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jegenolf

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Everything posted by jegenolf

  1. Unrelated, but I installed Skype today and was surprised to see adware in the installation package asking me if I wanted to install chrome. Microsoft owns 'em and they're still pimping chrome? Seems odd. The flip-side is that Google is definitely pushing for market share.
  2. I just came across an interesting data series on this exact topic, so I thought I'd resurface the idea that carriers will go all data instead of voice+txt+data as they do today: http://blog.nielsen.com/nielsenwire/online_mobile/average-u-s-smartphone-data-usage-up-89-as-cost-per-mb-goes-down-46/ In 1 year, the cost of bandwidth has been cut in half, while data usage has shot up 90%. The headline is pretty sensational for a simple inverse correlation between units and price per unit in an all you can eat world. 1.89 * 0.54 = 1.02. 'Usage up 89% and Revenue up 2%' would be a more honest but less eye-catching headline. It does expose the business model problem of all you can eat though. 90%/2% can't last for all that long. The carriers are probably still well covered by the low usage customer subsidy, but that won't last forever.
  3. Ok, I'll bite... How about FFH? It will give you instant exposure to Fairfax's derivative position! I'm somewhat serious though. If you truly believe deflation is coming, buy FFH and close your eyes for the ride. They're positioned to do pretty well in that scenario.
  4. This isn't really directed at you since I'm seeing it from several folks on this thread, but the thought process is confusing to me. Under what circumstances is Dell a better long-term buy than MSFT? If MSFT is in runoff, DELL is toast. MSFT has a shot at hitting a monster home run with Azure. What does Dell have? And just to clarify, I do think DELL is toast. It confuses me that Fairfax and many other very smart investors are buying Dell and I'd love to know what the long-term long thesis is.
  5. great point. The cost of capital is pretty low here, if only because MSFT is doing its best Scrooge McDuck impression sitting on mountains of expatriated cash.
  6. Ah the benefits of not having a job. You got to convert to Roth and shield some income in those low tax brackets didn't you... The non-capped Roth conversion is a pretty nice disincentive to work, at least for a year or two.
  7. I don't think anyone is referring to capital gains being a positive real return. If you own your house outright, capital gains net out inflation and owner's equivalent rent is pure real return. But there is no need to own your home outright. I've never actually done this math on paper, but I think the math is something like: Capital gain + OER - opportunity cost on equity - mortgage interest - property taxes - upkeep = net gain of home ownership. And taxes are a huge benefit: Capital gains are tax free up to 500k in the US, OER is tax free, mortgage interest is tax deductible. Property taxes are deductible (unless you pay AMT). The big unknown is the opportunity cost on equity. But assume the following: - you buy at a OER/price ratio of 5% (5% is a little low in my area, Boston, which I think is lower than normal for the US) - with a 20% down payment - borrowing at roughly 3% after tax (Just using 4.5% pre-tax which is low but doable right now and assuming you have offsetting income in a high tax bracket) - with taxes + upkeep at 1.5% (taxes 1%, upkeep 0.5%. That's most MA taxes. Upkeep is probably a bit low but in the ballpark...) - property values increase at a real rate of 0%, meaning at inflation your math when you first buy is: inflation + 0.05 - (x * 0.2) - (0.03*0.8) - 0.015 = 0, where x is the opportunity cost rate of return to break even on home buying. solve for X: x = (inflation + 0.05 - 0.024 -0.015)*5 = 5 * inflation + 0.055. If long-term, inflation is 2%, your return on equity when you FIRST buy is 15.5% and your real return is 13.5%. If we (really stupidly but simply) average equity at 50% over the life of the loan: x = (inflation + 0.05 - 0.015 - 0.015)*2 = 2*inflation + 4%. So your nominal return is 2x inflation plus 4% and your real return is: inflation + 4%. That assumes you never refinance and never move, so I'd consider it a worst-case for trapped equity, but even still I don't think it's a bad real rate of return. It won't turn out very well in a deflationary spiral, but it'll do nicely if we ever get big inflation. And 30 years is a long enough time horizon that we WILL inflate out of debt in that time. If your trapped equity is just a portion of your investment portfolio, I think it provides a nice inflation hedge. For those that like diversification, it provides that too. Also note that (in the US) as taxes go up (very likely), the return goes up unless those taxes come in the form of removing the mortgage interest deduction. I believe that's a political impossibility though. So it's likely that buying a house is an inflation hedge and a tax hedge. Also note that if you buy at a cap rate of 7.5%, your real rate of return at 2% inflation starts out at 26% and averages 11%. But the chances of prices STAYING at a cap rate of 7.5% I think are small. But either it stays there or you likely have some significant capital gains on top of inflation. Either one is a fantastic outcome. Real rents could drop dramatically, but I'd bet against that in the long term. Anyway, I know this is a drastically simplified model, but I think it's a decent one. I just think given where long-term rates are, buying a house is a no brainer. If I could buy rental property with a guaranteed tenant for the life of my 4.5% loan, I would do it in a heartbeat. That's what buying a house is. I just think it's a great time to buy a house if you think you'll stay put for a long time. Mostly because mortgage money is just so cheap...
  8. That's pretty much what I guessed. That the mechanism for determining X includes what you have to include even if it's more qualitative than quantitative. I wasn't thinking you ACTUALLY ignored float, underwriting etc. But to end up putting a price to book ratio on the stock is misleading. The price to book is just a final simplification not really the main part of the valuation. What goes into X is how you'd really learn to value an insurance company. The final ratio is more noise than signal unless you know what went into it. I just think it's a bad lesson for people to learn to 'buy insurers below book' when that is such a small piece of the puzzle. Some insurers should never be bought and some are a bargain well over book. LRE and FFH are good examples of the latter, and the reasons will never show up in BV or TBV except in the rear view mirror.
  9. I'm not sure if these strawmen are directed at me. All I'm saying is I think price to book is a pretty bad approximation of an insurance company. It ignores float, underwriting and investment returns. And I'm saying tangible book value only helps if your model is more complex than just a price to book ratio. Otherwise, I'd say plain old price to book is a better approximation. At least you have a shot of including some additional value.
  10. I knew this day would come. I agree, with Bronco and Eric and feel like some of you guys are making this way to complicated. TBV is a good way to compare insurers. After that you look at Management, reserving, track record, and what not and then pick your multiple. Goodwill used to be canceled out by the Indian Sub which is on the books for peanuts. With FFH buying 3-5 insurers at 1.3 BV, I dont think thats the case now. Goodwill is piling up with every acquisition. TBV can be useful. I dont think anyone is saying its intrinsic value. They seem to be saying the plug value of Goodwill is just accounting noise, and screws up BV calcs. Goodwill is literally just a plug because debits have to equal credits and entries have to balance. Literally. It means nothing. FFH is worth whatever you are willing to pay for it, but goodwill is BS. Google Goodwill to see how its determined, then tell me how you can get any real investment insights from it. All this theory stuff, is nonsense. Have a look at the Goodwill Accounting entry. If FFH bought An Insurer for 6 times BV, they would have a ton of Goodwill. Perhaps that info is useful (from a what the hell are they doing perspective) but why should they get credit for that when you are looking for a hard bookvalue? ------- My method for valuing insurers is simple. TBV x X. X being what I feel is the right multiple for the company given all qualitative and quantitative aspects. For me FFH is 1.5 tangible. I wouldnt buy for over book, but would sell at 1.5. I wouldnt buy over book because there are tons of insurers at or under book with decent records, we have a ton of cats out there, and I just dont see spectacular returns given the capital I would have to invest. Thats just me. If FFH earns a lumpy 15% to get that 15% compounded you have to buy at Book Value. You are saying that buying ORH decreased the price you are willing to pay for FFH. Same for Zenith and whoever else they buy over book . Every time this happens their tangible book value goes down. And their intrinsic value goes up (in my opinion). If you'd adjust the multiple you're willing to pay based on acquisitions, then you're implying you're doing some kind of DCF analysis or something that you're rolling into your magic TBV multiple for a given company. Or maybe you're just modeling it on Fairfax's stated 15% book value growth objective (which does not subtract out goodwill), which is fine. I can think of worse ways to try to value FFH. Or maybe you're just using it to model your entry point not your intrinsic value calculation. It's hard to argue that based on the last decade. There's no reason to pay over 1.5 book (if it ever got there) when you'll almost certainly get a chance at or below book. (Someday that ship will sail but it's been a long time coming already...) I just find any intrinsic value model of an insurance company that relies on a book value multiple to be incomplete. I dunno. But to me the first half of what you said doesn't agree with the second half.
  11. Goodwill is necessary for people that want to slap a price/book ratio on a company to determine value. If, as you're saying, your valuation model includes earnings power, I think you'd absolutely want to subtract out goodwill. It's just noise at that point. I see lots of people (on this board) attempting to assign a price/book ratio to FFH to determine value though. If that's your method, it would be confusing if buying ORH lopped value off of FFH. Goodwill just provides that balance sheet continuity assuming that the acquiring company paid the correct price for acquired company. It makes book value seem much cleaner than it actually is. So I guess that's a long-winded way of saying exactly what you said.
  12. jegenolf

    New FBK

    Do they get the write-down as a NOL or something? I'm not really tracking on how they just lose a depreciable asset. Profitability be damned, I want the cashflow.
  13. jegenolf

    New FBK

    Ericd1: I just took a brief look at your Merc vs FBk spreadsheet. How did you deal with EUR reporting of MERC? I just looked too. I think MERC has a better business and FBK is a better investment. It looks like you may be ignoring Price/FCF. For me, that's the biggest piece of the puzzle here. Not sure how everyone else gets to sleep at night with money in FBK, but that's how I do it. And that's also why I'd rather be lucky than good. This big a pulp tailwind was not part of the thesis.
  14. That sounds like crappy inland prices. Where exactly do you live? If it's one of the most desirable coastal communities in CA, I'd like to buy a house there!
  15. Yep we just need an enterprising investor to update it :D I can update that spreadsheet when i get some time over the weekend - if someone can list the link to the 13f (dont have it here) I just switched the sheet so anyone can edit it. If we end up with Viagra spam in the sheet, I'll have to reconsider that move...
  16. Great line... This thread won't give me an investment idea but it did give me a line I can steal!
  17. At the risk of pointing out the obvious, isn't this exactly what Fairfax already did earlier this year?: http://webcache.googleusercontent.com/search?q=cache:OnEWcgPgEksJ:online.wsj.com/article/SB10001424052748704540904575451910642552160.html+firm+makes+bold+bet+on+falling+prices&cd=1&hl=en&ct=clnk&gl=us&client=firefox-a Given the nominal figures you're throwing around, I'm guessing you're able to play in the same market, and the cost is at least the same order of magnitude as what you're paying for inflation protection, especially given the difference in the hurdles. (A +2% hurdle for deflation protection seems much closer to the money than a +9% hurdle for inflation protection.) Did you look into this and determine the protection is simply too expensive?
  18. As a fisherman, I appreciate the quality of the bait, Ericopoly. Broxburnboy, all of a sudden stored purchasing power exists? I thought your model was purely cashflow driven which leaves no room for stored purchasing power. Where does stored purchasing power show up on the income statement? Obviously gold should be included in net worth, but I don't see how you can be a goldbug AND find owner-occupied real estate to be purely a liability. Being a goldbug seems predicated on the fact that purchasing power storage is paramount. It just seems to me that real estate is one of the most tangible methods of purchasing power storage so I find your stance confusing. I can see thinking the stored value will decline dramatically, but I cannot see putting a value of 0 on it. Are we implicitly saying that property rights will have no chance of being enforced in the future making ALL real estate worthless? In a world like that, I can guarantee you'd incur expenses protecting your gold hoard though... I just genuinely don't know how to connect the dots of this thought process. I'd like to see it though.
  19. nevermind, looks like there is. Someone is really trying to pick up some loose change to pay 25.52 though... Maybe they make 5 cents a share?
  20. Any reason not to sell the B's for more than the buyout price of 25.375? Is there a dividend coming before the buyout or something? I'm not clear why it traded over $25.50...
  21. Actually, it looks like there's a better way to get the google link. If instead of clicking the link on the google results page you copy the link and paste it like this: http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBcQFjAA&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB20001424052748704540904575451910642552160.html&rct=j&q=wall%20street%20journal%20fairfax%20financial&ei=7Zd2TIfaMYWglAfD9fztCw&usg=AFQjCNHJ2rKspQTeCleDWyAjtj6dmOFz5Q&cad=rja It gives you a direct link to the article. Only a minor additional convenience but I'm lazy enough that I appreciate a direct link (and obviously cheap enough I don't have a subscription!).
  22. *grumbles* Just trying to help...
  23. Here you go: https://spreadsheets.google.com/ccc?key=0AgRisBBB7yNgdG5ZcTlJQlQxRm1ONDlKd0RvcnBuZlE&hl=en The US portfolio is up $450M for the quarter, or just over 12%. Not too bad...
  24. I updated the google spreadsheet with the latest 13F: https://spreadsheets.google.com/ccc?key=0AgRisBBB7yNgdG5ZcTlJQlQxRm1ONDlKd0RvcnBuZlE&hl=en Enjoy!
  25. Glad to see people use it. I just ripped the spreadsheet off from someone else on the board and added the google financial links to it. (Viking made it originally I think?). And I know this is all a thinly veiled request to update it for the latest 13-F. I'll get to it eventually, but I've been busy lately. I'll find some time over Thanksgiving to do it. If someone wants to put together a spreadsheet for BRK, I'll add that with live links as well. - Jonah
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