HJ

Hear hear. As I think about what these companies and their operating environment looked like last time they traded at this valuation, the difference is the size of the organization and presence of PE as competitors. The Howden raid happens to represent double impact. Only time will tell how this management team answers the call. The Greenberg's are both known to be micro managers, but their empires are both risk bearing entities with pre-crisis AIG proven to be unmanageable. Insurance brokers are non-risk bearing entities. But managing producers with options to work elsewhere and a broken stock price certainly presents a different set of challenge. The flip side is all competitor's are rollups faced with the same set of issues and PE backing has its pro's and con's. It's an interesting mental exercise to pontificate on what BRO looks like relative to the insurance brokerage industry on the other side of the soft cycle.

I know people have posted videos from Sica Fletcher before. I found the ones done by Mike Fletcher quite insightful. Below are 2 on Brown & Brown. These discussions are very much from the perspectives of PE sponsors. I can't help but speculate whether the selling pressure on the public brokers generally are coming from the PE's trying to hedge their own insurance broker holdings with the IPO windows shut. Public brokers are not good hedges for their own companies, and I don't know if any PE's actually operate that way. In the case of BRO specifically, I can see Kelso hedging the deferred stock component of the purchase price. But the draw down on AJG and RYAN are also quite dramatic.

The insurance brokers have all been in a down trend for almost a year now. The underlying commercial insurance market has been transitioning from an extended hard market to a soft one. Even though the valuation metrics have come down to historically low levels, the question seem to be how long the soft market will persist. Below is a chart in Chubb’s annual letter: When interposed against the stock performance of the brokers, from 2002 to 2012 AJG essentially fluctuated from spit adjusted low 20’s to mid 30’s for a decade. After a break into the low 40’s in 2013, it didn’t get above 50 until late 2016. BRO’s stock performance is broadly similar. We can also see that from 50k feet, it's broadly consistent with operating performance of a top tier insurer like Chubb. In a sense it’s not surprising, as we shouldn’t expect distributors to dramatically outperform the broader insurance industry. But are there changes in the insurance distributor / carrier dynamics that argues for the brokers permanently taking a bigger share of the industry’s profit pie today vs. 20 years ago? Has distribution gotten more consolidated than the carriers? One thing seems to be that PE’s have discovered this sector as producing very leverageable cash flows. But what are the implications of that, other than maybe they forced both AJG and BRO to have made their biggest acquisitions at the top of the insurance cycle? Not necessarily saying the acquisitions are wrong things to do either, just asking whether a case can be made that a replay of 2002-2016 isn't ahead of us.

At the time of Hays acquisition 8 years ago, the revenue run rate was ~$200MM, which presumably have grown. If all said and done, $50MM annual revenue walk out the door, it's bad but arguably not impairment. Accounting question aside, the business question is how successful will BRO be in rebuilding the MA and MN businesses where the departures were based. They seem to have injected a lot of Accession people into leadership positions in the retail organization and Accession was based in Boston. Would stand to reason the closing of the acquisition may well be the straw that led to the turmoil. BRO is trading at multiple last seen in the 2000's. The difference between now and then of course is that it's a much larger organization, presumably significantly harder to manage today. But it's the case with Gallagher as well.

The corollary is that "value" style is more practiced in credit analysis where guys are focused on minimizing downside protection because their upside is getting their principal back. They underwrite to past stresses and trough profit margins, assuming those will be revisited. "Growth" style is practiced more in the tech world where everybody is trying to invent new things or new business models to move away from the past. We've been living in a period of tremendous changes brought on by the advent of internet and mobile phones - ergo the dramatic underperformance of value vs. growth.

So you mean to tell me that if there was a virus that is very contagious and it make people want to leave densely populated cities with high rent, I am supposed to be shocked at that kind of rationale behavior by the upper middle to rich class? Wow, I would've never thought of that. 2008/2009 was scary as well. People tried to jack my tenants. Every 7-10 years, you have to experience some pain in real estate. It's just life. This is round 2 for me with 2008/2009 being more scary in general but NYC holding up better. This round is more specific for NYC. Back in 2008/2009, I was pretty bearish about NYC because all the revenue and profit center that drove that boom was so tied to mortgage packaging. That was totally going to go away. covid is precipitating trends that are not friendly to NYC. the biggest in my mind is the risk that "front office" as well as "back office" of the securities/finance industry will leave NYC. the latter has already mostly happened. covid is encouraging the former. if NYC loses much of the financial sector, then it will be shot to hell NYC lost the Madison Avenue advertising businesses, (think Mad Man), and it was once the fashion capital of US with its garment district, and the media center of the US with all big 3 broadcasters. Finance is obviously hugely important to NYC today, but there are fundamental forces that give NYC its regenerative capacity. Geography, for one, makes immigration benefit NY more than elsewhere in the US, and so are the transportation infrastructure, education institutions, etc. There's reason why finance was centered around NY in the first place. That said, it's going to be on a down hill for a while, especially with characters like AOC having influence over decisions surrounding Amazon HQ2. It'll take a while, but it's more about how it's run that will determine its future than just finance.

A lot depends on how it's managed going forward. Presumably there were good structural reasons for NYC to have become NYC, capital of the world, in the first place, be it institutional or geographical. Some of those reasons are impaired by the aftermath of pandemic, some are not. But clearly the short term is looking quite grim. Whether it go on for a couple of years or a couple of decades depends on how it's managed and how US interact with the world. Longer term, presumably those same advantages that created NYC in the first place will resurrect it, the same way they did after the 70's.

I have the book in Chinese. The segment on Timberland is actually from a talk he gave at Columbia in 2006, translated into Chinese. It's actually on youtube: The book is really a collection of his writings and talks. A big chunk of it is a discussion of the Chinese civilization in the style of Guns Germs & Steel, ergo the name of the book. Enjoy.

Don't know if you can generalize like that. There are many different kinds of insurance companies, P&C, lifers, reinsurers, etc. And many different types of banks. Global SIFI's, small regionals, super regionals, consumer finance, etc. Much like stock market investing, there are many different ways of making money in it, you need to find the one that suits the current environment and your personality.

I'll throw in a couple of names for kicks: Square and American Express Square because of its small business focus with large end market concentration in restaurants, and still has a $20 billion market cap. Amex because its billing is probably a bit more travel/leisure than typical, and the recent growth area of lending is also a bit more small businesses focused.

Not surprising if you think about the major advertising categories: Travel / leisure Consumer finance (credit cards / auto insurance / mortgages) Local (restaurants, car dealers) The only category that holds up is probably healthcare/consumer products. Even political ads seem to be drowned out by the virus news.

You should watch American Factory which is produced by the production company of the Obama's. It has very little to do with Trump, but simply lay out the experience of a Chinese glass maker trying to build an American factory making glasses fo cars. It highlights the differences, and concludes with the implications of automation. If the argument is simply that this is technological progress, let it run its course, and maybe even use government incentive to bring it about sooner, there will be consequences, quite a lot of it unintended. The communism ideology was born very much as a reaction to an earlier period of rapid technologically driven social changes, and as history shows, it easily gets high jacked by political opportunists. I understand the desire not to be political. But the 2 simply can't be divorced. We are suffering precisely from the political consequence of free trade. In a sense, through free trade, China was able to export a large part of its own political problems, and the US imported it.

The argument for some form of trade tariff isn't specific to China, which just happen to be the biggest trading counterpart with the most impact. So sure, it will go somewhere else, but should be taxed too. The argument is to slow down the structural changes that deeply impact people's livelihood, so they will have time to adjust. Years ago, Buffett proposed some form of import voucher to lessen the U.S. trade deficit at that time, which would have much more draconian impact than just a tax. And critics have long complained about the lack of a coherent U.S. industrial policy. So this argument isn't made simply because of Trump. He's an ass, but as Munger would say, he's not wrong on everything. It's also not true that the same low income people are impacted. Different people are impacted differently. How else do you explain the coast / inland political divide! The argument was always there, and regardless of who the next administration is, it will no longer be easily dismissed, as it shouldn't be.

The economists deal with efficiency, the politicians deal with the consequence of that efficiency. I watched "American Factory" on Netflix over the weekend. The pain of the Midwest manufacturing base is palpable. At some point, the question becomes whether the incremental efficiency achieved is worth the pain that it induces, whether in the form of income inequality or social cohesion of a community. And the election of Trump is a statement that we are at that point. It's one thing to be the beneficiary of lower costs of consumer product, and comment how low skilled labor need to upgrade their skill set. It's another to be fired and told to upgrade your own skillset, especially for those over the age of 45.

In historical context he's absolutely right about that. Prior to the financial crisis, US was arguably more than the Roman Empire in its relative standing in the world. Things have been fraying since. Sooner or later it declines in its relative importance to the world, but the time scale of Roman decline was measured in centuries. One can argue it happens quicker today because of advances in communications technologies, and the speed of information propagation. In geopolitical terms, US is still the new continent. For 500 years, humanity has been migrating from Eurasia to the Americas. There's no reason it stops now.