I just wanted to update a January article I wrote called "Media Hype" that included a discussion about Sears Holdings (SHLD) . (quick note - My normal focus for my blog is the insurance sector , you'll have to forgive me for digressing occasionally).
As you recall I compared the media attack on Eddie Lampert & Sears Holdings to what happened with insurer Fairfax Financial & Prem Watsa (& Berkshire Hathaway & Warren Buffett.)
Well it seems that some of the very best value investors around are loading up on Sears stock based on the latest 13Fs.
Here is my list of long term, top value investor stakes. Holdings of Tisch & Perry are as reported in a Barron's article "A Storied Name on Sale?" (Oct07) & neither of these insiders have sold stock since.
Eddie Lampert & ESL 65.6 mil
Bill Ackman & Pershing 6.1 mil
Thomas Tisch & family 4.2 mil
Richard Perry 2.7 mil
Bill Miller - Legg Mason 12.7 mil
Bruce Berkowitz - Fairholme 6.2 mil
Mohnish Pabrai funds 516 thous
Chris Davis- NY Venture fund 1.2 million
Michael Price & Whitney Tilson NM
total 97 mil
Now the total share float is around 137 million but may have been reduced through more Lampert repurchases. I would regard the 97 million shares listed as in long term hands , generally loyal to Lampert. All of these investors are very unlikely to want to sell any shares at current levels.
As of January 25, around 26 million shares of Sears were held short, 20% `of the available float. Based on my rough calculations there are really only 40 million shares the shorts can cover with & this is shrinking with Lampert's repurchases. Further, with Sears hitting new lows down in the $80s it is very likely one or more of the above value investors have materially increased their stake in Sears. This would have further reduced this 40 million share difference.
So the upshot of all this is that individuals/hedge funds shorting Sears Holdings may soon find themselves unable to buy back or cover their short positions very easily. When this situation is combined with some good news or a sense that Lampert & Sears Holdings could see an improved outlook, then potentially there could be a dramatic short squeeze in Sears stock, assuming the amount of shorts stay at their current levels.
Disclosure: I own shares of Sears Holdings (SHLD)
Disclaimer: This article should not be relied upon as investment advice and is not intended as investment advice.
Friday, February 22, 2008
Thursday, February 21, 2008
Interview with fixed income guru Bill Gross
I will warn you that this interview is actually quite depressing, yet worth listening to. Bill Gross is consistently right on the mark and his views mirror Prem Watsa's interview comments from my last article post.
Below is a link to the interview on Bloomberg. But first a few take aways from the interview -
- We're facing an environment where assets such as houses,shares are experiencing deflation while commodities (oil & food) are rising rapidly and creating inflation. The net effect being a real erosion of wealth.
- Bill Gross (citing Peter Bernstein) says the unwinding of the global derivatives and massive debt leverage globally will be akin to "water torture" both slow & painful. (I immediately had a recall to Warren Buffett & Berkshire Hathaway's nightmare with Gen Re & the un-winding of Gen Re's derivative portfolio. It cost Berkshire hundreds of millions in losses and was nothing compared to the global derivative trade we now have)
- cheap credit is over , the ability to obtain credit & the cost of credit will be higher in spite of recent interest rate cuts .
-the total losses from subprime will be $400-$500 billion but when combined with other corporate loan losses, losses in mututal funds & hedge funds , the total losses could be over $700 billion.
- Bill Gross didn't suggest there wasn't value in banking stocks. He did say Pimco was investing in corporate bank loan bonds paying a nice 8% yield.
-Bill Gross did suggest eventually there will be value in mortgage loans but only after the great unwinding happens and we are still yet to see that completely play out.
http://http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vDzy3zSv.0C0.asf
Below is a link to the interview on Bloomberg. But first a few take aways from the interview -
- We're facing an environment where assets such as houses,shares are experiencing deflation while commodities (oil & food) are rising rapidly and creating inflation. The net effect being a real erosion of wealth.
- Bill Gross (citing Peter Bernstein) says the unwinding of the global derivatives and massive debt leverage globally will be akin to "water torture" both slow & painful. (I immediately had a recall to Warren Buffett & Berkshire Hathaway's nightmare with Gen Re & the un-winding of Gen Re's derivative portfolio. It cost Berkshire hundreds of millions in losses and was nothing compared to the global derivative trade we now have)
- cheap credit is over , the ability to obtain credit & the cost of credit will be higher in spite of recent interest rate cuts .
-the total losses from subprime will be $400-$500 billion but when combined with other corporate loan losses, losses in mututal funds & hedge funds , the total losses could be over $700 billion.
- Bill Gross didn't suggest there wasn't value in banking stocks. He did say Pimco was investing in corporate bank loan bonds paying a nice 8% yield.
-Bill Gross did suggest eventually there will be value in mortgage loans but only after the great unwinding happens and we are still yet to see that completely play out.
http://http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vDzy3zSv.0C0.asf
Prem Watsa (CEO Fairfax Financial -FFH ) says credit losses are far from over
from Bloomberg today - some interesting quotes
-``It's still early days,'' Watsa said in an interview today from his Toronto office. ``This is a very extensive credit problem.''
-``We're just rolling through mortgages right now, but we haven't gone through all the other areas yet,'' such as credit- card debt, commercial real estate loans and automobile lending, Watsa said.
&
-``We have sold most of our monoline insurers,'' Watsa said. ``You figure out risk versus reward, and you might well decide to sell. We've done that with monolines, but the others we're continuing to review.''
here's the link
http://www.bloomberg.com/apps/news?pid=20601082&sid=agn.SVcOi0VM&refer=canada
Disclosure: I own shares of FFH
-``It's still early days,'' Watsa said in an interview today from his Toronto office. ``This is a very extensive credit problem.''
-``We're just rolling through mortgages right now, but we haven't gone through all the other areas yet,'' such as credit- card debt, commercial real estate loans and automobile lending, Watsa said.
&
-``We have sold most of our monoline insurers,'' Watsa said. ``You figure out risk versus reward, and you might well decide to sell. We've done that with monolines, but the others we're continuing to review.''
here's the link
http://www.bloomberg.com/apps/news?pid=20601082&sid=agn.SVcOi0VM&refer=canada
Disclosure: I own shares of FFH
Fairfax's blowout year
Canadian insurer Fairfax Financial (FFH) has just reported its year ending December 2007 results and they are extraordinary. Normally I don't get carried away with a quarter's numbers but what is significant here is that an investment strategy brilliantly conceived by Prem Watsa and his team over the past few years has paid off handsomely. The simple premise was this, risk had been undervalued by the credit markets for too long with little to no distinction made between a safe AAA treasury bond and a AAA rated CDO that included unsafe subprime loans. Fairfax made its bet that risk would be repriced at a higher level, by using credit default swaps. In the last year, Fairfax was proven right as credit was dramatically repriced.
Driven by huge gains on this credit default swap bet, Fairfax ended the year with $4.1 billion in shareholders or $230 in book value, a 49% increase year over year. This closing book value was more than my more conservative estimate of $220 (see my article from earlier in January).
Further, there is clear evidence that Fairfax is finally getting its reserves under control with a solid 93% combined ratio for the quarter & 94% for the year.
Fairfax's credit default swap gains continued during the first quarter of 2008. A total of $151 million in realised gains & $596 million in unrealised gains up to February 15 2008. That puts Fairfax's book value north of $270 so far this quarter. A truely great result.
Prem Watsa and Fairfax Financial have suffered under a torrent of press criticism and outspoken Fairfax shorts over the last few years. Surely justice has been dealt today and Fairfax shareholders have been vindicated.
Disclosure: I own shares in FFH
Driven by huge gains on this credit default swap bet, Fairfax ended the year with $4.1 billion in shareholders or $230 in book value, a 49% increase year over year. This closing book value was more than my more conservative estimate of $220 (see my article from earlier in January).
Further, there is clear evidence that Fairfax is finally getting its reserves under control with a solid 93% combined ratio for the quarter & 94% for the year.
Fairfax's credit default swap gains continued during the first quarter of 2008. A total of $151 million in realised gains & $596 million in unrealised gains up to February 15 2008. That puts Fairfax's book value north of $270 so far this quarter. A truely great result.
Prem Watsa and Fairfax Financial have suffered under a torrent of press criticism and outspoken Fairfax shorts over the last few years. Surely justice has been dealt today and Fairfax shareholders have been vindicated.
Disclosure: I own shares in FFH
Monday, February 18, 2008
Bond insurer split up could attract lawsuits
Interesting article from Bloomberg. Essentially they are saying that Investment Banks who own insured subprime investments would be able to sue where they suffer losses & make a claim but there are not enough funds available due to the insurer moving its assets to another entity (holding their municipal liabilities).
Here is a quote...
"Despite the regulatory interest in separating the exposures, the essential fact remains that all policy holders, whether municipal or structured finance, entered into contracts backed by the entire entity,'' analysts led by Jeffrey Rosenberg in New York wrote in a note to investors dated Feb. 15. A breakup is ``likely to lead to significant legal challenges holding up the resolution of the monoline issues for years."
Here is the link
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOeT8cK2ZxVk&refer=home
I wonder if the investment banks will give their consent to the proposed split up. They probably won't? The alternative might be as Warren Buffett proposed to re-insure these municipal bonds, effectively protecting policyholders even if the mono-lines can't pay at the end of the day (due to CDO loss payouts). But the mono-lines have already said no to the deal?
This is a very tricky situation. Of course, all of this resulted from the Insurance regulators letting the mono-line insurers write CDO insurance in the first place!
Here is a quote...
"Despite the regulatory interest in separating the exposures, the essential fact remains that all policy holders, whether municipal or structured finance, entered into contracts backed by the entire entity,'' analysts led by Jeffrey Rosenberg in New York wrote in a note to investors dated Feb. 15. A breakup is ``likely to lead to significant legal challenges holding up the resolution of the monoline issues for years."
Here is the link
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOeT8cK2ZxVk&refer=home
I wonder if the investment banks will give their consent to the proposed split up. They probably won't? The alternative might be as Warren Buffett proposed to re-insure these municipal bonds, effectively protecting policyholders even if the mono-lines can't pay at the end of the day (due to CDO loss payouts). But the mono-lines have already said no to the deal?
This is a very tricky situation. Of course, all of this resulted from the Insurance regulators letting the mono-line insurers write CDO insurance in the first place!
Saturday, February 16, 2008
Looking at interesting insurance stock buys and sells during 4Q 2007
By region
US & Canada
Lets start of with Markel Corporation (MKL)(led by Chief Investment Officer Tom Gayner) . Markel found investment opportunities in the US title insurance sector which has been suffering from the housing recession. Markel initiated a new position of 930,500 shares in LandAmerica Financial Group (LFG). Markel also raised their stake in Fidelity National Financial (FNF)by 125% to 1.68 mil shares.
Mohnish Pabrai sold his stake 17,500 BRKB shares in Warren Buffett’s investment holding company Berkshire Hathaway, retaining just one BRKA share. Berkshire’s shares have seen a decent run up over the last few months as investors have sought refuge from the credit crunch in Berkshire’s rock solid balance sheet which is a genuine AAA (unlike others!). Mohnish kept his stake in Canadian property and casualty insurer Fairfax Financial Holdings (FFH) largely unchanged selling around 1,900 shares to end the year with 314,165 shares. Fairfax Financial’s large credit default swap bet , on a decline in the housing sector and the repricing of credit risk, has worked a treat over the last 6 months.
New York based Alleghany Corporation(Y) led by CEO Weston Hicks made a foray into the distressed mortgage insurance sector picking up 1.65 mil shares in Chicago based Old Republic (ORI). Old Republic have a more diversified book of business than their other mortgage insurance competitors.
Bruce Berkowitz and the Fairholme Fund (FAIRX) team who practice the investment philosophy of ignoring the crowd certainly did when they embraced controversy and bought a new stake of 7.65 mil shares in Wellcare Health Plans (WCG). This Florida company has been under investigation by federal and state authorities. Fairholme also initiated a small 4.16 mil share position in auto insurer Progressive Corporation (PGR). This is an interesting buy given the poor performance of most auto insurers and Progressive in particular which has been facing tough competition from Geico, a subsidiary of Berkshire Hathaway (BRKA,B). Do Fairholme feel that the market may harden and premium rates could start to improve for the auto insurance sector?
Europe
Mackenzie Cundill Value Fund with famed value manager Peter Cundill took advantage of market volatility in 2007 to add to their position in the world's second largest reinsurer, German based Munich Re AG (MUVGN.DE - XETRA). According to their fund's annual report, it is now the fund's largest position.
Post year end , Warren Buffett and Berkshire Hathaway snapped up 3% of Swiss reinsurance giant Swiss re (SWCEY-Depository receipt; RUKN.DE - XETRA) , which has been caught by the subprime crisis, and will take one-fifth of all Swiss re's property & casualty premiums over the next 5 years in return for providing one-fifth of the risk. This deal looks to be more than just an insurance stock buy and more a stategic reinsurance partnership.
Bermuda
The successful Third Avenue International Value Fund (managed by Amit Wadhawany)initiated a new position, buying 771,224 shares in Bermuda based reinsurer Montpelier re (MRH - NYSE). Here is a quote from the annual report for 2007 ...."Shares of Montpelier Re were purchased at prices which we believe understate its value as a going concern, as it imputes little to no value to the company’s operational infrastructure,underwriting expertise, or the membership at Lloyd’s."
Asia & Middle East
Longleaf Partners International Fund made no changes but retained a significant weighting to Japanese insurers , NipponKoa Insurance Company (6.7% of fund) (8754 - Tokyo) and Millea Holdings (3.7% of fund) (MLEAY.PK - US pink sheets; 8766 - Tokyo) Japan's largest non-life insurer. Both insurers represent a little over 10% of this Longleaf Fund.
Disclosure: I own shares in MKL,BRKB,FFH,Y,FAIRX
Disclaimer: The opinions expressed by the author in this article are not intended as investment advice & should not be relied upon as investment advice.
US & Canada
Lets start of with Markel Corporation (MKL)(led by Chief Investment Officer Tom Gayner) . Markel found investment opportunities in the US title insurance sector which has been suffering from the housing recession. Markel initiated a new position of 930,500 shares in LandAmerica Financial Group (LFG). Markel also raised their stake in Fidelity National Financial (FNF)by 125% to 1.68 mil shares.
Mohnish Pabrai sold his stake 17,500 BRKB shares in Warren Buffett’s investment holding company Berkshire Hathaway, retaining just one BRKA share. Berkshire’s shares have seen a decent run up over the last few months as investors have sought refuge from the credit crunch in Berkshire’s rock solid balance sheet which is a genuine AAA (unlike others!). Mohnish kept his stake in Canadian property and casualty insurer Fairfax Financial Holdings (FFH) largely unchanged selling around 1,900 shares to end the year with 314,165 shares. Fairfax Financial’s large credit default swap bet , on a decline in the housing sector and the repricing of credit risk, has worked a treat over the last 6 months.
New York based Alleghany Corporation(Y) led by CEO Weston Hicks made a foray into the distressed mortgage insurance sector picking up 1.65 mil shares in Chicago based Old Republic (ORI). Old Republic have a more diversified book of business than their other mortgage insurance competitors.
Bruce Berkowitz and the Fairholme Fund (FAIRX) team who practice the investment philosophy of ignoring the crowd certainly did when they embraced controversy and bought a new stake of 7.65 mil shares in Wellcare Health Plans (WCG). This Florida company has been under investigation by federal and state authorities. Fairholme also initiated a small 4.16 mil share position in auto insurer Progressive Corporation (PGR). This is an interesting buy given the poor performance of most auto insurers and Progressive in particular which has been facing tough competition from Geico, a subsidiary of Berkshire Hathaway (BRKA,B). Do Fairholme feel that the market may harden and premium rates could start to improve for the auto insurance sector?
Europe
Mackenzie Cundill Value Fund with famed value manager Peter Cundill took advantage of market volatility in 2007 to add to their position in the world's second largest reinsurer, German based Munich Re AG (MUVGN.DE - XETRA). According to their fund's annual report, it is now the fund's largest position.
Post year end , Warren Buffett and Berkshire Hathaway snapped up 3% of Swiss reinsurance giant Swiss re (SWCEY-Depository receipt; RUKN.DE - XETRA) , which has been caught by the subprime crisis, and will take one-fifth of all Swiss re's property & casualty premiums over the next 5 years in return for providing one-fifth of the risk. This deal looks to be more than just an insurance stock buy and more a stategic reinsurance partnership.
Bermuda
The successful Third Avenue International Value Fund (managed by Amit Wadhawany)initiated a new position, buying 771,224 shares in Bermuda based reinsurer Montpelier re (MRH - NYSE). Here is a quote from the annual report for 2007 ...."Shares of Montpelier Re were purchased at prices which we believe understate its value as a going concern, as it imputes little to no value to the company’s operational infrastructure,underwriting expertise, or the membership at Lloyd’s."
Asia & Middle East
Longleaf Partners International Fund made no changes but retained a significant weighting to Japanese insurers , NipponKoa Insurance Company (6.7% of fund) (8754 - Tokyo) and Millea Holdings (3.7% of fund) (MLEAY.PK - US pink sheets; 8766 - Tokyo) Japan's largest non-life insurer. Both insurers represent a little over 10% of this Longleaf Fund.
Disclosure: I own shares in MKL,BRKB,FFH,Y,FAIRX
Disclaimer: The opinions expressed by the author in this article are not intended as investment advice & should not be relied upon as investment advice.
Thursday, February 14, 2008
Auction-rate securities fail to attract bidders
This was an interesting story this week. Here are some excerpts from Bloomberg.
"Auctions of bonds sold by cities, hospitals and student loan agencies are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks seek to avoid tying up their capital. More than 129 auctions failed yesterday, said Anne Kritzmire, a managing director for closed-end funds at Nuveen Investments in Chicago"
and further on
"Bank of America Corp. estimated in a report that 80 percent of all auctions were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction bonds that are scheduled for bidding daily, said Alex Roever, a JPMorgan Chase & Co. fixed income analyst. "
The flip side to this story is that where there is less demand & more supply , buyers of auction rate securities get paid handsomely.
With the turmoil in the municipal bond markets, munis generally could now represent a very attractive fixed income investment opportunity for insurance companies and pension funds.
Municipal bonds are pretty safe. Interestingly the article mentions ... "auctions have failed for frequent and well-known borrowers, such as Port Authority of New York and New Jersey and New York state's Metropolitan Transportation Authority. "
It is not just the fact that financial guarantors are under stress that is causing distress here, as investment banks such as UBS suffer with their own capital writedowns and liquidity issues, they are unable to participate in these auctions & purchase those auction-rate securities that don't sell. Who knows, could be another opportunity for Warren Buffett....capital seems to be highly prized these days.
Warren Buffett recently alluded to the fact that Berkshire Hathaway (BRKA/B) were buying up insured municipal bonds suffering from the "financial guarantor" stigma. Here's what Warren said on the CNBC interview yesterday...
"We've actually bought, or, we see bonds trading that are insured that are selling at lower prices than their uninsured counterparts, just because there's been an unusual supply and demand situation. "
Here's the full article from Bloomberg...
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWXuwp96Q0k4&refer=home
Disclosure: I own shares in Berkshire Hathaway (BRKB)
"Auctions of bonds sold by cities, hospitals and student loan agencies are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks seek to avoid tying up their capital. More than 129 auctions failed yesterday, said Anne Kritzmire, a managing director for closed-end funds at Nuveen Investments in Chicago"
and further on
"Bank of America Corp. estimated in a report that 80 percent of all auctions were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction bonds that are scheduled for bidding daily, said Alex Roever, a JPMorgan Chase & Co. fixed income analyst. "
The flip side to this story is that where there is less demand & more supply , buyers of auction rate securities get paid handsomely.
With the turmoil in the municipal bond markets, munis generally could now represent a very attractive fixed income investment opportunity for insurance companies and pension funds.
Municipal bonds are pretty safe. Interestingly the article mentions ... "auctions have failed for frequent and well-known borrowers, such as Port Authority of New York and New Jersey and New York state's Metropolitan Transportation Authority. "
It is not just the fact that financial guarantors are under stress that is causing distress here, as investment banks such as UBS suffer with their own capital writedowns and liquidity issues, they are unable to participate in these auctions & purchase those auction-rate securities that don't sell. Who knows, could be another opportunity for Warren Buffett....capital seems to be highly prized these days.
Warren Buffett recently alluded to the fact that Berkshire Hathaway (BRKA/B) were buying up insured municipal bonds suffering from the "financial guarantor" stigma. Here's what Warren said on the CNBC interview yesterday...
"We've actually bought, or, we see bonds trading that are insured that are selling at lower prices than their uninsured counterparts, just because there's been an unusual supply and demand situation. "
Here's the full article from Bloomberg...
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWXuwp96Q0k4&refer=home
Disclosure: I own shares in Berkshire Hathaway (BRKB)
Tuesday, February 12, 2008
Buffett names his price
Warren Buffett's latest offer to re-insure up to $800 billion of municipal bonds held by the mono-lines should come as no surprise.
Buffett's price is one & a half times the unearned premium on these municipal bonds, nearly double the price originally charged by these monoline insurers (MBIA,Ambac & FGIC). Its a steep price & as of this time, two of the monoline insurers (one is Ambac) have spurned Buffett's proposal.
Buffett's big pricetag does highlight the bargaining power Berkshire Hathaway has at this time and his own view that the mono-line insurers are facing a desperate financial situation.
If all the mono-line insurers reject Buffett's proposal , they are likely to face an even more hard-line from Insurance regulators who may seek to preserve capital for the policyholders by preventing dividends being paid from the insurance subsidiaries to the bond insurer holding companies. As I have said previously, the insurance regulators are intent on stabilising the municipal bond market and while doing this in a commercial way would be ideal, they may be left with no option but to engage in more direct intervention to protect capital and municipal bond markets.
Finally, Buffett & Berkshire are expected to dramatically raise their profile in the municipal bond underwriting area over the coming year. If Buffett doesn't succeed in reinsuring the municipal bonds held by the bond insurers, he will succeed in stealing away new business.
Here's the CNBC interview transcript with Warren Buffett
http://www.cnbc.com/id/23126179
Ajit Jain's letter (which walks us through Berkshire's reasons for the deal and proposed price) - thanks Berkshire Shareholders at MSN board for this one!
http://www.marketwatch.com/news/story/warren-buffetts-letter-bond-insurers/story.aspx?guid=%7BE5BBF062%2D4C41%2D4DE4%2D99C2%2DF7B2EA6CE889%7D&siteid=yhoof
Disclosure: I own shares in Berkshire Hathaway (BRK)
Buffett's price is one & a half times the unearned premium on these municipal bonds, nearly double the price originally charged by these monoline insurers (MBIA,Ambac & FGIC). Its a steep price & as of this time, two of the monoline insurers (one is Ambac) have spurned Buffett's proposal.
Buffett's big pricetag does highlight the bargaining power Berkshire Hathaway has at this time and his own view that the mono-line insurers are facing a desperate financial situation.
If all the mono-line insurers reject Buffett's proposal , they are likely to face an even more hard-line from Insurance regulators who may seek to preserve capital for the policyholders by preventing dividends being paid from the insurance subsidiaries to the bond insurer holding companies. As I have said previously, the insurance regulators are intent on stabilising the municipal bond market and while doing this in a commercial way would be ideal, they may be left with no option but to engage in more direct intervention to protect capital and municipal bond markets.
Finally, Buffett & Berkshire are expected to dramatically raise their profile in the municipal bond underwriting area over the coming year. If Buffett doesn't succeed in reinsuring the municipal bonds held by the bond insurers, he will succeed in stealing away new business.
Here's the CNBC interview transcript with Warren Buffett
http://www.cnbc.com/id/23126179
Ajit Jain's letter (which walks us through Berkshire's reasons for the deal and proposed price) - thanks Berkshire Shareholders at MSN board for this one!
http://www.marketwatch.com/news/story/warren-buffetts-letter-bond-insurers/story.aspx?guid=%7BE5BBF062%2D4C41%2D4DE4%2D99C2%2DF7B2EA6CE889%7D&siteid=yhoof
Disclosure: I own shares in Berkshire Hathaway (BRK)
Monday, February 11, 2008
Is it possible Fairfax Financial might have raised their CDS bet?
With AIG's recent report of larger than expected CDS "mark to mark" losses and default spreads on AIG hitting over 200 bps as of today, Odyssey re & Fairfax Financial would have received another boost to the value of their enormous CDS portfolio (AIG is one of their CDS positions held most likely for hedging rather than investment purposes).
I believe it is more probable than not that Fairfax would have taken profits on positions in CDS positions in Countrywide, MBIA & Ambac amongst others over the last few months. That is my expectation given the excellent pricing Fairfax would have received, MBIA & Ambac were recently priced for a 70% chance of bankruptcy. However, this is pure speculation and journalistic opinion on my part. We won't know until they report their results for this quarter.
Economic conditions have degenerated rapidly throughout the world particularly in North America but also Europe, Japan and other regions. Risk continues to be re-priced into corporate bonds and expectations are that default rates will increase considerably from current levels.
Further, in two interviews given since November ,Prem Watsa, CEO of Fairfax, has maintained that we that we are only at the beginning stages of a credit crunch and the US could be facing a Japan like economic situation of deflation.
Finally, the largest equity positions recently added by Fairfax are in healthcare/pharmaceutical stocks which definitely have defensive characteristics in a recession like environment.
The question therefore I want to pose is this , if Prem Watsa feels we are only in the beginning stages of a credit crunch and Fairfax continues to set up its equity and bond portfolio for recession, is it possible that during the 4th Quarter 2007 Fairfax Financial may have raised its CDS bet on some names perhaps already held or others not held at the end of the 3rd Quarter 2007?
Disclosure: I own shares of FFH & AIG
Disclaimer: The opinions expressed by the author in this article are not intended as investment advice and should not be relied upon as investment advice.
I believe it is more probable than not that Fairfax would have taken profits on positions in CDS positions in Countrywide, MBIA & Ambac amongst others over the last few months. That is my expectation given the excellent pricing Fairfax would have received, MBIA & Ambac were recently priced for a 70% chance of bankruptcy. However, this is pure speculation and journalistic opinion on my part. We won't know until they report their results for this quarter.
Economic conditions have degenerated rapidly throughout the world particularly in North America but also Europe, Japan and other regions. Risk continues to be re-priced into corporate bonds and expectations are that default rates will increase considerably from current levels.
Further, in two interviews given since November ,Prem Watsa, CEO of Fairfax, has maintained that we that we are only at the beginning stages of a credit crunch and the US could be facing a Japan like economic situation of deflation.
Finally, the largest equity positions recently added by Fairfax are in healthcare/pharmaceutical stocks which definitely have defensive characteristics in a recession like environment.
The question therefore I want to pose is this , if Prem Watsa feels we are only in the beginning stages of a credit crunch and Fairfax continues to set up its equity and bond portfolio for recession, is it possible that during the 4th Quarter 2007 Fairfax Financial may have raised its CDS bet on some names perhaps already held or others not held at the end of the 3rd Quarter 2007?
Disclosure: I own shares of FFH & AIG
Disclaimer: The opinions expressed by the author in this article are not intended as investment advice and should not be relied upon as investment advice.
Sunday, February 10, 2008
Asia insurance industry awards 2007
ICICI Lombard General Insurance Company (part of a joint venture between India's ICICI Bank & Fairfax Financial Holdings (FFH)) received General Insurance Company of the Year award.
From the article
"However, it was ICICI Lombard’s innovation that really caught the eyes of the judging panel. To reduce the cost of claims processing in rural areas, it launched a first-of-its-kind pilot project issuing biometric smart cards to rural customers availing of health insurance. The card contains a smart chip which authorises transactions based on the customer’s fingerprints. The balance sum insured can be easily ascertained when the card is presented at a hospital.
ICICI Lombard, together with the involvement of the World Bank, has also pioneered weather insurance to cover weather-related risks faced by crops. In fiscal 2007, more than 200,000 farmers and 250,000 acres of land were insured for a range of crops."
Here's the link to the full story
http://www.asiainsurancereview.com/pages/awards/awardswinners2007.asp
From the article
"However, it was ICICI Lombard’s innovation that really caught the eyes of the judging panel. To reduce the cost of claims processing in rural areas, it launched a first-of-its-kind pilot project issuing biometric smart cards to rural customers availing of health insurance. The card contains a smart chip which authorises transactions based on the customer’s fingerprints. The balance sum insured can be easily ascertained when the card is presented at a hospital.
ICICI Lombard, together with the involvement of the World Bank, has also pioneered weather insurance to cover weather-related risks faced by crops. In fiscal 2007, more than 200,000 farmers and 250,000 acres of land were insured for a range of crops."
Here's the link to the full story
http://www.asiainsurancereview.com/pages/awards/awardswinners2007.asp
Latin America insurance review
This report includes an excellent review of the insurance market in Brazil which is growing rapidly.
W R Berkley (BER) has in recent years established a business subsidiary in Brazil.
http://72.14.253.104/search?q=cache:ajXvswj4FGoJ:www.benfieldgroup.com/NR/rdonlyres/A9317CDE-963C-4B96-8960-6D5F5DC6C175/0/LAMarketReview2007.pdf+insurance+latin+america&hl=en&ct=clnk&cd=9&gl=au
W R Berkley (BER) has in recent years established a business subsidiary in Brazil.
http://72.14.253.104/search?q=cache:ajXvswj4FGoJ:www.benfieldgroup.com/NR/rdonlyres/A9317CDE-963C-4B96-8960-6D5F5DC6C175/0/LAMarketReview2007.pdf+insurance+latin+america&hl=en&ct=clnk&cd=9&gl=au
Wednesday, February 6, 2008
Warren Buffett - P&C industry profits will continue decline over next few years
In a recent business wire presentation from Canada, Warren Buffett said he expected 4points of worsening in combined ratios in 2008 vs 2007. Buffett said insurers will face combined headwinds from lower insurance pricing and increasing inflation, raising the amount of loss exposures for property and casualty insurers. Buffett expects several years of lower profitability and worsening combined ratios.
Here is a link to the presentation which includes a great Q & A with Warren Buffett on a great variety of topics...
http://phx.corporate-ir.net/phoenix.zhtml?c=127541&p=irol-eventDetails&EventId=1758500&WebCastId=726710&StreamId=1054665
Here is a link to the presentation which includes a great Q & A with Warren Buffett on a great variety of topics...
http://phx.corporate-ir.net/phoenix.zhtml?c=127541&p=irol-eventDetails&EventId=1758500&WebCastId=726710&StreamId=1054665
Tuesday, February 5, 2008
HCC Insurance (HCC) looks like reasonable value
Many insurance stocks have been sold off recently by investors due to fears over the credit crunch and expectations that softer insurance market pricing will further reduce insurers’ profitability.
One insurer which I think represents good value, despite these headwinds, is HCC Insurance. HCC insurance (HCC) is AA rated by S&P and began operations in 1974. It has offices in the US, Europe and the UK.
HCC Insurance is truly a specialty insurer with an excellent franchise . They don’t write general liability or workers compensation insurance. They write numerous products including directors and officers liability, aircraft insurance, marine insurance and life,accident and health products. Many of the insurance products fall outside the standard market so are subject to less price competition. HCC estimate that over 60% of their products fall outside the standard insurance cycle.
Historically, due to its specialty focus and underwriting discipline, HCC has maintained a combined ratio well below the industry average and their loss reserving has been overly conservative with loss redundancies consistently reported with one or two exceptional years. Since 1981, HCC has only made an underwriting loss on only two occasions in 2001 (combined ratio was 101.8%) which included $22 million in losses from the World Trade Centre attacks and 1999(combined ratio was 104.1%).
One way HCC maintains above average profitability is by keeping a solid grip on their underwriting. HCC will buy the Managing General Agents or MGAs that they use. This way they have more control over terms and the pricing of policies.
Around 12 months ago HCC was mired in controversy over the manipulation of options grants which cost the job of former CEO Stephen Way. The ultimate cost of these grants was minimal. A recent legal case resulting from this options was settled for $3 million , which was fairly immaterial. The loss of Stephen Way was far more damaging as he spearheaded HCC since founding the company in 1974 and has been instrumental in HCC’s success. Nevertheless, many of the key operating officers who have been part of HCC’s growth over many years including Frank Bramanti ,current CEO, and John Molbeck, current Chief Operating Officer, remain with HCC. Further, HCC has an experienced management team in each of its operating subsidiaries. Their de-centralised management structure is a key strength for HCC.
HCC under current management has been hitting on all cylinders over 2007. Net earnings are up 13% to $295 mil for the nine months ended 30 September 2007 from $261 million in nine months ended 30 September 2006. The GAAP combined ratio for 2007 and 2006 has been an excellent 83%. On a trailing twelve month basis their earnings are around $370 million.
Frank Bramanti has maintained disciplined & patient approach on the issue of making acquisitions , insisting they will wait for the right opportunities to come up as the insurance cycle continues to soften, and they will not over-pay. In the meantime, HCC continue to pay down their debt and build their cash reserves. Recently they acquired Mulitnational Underwriters (MNU) further adding to their health insurance arm and which will add $40 million in premiums to their business. They aso recently rceived approval for a new Lloyds syndicate platform to help expand their global insurance products.
HCC has a very conservative balance sheet, their fixed income investment portfolio had an average AAA rating. They have debt to capital of just 11.6%. Their fixed income investments are managed by New England Asset Management , a subsidiary of Berkshire Hathaway. They have just $20 million, less than 1% of shareholder equity, in subprime and Alt A bonds which are rated AAA and have not been subject to downgrade. They own no CDOs or CLOs.
HCC valuation looks reasonable and in my view is now being priced both for a recession and a soft insurance market (not to say the share price can’t go lower …all the better!). HCC Insurance has a market cap of around $3.1 billion or $27 per share, around 1.28x my estimate of closing book value of $21 for 2007. This is the one of the lowest price to book value ratios that HCC has traded at in the last decade. Its earnings for this year will be around $3.30 per share ,so the PE ratio is a modest 8x and pays a 1.6% dividend. A lot of downside risks have been priced into this company. Despite options related sales by two directors, insiders have been buying shares over the last 6 months. Of note, John Molbeck ,COO, bought $418K in stock on open market in August at around $27-$28 per share and during January Edward Ellis, Chief Financial Officer, exercised over $1 million in options at $18 per share and has not sold any shares after that exercise.
Finally,HCC Insurance could also become an acquisition target for a large insurance company such as AIG or foreign insurer such as Allianz, given the unique franchise HCC holds in the specialty insurance market. I would expect HCC would command a price to book value of 2x book or $42 per share if sold on a private market basis.
Disclosure: I own shares in HCC Insurance(HCC)
Disclaimer: The opinions expressed by the author’s own views and are not intended as investment advice and should not be relied upon as investment advice.
One insurer which I think represents good value, despite these headwinds, is HCC Insurance. HCC insurance (HCC) is AA rated by S&P and began operations in 1974. It has offices in the US, Europe and the UK.
HCC Insurance is truly a specialty insurer with an excellent franchise . They don’t write general liability or workers compensation insurance. They write numerous products including directors and officers liability, aircraft insurance, marine insurance and life,accident and health products. Many of the insurance products fall outside the standard market so are subject to less price competition. HCC estimate that over 60% of their products fall outside the standard insurance cycle.
Historically, due to its specialty focus and underwriting discipline, HCC has maintained a combined ratio well below the industry average and their loss reserving has been overly conservative with loss redundancies consistently reported with one or two exceptional years. Since 1981, HCC has only made an underwriting loss on only two occasions in 2001 (combined ratio was 101.8%) which included $22 million in losses from the World Trade Centre attacks and 1999(combined ratio was 104.1%).
One way HCC maintains above average profitability is by keeping a solid grip on their underwriting. HCC will buy the Managing General Agents or MGAs that they use. This way they have more control over terms and the pricing of policies.
Around 12 months ago HCC was mired in controversy over the manipulation of options grants which cost the job of former CEO Stephen Way. The ultimate cost of these grants was minimal. A recent legal case resulting from this options was settled for $3 million , which was fairly immaterial. The loss of Stephen Way was far more damaging as he spearheaded HCC since founding the company in 1974 and has been instrumental in HCC’s success. Nevertheless, many of the key operating officers who have been part of HCC’s growth over many years including Frank Bramanti ,current CEO, and John Molbeck, current Chief Operating Officer, remain with HCC. Further, HCC has an experienced management team in each of its operating subsidiaries. Their de-centralised management structure is a key strength for HCC.
HCC under current management has been hitting on all cylinders over 2007. Net earnings are up 13% to $295 mil for the nine months ended 30 September 2007 from $261 million in nine months ended 30 September 2006. The GAAP combined ratio for 2007 and 2006 has been an excellent 83%. On a trailing twelve month basis their earnings are around $370 million.
Frank Bramanti has maintained disciplined & patient approach on the issue of making acquisitions , insisting they will wait for the right opportunities to come up as the insurance cycle continues to soften, and they will not over-pay. In the meantime, HCC continue to pay down their debt and build their cash reserves. Recently they acquired Mulitnational Underwriters (MNU) further adding to their health insurance arm and which will add $40 million in premiums to their business. They aso recently rceived approval for a new Lloyds syndicate platform to help expand their global insurance products.
HCC has a very conservative balance sheet, their fixed income investment portfolio had an average AAA rating. They have debt to capital of just 11.6%. Their fixed income investments are managed by New England Asset Management , a subsidiary of Berkshire Hathaway. They have just $20 million, less than 1% of shareholder equity, in subprime and Alt A bonds which are rated AAA and have not been subject to downgrade. They own no CDOs or CLOs.
HCC valuation looks reasonable and in my view is now being priced both for a recession and a soft insurance market (not to say the share price can’t go lower …all the better!). HCC Insurance has a market cap of around $3.1 billion or $27 per share, around 1.28x my estimate of closing book value of $21 for 2007. This is the one of the lowest price to book value ratios that HCC has traded at in the last decade. Its earnings for this year will be around $3.30 per share ,so the PE ratio is a modest 8x and pays a 1.6% dividend. A lot of downside risks have been priced into this company. Despite options related sales by two directors, insiders have been buying shares over the last 6 months. Of note, John Molbeck ,COO, bought $418K in stock on open market in August at around $27-$28 per share and during January Edward Ellis, Chief Financial Officer, exercised over $1 million in options at $18 per share and has not sold any shares after that exercise.
Finally,HCC Insurance could also become an acquisition target for a large insurance company such as AIG or foreign insurer such as Allianz, given the unique franchise HCC holds in the specialty insurance market. I would expect HCC would command a price to book value of 2x book or $42 per share if sold on a private market basis.
Disclosure: I own shares in HCC Insurance(HCC)
Disclaimer: The opinions expressed by the author’s own views and are not intended as investment advice and should not be relied upon as investment advice.
Monday, February 4, 2008
Insider buying exceeds insider selling in January
from Bloomberg "Total purchases were 1.44 times more than sales, the first time in 13 years that insiders became net buyers, the data show. The S&P 500, the benchmark for American equities, hasn't fallen in the 12 months after insiders bought more than they sold, according to Washington Service data that go back 20 years."
here's the link
http://www.bloomberg.com/apps/news?pid=20601213&sid=aj7iYiQKz5UU&refer=home
here's the link
http://www.bloomberg.com/apps/news?pid=20601213&sid=aj7iYiQKz5UU&refer=home
Saturday, February 2, 2008
A bond insurer bailout is likely to put policyholders interests ahead of shareholders
During Markel Corporation’s recent conference call, Tom Gayner , Chief Investment Officer, explained why Markel had sold off their positions in the mono-line insurer/financial guarantors, Ambac and MBIA.
“In the financial guarantee companies (our portfolio position) is zero. There is too broad a case of dispersions and risk and reward and things that can happen that are way beyond just what you can analyze with numbers. I mean there's political issues involved that are well beyond our circle of competence. That is a battle we're going to sidestep.”(Tom Gayner 4Q 2008 Markel Corporation conference call)
Gayner’s comment on the “political issues” would likely refer to Insurance regulators interest in protecting muni-bond policyholders and ensuring the smooth running of the capital markets for municipal bonds. These political considerations are likely to come before the interests of financial guarantor shareholders.
The man charged with saving the day is Eric Dinallo, NY Insurance Commissioner. Dinallo has already moved to raise insurance capacity in the municipal bond market by inviting Berkshire Hathaway to insure municipal bonds for New York.
Dinallo has also discussed capital raising initiatives with major banks. According to a FT article Jan 28 2008, Dinallo convened with the major banks and told them that $15 billion would be needed to fix the bond insurers and protect their ratings. Various measures discussed included extending credit lines and capital raising initiatives to strengthen their balance sheets.
Dinallo’s current focus is on organizing a bailout of Ambac. As well as capital raising initiatives, a reinsurance plan has also been discussed, according to a recent Bloomberg report. Under this arrangement banks and brokerages, would offer to reinsure losses Ambac suffers on bonds and securities over an agreed upon limit in return for a fee. Any such reinsurance arrangement would involve a number of considerations such as ensuring financial institutions are not reinsuring their own exposures, calculating what the reinsurance loss provisions will be for each bank or brokerage and deteriming how much Ambac will have to pay for any reinsurance.
Bill Ackman, ardent critic of MBIA and Ambac , who is shorting the stock of both companies, believes regulators must act now if they want to protect policy holders. Ackman explained why he is still short MBIA and Ambac in a recent WSJ article
"The reason why we're still short the holding companies of MBIA and Ambac is because we believe the regulators and the banks are working to help policyholders, and not holding-company shareholders," (“Bond Insurer foe soldiers on” Feb 2 2008)
Ackman also mentions in this WSJ article that Banks, who have billions in off-balance sheet investments in CDOs and subprime mortgage securities that are insured by Ambac and MBIA, would see an arbitrage opportunity in helping the ailing bond insurers keep their triple A ratings. According to some estimates up to $70 billion of subprime investments would be written down by investment banks and others if the bond insurers failed. Paying the $15 billion price tag as suggested by Dinallo would be a small price to pay to protect the value of these securities.
Ackman is supportive of a plan to protect muni-bond holders but says” if the bailout is a mechanism for banks to continue to hide losses off balance sheet, then we think it's very bad for the capital markets." (“Bond Insurer foe soldiers on” Feb 2 2008)
What form the eventual bailout of Ambac or potential capital infusions for MBIA will take remains an open question , however this is a precarious time for financial guarantor shareholders. Political considerations such as protecting policy holders as well as ensuring the solvency of insurers are likely to dominate the thinking of Insurance regulators who are intent on stabilising the municipal bond markets.
Disclosure: I own shares in Markel Corp(MKL) and Berkshire Hathaway (BRKB) but no other positions in any securities discussed.
“In the financial guarantee companies (our portfolio position) is zero. There is too broad a case of dispersions and risk and reward and things that can happen that are way beyond just what you can analyze with numbers. I mean there's political issues involved that are well beyond our circle of competence. That is a battle we're going to sidestep.”(Tom Gayner 4Q 2008 Markel Corporation conference call)
Gayner’s comment on the “political issues” would likely refer to Insurance regulators interest in protecting muni-bond policyholders and ensuring the smooth running of the capital markets for municipal bonds. These political considerations are likely to come before the interests of financial guarantor shareholders.
The man charged with saving the day is Eric Dinallo, NY Insurance Commissioner. Dinallo has already moved to raise insurance capacity in the municipal bond market by inviting Berkshire Hathaway to insure municipal bonds for New York.
Dinallo has also discussed capital raising initiatives with major banks. According to a FT article Jan 28 2008, Dinallo convened with the major banks and told them that $15 billion would be needed to fix the bond insurers and protect their ratings. Various measures discussed included extending credit lines and capital raising initiatives to strengthen their balance sheets.
Dinallo’s current focus is on organizing a bailout of Ambac. As well as capital raising initiatives, a reinsurance plan has also been discussed, according to a recent Bloomberg report. Under this arrangement banks and brokerages, would offer to reinsure losses Ambac suffers on bonds and securities over an agreed upon limit in return for a fee. Any such reinsurance arrangement would involve a number of considerations such as ensuring financial institutions are not reinsuring their own exposures, calculating what the reinsurance loss provisions will be for each bank or brokerage and deteriming how much Ambac will have to pay for any reinsurance.
Bill Ackman, ardent critic of MBIA and Ambac , who is shorting the stock of both companies, believes regulators must act now if they want to protect policy holders. Ackman explained why he is still short MBIA and Ambac in a recent WSJ article
"The reason why we're still short the holding companies of MBIA and Ambac is because we believe the regulators and the banks are working to help policyholders, and not holding-company shareholders," (“Bond Insurer foe soldiers on” Feb 2 2008)
Ackman also mentions in this WSJ article that Banks, who have billions in off-balance sheet investments in CDOs and subprime mortgage securities that are insured by Ambac and MBIA, would see an arbitrage opportunity in helping the ailing bond insurers keep their triple A ratings. According to some estimates up to $70 billion of subprime investments would be written down by investment banks and others if the bond insurers failed. Paying the $15 billion price tag as suggested by Dinallo would be a small price to pay to protect the value of these securities.
Ackman is supportive of a plan to protect muni-bond holders but says” if the bailout is a mechanism for banks to continue to hide losses off balance sheet, then we think it's very bad for the capital markets." (“Bond Insurer foe soldiers on” Feb 2 2008)
What form the eventual bailout of Ambac or potential capital infusions for MBIA will take remains an open question , however this is a precarious time for financial guarantor shareholders. Political considerations such as protecting policy holders as well as ensuring the solvency of insurers are likely to dominate the thinking of Insurance regulators who are intent on stabilising the municipal bond markets.
Disclosure: I own shares in Markel Corp(MKL) and Berkshire Hathaway (BRKB) but no other positions in any securities discussed.
Friday, February 1, 2008
Fairholme Fund shareholder letter 2007
Bruce Berkowitz and the team at Fairholme Funds have a great track record and have achieved a 17% plus annual compounded return since starting out in 1999. Their shareholder letters are always insightful.
Insurance holding company Berkshire Hathaway (BRKA/B) remains their top position with around 20% of their portfolio. They continued to add to this position during the period ending November 30 2007. Their rationale on why the credit crunch will benefit Berkshire ...
"With a war chest of roughly $40 billion of cash and $100 billion of other liquid investments, Berkshire is a logical senior lender or last-resort acquirer for the financially wounded."(Fairholme annual report 2007)
They also added to their investment in Sears Holdings (SHLD) . Commenting on public and media criticism of Sear's Chairman, Eddie Lampert ....
"Many despair that Sears seems unable to regain past retail glory, despite a conservative balance sheet and many valuable assets. In searching for instant gratification, most are missing key points. As with Warren Buffett in the late 1990s, many believe Eddie Lampert’s investment skills have faded — but it is just as unlikely that this leopard has lost his spots." (Fairholme annual report 2007)
Finally, the Fairholme management have always kept a 20% plus cash balance , they discuss the philosophy and benefits of doing this...
"The unexpected happens more frequently and with more severity than most expect.Accordingly, cash remains a sizeable chunk of the portfolio. As demonstrated this year, cash helped the Fund to weather portfolio headwinds and allowed the Fund to buy without the need to sell already inexpensive securities on the cheap. Shareholders should not fear a temporary decline in the Fund’s NAV, as lower prices for sound investments usually indicate better bargains and higher future returns — particularly with cash hoarded for such chances." (Fairholme annual report 2007)
Here is the link to the Fairholme shareholder letter and annual report. Enjoy...
http://www.fairholmefunds.com/
Disclosure: I own shares in the Fairholme Fund (FAIRX)
Insurance holding company Berkshire Hathaway (BRKA/B) remains their top position with around 20% of their portfolio. They continued to add to this position during the period ending November 30 2007. Their rationale on why the credit crunch will benefit Berkshire ...
"With a war chest of roughly $40 billion of cash and $100 billion of other liquid investments, Berkshire is a logical senior lender or last-resort acquirer for the financially wounded."(Fairholme annual report 2007)
They also added to their investment in Sears Holdings (SHLD) . Commenting on public and media criticism of Sear's Chairman, Eddie Lampert ....
"Many despair that Sears seems unable to regain past retail glory, despite a conservative balance sheet and many valuable assets. In searching for instant gratification, most are missing key points. As with Warren Buffett in the late 1990s, many believe Eddie Lampert’s investment skills have faded — but it is just as unlikely that this leopard has lost his spots." (Fairholme annual report 2007)
Finally, the Fairholme management have always kept a 20% plus cash balance , they discuss the philosophy and benefits of doing this...
"The unexpected happens more frequently and with more severity than most expect.Accordingly, cash remains a sizeable chunk of the portfolio. As demonstrated this year, cash helped the Fund to weather portfolio headwinds and allowed the Fund to buy without the need to sell already inexpensive securities on the cheap. Shareholders should not fear a temporary decline in the Fund’s NAV, as lower prices for sound investments usually indicate better bargains and higher future returns — particularly with cash hoarded for such chances." (Fairholme annual report 2007)
Here is the link to the Fairholme shareholder letter and annual report. Enjoy...
http://www.fairholmefunds.com/
Disclosure: I own shares in the Fairholme Fund (FAIRX)
Subscribe to:
Posts (Atom)