it harder or more difficult to mine silver. Unless there is some silver fairy that I don't know about working for the shorts and disrupting mining procedures (I wouldn't put it past the Sith Lord). Access to capital is a privilege not a right. Capital can freeze with or without shorts, just due to a loss of confidence. Silvercorp will get that privilege back if and when the shorts are proven wrong (they are possibly most of the way there) and/or the market restores confidence in them, just like the Fairfax story. Hester, don't you think we should make a distinction between "good" and "bad" shorts? To the extent that "bad" shorts drive down a company's stock with false rumours and coordinated attacks resulting in a highly dilutive fundraising (as happened with FFH), there is some permanent damage done. The bad shorts have the privilege to trade in markets but surely that doesn't give them the right to use illegal tactics. I think the problem with this debate is that we have one group who want to demonise all high-profile shorts and another group that want to defend all shorts. Why not just accept there are some "bad" shorts (whom we should all condemn) and some "good" shorts (whom we should all support for their contrary views)?
  12. If you understand how ponzi schemes work, you will not think this curious at all. Ponzi schemes work BECAUSE the operators do pay interest - at very attractive rates usually!
  13. Which is why we need to look at age and family size adjusted spending. Using my suggested formula, a 25 year old single spending $10,000 is roughly equivalent to a 55 year old (family of four) spending $120,000. In this context, the $10,000 doesn't look so so crazy. Agree with you completely. While it is important in the capital accumulation phase to make sacrifices, we want to be able to wean ourselves off the sacrifices as our financial situation improves. I have both experienced and seen it in others - where after many years of frugal living that it becomes difficult to shake it off. Don't underestimate the power of habit. I know it is a bad example for a value investing forum but don't wait till you are 65 to buy a Ferrari (if that is what you desire and can afford it when you are younger). Money should just be a means to an end but too many people forget and make it the end - which is why many seriously rich people still believe in ripping other people (especially shareholders) off. It's always good to have in mind when enough is enough.
  14. Sanjeev, It's your call as organiser but my suggestion is that we have two groups of people - the ones who want food can come earlier to have dinner (or hor d'ouevres) and pay more; the ones who don't want food can come later and pay less. This way we don't deter people because of cost. Also, we maximise the collections for the Foundation. oec
  15. I think a better formula would be: (Annual expense)/(Household size)/(Age-10) to adjust for family size and age.
  16. Can someone explain why it is taking George, the hairdresser, so long to get the haircut that everyone knows that he so badly needs? ;D
  17. Seriously, you can conclude all this based on a few hours of trading today? With respect, it sounds like something market timers like to do.
  18. I am confused by your comments. Are you saying that you believe in applying "macro" (by "contructing a portfolio with built-in hedges") but just disagree with Mungerville's method of delta hedging? Parsad's view is that one should ignore macro unless you are highly leveraged. In your comments on the gold threads, I got the distinct impression that you were bullish on gold. Even if you play this view by buying value-priced gold mines, it still amounts to taking a macro view on gold, not to mention that it contradicts your view that "nobody knows what tomorrow will bring." Besides, isn't it the case that taking the view that "buying value and ignoring the future because we can't know what tomorrow will bring" the type of thinking that cause people like Bill Miller, Marty Whitman and the managers at AIC to lose permanent capital in their investments in financials? This are just a few examples of people who did much less well in the 2000s vs the 1990s. Not sure how you define "professional investors" and what statistics you rely on but most people would say that professional investors (whom I define as people who invest full time as a profession on behalf of outside investors) had much better returns in the 1990s compared to the 2000s. I would include mutual funds, hedge funds as well as pension funds. Some dedicated sector funds, in particular the resource funds, have done very well in the 2000s but that is purely due to highly favourable macroeconomic factors.
  19. Kiltacular, Thanks for the generous comments and I am sorry if I came across as "venting at" you. I did get the gist of your original post and while the first few paragraphs were in response to your post, the later paragraphs were more of me "venting to" someone I felt was open-minded enough to listen. I have to learn to be less intense in my posts! While I try to focus on the issues, there have been occasions when my posts have been construed as personal attacks. Unfortunately, it's easy for this to inadvertently happen when you are challenging someone's view. (To clarify again, these comments are not aimed at you. It's just more of my general rambling. :) ) Thanks for pointing this out. oec
  20. Kiltacular, Fair points although leverage (from float) and negative cost float are non-investment factors that helped Buffett's returns and offset the drag from taxes. Also, Buffett would not have been able to do everything he did if he did not have permanent capital - didn't he or Munger say something to the effect that BRK would not have been so successful if their capital was not permanent? As for taxes that investors have to pay, while they do affect net returns, they should not really matter in a discussion on investor ability E.g. Should our evaluation of Soros's investing skills be arbitrarily dependent on whether the govt abolishes capital gains taxes or raises it to 80% tomorrow? Alternatively, you shouldn't have a situation when A, who is not subject taxes, conclude that Soros is great while B, who pays high taxes, concludes that Soros is bad simply because of their individual net returns. Anyway, there are too many variables pulling in different directions for us to be able to say one is better than the other and this is not the issue. They are both 6-sigma investors who have achieved their results by taking different routes and I feel, that as students of investing, we should absorb whatever lessons we can from whomever we can. The Buffett-only people seem to think this is wrong and that it's either Buffett's way or the highway, as though we already know everything that we can about investing from Buffett/Graham and that there is nothing else to be learned. How is saying that "All we need to know about investing can be found in Security Analysis" different from saying that "All we need to know about life is in a particular religious book and we don't need to do science?" Would Buffett have been so successful if had stopped his learning at Graham? Just makes me wonder how the "Buffett-only people" would have reacted if they had been investors in Burry's fund when he started buying CDS. They would probably have berated Burry, as many of his investors did, for straying away from value investing instead of listening to his rationale for his actions. Twacowfca, I may be wrong but I believe he started out as a stock picker (with Jim Rogers, who, contrary to popular believe, is not a market timer) and did not start to use a lot of leverage until later on when he did more macro investing. The funds that had near blow ups were not run by him. As I said, there was a period when he became more interested in politics and philanthropy and started to subcontract management of his funds as a way to find a successor to manage his own wealth. He finally came back out of retirement when he was unhappy with the results. It is true that his methods are not so easily replicable. But, as I have said, this is not about Buffett vs Soros. My original post was about paying attention to value investing gurus who choose to take account of macroeconomic factors in investing. People sometimes confuse macro investing with market timing (which I agree is a mug's game). Even Buffett himself has done macro investing (buying silver, shorting the USD, selling European government bonds as recently reported). A more logical argument for not doing macro investing is Buffett's Circle of Competence principle. This argument makes sense if you really feel that it is beyond your ability to analyse. However, it seems silly to me to rely on pure dogma to make investment decisions. To use a hypothetical example, despite what Buffett says about the uselessness of gold, if for some reason gold price fell to $50 tomorrow, how many of us would stick to the dogma and not buy a historically coveted commodity at a price more than 90% below the cost of production? This would be pretty close to the dogma espoused by finance professors who say that there cannot be $100 bills lying around on the ground.
  21. You should look into Soros's track record. He started in 1969/70 and already had a 20+ year track record of about 30% compound returns (net of 2+20!) when he made the bet on the pound. It was definitely not early in his career; if anything he went into semi-retirement not long after that when he switched his focus to politics and philanthropy. Neither is he a one-trick pony as you suggest - his funds made $1b from the pound. Let's say his share was $500b pretax. How would taking this away have made a difference to his track record or his reported $24b current net worth (which is net of taxes and some $7b that he has given away)? People don't make any allowance for the fact that Soros started his career at the beginning of the difficult 1970s whereas Buffett started in the 1950s when the enivronment was much more favourable. There is no question that Buffett is a six sigma investor. That doesn't mean Soros isn't just because he has a different style from Buffett. As Moore Capital pointed out, people often do not realise that Soros also practices value investing except that he overlays this with macro trades. It's the same way people often overlook the fact that Buffett's earlier returns were bolstered by arbitrage returns. I believe he has mentioned a bet he made with Peter Orzag about where the unemployment rate will be at the end of Obama's first term. Maybe, it was just a whimsical thing but it does seems that he has been more ready to play the forecasting game these days. This is by no means a given. Consider that he grew BRK's BVPS at an annual rate of 23.6% from 1965-2000. If he had maintained his 25% fee structure, the net return to investors would only have been in the 15-18% range. Would this have been enough to make him the biggest hedge fund, let alone the biggest investment fund? Soros compounded at closer to 30% net between from 1970 to the mid-1990s, yet I doubt that ever got much more than $10b in outside money. (Also, it is unlikely that Buffett would be managing as much money as Fidelity for the same reason Francis Chou manages only a fraction of what IGM does despite vastly superior returns.) In any case, it was not my intention to make this a choice between Buffett or Soros (or Watsa, etc). I think Buffett is unique even among value investors in his ability to stay out of trouble even in very bad markets. What I have noticed is that other good pure value investors - e.g. Munger, Whitman, Berkowitz, Chou, McElvaine, the people at AIC, Mark Mobius (someone mentioned Miller but I hesitate to put him in this category) - have had their otherwise outstanding returns significantly damaged by major bear markets. The question whether there is a lesson here. It is interesting, for example, to compare Francis Chou's performance versus FFH's given their close association and similarity of thinking. FFH's past performance over the past 3 and 5 years are significantly better. Why? It is likely that Francis was handicapped by his inability to make the same macro bets that FFH was able to because of his fund rules. This why I think that we need to look beyond the record of Buffett to say that it is folly to consider macro in extreme cases. Buffett is likely the outlier that we can't replicate.
  22. Which is why I don't understand why he is out there so often adamantly saying there will be no double-dip and betting that the unemployment rate will be below 7% by next year. ??? What is he doing if not forecasting? Btw, absolute wealth is not a good measure of investing success since it does not take into account time in the business. If you adjust for the 10+ year headstart Buffett had on Soros, the fact that Soros has been giving billions away, and the fact that he retired from active investing some years back, Soros's $24b wealth is not too shabby. During his active time investing, I believe Soros had superior performance to Buffett even after 2+20 fees.
  23. The question is whether the country as a whole benefited from the house building party that made everyone feel good while it lasted. This is the problem when you have a govt that reflexively feels it must keep people happy all the time. It is not so different from feeding us Big Macs and McFlurries all the day long and worrying about the heart bypasses later on. I agree that the rich are not going to stop investing just because taxes got higher. But this does not mean taxes do not matter. If tax rates are high enough, the rich will get more creative to avoid them. Globalisation has made this easier and it has also made relative tax rates matter. For many years Ireland prospered when relative tax rates were low. You can't just pick two data points (low tax rates and economic malaise in Ireland) and assume lack of causality between the two when there are so many variables at work.
  24. No one is doubts that austerity causes more pain and higher debt ratios in the short term. The question I posed was whether full blown austerity is a better solution than what Koo recommends. Japan tried the "muddling through" approach that Europe and the US are trying now. The fact that govt debt to GDP ratio in Japan ballooned shows that they did employ massive countercyclical spending and it didn't work. Koo explains this by saying things would have been worse without this spending. This is the counterfactual that we don't know. I gave the examples of such counterfactuals, i.e. the emerging countries that did pursue full-blown austerity under IMF supervision. They did not suffer lost decades and were back to healthy growth rates in relatively short order. If Koo had taken the trouble to examine these cases and offer an explanation of why austerity worked in contradiction to his theory, I would be more convinced. Otherwise, his work is prone to confirmation bias.
  25. Buffett's consistently optimistic view of the US economy is a major disconnect from the more cautious views of other highly respected gurus (Watsa, Klarman, Grant, Rodriguez, Grantham, Gross and El-Arian, Soros) and ECRI's recession call. It's hard to ignore Buffett given his track record and his unique ability to take the pulse of the economy through BRK's operating companies. On the other hand (if I am not mistaken), he has been on the record saying that he missed the housing bubble and it seems he did not see the 2008 recession coming either. Just wondering how good his economic forecasting record has really been and whether the pulse he holds on the economy is only a coincident indicator and not very useful in forecasting?
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