PlanMaestro

So you prefer to buy a below average reinsurer at book value instead of an above average insurer at half book value because of the macro foresight thing? That does not sound like a good reason, especially w/ Einhorn where you are making a big assumption that he knows what he is doing on that macro front. To me it looks more like public relations stunt with those small positions.

All I wanted to know about macro and investing I learned it from a guy that: * understood macro more than all the tourists out there. * was one of the first - with Frank Knight- in highlighting the key role of uncertainty. * was a great author, and wrote Chapter 12 one of the great introductions to financial markets * to top it all, is one of the best investors ever and a pioneer of value investing. * and he did all that in a period much more difficult than the one we are facing. * It is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behavior that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy.” * We have not proved able to take much advantage of a general systematic movement out of and into ordinary shares as a whole at different phases of the trade cycle. * As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence… One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence. * Many of the greatest economic evils of our time are the fruits of risk, uncertainty, and ignorance. It is because particular individuals, fortunate in situation or in abilities, are able to take advantage of uncertainty and ignorance, and also because for the same reason big business is often a lottery, that great inequalities of wealth come about; and these same factors are also the cause of the Unemployment of Labour, or the disappointment of reasonable business expectations, and of the impairment of efficiency and production. It is OK to worry and is OK to filter difficult to understand stocks. But if after finding some true bargains, that can survive all those worries, and are understandable ... that hypothetical investor doesn't buy? The only thing to conclude is that that investor doesn't have the temperament for the game and he would be better off buying an index fund and forgetting about it. http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/wsj-keynes-one-mean-money-manager/ http://online.wsj.com/article/SB10001424052702304177104577313810084976558.html

That is a risk in this type of situation: management doubling down. But Dell is farther down the road and the recurrent revenue plan is working. Also don't completely write-off RIMM yet: it has strengths to build on, only that it is not showing the required determination ... but that may change.

I was referring to the most recent one. P 2011-03-18 2011-03-18 16:45:17 DELL INC DELL DELL MICHAEL S CEO 3,287,000 $14.42 $4.73936E7 2.4335E8 2.02% view P 2011-03-17 2011-03-18 16:45:17 DELL INC DELL DELL MICHAEL S CEO 2,150,000 $14.21 $3.05573E7 2.40063008E8 4.98% view P 2011-03-16 2011-03-18 16:45:17 DELL INC DELL DELL MICHAEL S CEO 5,000,000 $14.41 $7.2071E7 2.37912992E8 3.51% view P 2008-09-05 2008-09-08 16:04:08 DELL INC DELL DELL MICHAEL S CEO 1,378,000 $20.67 $2.84839E7 2.25543008E8 -26.22% view P 2008-09-04 2008-09-08 16:04:08 DELL INC DELL DELL MICHAEL S CEO 3,500,000 $20.42 $7.1474896E7 2.24164992E8 -25.32% view P 2008-07-01 2008-07-01 16:18:47 DELL INC DELL DELL MICHAEL S CEO 2,173,600 $21.89 $4.75805E7 2.20664992E8 11.51% view P 2008-06-30 2008-07-01 16:18:47 DELL INC DELL DELL MICHAEL S CEO 100,000 $21.94 $2,194,000.00 2.18491008E8 9.39% view P 2008-06-27 2008-07-01 16:18:47 DELL INC DELL DELL MICHAEL S CEO 2,230,000 $22.39 $4.99371E7 2.18391008E8 4.81% view He also had a big sale above $40, so he is not stupid. In the early 2000s there are several other sales well above $30, so he is essentially recovering those shares he sold at a greater than 50% discount. S 2004-11-18 2004-11-19 16:27:23 DELL INC DELL DELL MICHAEL S director 1,000,000 $40.23 $4.02349E7 2.64491E7 -2.97% view S 2004-11-18 2004-11-19 16:27:23 DELL INC DELL DELL MICHAEL S director 3,275,000 $40.29 $1.31947E8 2.07888992E8 -2.83% view S 2004-11-17 2004-11-19 16:27:23 DELL INC DELL DELL MICHAEL S director 6,725,000 $40.42 $2.71833984E8 2.11164E8 -2.50% view

Problem with current VA model http://insight.milliman.com/article.php?cntid=6387&utm_source=article&utm_medium=web&utm_content=6387&utm_campaign=Related%20Insights Performance of insurance company hedging programs during the recent capital market crisis http://publications.milliman.com/research/life-rr/pdfs/performance-insurance-company-hedging.pdf Variable Annuity Risk Management and Hedging Effectiveness http://publications.milliman.com/international_content/published/pdfs/it/variable-annuity-risk-management.pdf Pricing and hedging of variable annuities http://db.riskwaters.com/data/lifepensions/pdf/cutting_edge_0209.pdf Life insurers use securitization to meet increased reserve requirements (Lincoln has been doing this kind of transactions) http://www.roughnotes.com/rnmagazine/2006/april06/04p080.htm The effects of AXXX and securitization http://www.actuary.com/seac/handouts/life_insurance_securitizations.pdf The XXX debate http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=22131&highlight=%22lincoln+national%22 Rethinking Variable Annuity Guarantees http://www.towersperrin.com/tp/getwebcachedoc?webc=TILL/USA/2004/200412/LeitzLeBelModi.pdf

Life Partners Holdings, Inc. http://finviz.com/quote.ashx?t=LPHI&ty=c&ta=0&p=m

Michael Dell has been aggressively buying back and made a huge buy himself a couple of years ago at similar prices. He is a very concrete and no-nonsense ROIC guy and over the years has made some tough decisions. For example, in the early 90s they decided to focus on the direct channel exclusively (negative working capital insight) and the turnaround was remarkable making it the best performing stock of the 90s. Now, how much cash flow has been spent the last 5 years buying back stock at higher prices and acquiring companies? I don't have the exact numbers but it has to be pretty substantial. At the time, they had the option of distributing that cash and resign themselves to a slow liquidation. 5 years ago they had to be pretty sure their turnaround plan was going to work and, at least for me, it was not that clear ... but they have executed pretty well.

Looks like we are not that far away Sanjeev. That is why the emphasis is on the risky plan part (gambling behavior) not on management. If this "value trap" thing includes companies with bad management ... it's not a trap it's just a bad pick. But Dell's new model success wasn't that clear three years ago. Hey, some even doubt it today. It was a complete business model change despite my greatest respect for management. Today ... you can start seeing the light.

Exactly the same reason why Dell is in my very short list so maybe we are not so crazy. It's taking them longer than expected but they are almost there. And I have to say, once upon a time I was skeptical. http://variantperceptions.wordpress.com/2009/10/12/turnaround-lessons-when-the-tough-gets-going/ From that list of 7 companies in 2009: 3 are bankrupt (Kodak, Mesa Airlines, Anthracite), 3 have gone nowhere (Dell, Yahoo, Newell Rubbermaid), and only one has started to recover recently (The Gap). From all those, Dell has had the best execution and its plan, compared with what they were showing in 2009, seems to have a very reasonable probability of success. The first time I heard the term value trap I could not understand what it meant. I think I can now define one specific situation for a value trap: a good company with a deteriorating profitability driven by external forces with a good management destroying value because they are fighting with a plan against the odds with the hope that it will succeed.

Now Ira Glass picks up the story for The American Life Death Takes a Policy. http://www.thisamericanlife.org/radio-archives/episode/473/loopholes?act=1

Halo effect? A lot of wealth these days is in climbing-the-greasy-pole roles (ie: CEOs, asset gatherers, politicians) where authenticity is not part of the work description. And not many are going to shape the rules of their own game as a successful entrepreneur, investor, artist, or sportsman. Those games tend to be highly skewed winner-take-most. Salarymen cannot set their own rules at work. I recognize that success should be measured in many different dimensions but work still takes a lot of people's efforts and time. My personal behavior model is Lord Keynes: I wanted to get rich so I could be independent, and so I could do other things - Charlie Munger

Saj Karsan at www.barelkarsan.com posted yesterday an interesting paper on Falling Knives: http://www.brandes.com/Institute/Documents/Falling%20Knives%20Around%20the%20World%20Paper.pdf I like too much what I saw. Its geography, timing and industry implications for turnaround investing jumped too easily. But I wonder if others have detected any problem with the methodology or results.

Fascinating read either as a legal, personal, investing, or industry case. Especially if you are investing in AIG or Hartford. Who could have thought that variable annuities could be so interesting. If you won, you keep the winnings. If you lose, they give you your money back, - Joe Caramadre. Death Takes a Policy: How a Lawyer Exploited the Fine Print and Found Himself Facing Federal Charges http://www.propublica.org/article/death-takes-a-policy-how-a-lawyer-exploited-the-fine-print Excerpts of Video Depositions in the Case Against Joseph Caramadre http://www.propublica.org/article/excerpts-of-video-depositions-in-the-case-against-joseph-caramadre

Atletico Madrid, how to run a football team into the ground ... and other Spanish football musings. http://swissramble.blogspot.ch/2012/08/atletico-madrid-its-mad-world.html?m=1

Imagine a large company with a 100 years history that is earning $3-4 per share (that no one seems to notice), has an average growth potential, and shows its strongest balance sheet ever. Let's say this hypothetical company is priced at around $8 per share. Are you really willing to sell just because markets may fluctuate (as they always do) when faced with an expected growing 40% IRR almost in perpetuity? You do? Tough customer, willing to take the risk of missing such upside. But you must have your reasons. OK, "no vengo a vender, vengo a regalar". Let's say I add a micro-managing leadership focused in costs and organic growth, that is finally showing success in integrating a decade of acquisitions in its core business with plenty of excess costs. I will be concrete, it is expected to increase earnings just in cost reductions by 10%. AND ... (you did not expect that did you) it will probably restart dividends and buybacks in 6 months, 18 months tops. Really, you would sell? Well, you are the customer. Let's continue with hypotheticals. I will give you all time low cheap non-recourse leverage maturing seven years from now. Don't tell me that you are still willing to sell. Really? You are? OK, how much more do you want. Really. And they call ME manic depressive.

Here it is: David Tepper at Carnegie Mellon http://variantperceptions.wordpress.com/2010/11/20/1627/

http://variantperceptions.wordpress.com/2010/11/20/david-tepper-on-investing-under-uncertainty-theory/ http://variantperceptions.wordpress.com/2010/11/20/david-tepper-on-investing-under-uncertainty-practice/ (sources at the end) There is also somewhere a discussion with Tepper Business School students that I lost.

What worried me more was the cash conversion cycle problem and the big drop of FCF because of that. Actually, revenues by division did not look so bad except the expected drop in Consumers.

With Bank of America cutting branches, who’s left behind? http://www.charlotteobserver.com/2012/08/20/3463840/bofa-branch-cuts-whos-left-behind.html#storylink=cpy

Investors Day, portfolio analysis http://files.shareholder.com/downloads/HIG/1345847263x0x527141/691ccff9-4fd8-4626-8340-6cf1ab3ccdf4/Consolidated%20Investor%20DayWEBCastV1.2%20%2012_7_11%20FINAL.pdf

Time to recheck those warrant provisions http://www.bloomberg.com/news/2012-08-17/prudential-said-to-emerge-as-lead-bidder-for-hartford-life-unit.html Prudential Financial Inc. (PRU) has emerged as the lead bidder for Hartford Financial Services Group Inc. (HIG)’s individual life insurance business, which may sell for about $1 billion, said two people with knowledge of the matter. More info on The Hartford here http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/paulson-files-13d-on-hig/

Exactly, and I don't even think it is a smart move in terms of the US government recovering its investment. In those terms, I think the Millstein plan based on the AIG blueprint was MUCH better but it was under the assumption that F&F were worth saving. It was better even if the US Government thought the preferred holders should be wiped out. This wind down and bloodsucking was always a possibility. It looks as if the plan is to cripple any potential F&F future. Preferreds down 75%. Now, I have a question that I could not answer from the public statements. If the 10% dividend is being suspended, how all this is being accounted in terms of repaying the US government. Just as a dividend? Also the timing just before the elections looks strange. The Treasury Department on Friday announced a set of steps to expedite the winding-down of government-controlled housing giants Fannie Mae and Freddie Mac including a measure that would require that their massive mortgage portfolios be wound down at an annual rate of 15%. The agency previously required that the portfolios be wound down by 10%a year. The Treasury said that the change will allow Fannie and Freddie to have its investment portfolios cut back to $250 billion four years earlier than previously scheduled.

You are right, the counter evidence is indisputable. I still don't like those slides though. :)

Lots of Real Estate that is clear (wish he has kept only owned RE in his comparisons though). The co-tenant clause point is nice. Also the interesting lack of discussion of the holdco structure might indicate he is holding some cards close to his chest. But those last three barely supported slides (leadership, liquidity and catalysts), an operations slide that should have been taken out, and no mention of his signature FCF (because it has disappeared) gives the bad feeling of a drifting thesis.

Keeping it light! But I understand where Grantham is coming from. Actually some would say his arguments are conservative ... old school-Burke-Madison-Chesterton-Munger-conservative not the current bunch. And there are right wing people betting on his same assumptions. All our food and resource problems could be handled easily if we were the homo economicus of economic theory – well-informed, rational and incorruptible. Most estimates of future outcomes are based on that assumption. But it just isn’t so. Sadly, we are easily manipulated by vested interests, we passionately prefer good news to bad, we are more short-sighted than we think we are, and we are all too corruptible. The world is likely to act too slowly to conserve resources, improve farming technologies and discourage meat eating and waste, which accounts for between 30 and 40 per cent of all food from field to mouth. Our behaviour, which unnecessarily pushes up prices, will inadvertently cause malnutrition and outright starvation in poor countries. Jeremy Grantham