Rabbitisrich

I used to own Nara, partly on the belief that their internal processes were clean after coming out of an MOU right before the recession, but PlanMaestro is on the money about the opacity of operations. Nara issued shares at $7.50, iirc, but the price crept up to $12 supposedly on some inside information about meetings with Hanmi bank. A few months later Hanmi announced a deal with Woori bank, Nara's price drifted to $7, and then the CEO left, followed by the Chairman. WIBC might need more capital to maintain the tier 1 to weighted assets ratio and also to pay off their TARP preferreds.

Is there anyone in Vancouver who doesn't think that home prices are excessive? One family I know purchased a home, not a mansion, for $1100 per square foot! But then why does TD Economics report average British Columbian debt to income at 160%? One would think that the lenders at least would be more cautious.

If I recall correctly, Buffett was asked about the possibility of pulling a Philip Anschutz but said that he didn't see any major monetization projects. He went on to say that the BNSF purchase was about BNSF.

It's only if you would have paid the rent anyway, that this "rent" should be included in the equation for the owner occupied home. But then we are not really looking at real estate as an investment, but rather as a place to live. Beyond this point, the "rent" should be disregarded. If you purchased a home and it has appreciated to the point that you wouldn't hypothetically repurchase it, then you would underrate the property to ignore the "excess" rent that you are receiving and paying simultaneously. If you decide to rent or to sell the house, then the market will compensate you for the "excess" + base rent recieved, but your paid rent drops to whatever you are comfortable purchasing. This is just a long winded way of saying that you sell high and buy low. But the point is that you have to include the entire rent, or you risk underestimating your opportunity cost.

NY Times has a useful cash flow calculator that models the payback period given various assumptions: http://www.nytimes.com/interactive/business/buy-rent-calculator.html

I haven't seen the video but the information cited by the article is all contained in the May 5 2011 earnings supplement. It goes over the detangling with the government, tax asset sources and expirations, AIGFP wind down, etc...

FLA is only one of many states where they offer personal lines so maybe the increase in NPW came from established markets? It is hard for me to tell from the information in the Q. I read "complexity related to Florida personal injury protection claims" as the PIP fraud. No idea why they didn't come right out and say it since fraud rings have become almost a cottage industry in FLA the last few years and include not only the drivers and the passengers but unsavory attorneys, medical clinics, chiropractors, and diagnostic centers. And FLA is ground zero for fraud because it is a no-fault state and every driver is required to get PIP insurance that pays up to $10,000 for lost wages and medical treatment for each person in an accident regardless of who is at fault. Pack ten people in two cars, stage a fender-bender and there is $100,000!! http://www.myfoxtampabay.com/dpp/news/investigates/crackdown-on-staged-car-accident-fraud-05122011 Really, how could they not have seen this coming? Definitely worrisome. Even without Florida, the loss ratio would have been 94%, and this after creeping up by 10% a year since 2009.

Like Ragnar said, tangible book value is 0.95, as opposed to the 0.64 figure that you're quoting. Like I said when this thread was created, underwriting performance is awful, reserving is as bad (still is). Why should anyone pay close to book value for a turd, when only a few months ago they could have bought a gem (SUR) for even less? Honestly, this looks like a stock to avoid until they actually decide to run this company as an insurance operation, as opposed to a hedge fund. SUR and HALL are in different businesses with different loss expectations but also different growth expectations. That's a general statement rather than specific to this particular company. It's interesting that the NPW in personal lines increased despite the statement that unprofitable agent relationships were discontinued. Instead smaller premiums written, the expense ratio rose, apparently due to more claims staff. I wonder about the details behind "complexity related to Florida personal injury protection claims." Rabbit, there's nothing wrong with having a crappier underwriting quarter, no one is perfect. The problem is when you start stringing a couple of crappy quarters together, you cease to be able to use bad luck as an excuse. I really don't like to run an idea down, but HALL looked like a turd 7 months ago, and has peformed like one since (the market for insurers is up about 15%, as opposed to HALL which is down 15%.). Maybe I have been too influenced by Harry Long and his kitsch and old-fashioned ways about how insurers should have a history in profitable underwriting? The point is that these are not competing industries. You could purchase a surety business and a P & C business without worrying about going double down on an industry. For example, consider the difference between your statement, and the statement "Why would anyone purchase CNA at book when they could purchase WRB at book?" Though I wouldn't disagree that the results look turdish.

Like Ragnar said, tangible book value is 0.95, as opposed to the 0.64 figure that you're quoting. Like I said when this thread was created, underwriting performance is awful, reserving is as bad (still is). Why should anyone pay close to book value for a turd, when only a few months ago they could have bought a gem (SUR) for even less? Honestly, this looks like a stock to avoid until they actually decide to run this company as an insurance operation, as opposed to a hedge fund. SUR and HALL are in different businesses with different loss expectations but also different growth expectations. That's a general statement rather than specific to this particular company. It's interesting that the NPW in personal lines increased despite the statement that unprofitable agent relationships were discontinued. Instead smaller premiums written, the expense ratio rose, apparently due to more claims staff. I wonder about the details behind "complexity related to Florida personal injury protection claims."

Sorry, when I said first mover, I made an assumption that Google reached a point where incremental improvements in search minimally affect market share. If Microsoft's market share growth, as defined by Comscore, has come largely at Yahoo's expense then Google's flat share isn't strong evidence of competitive pressure. I don't think that Pew has updated their estimates of daily search engine users, but in 2008 it was only 49% of users. If the daily internet usage penetration has improved, and we know that internet user penetration has increased from '08, then a flat market share may simply reflect a mature division of usage. How would one tell the difference? In any case, until Bing starts to shrink Google, it's simply a guessing game.

I thought this was a hypothetical question? Do these instruments exist?

It's difficult to say how much Bing affects Google... using Val9000's analysis as an example, there are a lot of assumptions in terms of spend and opportunity cost. It's worth noting that Google carried ~57% of "core search", as defined by Comscore, in 2007 vs. ~65% in 2011. There is a huge first-mover advantage in "core search". One study tracked the eyeball movements of searchers and found that people pretty much only pay attention to the first lines of the first page. If a search engine provides satisfactory results in those lines, there isn't much room to compete on a result vs. result basis. Baidu offered better speed, local results, and illegal download links but those issues were related to political circumstances rather than a true moat.

How important do you all think that modeling skills are? Or should I say, how advanced should modeling skills be? The advice that I have gotten from several value investors that I highly respect is that the modeling is probably where I should focus the least amount of my time. The majority of my time should be spent reading (both books and financials) and getting a better understanding of businesses. I'm under the impression that the "valuation" should be a fairly simple process and most of the folks that I talk to don't put a lot of weight on complex dcf models. I have a Wall Street Prep program but didn't finish as I felt my time was better spent elsewhere. What are the thoughts around here? It's a good idea to know your way around excel, as well as to have a good understanding of the logic behind different DCF methods. But the investment industry is still sort of like an apprenticeship system (on the buyside, I don't know much about the sell side), where your employer will prefer that you don't have any "bad" habits. It's a good idea to tailor your resume to the firm, which is yet another reason why networking is the most important tool in your job hunt. Nothing else comes close. A multiple is no less specific than DCF. It also produces a single number. DCF simply forces you to acknowledge some of the pathways to the number. It's just a tool.

I say again that if this is standing still and BING only adds minimal or nothing more from here anyone looking at these would not say this is a dying company. Or if you took out the name Microsoft and just looked at what this company has been doing money wise "Most" value investors including Warren Buffett recently, in an interview recently with Reuters which I posted previously, would say this looks undervalued. I don't want to start a new debate, but it's obvious from those numbers that higher EPS doesn't contribute to shareholder value. Instead of wasting time with capital destroying actions like buybacks and earnings growth, MSFT should pay out 100% FCF immediately.

Sorry to quote myself. But lets say the offer is only $1 for every $2 of goodwill. Should the still take the deal? Of course! Or how about only $1 for every $5 of goodwill. Should they still take the deal? Of course! Even at $1 of cash for every $100 of goodwill. Does it still make good economic sense to make the deal? Of course! So that's why it's worth practically nothing -- compared to the other components of book value, such as CASH!!! Goodwill is the equity stake in assets above the tangible BV of the asset. So when you say $1 of goodwill you are saying 1% of an asset composed of $50 of widget and $50 of goodwill. This makes sense when you consider that goodwill is a function of an asset's going concern value, which may be different from its saleable value. Going back to my original point, the legitimacy of the goodwill will be proven or disproven by the earnings power of the asset under the acquirer's operations. The going concern value can be seen by considering $100 million sitting in a bank account, available for sale. The sale price will likely be $100 million. Now consider a sum of money attached to Warren Buffett's investment management (at a flat fee for simplicity) discounted so that the present value TBV of the combination is $100 million. You might then be willing to pay above TBV so long as you meet your personal bogie. But if you liquidate your TBV, then the goodwill would fade away, unless Warren Buffett went with the cash, in which case you may recover some, all, or above your goodwill depending on the purchaser's expectations and return requirements.

If the target were simply an investment manager utilizing your investment activities, then you could simply replicate the portfolio (for the purposes of this hypothetical) and recieve a higher return than the target's ask. If the company is an insurance operation whose growing float you manage, then you would compare the "replicability" of the business + portfolio--either purchasing or creating a similarly sized operation with comparable management, relationships, data, and so forth--to ask of the target. In this case, you may well pay a premium. Instead of an investment manager comparison, imagine being a CEO of a target insurance company with good insurance operations but mediocre investment results. Fairfax signals its interest and Watsa bluntly tells you that he will replace your investment team post-acquisition. You read the annual report and notice the 15% BV bogie. So now you know that if the math works out you might receive above TBV as long as the purchase price return meets the bogie. The above situation is similar to the ORH logic, because in both cases FRFHF is purchasing future earnings which include HWIC results.

I've never been particularly impressed with Burnett's poise or ability to think on her feet. By far the most impressive host by workload and capacity to integrate information is Melissa Lee. Once in a while you see reporters who actually appear to be diligent, like Diana Olick, appear on screen for a few seconds before being shuffled behind a flurry of stock symbols and morning radio sound bytes.

Reading over this thread the next day, I think that there has been a lot of talking past each other. Ericopoly uses goodwill (in the sense of discounting it) as part of his valuation process, where I do not because I view it as a contribution to earnings power. The differing uses don't make a difference so long as there is an appropriate adjustment to expected ROA and similar ending ROE. It's like people arguing over an asset with 33% of equity in good will. Some people say, the bad news is that we just lost 33% of equity. The good news is that ROE just increased by 50%. Other people will say... I only consider their investment returns, underwriting profits, and growth in float to be valuable. That stuff matters -- but to me the goodwill will not help them achieve any of that because the goodwill doesn't "earn". It just sits. Much rather have 5% of BV in earning tangible investments than in 5% goodwill that does nothing for me. It should come out to the same thing over time. Consider that FRFHF paid a bit over a billion to purchase ~27% of ORH, equivalent to about a billion in equity. If ORH earns 15% on book from June 30, then what difference does it make if FRFHF gets 16% on TBV or 15% on BV? ORH is a bad example because, as Nnejad pointed out, it only contributed about $100 M in intangibles. If you discount the book without an accompanying increase in ROE, then you are stating that earnings power has been impaired by the acquisition. Earlier you made a comment about HWIC's contribution to ORH earnings, but I don't see the argument because the purchase price includes the benefit of the minority interest in HWIC's results.

Reading over this thread the next day, I think that there has been a lot of talking past each other. Ericopoly uses goodwill (in the sense of discounting it) as part of his valuation process, where I do not because I view it as a contribution to earnings power. The differing uses don't make a difference so long as there is an appropriate adjustment to expected ROA and similar ending ROE. It's like people arguing over an asset with 33% of equity in good will. Some people say, the bad news is that we just lost 33% of equity. The good news is that ROE just increased by 50%. Other people will say...

The WFC SPAC scenario assumes that it's the manager's business to compare potential returns on company investments to potential returns of specific investors on a specific trade (i.e. SPAC purchase of WFC versus distributing the cash). Unless the charter is so specific as to mandate WFC or bust, then the company should compare the investment to its universe of investments. You are right that FRFHF shareholders would have been better off had they recieved $1 B in dividends and been told to purchase ORH shares trading at a low valuation. But the argument that goodwill should be written off in the valuation process argues that the company received an improper return on investment, in other words that ORH will underperform relative to the universe of companies with its risk profile.

That difference only emphasizes the point that BV is an approximation of value, rather than a measure. Certain Fairfax subs probably warrant a bigger discount, though I wouldn't use tangible BV except as a mechanical rule for conservatism, but ORH always deserved a premium, at least from my perspective.

Aside from accounting consistency, what is the economic reason to only include tangible assets in your valuation? Writing off the goodwill is that same as stating that the ORH purchase was too dear, and that you need to reduce your entry price to reflect a higher expected return. At $3.65 B implied for a profitable developer of $4.8 B in float with historical BV growth of 20%, losing ORH to Fairfax was not necessarily a wonderful point in time for ORH shareholders.

I've seen conspiracy theorists use a Bill Gates quote in which he seems to argue for the need to control populations through vaccines. Of course, if you look at the actual quote, he is linking vaccinations to socioeconomic development to rising opportunity costs of birth. Conspiracies do occur, but man...

I have the designation. It can be very helpful at the start of your career, although nothing comes close to networking. Even the mean-variance stuff can be useful in that knowing the parameters of a model helps you to understand unmodeled outcomes. And the derivatives content can improve the way you frame bets. My main criticism about the program is that it is simply too broad. You will have to do a lot of independent reading if you want to comprehend a topic. I only used the CFA books for the first three exams... BIG mistake. I ended having to take the third level twice because of too much time devoted to memorizing GIPS rules. Stalla more than makes up the money in time saved.

The alternative to SharperDingaan's scenario is that the growth of hedge fund derivatives merely promotes consensus movements. It would also be complicated to specify default since a hedge fund structure typically allows for massive external cash flows. A counterparty may find it cheaper to provide liquidity. Also, the proposed derivative isn't a direct reflection of the quality of the notional fund's portfolio, but rather a measure of the fund's ability to survive. How would the counterparties track the fund's partners to avoid a set up? Presumably, the hedge fund would need some incentive to volunteer the information, in addition to updating its portfolio, which raises another kettle of worms.