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Seth Klarman At CFA Conference: Opportunities For Patient Investors


biaggio
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Klarman talked about his concerns about understated inflation and dollar debase, as retail investor, what are the ways to protect, even profit, from dollar debase?

 

 

P&C insurers with almost entirely a property book should do relatively well in an inflationary period if not subject to regulatory caps on their premiums.  That's one reason I like Bermuda insurers.  :) Bermuda companies have claims that are mostly paid in dollars, and their assets are mostly in dollars. This is no guarantee against dollar devaluation, but at least there is little danger of getting whipsawed in currency exchange.

 

Casualty is longer tail and much more subject to inflation of claims that may take many years to develop, compared to property claims that develop and are settled relatively quickly.  

 

It's prudent to choose a P&C insurer that holds assets with an average duration that's short, no more than two or three years.  Short term assets should maintain almost all of their market value when the prospect of inflation  kicks in. Then, those securities can be rolled into higher yielding assets as yields go up.

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Biaggio--thanks for the posting.  I have attached the interview as a pdf for ease of use.

 

Re: what to buy to insulate yourself against dollar depreciation.  Twacowfca has good points about insurers.

 

Also, assets denominated in strong currencies or that get payments that rise with inflation.  It is interesting to note that one of the best investments in dollar terms in the 60's to 80's was German Bonds!  Buffett's discussion in the AR's during the 80's also points the way-- asset light companies that have a toll like function--Washington Post for example.  You just need to take that framework and update to the times.

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