Mungerville

Yes. Its interesting. And it was probably me. Stocks are real assets and thus should not be as affected as they are by inflation but now we are talking short terms vs. medium and long-term. Of course its been clear for some time that in the early 80s stocks were much lower relative to GDP, etc. than they are today and that this was primarily due to inflation/interest rates. Every model has its limits, and the Fed model breaks down because eventually replacement costs need to be considered as well and not only the value of the earnings yield relative to bond yields.

Happy Birthday Sanjeev. Keep up the good work in terms of the board - we all appreciate it.

How about a triple or quadruple dip - or more simply put, basically flat-line overall real growth with some gyrations for the next few years.

Klarman also said in that interview that that 10% position would be in the debt or senior debt, not in the common as that would be too risky.

Arbitragr, We have spoken about bonds earlier. I know more than a few board members went into preferreds (between bonds and equity), individual bonds, etc. Furthermore, I believe that when you buy ORH, you are essentially buying a bond portfolio at over 100% of NAV and 50% of NAV in stocks. So you have a lot of bond leverage there - but its high quality municipals and corporates. In terms of junk and higher risk corporates I think that makes sense but I personally don't want an index. I would rather own individual names I know well there. OSTK being my first choice.

Been trying to buy OSTK bonds for the last 2 months but they trade once or twice a month, large institutional trades only and its not looking likely. Would really like to make those about 10% even 20% of my portfolio and 5 to 10% of the other friends and family portfolios I managing now but not looking likely. I figure if the market tanks again, more sellers will come out of the woodwork and I may get a chance. May have to buy the main broker in the bonds a crate of his favorite scotch or something so he can tag on my smallish trade to larger institutional trades when the suckers finally trade.

For the record, I did not participate at all in the market rally since the March lows and it doesn't bug me one bit. Furthermore, as a Canadian investor with a hedged US stock portfolio, I took a big whack from the currency. Next, ORH is underperforming the hedge. So I am down 20% this year so far. But I just don't care - other than I think I made about a 5% mistake on the currency and, at the beginning of the year, I should have sold half my ORH at 55. That mistake cost me another say 5% although I thought Watsa may have been holding onto the long treasuries and had massive gains - he had sold them off earlier however and not during the massive late November and December rally in them. So it was kind of a mistake So of the 20%, 10% I think are mistakes and the other 10% is just ORH not popping yet. And I just don't care that I haven't participated in the rally. I care that I am making the right decisions at the right price. I am keeping my portfolio very high quality - ORH, KO, JNJ only. Just sold my BNI at a big profit - could be too early. Sold my GE too early too for a big profit. Have a tad of BRK and COP and agricultural commodities but that's not worth talking about. ORH is heads you win, tails you win the way I see it.

I like ORH because I think the stock market at these levels and given the environment is risky and ORH has the most downside protection relative to stock market risk. I'm buying bonds essentially when I buy ORH. Sweet, secure bond portfolio with only 50% of book in stocks. I am hoping for the market to drop 30% and a terrible hurricane season.

How much is quite a bit?

Plus we get a cheaper price on the stock before analysts realize "Hey,this means a hard market!" at which point the stock goes up 30% from the recent hurricane low. Maybe that dream is to good to be true - but I've seen it before.

The founder of Tiger Funds went long that bet big time in the fall of 2008. If he is still holding on to it, it might be starting to make some money now for him.

Nice summary Viking.

cman, Why do you think the CEO is nuts?

"Mungerville, it looks to me that investors do not like the outlook for re-insurance stocks: 1.) underwriting results are OK (not great) 2.) interest/dividend income is falling 3.) investment gains/losses has been killed" Yeah, that's why I'll outperform. Its pretty obvious to me that a well run reinsurer with an 8-10% annualized risk-free head start (i.e. BRK guaranteed munis) will outperform an index fund very significantly over the next years.

If the stock market rallies further and ORH does not, I'll have to start selling other stuff and really get aggressive.

Unlike others, ORH does have a AAA portfolio guaranteeing 10% Returns when buying at 90% of book. So those guys at Partner RE are wrong because it is possible and ORH is doing it. They should have said that its almost impossible and that would be true... but Hamblin Watsa seems to do the almost impossible every 18 months. That's 10% in the bag unless the whole industry experiences a disaster on the underwriting or investment side.

Viking, Did you get a hold of that ORH filing?

My views, portfolio and track-record are very similar to Viking's. The only difference is instead of holding so much cash I am short the Russell and long JNJ and KO and have some ORH calls. So if the latter three beat the Russell, it'll be better than cash. If they don't, it'll be worse.

I was lucky to get GE at $6 something. I think Ucc got some too down that low. Mine was in the form of options which I sold off when it hit 9 something.

They also asked him if he was putting on his hedge for the equities given the rally. He said good question, and they think about that but at this point, they have no intention of doing that.

Did he mean they invested $1 billion in corporate bonds in Q1 or was that in April?

So you think there is a risk Berkshire won't be able to pay on whatever munis themselves can't pay? IF there is a risk, its minute and, as an investor, I am fully prepared to take it. If you can't take that risk, you might as well do nothing and doing nothing will erode your saving with inflation so that is probably more risky.

Very good article.

Buying shit businesses at low p/es when deflationary forces are present did not work in the depression and it won't work now. You want high quality, and you shouldn't mind paying up a bit for high quality - if ever there was a time for a penchant towards quality, this is it. I think they just learned that lesson and on top of that, Grantham came out with a good write up about just that in the last couple of months. So the learned a lesson and then someone they follow just said the same thing. High quality: E.g. JNJ selling at 10x earnings and 4% dividend yield. Buy that instead of something at 7 times earnings with debt and business revenue falling off a cliff. If you buy 5 like JNJ, none will go bankrupt and you may earn a fairly certain 10% return on each. I am going for certain returns here not high returns, I think that is the way to play right now. Another reason I like ORH and the big muni position - its certain.

Remind me to buy more.