Search Results for: rga reinsurance

Stock Buybacks vs Dividends vs Reinvestment

Stock Buybacks vs Dividends vs Reinvestment

Posted on by David Merkel

This should be short.? Let me start with some facts.

  1. Buybacks are preferred on a taxation basis to dividends.
  2. But buybacks are especially good when the stock is trading below its franchise value, and especially bad the further above franchise value the stock is trading.
  3. Using slack capital to improve operations, or do little tuck-in acquisitions is probably best of all.? Organic growth is usually the best growth, and small acquisitions can facilitate that.? Small acquisitions are usually not expensive.? Be wary of acquisitions to increase scale, they don’t work so well.
  4. Paying a dividend makes management teams more cognizant of the cost of equity capital, which makes them more effective.
  5. In the reinsurance business in Bermuda, companies with slack capital tend to buy back shares below 1.3x book value, and issue special dividends if they are above that level.

Franchise value is management’s best estimate of the value per share of the company’s equity.? If a management team does not have a firm handle on the value of the company, it has no business buying back stock.? Stock should never be bought back over franchise value.? If you want to reward shareholders then, issue a special dividend.

I am reminded of how in 2000 the CFO of The St. Paul cleverly bought back shares in the 20s, wisely bought back shares in the 30s, stupidly bought back shares in the 40s, and foolishly bought back shares in the 50s.? He was a Johnny One Note, except that he impaired the balance sheet so badly that he became the one of the main causes of why The St. Paul sold out to The Travelers.? Price matters with buybacks.

The reinsurance industry is a good example, because well-run reinsurers are simple companies.? The book of business is worth book value.? The reserves are conservative, which is worth ~0.1x book value or so.? Future underwriting profits are worth ~0.2x book value of so.

So the reinsurers have their standard — the companies are worth around 1.3x book value.? That gives them a discipline for capital — buying back at under 1.3x book, and issuing special dividends above that.

It is my opinion that most buybacks are a waste, even with the tax advantages, given that the buybacks occur at prices over franchise value, sometimes significantly over.? It’s also my opinion that a 2% dividend makes management teams think harder about their shareholders, which is a good thing.

If you get to talk to a management team doing buybacks, ask them if they have a model for what their stock should be worth.? If they don’t have one, tell them they should not be doing buybacks, unless they are buying back the stock cheaply.? Above franchise value, buybacks are a value destroyer.

Reply to a Reader

Reply to a Reader

Posted on by David Merkel

From a Reader:

I really enjoy your blog. ?I have two questions for you. ?First, given your experience, how do you factor the price an asset into your risk assessment of an asset and the sizing of that position in a portfolio? ?I have recently re-read Howard Marks book The Most Important Thing Illuminated. ?It is probably the investment book I have re-read more times than any other except The Intelligent Investor. ?His approach to risk is the best I have read. ?Early in my investment career, I lost most of my money buying what appeared to be cheap stocks that were overlevered. ?So now I make sure the company is not a disintegrating entity (like the directory companies) and have reasonable amount of debt. ?I have used the benchmarks in How to Make Money with Junk Bonds by Levine. ?It one of the best books I have read about junk bonds with narratives like Graham’s old Security Analysis. ?As a result I have tried to size my positions based relative undervaluedness. ?I have played around with Kelly Formula to estimate relative size of positions but in the end have used a more qualitative approach. ?Currently, I have large positions (which will become smaller over time) in some radio and TV firms. I was looking at insurance and some financials as the next area to re-balance and you had mentioned AIZ in your blog and it looks good based upon by insurance valuation metric of (growth in BB & dividends/price-to-book ratio) – yielding almost 20%. ?The only other insurers even close is Fairfax Financial and EGI (a small Canadian auto insurer). ?You had mentioned and I agree with insurance you need to get to know the management. Do you the management of AIZ? ?There governance and incentives appear to be set up correctly. ?Given your insurance background, what is your take on some the life insurers such as Lincoln National (trading at a discount to book) and some of the other hybrids (like HIG and AIG)?

?The other question has to do with faith. ?How do you see your faith playing a role in your investments, vocation and family and the balance thereof? ?I too am an Evangelical Christian and find it challenging with a job (I am a partner in a business valuation firm), family (2 great kids and a beautiful wife) and a passion for investment analysis. ?

?You may want to check out The Corner of Berkshire and Fairfax if you have not already. ?If so inclined you may also want to go to Toronto in May for the Fairfax annual meeting, it the best gathering of value investors I have found by far.

I don’t do much with position sizing.? Every asset has the same target weight in my portfolio, aside from double-weights, for stocks of which I have certainty. I only have two double-weights: Reinsurance Group of America, and National Western Life Insurance.

Until I find that my trading is hindered by size of the float, I will try to maintain relatively equal allocations.

Assurant is a very well run firm, and the negatives around reducing premiums on force-placed homeowners insurance are overdone.? If it sells off significantly, it will become another of my double-weights.

Regarding your early problems with value investing, you have to remember that the core of value investing is not cheapness, it is margin of safety.? We make money by not losing it, and having positive surprises on our neglected companies.

As for HIG & AIG, I don’t find them attractive because they have had cultures of under-reserving.? Even with all they have gone through, I am reluctant to buy them amid cheapness and low operating ROEs.

Life insurers like LNC, which have written a lot of variable products business, are unattractive because the accounting does not reflect the real economics, and the guarantees they have written are under-reserved.

As for how my faith (in Christ) influences my investing, there is the usual — I don’t invest in any businesses that I could not ethically run as a sole owner.? Thus I avoid healthcare, entertainment, legal loansharking, and any company that is widely known to cheat people.

As for my time management, it has always been family first, work second, Church third, and other things behind that.? There is no other good way.

Beyond that, my blog is replete with analyses that tell people to avoid scams, and embrace opportunities when they are available.? Avoid complexity and invest in vanilla investments.? You will do best that way.

Full disclosure: long RGA NWLI AIZ

On Insurance Investing, Part 3

On Insurance Investing, Part 3

Posted on by David Merkel

Subtitle: The Value of Momentum and Mean-Reversion

In the extreme short-run, mean-reversion dominates.? Over a year, momentum dominates.? Over a four year period mean-reversion returns.

The same applies to insurance stocks.? This is perhaps more true of insurance stocks, because the accounting is so opaque.? When accounting is opaque, it takes a longer period of time for market prices to catch up with the underlying reality.

I do not trust momentum naively.? I compare it to fundamentals and ask if it has more room to run or fall.? Remember, insurance is a mature industry… there are few sustainable competitive advantages here.? Near turning points, valuations are stretched or in the dumps.

That said, here is my table of momentum for the insurance industry:

company ticker img_desc

mktcap

 prchg_52w
Radian Group Inc. RDN 0715 – Insurance (Property & Casualty) ?????????????? 882.0

155%
Homeowners Choice, Inc. HCI 0715 – Insurance (Property & Casualty) ?????????????? 241.1

146%
Stewart Information Services C STC 0715 – Insurance (Property & Casualty) ?????????????? 528.1

100%
Imperial Holdings, Inc. IFT 0712 – Insurance (Miscellaneous) ???????????????? 89.7

86%
Kingsway Financial Services In KFS 0715 – Insurance (Property & Casualty) ???????????????? 54.0

68%
Atlantic American Corporation AAME 0709 – Insurance (Life) ???????????????? 69.7

63%
eHealth, Inc. EHTH 0712 – Insurance (Miscellaneous) ?????????????? 506.9

59%
Investors Title Company ITIC 0715 – Insurance (Property & Casualty) ?????????????? 135.2

59%
First American Financial Corp FAF 0715 – Insurance (Property & Casualty) ?????????? 2,522.8

58%
Coventry Health Care, Inc. CVH 0706 – Insurance (Accident & Health) ?????????? 6,239.6

57%
Hilltop Holdings Inc. HTH 0715 – Insurance (Property & Casualty) ?????????????? 753.0

55%
CNO Financial Group Inc CNO 0709 – Insurance (Life) ?????????? 2,315.5

52%
Allstate Corporation, The ALL 0715 – Insurance (Property & Casualty) ???????? 21,154.9

51%
Symetra Financial Corporation SYA 0709 – Insurance (Life) ?????????? 1,629.6

50%
American International Group, AIG 0715 – Insurance (Property & Casualty) ???????? 54,180.4

46%
Sun Life Financial Inc. (USA) SLF 0709 – Insurance (Life) ???????? 17,505.2

46%
Platinum Underwriters Holdings PTP 0715 – Insurance (Property & Casualty) ?????????? 1,595.2

43%
Hartford Financial Services Gr HIG 0715 – Insurance (Property & Casualty) ???????? 10,829.2

41%
Lincoln National Corporation LNC 0709 – Insurance (Life) ?????????? 8,005.7

41%
Amtrust Financial Services, In AFSI 0715 – Insurance (Property & Casualty) ?????????? 2,232.4

40%
HCC Insurance Holdings, Inc. HCC 0715 – Insurance (Property & Casualty) ?????????? 3,989.2

39%
Fidelity National Financial In FNF 0715 – Insurance (Property & Casualty) ?????????? 5,669.5

38%
Horace Mann Educators Corporat HMN 0715 – Insurance (Property & Casualty) ?????????????? 847.4

38%
Montpelier Re Holdings Ltd. MRH 0715 – Insurance (Property & Casualty) ?????????? 1,341.4

37%
Seabright Holdings Inc SBX 0715 – Insurance (Property & Casualty) ?????????????? 249.3

37%
Verisk Analytics, Inc. VRSK 0712 – Insurance (Miscellaneous) ?????????? 9,172.3

37%
AEGON N.V. (ADR) AEG 0709 – Insurance (Life) ??? ?????13,026.1

36%
Fortegra Financial Corp FRF 0712 – Insurance (Miscellaneous) ?????????????? 179.3

35%
XL Group plc XL 0715 – Insurance (Property & Casualty) ?????????? 8,353.8

35%
Primerica, Inc. PRI 0709 – Insurance (Life) ?????????? 1,877.3

34%
Allied World Assurance Co Hold AWH 0715 – Insurance (Property & Casualty) ?????????? 2,946.7

34%
Travelers Companies, Inc., The TRV 0715 – Insurance (Property & Casualty) ???????? 29,569.3

33%
Everest Re Group Ltd RE 0715 – Insurance (Property & Casualty) ?????????? 5,944.0

33%
Prudential Public Limited Comp PUK 0709 – Insurance (Life) ???????? 38,254.3

33%
CIGNA Corporation CI 0706 – Insurance (Accident & Health) ???????? 16,718.9

33%
United Insurance Holdings Corp UIHC 0715 – Insurance (Property & Casualty) ???????????????? 91.9

32%
Partnerre Ltd PRE 0715 – Insurance (Property & Casualty) ?????????? 5,236.2

32%
Cincinnati Financial Corporati CINF 0715 – Insurance (Property & Casualty) ?????????? 6,959.7

29%
Protective Life Corp. PL 0709 – Insurance (Life) ?????????? 2,500.8

29%
Argo Group International Holdi AGII 0715 – Insurance (Property & Casualty) ?????????????? 926.7

29%
Hallmark Financial Services, I HALL 0715 – Insurance (Property & Casualty) ?????????????? 171.6

26%
Aspen Insurance Holdings Limit AHL 0715 – Insurance (Property & Casualty) ?????????? 2,380.3

26%
Alterra Capital Holdings Ltd ALTE 0715 – Insurance (Property & Casualty) ?????????? 2,911.1

25%
Torchmark Corporation TMK 0709 – Insurance (Life) ?????????? 5,314.2

24%
Alleghany Corporation Y 0715 – Insurance (Property & Casualty) ?????????? 6,048.5

24%
Eastern Insurance Holdings Inc EIHI 0709 – Insurance (Life) ?????????????? 135.2

24%
Berkshire Hathaway Inc. BRK.A 0715 – Insurance (Property & Casualty) ????? 242,512.2

23%
Manulife Financial Corporation MFC 0709 – Insurance (Life) ???????? 26,899.6

23%
Arch Capital Group Ltd. ACGL 0715 – Insurance (Property & Casualty) ?????????? 6,188.5

22%
Enstar Group Ltd. ESGR 0715 – Insurance (Property & Casualty) ?????????? 2,006.2

22%
Axis Capital Holdings Limited AXS 0715 – Insurance (Property & Casualty) ?????????? 4,664.5

22%
Genworth Financial? Inc GNW 0709 – Insurance (Life) ?????????? 4,647.8

21%
Aon PLC AON 0712 – Insurance (Miscellaneous) ???????? 18,361.6

21%
American Equity Investment Lif AEL 0709 – Insurance (Life) ?????????????? 862.9

20%
White Mountains Insurance Grou WTM 0715 – Insurance (Property & Casualty) ?????????? 3,585.0

20%
ACE Limited ACE 0715 – Insurance (Property & Casualty) ???????? 28,999.2

20%
Markel Corporation MKL 0715 – Insurance (Property & Casualty) ?????????? 4,581.2

19%
United Fire Group, Inc. UFCS 0715 – Insurance (Property & Casualty) ?????????????? 595.0

19%
Employers Holdings, Inc. EIG 0715 – Insurance (Property & Casualty) ?????????????? 658.7

18%
W.R. Berkley Corporation WRB 0715 – Insurance (Property & Casualty) ?????????? 5,643.1

18%
Amerisafe, Inc. AMSF 0715 – Insurance (Property & Casualty) ?????????????? 517.4

18%
National Interstate Corporatio NATL 0715 – Insurance (Property & Casualty) ???????? ??????592.7

18%
Old Republic International Cor ORI 0715 – Insurance (Property & Casualty) ?????????? 2,906.0

17%
Kansas City Life Insurance Co KCLI 0709 – Insurance (Life) ?????????????? 418.7

17%
Brown & Brown, Inc. BRO 0712 – Insurance (Miscellaneous) ?????????? 3,901.8

17%
Aetna Inc. AET 0706 – Insurance (Accident & Health) ???????? 16,644.7

17%
Crawford & Company CRD.B 0712 – Insurance (Miscellaneous) ?????????????? 305.5

16%
Universal Insurance Holdings, UVE 0715 – Insurance (Property & Casualty) ?????????????? 182.4

16%
Chubb Corporation, The CB 0715 – Insurance (Property & Casualty) ???????? 21,220.1

15%
National Western Life Insuranc NWLI 0709 – Insurance (Life) ?????????????? 593.0

15%
American Financial Group AFG 0715 – Insurance (Property & Casualty) ?????????? 3,862.0

15%
Loews Corporation L 0715 – Insurance (Property & Casualty) ???????? 17,109.9

15%
Endurance Specialty Holdings L ENH 0715 – Insurance (Property & Casualty) ?????????? 1,839.7

14%
China Life Insurance Company L LFC 0709 – Insurance (Life) ???????? 91,295.3

14%
State Auto Financial STFC 0715 – Insurance (Property & Casualty) ?????????????? 602.7

14%
Principal Financial Group Inc PFG 0706 – Insurance (Accident & Health) ?????????? 9,036.6

13%
EMC Insurance Group Inc. EMCI 0715 – Insurance (Property & Casualty) ?????????????? 324.6

13%
Maiden Holdings, Ltd. MHLD 0715 – Insurance (Property & Casualty) ?????????????? 758.2

13%
RenaissanceRe Holdings Ltd. RNR 0715 – Insurance (Property & Casualty) ?????????? 3,982.5

13%
Validus Holdings, Ltd. VR 0709 – Insurance (Life) ?????????? 3,340.1

12%
Selective Insurance Group SIGI 0715 – Insurance (Property & Casualty) ?????????? 1,106.6

12%
UnitedHealth Group Inc. UNH 0706 – Insurance (Accident & Health) ???????? 57,244.5

11%
Hanover Insurance Group, Inc., THG 0715 – Insurance (Property & Casualty) ?????????? 1,821.7

11%
Cna Financial Corp CNA 0715 – Insurance (Property & Casualty) ?????????? 8,351.3

11%
ProAssurance Corporation PRA 0715 – Insurance (Property & Casualty) ?????????? 2,752.6

11%
Assured Guaranty Ltd. AGO 0715 – Insurance (Property & Casualty) ?????????? 3,264.4

11%
Marsh & McLennan Companies, In MMC 0712 – Insurance (Miscellaneous) ???????? 19,053.5

10%
Safety Insurance Group, Inc. SAFT 0715 – Insurance (Property & Casualty) ?????????????? 728.8

10%
Unico American Corporation UNAM 0715 – Insurance (Property & Casualty) ???????????????? 68.2

10%
Progressive Corporation, The PGR 0715 – Insurance (Property & Casualty) ???????? 13,682.1

10%
Independence Holding Company IHC 0709 – Insurance (Life) ?????????????? 167.3

10%
AFLAC Incorporated AFL 0706 – Insurance (Accident & Health) ???????? 25,077.1

10%
Navigators Group, Inc, The NAVG 0715 – Insurance (Property & Casualty) ?????????????? 751.0

10%
Metlife Inc MET 0709 – Insurance (Life) ???????? 41,077.8

9%
Kemper Corp KMPR 0715 – Insurance (Property & Casualty) ?????????? 1,874.3

8%
ING Groep N.V. (ADR) ING 0709 – Insurance (Life) ???????? 37,707.5

7%
Arthur J. Gallagher & Co. AJG 0712 – Insurance (Miscellaneous) ?????????? 4,502.5

7%
American National Insurance Co ANAT 0715 – Insurance (Property & Casualty) ?????????? 2,070.2

7%
Prudential Financial Inc PRU 0709 – Insurance (Life) ???????? 27,417.8

6%
StanCorp Financial Group, Inc. SFG 0706 – Insurance (Accident & Health) ?????????? 1,776.7

4%
Global Indemnity plc GBLI 0715 – Insurance (Property & Casualty) ?????????????? 535.1

4%
WellPoint, Inc. WLP 0706 – Insurance (Accident & Health) ???????? 20,092.9

3%
FBL Financial Group FFG 0709 – Insurance (Life) ?????????????? 902.6

2%
Unum Group UNM 0709 – Insurance (Life) ?????????? 6,407.6

2%
Infinity Property and Casualty IPCC 0715 – Insurance (Property & Casualty) ?????????????? 684.9

2%
Baldwin & Lyons, Inc. BWINB 0715 – Insurance (Property & Casualty) ?????????????? 340.7

1%
Molina Healthcare, Inc. MOH 0706 – Insurance (Accident & Health) ?????????? 1,357.9

-2%
Reinsurance Group of America I RGA 0706 – Insurance (Accident & Health) ?????????? 4,098.1

-2%
Assurant, Inc. AIZ 0709 – Insurance (Life) ?????????? 3,039.7

-3%
RLI Corp. RLI 0715 – Insurance (Property & Casualty) ?????????? 1,439.5

-6%
Erie Indemnity Company ERIE 0715 – Insurance (Property & Casualty) ?????????? 3,283.2

-7%
Citizens, Inc. CIA 0709 – Insurance (Life) ?????????????? 459.8

-8%
American Safety Insurance Hold ASI 0715 – Insurance (Property & Casualty) ?????????????? 196.8

-8%
Tower Group Inc TWGP 0715 – Insurance (Property & Casualty) ?????????????? 740.9

-10%
Willis Group Holdings PLC WSH 0712 – Insurance (Miscellaneous) ?????????? 6,032.0

-10%
Mercury General Corporation MCY 0715 – Insurance (Property & Casualty) ?????????? 2,183.3

-11%
OneBeacon Insurance Group, Ltd OB 0715 – Insurance (Property & Casualty) ?????????? 1,308.7

-12%
Greenlight Capital Re, Ltd. GLRE 0715 – Insurance (Property & Casualty) ?????????????? 835.9

-12%
Donegal Group Inc. DGICA 0715 – Insurance (Property & Casualty) ?????????????? 371.4

-12%
Universal American Corporation UAM 0706 – Insurance (Accident & Health) ??? ???????????801.3

-13%
Humana Inc. HUM 0706 – Insurance (Accident & Health) ???????? 11,855.7

-14%
CNinsure Inc. (ADR) CISG 0712 – Insurance (Miscellaneous) ?????????????? 330.1

-17%
Health Net, Inc. HNT 0706 – Insurance (Accident & Health) ?????????? 2,204.9

-24%
MGIC Investment Corp. MTG 0715 – Insurance (Property & Casualty) ?????????????? 581.9

-26%
MBIA Inc. MBI 0715 – Insurance (Property & Casualty) ?????????? 1,631.2

-30%
Meadowbrook Insurance Group, I MIG 0715 – Insurance (Property & Casualty) ?????????????? 318.1

-36%
Phoenix Companies, Inc., The PNX 0709 – Insurance (Life) ?????????????? 156.1

-36%
Life Partners Holdings, Inc. LPHI 0712 – Insurance (Miscellaneous) ???????????????? 50.3

-40%

I note that the basement contains a lot of funky companies with issues.? The penthouse contains a lot of credit-sensitive companies that have rallied off of the strong equity market, and moderately strong housing market.

I do not have much trust in the momentum now, because many are trusting in the rosy scenario where losses have been normalized.? I do not think that is the case, and think that there will be additional losses from credit risk coming soon.

On Insurance Investing, Part 2

On Insurance Investing, Part 2

Posted on by David Merkel

If you grow book value, particularly if your liabilities are short, you will grow market value.? Many reinsurance and insurance companies aim at growing fully convertible book value per share.

Fully convertible book value per share assumes that you invest your dividends in the common stock (without taxation), and thus compound your gains through reinvestment, taking account of dilution.? Hmmm… when will someone dream up the idea of structuring an insurance company as an MLP or a REIT?? I don’t think it is likely, but maybe someone could dream it up.

It also implies that all possible dilution is factored in from convertible preferred stock or convertible bonds.? Now insurance companies tend to trade near book value over the long run, so companies that can grow their book value rapidly and pay dividends can be interesting investments.? Particularly where the liabilities of the company are short — property reinsurance or personal lines insurance, growth in book value plus dividends tends to be a reliable indicator of value creation.

If liabilities are longer, it gets more questionable, because under-reserving becomes more likely — it is very hard to be certain of the reserving of long-dated or volatile coverages.

Anyway, here is a list of insurance companies, and how they have accumulated book value plus dividends over the past seven years.? Note that this is a mathematical calculation off a limited database, and that splits and M&A can throw this calculation off.? With that caveat, here is the list:

company ticker sic img_desc mktcap Growth of FCBV
Life Partners Holdings, Inc. LPHI 6411 0712 – Insurance (Miscellaneous)

50.7

76%
Universal Insurance Holdings, UVE 6331 0715 – Insurance (Property & Casualty)

185.2

75%
CNinsure Inc. (ADR) CISG 6411 0712 – Insurance (Miscellaneous)

337.6

56%
Amtrust Financial Services, In AFSI 6331 0715 – Insurance (Property & Casualty)

2,128.7

38%
Employers Holdings, Inc. EIG 6331 0715 – Insurance (Property & Casualty)

652.6

32%
Enstar Group Ltd. ESGR 6331 0715 – Insurance (Property & Casualty)

1,951.0

26%
Tower Group Inc TWGP 6331 0715 – Insurance (Property & Casualty)

734.8

25%
Amerisafe, Inc. AMSF 6331 0715 – Insurance (Property & Casualty)

508.5

23%
Humana Inc. HUM 6324 0706 – Insurance (Accident & Health)

11,297.2

21%
Allied World Assurance Co Hold AWH 6331 0715 – Insurance (Property & Casualty)

2,856.1

21%
Arthur J. Gallagher & Co. AJG 6411 0712 – Insurance (Miscellaneous)

4,441.2

20%
Willis Group Holdings PLC WSH 6411 0712 – Insurance (Miscellaneous)

6,009.5

20%
China Life Insurance Company L LFC 6311 0709 – Insurance (Life)

94,339.3

20%
ProAssurance Corporation PRA 6331 0715 – Insurance (Property & Casualty)

2,698.5

19%
RenaissanceRe Holdings Ltd. RNR 6331 0715 – Insurance (Property & Casualty)

3,949.8

18%
National Interstate Corporatio NATL 6331 0715 – Insurance (Property & Casualty)

576.7

18%
Argo Group International Holdi AGII 6331 0715 – Insurance (Property & Casualty)

910.3

17%
Brown & Brown, Inc. BRO 6411 0712 – Insurance (Miscellaneous)

3,851.4

17%
AFLAC Incorporated AFL 6321 0706 – Insurance (Accident & Health)

24,134.6

16%
Endurance Specialty Holdings L ENH 6331 0715 – Insurance (Property & Casualty)

1,796.8

16%
W.R. Berkley Corporation WRB 6331 0715 – Insurance (Property & Casualty)

5,455.7

15%
American Financial Group AFG 6331 0715 – Insurance (Property & Casualty)

3,772.7

15%
Horace Mann Educators Corporat HMN 6331 0715 – Insurance (Property & Casualty)

830.9

15%
Eastern Insurance Holdings Inc EIHI 6311 0709 – Insurance (Life)

135.5

15%
Validus Holdings, Ltd. VR 6331 0709 – Insurance (Life)

3,296.1

15%
CIGNA Corporation CI 6324 0706 – Insurance (Accident & Health)

16,104.2

14%
Reinsurance Group of America I RGA 6321 0706 – Insurance (Accident & Health)

4,143.2

14%
Safety Insurance Group, Inc. SAFT 6331 0715 – Insurance (Property & Casualty)

715.6

14%
Chubb Corporation, The CB 6331 0715 – Insurance (Property & Casualty)

20,701.5

13%
Loews Corporation L 6331 0715 – Insurance (Property & Casualty)

16,854.0

13%
ACE Limited ACE 6351 0715 – Insurance (Property & Casualty)

28,285.6

13%
HCC Insurance Holdings, Inc. HCC 6331 0715 – Insurance (Property & Casualty)

3,937.5

13%
Travelers Companies, Inc., The TRV 6331 0715 – Insurance (Property & Casualty)

29,108.4

13%
Coventry Health Care, Inc. CVH 6324 0706 – Insurance (Accident & Health)

6,080.9

12%
Markel Corporation MKL 6331 0715 – Insurance (Property & Casualty)

4,456.4

12%
Torchmark Corporation TMK 6311 0709 – Insurance (Life)

5,103.5

12%
UnitedHealth Group Inc. UNH 6324 0706 – Insurance (Accident & Health)

55,732.6

12%
Partnerre Ltd PRE 6331 0715 – Insurance (Property & Casualty)

5,116.2

12%
Meadowbrook Insurance Group, I MIG 6331 0715 – Insurance (Property & Casualty)

311.6

12%
StanCorp Financial Group, Inc. SFG 6321 0706 – Insurance (Accident & Health)

1,704.1

12%
Prudential Financial Inc PRU 6311 0709 – Insurance (Life)

26,777.4

12%
Infinity Property and Casualty IPCC 6331 0715 – Insurance (Property & Casualty)

688.6

12%
Assurant, Inc. AIZ 6311 0709 – Insurance (Life)

2,935.0

12%
Greenlight Capital Re, Ltd. GLRE 6331 0715 – Insurance (Property & Casualty)

837.4

12%
Progressive Corporation, The PGR 6331 0715 – Insurance (Property & Casualty)

13,738.8

11%
Protective Life Corp. PL 6311 0709 – Insurance (Life)

2,451.0

11%
Axis Capital Holdings Limited AXS 6331 0715 – Insurance (Property & Casualty)

4,508.1

11%
Molina Healthcare, Inc. MOH 6324 0706 – Insurance (Accident & Health)

1,300.1

11%
American Equity Investment Lif AEL 6311 0709 – Insurance (Life)

834.1

11%
Symetra Financial Corporation SYA 6311 0709 – Insurance (Life)

1,578.3

11%
Aon PLC AON 6411 0712 – Insurance (Miscellaneous)

18,199.1

10%
Mercury General Corporation MCY 6331 0715 – Insurance (Property & Casualty)

2,169.0

10%
Everest Re Group Ltd RE 6331 0715 – Insurance (Property & Casualty)

5,843.7

10%
American Safety Insurance Hold ASI 6331 0715 – Insurance (Property & Casualty)

197.1

10%
Prudential Public Limited Comp PUK 6311 0709 – Insurance (Life)

38,071.4

10%
Aspen Insurance Holdings Limit AHL 6331 0715 – Insurance (Property & Casualty)

2,324.9

10%
Berkshire Hathaway Inc. BRK.A 6331 0715 – Insurance (Property & Casualty)

236,577.4

9%
EMC Insurance Group Inc. EMCI 6331 0715 – Insurance (Property & Casualty)

326.3

9%
RLI Corp. RLI 6331 0715 – Insurance (Property & Casualty)

1,439.1

9%
Hanover Insurance Group, Inc., THG 6331 0715 – Insurance (Property & Casualty)

1,781.6

9%
Unico American Corporation UNAM 6331 0715 – Insurance (Property & Casualty)

66.6

9%
Montpelier Re Holdings Ltd. MRH 6331 0715 – Insurance (Property & Casualty)

1,318.1

9%
Seabright Holdings Inc SBX 6331 0715 – Insurance (Property & Casualty)

249.0

9%
Alleghany Corporation Y 6331 0715 – Insurance (Property & Casualty)

5,950.7

8%
Hallmark Financial Services, I HALL 6331 0715 – Insurance (Property & Casualty)

176.8

8%
White Mountains Insurance Grou WTM 6331 0715 – Insurance (Property & Casualty)

3,509.0

8%
Investors Title Company ITIC 6361 0715 – Insurance (Property & Casualty)

139.1

8%
Marsh & McLennan Companies, In MMC 6411 0712 – Insurance (Miscellaneous)

19,020.9

8%
FBL Financial Group FFG 6311 0709 – Insurance (Life)

869.4

8%
Erie Indemnity Company ERIE 6331 0715 – Insurance (Property & Casualty)

3,264.4

8%
Metlife Inc MET 6311 0709 – Insurance (Life)

39,615.8

8%
Aetna Inc. AET 6324 0706 – Insurance (Accident & Health)

15,698.1

8%
WellPoint, Inc. WLP 6324 0706 – Insurance (Accident & Health)

19,054.4

8%
Hilltop Holdings Inc. HTH 6331 0715 – Insurance (Property & Casualty)

773.3

8%
Citizens, Inc. CIA 6311 0709 – Insurance (Life)

485.8

7%
Donegal Group Inc. DGICA 6331 0715 – Insurance (Property & Casualty)

370.9

7%
National Western Life Insuranc NWLI 6311 0709 – Insurance (Life)

596.1

7%
Navigators Group, Inc, The NAVG 6331 0715 – Insurance (Property & Casualty)

766.0

7%
Kemper Corp KMPR 6331 0715 – Insurance (Property & Casualty)

1,842.8

7%
Allstate Corporation, The ALL 6331 0715 – Insurance (Property & Casualty)

20,817.6

7%
Cna Financial Corp CNA 6331 0715 – Insurance (Property & Casualty)

7,982.2

6%
Lincoln National Corporation LNC 6311 0709 – Insurance (Life)

7,626.2

6%
Arch Capital Group Ltd. ACGL 6331 0715 – Insurance (Property & Casualty)

6,084.7

6%
Platinum Underwriters Holdings PTP 6331 0715 – Insurance (Property & Casualty)

1,565.0

6%
Baldwin & Lyons, Inc. BWINB 6331 0715 – Insurance (Property & Casualty)

339.5

5%
Selective Insurance Group SIGI 6331 0715 – Insurance (Property & Casualty)

1,086.8

5%
United Fire Group, Inc. UFCS 6331 0715 – Insurance (Property & Casualty)

587.9

5%
Universal American Corporation UAM 6324 0706 – Insurance (Accident & Health)

793.6

5%
Principal Financial Group Inc PFG 6321 0706 – Insurance (Accident & Health)

8,663.8

5%
American National Insurance Co ANAT 6331 0715 – Insurance (Property & Casualty)

2,055.2

4%
Kansas City Life Insurance Co KCLI 6311 0709 – Insurance (Life)

416.9

4%
Cincinnati Financial Corporati CINF 6331 0715 – Insurance (Property & Casualty)

6,771.0

3%
Independence Holding Company IHC 6311 0709 – Insurance (Life)

169.1

3%
State Auto Financial STFC 6331 0715 – Insurance (Property & Casualty)

582.5

3%
Unum Group UNM 6311 0709 – Insurance (Life)

6,190.3

3%
Sun Life Financial Inc. (USA) SLF 6311 0709 – Insurance (Life)

17,283.4

3%
Alterra Capital Holdings Ltd ALTE 6331 0715 – Insurance (Property & Casualty)

2,861.2

3%
Assured Guaranty Ltd. AGO 6351 0715 – Insurance (Property & Casualty)

2,911.2

3%
Fidelity National Financial In FNF 6361 0715 – Insurance (Property & Casualty)

5,838.5

3%
Atlantic American Corporation AAME 6311 0709 – Insurance (Life)

69.2

2%
Health Net, Inc. HNT 6324 0706 – Insurance (Accident & Health)

2,140.7

2%
Hartford Financial Services Gr HIG 6331 0715 – Insurance (Property & Casualty)

10,641.6

2%
ING Groep N.V. (ADR) ING 6311 0709 – Insurance (Life)

37,878.4

2%
Manulife Financial Corporation MFC 6311 0709 – Insurance (Life)

26,357.8

2%
Genworth Financial? Inc GNW 6311 0709 – Insurance (Life)

4,500.3

2%
AEGON N.V. (ADR) AEG 6311 0709 – Insurance (Life)

13,073.0

1%
Old Republic International Cor ORI 6351 0715 – Insurance (Property & Casualty)

2,994.2

1%
OneBeacon Insurance Group, Ltd OB 6331 0715 – Insurance (Property & Casualty)

1,328.8

0%
Global Indemnity plc GBLI 6331 0715 – Insurance (Property & Casualty)

555.8

-4%
CNO Financial Group Inc CNO 6311 0709 – Insurance (Life)

2,192.9

-5%
Crawford & Company CRD.B 6411 0712 – Insurance (Miscellaneous)

326.7

-5%
Stewart Information Services C STC 6361 0715 – Insurance (Property & Casualty)

536.7

-9%
XL Group plc XL 6331 0715 – Insurance (Property & Casualty)

8,182.5

-9%
Phoenix Companies, Inc., The PNX 6311 0709 – Insurance (Life)

155.4

-14%
First Acceptance Corporation FAC 6331 0715 – Insurance (Property & Casualty)

51.2

-17%
Radian Group Inc. RDN 6351 0715 – Insurance (Property & Casualty)

820.6

-23%
MBIA Inc. MBI 6351 0715 – Insurance (Property & Casualty)

1,561.5

-24%
Kingsway Financial Services In KFS 6331 0715 – Insurance (Property & Casualty)

53.4

-25%
MGIC Investment Corp. MTG 6351 0715 – Insurance (Property & Casualty)

567.7

-28%
American International Group, AIG 6331 0715 – Insurance (Property & Casualty)

51,803.5

-32%
eHealth, Inc. EHTH 6411 0712 – Insurance (Miscellaneous)

501.2
Maiden Holdings, Ltd. MHLD 6331 0715 – Insurance (Property & Casualty)

725.7
United Insurance Holdings Corp UIHC 6331 0715 – Insurance (Property & Casualty)

92.7
Homeowners Choice, Inc. HCI 6331 0715 – Insurance (Property & Casualty)

240.0
Verisk Analytics, Inc. VRSK 6411 0712 – Insurance (Miscellaneous)

9,103.9
Primerica, Inc. PRI 6311 0709 – Insurance (Life)

1,868.1
First American Financial Corp FAF 6361 0715 – Insurance (Property & Casualty)

2,648.6
Imperial Holdings, Inc. IFT 6411 0712 – Insurance (Miscellaneous)

86.3
Fortegra Financial Corp FRF 6411 0712 – Insurance (Miscellaneous)

177.3

Now, it makes a lot of difference how dividends are set, and how buybacks are done.? Dividends should reflect a conservative estimate of how much free cash flow that a company is willing to part with.? Buybacks should only be done when it is at a discount to the intrinsic value of the firm.? If you have to distribute capital when the stock price is above fair market value, do a special dividend.

And when capital is dear, stop the buyback, maybe even reduce the dividend, or do a small secondary IPO.? When there are genuinely profitable opportunities to write business take them.

This is yet another reason why insurance stocks tend to trade near book — capital is so flexible that if capital can enter and exit easily, it should trade near book, because capital enters and exits at book, for the most part.

Ignore the extremes, but realize that companies that compound their fully converted book values can be excellent investments.

On Insurance Investing, Part 1

On Insurance Investing, Part 1

Posted on by David Merkel

Shrinking the Share Count

This post was prompted by this post from Avondale Asset Management on how the share count from The Travelers has shrunk since 2005 (two years after their merger with The St. Paul, a company that I once worked for).? Only 57% of the shares remain.? Way to go.

Now, buying back stock is not a panacea.? It is only good when the shares are trading below or not much above fair market value.? What’s fair market value, you ask?? Well, that’s not an easy question to answer in most places, but in insurance, it means around 1.3x book value, adjusting for intangibles that have no economic significance.

Now if a company has some proprietary products, technologies or methods that give it a sustainable competitive advantage, that multiple can rise — AFLAC might be an example of that.? But sustainable competitive advantages in a mature and competitive industry like insurance are rare.? Above the 1.3x book value hurdle, it would be better to do special dividends.

Avondale was spot-on to feature The Travelers.? They are in the upper end of those that bought back shares 2005-2012.? Here’s my list:

Company Ticker Industry % of shares remaining since 2005
WellPoint, Inc. WLP 0706 – Insurance (Accident & Health)

52%
Infinity Property and Casualty IPCC 0715 – Insurance (Property & Casualty)

56%
Travelers Companies, Inc., The TRV 0715 – Insurance (Property & Casualty)

57%
Aetna Inc. AET 0706 – Insurance (Accident & Health)

58%
Employers Holdings, Inc. EIG 0715 – Insurance (Property & Casualty)

59%
White Mountains Insurance Grou WTM 0715 – Insurance (Property & Casualty)

60%
Torchmark Corporation TMK 0709 – Insurance (Life)

61%
Assurant, Inc. AIZ 0709 – Insurance (Life)

61%
Chubb Corporation, The CB 0715 – Insurance (Property & Casualty)

67%
Erie Indemnity Company ERIE 0715 – Insurance (Property & Casualty)

68%
RenaissanceRe Holdings Ltd. RNR 0715 – Insurance (Property & Casualty)

69%
Endurance Specialty Holdings L ENH 0715 – Insurance (Property & Casualty)

69%
Loews Corporation L 0715 – Insurance (Property & Casualty)

71%
Allied World Assurance Co Hold AWH 0715 – Insurance (Property & Casualty)

71%
W.R. Berkley Corporation WRB 0715 – Insurance (Property & Casualty)

72%
Health Net, Inc. HNT 0706 – Insurance (Accident & Health)

72%
Platinum Underwriters Holdings PTP 0715 – Insurance (Property & Casualty)

72%
Allstate Corporation, The ALL 0715 – Insurance (Property & Casualty)

73%
CIGNA Corporation CI 0706 – Insurance (Accident & Health)

75%
UnitedHealth Group Inc. UNH 0706 – Insurance (Accident & Health)

77%
Progressive Corporation, The PGR 0715 – Insurance (Property & Casualty)

78%
Montpelier Re Holdings Ltd. MRH 0715 – Insurance (Property & Casualty)

78%
Verisk Analytics, Inc. VRSK 0712 – Insurance (Miscellaneous)

78%
American Financial Group AFG 0715 – Insurance (Property & Casualty)

80%
StanCorp Financial Group, Inc. SFG 0706 – Insurance (Accident & Health)

80%
Primerica, Inc. PRI 0709 – Insurance (Life)

80%
Investors Title Company ITIC 0715 – Insurance (Property & Casualty)

81%
Hanover Insurance Group, Inc., THG 0715 – Insurance (Property & Casualty)

83%
Coventry Health Care, Inc. CVH 0706 – Insurance (Accident & Health)

84%
RLI Corp. RLI 0715 – Insurance (Property & Casualty)

84%
Kemper Corp KMPR 0715 – Insurance (Property & Casualty)

84%
Axis Capital Holdings Limited AXS 0715 – Insurance (Property & Casualty)

85%
First Acceptance Corporation FAC 0715 – Insurance (Property & Casualty)

86%
Everest Re Group Ltd RE 0715 – Insurance (Property & Casualty)

89%
Eastern Insurance Holdings Inc EIHI 0709 – Insurance (Life)

90%
Prudential Financial Inc PRU 0709 – Insurance (Life)

91%
Horace Mann Educators Corporat HMN 0715 – Insurance (Property & Casualty)

92%
FBL Financial Group FFG 0709 – Insurance (Life)

92%
AFLAC Incorporated AFL 0706 – Insurance (Accident & Health)

93%
Cincinnati Financial Corporati CINF 0715 – Insurance (Property & Casualty)

93%
Kansas City Life Insurance Co KCLI 0709 – Insurance (Life)

93%
Kingsway Financial Services In KFS 0715 – Insurance (Property & Casualty)

93%
HCC Insurance Holdings, Inc. HCC 0715 – Insurance (Property & Casualty)

94%
Unum Group UNM 0709 – Insurance (Life)

94%
EMC Insurance Group Inc. EMCI 0715 – Insurance (Property & Casualty)

95%
eHealth, Inc. EHTH 0712 – Insurance (Miscellaneous)

95%
OneBeacon Insurance Group, Ltd OB 0715 – Insurance (Property & Casualty)

95%
Aspen Insurance Holdings Limit AHL 0715 – Insurance (Property & Casualty)

96%
Unico American Corporation UNAM 0715 – Insurance (Property & Casualty)

97%
Markel Corporation MKL 0715 – Insurance (Property & Casualty)

98%
Safety Insurance Group, Inc. SAFT 0715 – Insurance (Property & Casualty)

98%
Humana Inc. HUM 0706 – Insurance (Accident & Health)

99%
Atlantic American Corporation AAME 0709 – Insurance (Life)

100%
State Auto Financial STFC 0715 – Insurance (Property & Casualty)

100%
A.F.P Provida SA (ADR) PVD 0718 – Investment Services

100%
American National Insurance Co ANAT 0715 – Insurance (Property & Casualty)

101%
Baldwin & Lyons, Inc. BWINB 0715 – Insurance (Property & Casualty)

101%
Mercury General Corporation MCY 0715 – Insurance (Property & Casualty)

101%
Marsh & McLennan Companies, In MMC 0712 – Insurance (Miscellaneous)

101%
National Western Life Insuranc NWLI 0709 – Insurance (Life)

101%
Brown & Brown, Inc. BRO 0712 – Insurance (Miscellaneous)

101%
Selective Insurance Group SIGI 0715 – Insurance (Property & Casualty)

101%
Sun Life Financial Inc. (USA) SLF 0709 – Insurance (Life)

101%
Life Partners Holdings, Inc. LPHI 0712 – Insurance (Miscellaneous)

101%
Aon PLC AON 0712 – Insurance (Miscellaneous)

102%
ProAssurance Corporation PRA 0715 – Insurance (Property & Casualty)

102%
Principal Financial Group Inc PFG 0706 – Insurance (Accident & Health)

102%
First American Financial Corp FAF 0715 – Insurance (Property & Casualty)

102%
China Life Insurance Company L LFC 0709 – Insurance (Life)

103%
Genworth Financial? Inc GNW 0709 – Insurance (Life)

103%
Navigators Group, Inc, The NAVG 0715 – Insurance (Property & Casualty)

104%
National Interstate Corporatio NATL 0715 – Insurance (Property & Casualty)

104%
Amerisafe, Inc. AMSF 0715 – Insurance (Property & Casualty)

104%
Cna Financial Corp CNA 0715 – Insurance (Property & Casualty)

105%
Donegal Group Inc. DGICA 0715 – Insurance (Property & Casualty)

106%
Stewart Information Services C STC 0715 – Insurance (Property & Casualty)

106%
Berkshire Hathaway Inc. BRK.A 0715 – Insurance (Property & Casualty)

107%
Prudential Public Limited Comp PUK 0709 – Insurance (Life)

107%
Willis Group Holdings PLC WSH 0712 – Insurance (Miscellaneous)

107%
Crawford & Company CRD.B 0712 – Insurance (Miscellaneous)

111%
Old Republic International Cor ORI 0715 – Insurance (Property & Casualty)

112%
Molina Healthcare, Inc. MOH 0706 – Insurance (Accident & Health)

112%
United Fire Group, Inc. UFCS 0715 – Insurance (Property & Casualty)

113%
Partnerre Ltd PRE 0715 – Insurance (Property & Casualty)

113%
Protective Life Corp. PL 0709 – Insurance (Life)

114%
Manulife Financial Corporation MFC 0709 – Insurance (Life)

114%
Independence Holding Company IHC 0709 – Insurance (Life)

116%
ACE Limited ACE 0715 – Insurance (Property & Casualty)

116%
Reinsurance Group of America I RGA 0706 – Insurance (Accident & Health)

118%
Citizens, Inc. CIA 0709 – Insurance (Life)

119%
Universal Insurance Holdings, UVE 0715 – Insurance (Property & Casualty)

121%
Phoenix Companies, Inc., The PNX 0709 – Insurance (Life)

122%
AEGON N.V. (ADR) AEG 0709 – Insurance (Life)

124%
Symetra Financial Corporation SYA 0709 – Insurance (Life)

124%
Arch Capital Group Ltd. ACGL 0715 – Insurance (Property & Casualty)

127%
Fidelity National Financial In FNF 0715 – Insurance (Property & Casualty)

128%
Hilltop Holdings Inc. HTH 0715 – Insurance (Property & Casualty)

130%
Arthur J. Gallagher & Co. AJG 0712 – Insurance (Miscellaneous)

131%
ING Groep N.V. (ADR) ING 0709 – Insurance (Life)

135%
Argo Group International Holdi AGII 0715 – Insurance (Property & Casualty)

136%
Seabright Holdings Inc SBX 0715 – Insurance (Property & Casualty)

138%
Global Indemnity plc GBLI 0715 – Insurance (Property & Casualty)

141%
Metlife Inc MET 0709 – Insurance (Life)

143%
MBIA Inc. MBI 0715 – Insurance (Property & Casualty)

145%
Hartford Financial Services Gr HIG 0715 – Insurance (Property & Casualty)

146%
American Safety Insurance Hold ASI 0715 – Insurance (Property & Casualty)

150%
CNO Financial Group Inc CNO 0709 – Insurance (Life)

153%
Universal American Corporation UAM 0706 – Insurance (Accident & Health)

153%
Radian Group Inc. RDN 0715 – Insurance (Property & Casualty)

155%
American Equity Investment Lif AEL 0709 – Insurance (Life)

159%
Hallmark Financial Services, I HALL 0715 – Insurance (Property & Casualty)

160%
Validus Holdings, Ltd. VR 0709 – Insurance (Life)

160%
Lincoln National Corporation LNC 0709 – Insurance (Life)

161%
Enstar Group Ltd. ESGR 0715 – Insurance (Property & Casualty)

169%
Meadowbrook Insurance Group, I MIG 0715 – Insurance (Property & Casualty)

172%
Greenlight Capital Re, Ltd. GLRE 0715 – Insurance (Property & Casualty)

173%
Alleghany Corporation Y 0715 – Insurance (Property & Casualty)

191%
Tower Group Inc TWGP 0715 – Insurance (Property & Casualty)

196%
Alterra Capital Holdings Ltd ALTE 0715 – Insurance (Property & Casualty)

197%
CNinsure Inc. (ADR) CISG 0712 – Insurance (Miscellaneous)

208%
XL Group plc XL 0715 – Insurance (Property & Casualty)

215%
MGIC Investment Corp. MTG 0715 – Insurance (Property & Casualty)

220%
Amtrust Financial Services, In AFSI 0715 – Insurance (Property & Casualty)

259%
Assured Guaranty Ltd. AGO 0715 – Insurance (Property & Casualty)

262%
American International Group, AIG 0715 – Insurance (Property & Casualty)

1265%

On the top side, and I did not see any of these, be aware of reverse splits, which can reduce the share count, are a sign of a badly run company, but do nothing for the economics of a firm, aside from keeping them listed on a major exchange.

On the bottom side, factor in large mergers paid for with shares.? Most large-scale mergers don’t work out well, so I don’t mind those companies being near the bottom of the list.

On a closing note, there is a weak positive correlation in most mature industries between stock price performance and relative decreases in share count, assets, and sales.? This sounds counter-intuitive, but good management teams know when to grow and when not to grow.? They don’t do acquisitions for scale.? They don’t grow sales if the sales growth won’t justify the cost of capital.? Building the assets of the company bigger does nothing for the bottom line; selective asset sales can free up cash for more productive uses.? Good management teams do not build empires — they add when it makes sense (grow), subtract when it makes sense (shrink), divide when it makes sense (spinoffs), and multiply when it makes sense (IPOs, JVs, new projects).

PS –? What does the WSJ have today?? An article on buybacks.? Enjoy.

Sorting Through the News

Sorting Through the News

Posted on by David Merkel

I’ve used Yahoo Finance for over 15 years.? I think it is the best single free news source for companies on the web.? If you know a better source, please mention it in the comments.

But there is a lot of low value data in their news feeds, so I created a utility to eliminate the bad stuff.? The link to it is in step 11 below.? I’m sharing one of my tools with you.? I hope it works well for you if you try it.

Procedure

  1. Using your browser, go to Yahoo Finance, and choose one of your portfolios.
  2. Hit the ?End? key to go to the bottom of the screen, and hit ?Page up.?? You will see a little link on the left labeled ?more News? with a caret pointing downward.? If you to go further back in time, click the link.? If you want still more news, just keep repeating ?End, Page Up, Click? until you cover the whole time you want news for.
  3. Hit Ctrl-A, Ctrl-C to copy the whole browser window
  4. Ctrl-V to paste into Excel
  5. Ctrl-F, search for ?day and time?
  6. Using Shift, press Page Down to highlight all of the stories, Ctrl-C to copy
  7. Paste into a new sheet
  8. Widen Column B a lot, such that the only columns you see are A through D
  9. Click “Merge and Center” to demerge all cells
  10. Click on the Sort A-to-Z button
  11. Open the news screener, hit Ctrl-C to copy
  12. Flip back to the sheet you had open in step 10, and hit Ctrl-V to paste in Spreadsheet at cell D1
  13. Make sure to copy down new paste to cover all of your rows, or delete rows for which there is no news.
  14. Sort on the rightmost column
  15. Delete all the rows labeled “Here” in the rightmost column
  16. Delete all of the columns from ?C? to the right.
  17. Enjoy
  18. Optional ? With your cursor in cell A1, click the button to create a pivot-table.? Take defaults, hit OK.
  19. Click and Drag ?day and time? into the row labels, and values
  20. Then click down arrow next to Row Labels on the pivot table, and choose ?More Sort Options?
  21. Click Descending (Z to A) and choose ?Count of day and time.?? Click OK, and you are done.
  22. Really enjoy.

After step 17, you would have something that looks like this:

day and time

symbols
AIZ AIZ Crosses Above Key Moving Average Level at Forbes04:15pm EST
AIZ Daily Dividend Report: WAG, AIZ, CPNO, RRD, FSP at Forbes12:57pm EST
AIZ Assurant Board of Directors Declares Quarterly Dividend of $.21 per Common Share Business Wire11:52am EST
BP BP seeks judge’s ruling on size of Gulf oil spill AP05:53pm EST
BP Medical-benefits portion of BP Gulf settlement gets approval, Bloomberg says at theflyonthewall.com05:24pm EST
BP BP: Government overestimated size of spill AP04:32pm EST
BP Court revives call for oil spill pollutant list AP01:24pm EST
BP Second Acts in Finance and Business: The 5 Most Astonishing Comeback Stories at Minyanville12:00pm EST
BRK-B Lessons From The Aborted Fiscal Cliff Drop And Seven Stocks For The Next Doomsday Debt-Ceiling Scenario at Forbes03:36pm EST
BRK-B Wells Fargo: Q4 Record Profit, But Rock-Bottom Low Interest Rates Both Helped And Hurt at Forbes08:27am EST
CSCO Most active Nasdaq-traded stocks AP06:02pm EST
CSCO Cisco “Surprised” at Trademark Lawsuit From University at AllThingsD05:04pm EST
CSCO U.S. warns on Java software as security concerns escalate Reuters04:53pm EST
CSCO No End to Set-Top Boxes in Sight at The Wall Street Journal03:42pm EST
CSCO East Carolina University sues Cisco over slogan Reuters02:43pm EST
CSCO Get Ready to Profit From the “Dot-Com Boom 2.0” at Investopedia02:31pm EST
CSCO UPDATE 1-U.S. warns on Java software as security concerns escalate at Reuters11:21am EST
CSCO U.S. government warns on Java as security concerns escalate at Reuters11:03am EST
CSCO ECU sues Cisco over ?Tomorrow Starts Here? at bizjournals.com11:02am EST
CSCO Cisco sued by Eastern Carolina University for trademark infringement at bizjournals.com10:35am EST
CSCO UPDATE 1-East Carolina University sues Cisco over slogan at Reuters10:01am EST
CSCO Cisco Sued for Trademark Infringement Over Marketing Slogan at AllThingsD09:54am EST
CSCO Why Silicon Valley needs its new ANA route to work at bizjournals.com03:01am EST
CSCO Tim Cook: China will be Apple’s top market at CNNMoney.com02:40am EST
CSCO Sales Moves Beyond Face-to-Face Deals, Onto the Web at BusinessWeek09:30pm EST
CSCO Forbes: Raleigh-Cary ranked 5th among new tech hot spots in the U.S. at bizjournals.com07:20pm EST
CVX Australian Heat Wave Adds to Fire Risk in New South Wales at Bloomberg09:38pm EST
CVX Chevron leads energy sector to slim gain at MarketWatch04:57pm EST
CVX Yen Extends Weekly Slump While U.S. Stocks Little Changed at Bloomberg04:51pm EST
CVX Chevron Strikes Optimistic Note for Quarterly Earnings at Bloomberg04:10pm EST
CVX Stocks End Flat but Post 2nd Weekly Gain; BBY Soars 16% at CNBC04:00pm EST
CVX Dow Now: Merck to Pull Ineffective Cholesterol Drug at Minyanville01:38pm EST
CVX Stocks Struggle For Direction; On Assignment Jumps at Investor’s Business Daily01:35pm EST
CVX Bernstein predicts return of oil M&A bonanza at Reuters12:21pm EST
CVX Stocks Slip Near Midday; Watson Slumps On Downgrade at Investor’s Business Daily12:09pm EST
CVX Friday, Jan. 11: Global Markets Preview at MarketWatch09:55am EST
CVX Friday, January 11: Keep Your Eye on These at MarketWatch09:53am EST
CVX Cramer’s Six in 60: CMI Gets Ahead of Itself CNBC09:53am EST
CVX Cramer’s Six in 60: CMI Gets Ahead of Itself at CNBC09:53am EST
CVX Stock futures flat; Wells Fargo profit rises at MarketWatch09:20am EST
CVX Iraq threatens to seize oil shipments, sue dealers AP08:08am EST
CVX Analyst nudges up Chevron earnings view at MarketWatch07:57am EST
CVX Australia Faces Soaring Temperatures as Fire Bans Enforced at Bloomberg01:14am EST
CVX Indonesia – Market factors to watch on Jan 11 at Reuters09:42pm EST
CVX Chevron shares gain, Amex turns lower after hours at MarketWatch07:28pm EST
CVX Chevron expects 4Q profit to beat 3Q AP06:50pm EST
CVX [$$] Chevron Sees Asset Gains, Higher Output Boosting Profit at The Wall Street Journal06:29pm EST
CVX Tesoro, Valero lead energy stocks higher at MarketWatch06:18pm EST
CVX After-Hours Buzz: AXP, BA & More at CNBC05:51pm EST
CVX Chevron sees higher fourth-quarter earnings at MarketWatch05:42pm EST
CVX UPDATE 1-Chevron sees higher 4th-qtr profit as output rises at Reuters05:29pm EST
CVX Chevron says Q4 profit will be ‘notably higher’ than Q3 at bizjournals.com05:24pm EST
CVX Chevron sees “notably higher” Q4 profit as output grows at Reuters05:09pm EST
CVX Chevron Says It Expects Q4 Earnings to Be ‘Notably Higher’ Than Q3 at CNBC05:08pm EST
CVX CHEVRON CORP Files SEC form 8-K, Results of Operations and Financial Condition EDGAR Online05:02pm EST
CVX Chevron Issues Interim Update for Fourth Quarter 2012 Business Wire05:00pm EST
CVX Stocks Rally, S&P 500 Closes at 5-Year High; Facebook Gains 2% at CNBC04:32pm EST
ESV Ensco Achieves #31 Analyst Rank, Surpassing Teradyne at Forbes11:47am EST
INTC ARM CEO East Says Phooey to the ‘Transistor Cliff’ at Barrons.com09:26pm EST
INTC Will CEOs Give the Bulls What They Want This Earnings Season? at CNBC08:40pm EST
INTC Intel planning larger move into mobile at bizjournals.com04:38pm EST
INTC Wall Street Week Ahead: Attention turns to financial earnings at Reuters04:37pm EST
INTC Microsoft may have exited gadget show prematurely AP04:36pm EST
INTC Kidder Mathews: Industrial market slowed in late 2012 at bizjournals.com01:18pm EST
INTC Where are the hot spots for STEM jobs? (Hint: Don’t think Silicon Valley or Alley) at bizjournals.com01:06pm EST
INTC MarketWatch Week Ahead: Earnings Season Kicks Off at MarketWatch12:40pm EST
INTC Worldwide PC Shipments Fell 6.4% In Q4; 2012 Down 3.2% at Forbes11:59am EST
INTC Largest option buying in equities so far optionMONSTER11:29am EST
INTC Slim Gains in Markets Ahead of Earnings Reports at New York Times10:34am EST
INTC Which Stocks Look Ready to Pop and Drop with Earnings Next Week? Indie Research09:20am EST
INTC 10 Things You Need To Know This Morning Business Insider07:08am EST
INTC Holiday PC sales dip for first time in five years Reuters09:28pm EST
INTC UPDATE 2-Holiday PC sales dip for first time in 5 years at Reuters09:20pm EST
INTC Instant View: Holiday PC sales slide for first time in over five years Reuters07:05pm EST
INTC Instant View: Holiday PC sales slide for first time in over five years Reuters06:42pm EST
INTC Holiday sales of PCs slide for first time in five years: IDC Reuters06:40pm EST
INTC Holiday sales of PCs slide for first time in 5 years -IDC at Reuters06:29pm EST
INTC PC sales fall 6.4% in Q4, worse than expected at MarketWatch06:28pm EST
INTC CES: ARM Holdings To Expand Push To TVs, Servers, Networks at Forbes06:16pm EST
INTC Apple rises, but Microsoft, Yahoo slide at MarketWatch04:36pm EST
L Loews Adds RG Advisors?s Gendelman as Head of Equity Investments at Bloomberg09:36am EST
L Robert Gendelman Joins Loews Corporation as Senior Portfolio Manager and Head of Equity Investments Business Wire09:29am EST
ORCL US government tells computer users to disable Java AP09:52pm EST
ORCL Impact of Island Air sale on Hawaii will depend on who the buyer is at bizjournals.com08:00pm EST
ORCL Splunk Gains on Speculation IBM May Consider Takeover at Bloomberg04:44pm EST
ORCL Top 5: Bay Area Software Companies at bizjournals.com03:59pm EST
ORCL Oracle: Davenport Ups to Buy on Cash Flow, Hardware Promise at Barrons.com02:02pm EST
ORCL Malibu Makes Bid to Be World’s Mega-Mansion Capital at CNBC12:11pm EST
ORCL Top 10 Most-read Web stories of the week: 01/04 to 01/11 at bizjournals.com09:39am EST
ORCL Silicon Valley Exec of the Year for 2013 is… at bizjournals.com09:32am EST
ORCL Oracle Announces StorageTek LTO 6 Tape Drives Marketwire08:00am EST
ORCL SAP Challenges Oracle by Boosting Flagship Software Speed at Bloomberg03:18am EST
ORCL German stocks – Factors to watch on January 11 at Reuters02:43am EST
ORCL SAP Challenges Oracle by Boosting Flagship Software Speed at Bloomberg07:32pm EST
ORCL SAP Steps on the Gas at New York Times07:11pm EST
ORCL Cramer Navigates Treacherous Tech-Scape at CNBC06:12pm EST
ORCL SAP’s Move to Reinvent Real-Time Enterprise at CNBC05:13pm EST
ORCL Experts urge PC users to disable Java, cite security flaw Reuters05:06pm EST
ORCL Experts urge PC users to disable Java, cite security flaw at Reuters05:04pm EST
PSX Cramer: This New Trend Multi-Year Game Changer at CNBC06:05pm EST
RGA Reinsurance Group of America Larger Than S&P 500 Component SAIC at Forbes04:47pm EST
TEL TE Connectivity to Report Fiscal 2013 First Quarter Results on January 23, 2013 PR Newswire04:30pm EST
TEL TE CONNECTIVITY LTD. Files SEC form 8-K, Amendments to Articles of Inc. or Bylaws; Change in Fiscal Year, Other Event EDGAR Online07:33am EST
TRV Hate the Company, Love the Stock at CNBC02:30pm EST
VLO Valero refineries closed for repairs, maintenance at bizjournals.com08:55am EST
VOD [$$] Save a Bundle on Your Tech Bills at The Wall Street Journal09:28pm EST
VOD Verizon Wireless 4G LTE Network Expands In Albany Area PR Newswire02:33pm EST
VOD RIM sees BlackBerry Internet Services affected by Vodafone outages, TNW says theflyonthewall.com07:54am EST

After step 22, you would have something that looked like this:

Row Labels Count of day and time
WFC

153
CVX

32
INTC

22
XRX

20
ORCL

17
CSCO

16
BP

5
VOD

4
AIZ

3
TEL

2
BRK-B

2
L

2
VLO

1
TRV

1
PSX

1
ESV

1
RGA

1
Grand Total

283

The purpose of creating the pivot table is to highlight stocks with a lot of news.? Stocks with lots of news, you typically know what happened.? I set my limit at 10 stories.? If there are more, I do a quick scan of the companies with a lot of articles and see if it is just one story written many times.? In this case, I deleted the stories from WFC and XRX — there was basically one story for each.? WFC earnings, and XRX’s CFO leaving to go to Apple.

That left me with only 110 articles to look at out of 467 at the start of this exercise.? As it was, I chose to read 10 of the articles.? It takes me 3 minutes to use the news screener (once you get used to it, it is fast), and it saves me tons of time, and helps me be more focused in what I read.

This is my way of wading through too many articles, eliminating robotic, and lower quality content.? Note: if you don’t agree with what I think is low value, you can change the headers in my spreadsheet in columns D through N.

I hope you enjoy this.

Full disclosure: long AIZ, BP, BRK-B, CSCO, CVX, ESV, INTC, L, ORCL, PSX, RGA, TEL, TRV, VLO, VOD, WFC, XRX

Evaluating Regulated Financials

Evaluating Regulated Financials

Posted on by David Merkel

Dear readers, I repost here an edited version of what I shared with a Linked-in group:

=–=-==-=-=–=-=-==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-=-=-=-=-=-

I took Benefit-Cost Analysis from Dr. Hanke of Johns Hopkins in 1980, and so I never gained the benefit of his current proprietary tweaks to the Discounted Cash Flows model for stock valuation.? That said, application of DCF to any regulated financial company is difficult, because not all of the capital is free to be deployed into investment in new business, stock buybacks, or dividends.

The level of required capital at a regulated financial varies with the risks of the blocks of business (liabilities) that it underwrites, the assets they buy with the proceeds from the liabilities, and the cash flow, currency and other mismatches between the assets and the liabilities.

The marginal amount of capital for new business and investments may be significantly different than what is required for old business.? So here is my question to the group, especially the students, to think about: how would you apply your DCF model to a situation like this?

Notes, Mostly on Financials

Three final notes: 1) If you want to experiment with this, here are five very different insurers that are my current favorites: RGA (life reinsurance), ENH (P&C insurance & reinsurance), AIZ (Life, P&C, Warranties, Pensions & Individual Health), SFG (disability), & NWLI (Life insurance and annuities sold to foreigners for flight capital).? Try applying the model to one, and see what you get.

2) Most real risk in large financials does not come from inadequacy of capital, but from borrowing short and investing/lending long.? The key measure is whether an institution has enough high-quality short-term assets to meet a run on the institution, where those that supply funds to the institution demand them back at the same time.

With life insurance companies, failures occasionally happen from a run on the company (General American and ARM financial in 1999), but more often, because regulators think the capital base has shrunk too much because of bad credit risks, and take the company into conservation. (Pacific Standard, Confederation, Kentucky Central, near-miss w/The Equitable, etc.)

With P&C insurers and reinsurers, failure happens because bad underwriting leads to a shrinkage of capital, and the regulators take them into conservation. (Think of Reliance and Saul Steinberg, though a lot of reinsurers were de facto bankrupt in the mid-1980s, but the regulators didn’t catch them.)

With small banks and thrifts, it?s credit problems versus capital.? Liquidity does not usually play a role because of deposit guarantees.

With large banks, it is illiquid and longer assets versus short financing.? In the recent crisis, much of that came from financing mortgage inventories in the repurchase market, where financing had to be renewed daily, and margin requirements in derivative financing that had to be adjusted daily.? In the latter case, a credit downgrade would trigger a need for more capital to be put up as margin, just at the time when liquidity was scarce.? In the former case, deteriorating prices for the assets financed in the repurchase market led to an increase in the capital haircut, requiring more liquidity out of the borrowers at the time they could least afford it. (AIG, Wachovia, Countrywide, etc.)

Finally, remember that the financial markets are talkative.? No one wants to hold unsecured credit from a bank they think will go broke, so if there is a reasonable doubt on failure, liquidity dries up because other banks stop dealing with you (Bear Stearns, Lehman Brothers, Merrill Lynch, etc.)

As an example in my own life, back when I managed and traded corporate bonds back in 2002, when the market was feeling a lot of stress, I joked with my broker, ?Hey, is XYZ Corp trading flat yet??? (With most corporate bonds, when you settle a trade, the pro-rata portion of the next interest payment is added to the price.? A bond like XYZ Corp, when its solvency is doubtful, the dealers start settling bond trades assuming it will not make another payment.)? He told me that it was not trading flat.? The high yield manager, Ed, sitting next to me, after the call ended said, ?Just a matter of time.?

Half an hour later, my broker that talked with before called me back, and in an edgy voice said ?XYZ Corp is now trading flat!? and quickly ended the call.? Ed looked at me and said, ?Dave, don?t do that again.?

Liquidity is plenteous when you don?t need it, and scarce when really needed.? Remember that when investing in financials.

3) The Baltimore CFA Society gives significant discounts for students that want to attend our meetings.? $10 gets you a $30 meal and an interesting speaker or two, so consider yourselves invited.? Next meeting on January 11th is one of our bigger ones.? You even get to meet the aforementioned ?Ed.?

Full disclosure: long RGA, AIZ, NWLI, ENH, SFG

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Credit Markets

 

  • Credit Suisse Raises $802M CLO; Prudential Closes Fund http://t.co/RbXDgtPU Watch arb from creation of CDOs & CLOs: clue 2 bond rally end Dec 01, 2012
  • Caisse Thinks Bond Party Is Over? http://t.co/j6lWdJjA Shifting $$ from bonds 2 infrastructure; usually good though liquidity is underpriced Dec 01, 2012
  • Bond Yields May Fall Short of Corporate Pension Fund Needshttp://on.barrons.com/VkWekV Bonds in DB plans r4 risk reduction not just yield $$ Dec 01, 2012
  • My point is that it is difficult to tell whether we will be getting inflation or deflation. My bond portfolios are barbelled: long &short $$ Nov 30, 2012
  • Investors Unprepared for Bond Danger, BlackRock?s Rosenberg Says http://t.co/56kv1CrS B wary of owning 2 much or 2 little long bonds $$ Nov 30, 2012
  • Safe or junk, bonds in bubble trouble http://t.co/Nd5iEYPy Fuss told the summit in New York there was evidence of “a spread bubble” $$ Nov 28, 2012
  • Overnight Rates Surge in Fed?s Operation Twist http://t.co/xwvKCPGb Large supply of short Treasuries raises Repo rates over LIBOR $$ Nov 26, 2012

 

Muni Markets and Pensions

 

  • Bankruptcy threat back on the table in Pennsylvania city as filing ban ends http://t.co/NgMGQs2Z Will b tough to stiff muni bondholders $$ Dec 01, 2012
  • Calpers Seeks to Sue San Bernardino Over Pension Payments http://t.co/xv0OqQV9 Will have2show a place in CA law/constitution reqrng pmt $$ Nov 28, 2012
  • Fierce Debt Puts Pensions at Risk in Puerto Rico http://t.co/w2oGk8YW Future curse: May u starve like a Puerto Rican pensioner! Uh, yeh $$ Nov 27, 2012
  • Proponents of pension reform face steep hurdles http://t.co/n2AYvghT Choose: raise taxes, reduce services, attempt constitutional change $$ Nov 26, 2012
  • San Bernardino?s ?Toxic Politics? Snarl Calpers Debt http://t.co/N4YWPCTD Be careful what you put into your city’s Charter. $$ Nov 26, 2012

 

Market Dynamics

 

  • The Great 2012 Cashout http://t.co/i4lZvD0c Special dividends r coming fast & furious; last call 4 low tax rates; next stop: Caymans $$ Dec 01, 2012
  • Wells Fargo CEO: ‘Bad players are gone’ from finance http://t.co/AwSGY8gz FD: + $WFC | Sadly, false. There may be fewer, but not all gone $$ Nov 30, 2012
  • Nontraded BDC sales on a tear despite closing of first fund http://t.co/ML7oVkIu Poison, beware. BDCs are bad enough w/o the illiquidity $$ Nov 30, 2012
  • Beware the Smart Money: Hedge Funds Issue Sell Signal http://t.co/HXBKD5ZO When fast money is “all in” it just takes a jolt2make mkt fall $$ Nov 30, 2012
  • Home Equity Loans Make Comeback Fueling US Spending http://t.co/3WULRzOO We never learn, we never learn, we never learn, we never learn $$ Nov 27, 2012
  • Private-Equity Managers Make Moves as Tax Increases Near http://t.co/eKKsH5w6 refinancing investments, accelerating gains, etc. $$ Nov 26, 2012
  • The Faustian Bargain between States and Banks http://t.co/gGUHGWIa I lend 2u, u lend 2me. I lend 2u, u lend 2me. What could go wrong? $$ Nov 26, 2012
  • The Manufacturing Boom You Won’t Notice http://t.co/R62nFiae Productivity continues 2 improve -> more mfg in US, but not more mfg jobs $$ Nov 26, 2012
  • Overlooking Overvaluation http://t.co/nWfA1KMe Hussman interacts w/long-term valuation measures. He finds the market overvalued $$ #whatelse Nov 26, 2012
  • Everything You Know About Investing is Wrong http://t.co/v8wAYPg6 Single-vble measures of valuation fail in short-run, some in long-run $$ Nov 26, 2012
  • The prior BB article is a little deceptive, because regulated entities use them under regulation. Many r quite safe, like auto ABS, etc. $$ Nov 24, 2012
  • Shadow Banking Grows to $67 Trillion Industry, Regulators Say http://t.co/houN2uhM Many are SPV securities held by banks & ins cos $$ Nov 24, 2012

 

Companies

 

  • How a desperate HP suspended disbelief for Autonomy deal http://t.co/qv1vIWcQ If $HPQ had been focused on organic growth, wouldnta happened Nov 30, 2012
  • Berkshire Hathaway, CaixaBank Agree to Reinsurance Deal http://t.co/RDQqXhMl Berky hasn’t done well w/Life Re — I would be cautious $$ Nov 30, 2012
  • Google Has Officially Eaten the Newspaper Industry http://t.co/TGqEWK7T $GOOG now has more advertising revenue than all print media $$ Nov 28, 2012
  • Investors Demand CEO Face Time http://t.co/4CPugaAV CEO griping about time spent on investors is wrong; a good CEO is Mr. Outside $$ Nov 28, 2012
  • Global Steel Industry Faces Capacity Glut http://t.co/DhU7BaWa We need to see 20% of the steel industry fail b4 buying steel stocks $$ Nov 28, 2012
  • Lehman Sells Archstone in Deal Worth $6.5B http://t.co/f2V5K7tk Losses taken; Lehman more liquid; Sam Zell lives 2 gravedance $$ $EQR $AVB Nov 27, 2012
  • $AMZN ‘s bond offering will b a bit of a “museum piece.” I.e. unusual issuer unlikely to issue more; should get tight deal spreads $$ yld<2% Nov 26, 2012
  • $ICOA Says $GOOG Didn’t Acquire the Company http://t.co/y3XXagL7 Whoever put out the press release will be an easy target 4 the SEC $$ Nov 26, 2012
  • France to ArcelorMittal: if you don?t like losing money, get out of France http://t.co/gYQ31NOk Invisible foot punishes France 4 bad policy Nov 26, 2012
  • Flowers Foods Sizes Up Hostess http://t.co/4DYwu6p6 Might buy brands, marketing arrangements, factories., etc. Won’t hire unions $$ $FLO Nov 26, 2012

 

Central Banking

 

  • Japan?s Ill-Fated Experiment With Money Doctoring http://t.co/OgCSJ4KB Interesting tale of Asia conquest; what does it imply 4 the US? $$ Nov 30, 2012
  • The death of volatility? http://t.co/04RNO7z1 “Central bank puts have done a great job of removing tail risks.” for now h/t: @izakaminska Nov 29, 2012
  • When the Credit Transmission Mechanism Breaks? http://t.co/HvCddUDh While we r delevering monetary policy won’t work well. h/t: @pragcap $$ Nov 28, 2012
  • The Indiana Jones economy http://t.co/GqjOk5Ql @izakaminska explains how economic transmission mechanisms r short-circuited by hoarding $$ Nov 28, 2012
  • Brazil real jumps as central bank eclipses Mantega http://t.co/xUpU6tE2 Loose developed mkt $$ polcy forces choice: exports or inflation? $$ Nov 26, 2012

 

Politics & Policy

 

  • Mortgage interest rate tax deduction scores political points ? but little else http://t.co/xiaLfUkT Limit to $20K of interest $$ @hnmoore Nov 30, 2012
  • IMNSHO, the PPACA was designed to destroy the parts of the US health care system that worked well, in order 2 move 2a single-payer system $$ Nov 30, 2012
  • Unaffordable Cost Seen for Some Under Affordable Care Act http://t.co/iEPsMhdh When this law goes live in 2014, people will hate it $$ Nov 30, 2012
  • In D.C., Social-Media Surveillance Pays Off http://t.co/XkLcZ3nm What they glean from social media aids service to constituents $$ Nov 29, 2012
  • 10 Things the SEC Won’t Tell You http://t.co/QOfbkvhC 11) U r your own best defense; we can’t help u much if u r stupid, b skeptical $$ Nov 28, 2012
  • Going to college is not of itself a good thing economically. You have to choose something that will pay off if you dare borrow money $$ Nov 28, 2012
  • Federal Student Lending Swells http://t.co/Wvi2d6vT We need to eliminate student loans. They do more harm than good. $$ Nov 28, 2012
  • Time running out on debt ceiling http://t.co/iZ6BLqdP Follows months behind the “fiscal cliff.” Will probably cause as much angst. $$ Nov 27, 2012
  • “Y is the burden of proof on those who want 2 return 2 the proven statutory & regulatory approaches of the past?” http://t.co/GJuNCS1X $$ Nov 26, 2012
  • Disabled parents face bias, loss of kids: report http://t.co/SvW3g3Xn Found this 2b disturbing; govt should avoid meddling w/families $$ Nov 26, 2012
  • A Minimum Tax for the Wealthy http://t.co/THiT0YGK Let Warren pay tax on his deferred gains in $BRK.A shares, & pay the large DTL also $$ Nov 26, 2012

 

Rest of the World

 

  • China?s over-investment problem http://t.co/WJVLvnMD IMF working paper says what China skeptics have said for years: 2 much investment $$ Nov 30, 2012
  • China Mafia-Style Hack Attack Drives California Firm to Brink http://t.co/cmnb4qco Chinese hackers steal software & hack software firm $$ Nov 28, 2012
  • A UK Exit From EU Offers No Promise of Better Fortunes http://t.co/TBmi6as7 EU is a failed experiment; Y should the UK continue there? $$ Nov 28, 2012
  • French jobless total hits 14-yr high http://t.co/NYdjc6Rs Francois Hollande getting costly economics lessons, paid4 by the French people $$ Nov 27, 2012
  • China Wage Gains Hurt by Weaker Profit Damp Consumption http://t.co/tESRToBZ Malinvestment leads2 lower profits, then wages can’t grow $$ Nov 27, 2012
  • China?s nemesis: bribes, banquets and backslapping http://t.co/D7V7yF06 Difficult 2 develop highly when rule of law is not followed $$ Nov 26, 2012

?? Sovereign CDS trading plummets http://t.co/jKBj47bv Will eventually lead discretionary holders to lighten sovereign positions $$ Nov 26, 2012

  • Egyptian Army allowed Morsi in2 power 2 avoid riots & allow him 2 mess up, so that Egyptians would support military rule again. US wins 2 $$ Nov 26, 2012

 

Wrong

 

  • Wrong: Misconceptions 101: Why College Costs Aren?t Soaring http://t.co/nZWYKQSQ Doesn’t square w/the rise in delinquent student loans $$ Nov 28, 2012
  • Wrong: Obama To Meet Romney Tomorrow Amid Fiscal Cliff Talks http://t.co/2VfO7Fxz Doesn’t Obama realize Romney has no power in the GOP? $$ Nov 28, 2012
  • Wrong: Fed’s Easing Yields Hidden Benefit http://t.co/6bJejPB1 1994 is not 2013. The banks/financials/households were in good shape $$ Nov 28, 2012
  • Taleb Mishandles Fragility http://t.co/qIGbLQHl Taleb needs new ideas, but does not perceive that. He is mired in the past. $$ Nov 28, 2012
  • Russell Napier’s “Most Important Chart In The World” http://t.co/XYKdagZm While we’re at it let’s reprise the Nikkei vs Nasdaq charts $$ Nov 28, 2012

 

Other

 

  • THE FUTURE OF DIGITAL [SLIDE DECK] http://t.co/RabKP5EC Good but long piece from BI on the future of digital media $$ Nov 30, 2012
  • Alleged Insider Group Includes Website Editor http://t.co/Llnmz2aE In general insider info is a curse to the upright; ties your hands $$ Nov 30, 2012
  • Texas Feral Hog Wrecks Mark Losing Battle With Animals http://t.co/TMPpFNh6 This is Texas, no one said anything about losing. $$ Nov 29, 2012
  • He Carries On, She Likes to Check http://t.co/4D1Fd5Td Men and women are different when they fly. This explains it. $$ Nov 29, 2012
  • . @izakaminska is a favorite writer of mine. She helps me with the nuances of tightly nested markets, finding the variable that is valuable Nov 29, 2012
  • American Housing Casino Revives After Big Drop: Mortgages http://t.co/lZmmHo9s Setting up conditions for the naive 2 lose again $$ Nov 28, 2012
  • FHA?s Biggest Loser: No-Money-Down Mortgages http://t.co/bJgwTdtV Surprise! Lend2 someone w/nothing 2 lose & they default a lot more $$ Nov 26, 2012

 

Teaching Math

 

  • Helping Parents Score on the Homework Front http://t.co/7FPGjA0n 6-yr olds should not be doing fractions. Parents aren’t the problem $$ Nov 28, 2012
  • The push to think abstractly about math does not work w/kids. You can start with girls around 13, boys around 14; misguided idealism $$ Nov 26, 2012
  • Children learn math best through drill, giving way to problem-solving, giving way to algebra (abstraction), further abstraction Calculus Nov 26, 2012
  • A New Kind of Problem: The Common Core Math Standards http://t.co/VGxxQGqr This is as bad as the “New Math” of the 1960s; utterly idiotic $$ Nov 26, 2012

 

 

Retweets

 

  • RT @prchovanec: Market should be rooting for China to buckle down to real econ adjustment, not hit yesterday’s growth targets with yeste … Dec 01, 2012
  • Would put the fraction at 80%, but I agree $$ RT @GMRobertson: if they are risk free they are solely for risk reduction, IG is about 2/3 so Dec 01, 2012
  • Wow! RT @prchovanec: Chinese company debt climbed to 122% of GDP in 2012 from 108% last year, highest level in 15 years http://t.co/ujKmHpTx Dec 01, 2012
  • Probably $$ RT @merrillmatter: @hnmoore I think eliminating (slowly) the 2nd home tax deduction is more palatable and possible. Nov 30, 2012
  • Blameworthy RT @grossdm: anybody ask boehner about the time he voted for massive new medicare entitlement without a funding mechanism yet? Nov 30, 2012
  • +1 RT @jonsticha: as is mine. Large bets on rates either way are a bad bet IMO Nov 30, 2012
  • RT @MuniTrader: @AlephBlog completely agree. credit risk front end, high coupon quality on the back end. pretty obvious but best way to … Nov 30, 2012
  • RT @PlanMaestro: If you don?t know enough to know about the business instantly, you won?t know enough in a month or in two? ? Buffett H/ … Nov 29, 2012
  • Needs2meet an actuary RT @TheStalwart: James Galbraith is only economist who talks about lowering the retirement age http://t.co/3srMzYX3 Nov 29, 2012
  • Recognizing reality, & verbally shading down fwd GDP $$ RT @carney: What does the beige book change from “moderate” to “modest” growth mean? Nov 28, 2012
  • Thanks, still think Eurozone should dissolve, replace w/mere free trade zone $$ RT @euromoney: Another take (quick): http://t.co/WxSquHKf Nov 28, 2012
  • RT @John_Hempton: Nassim Nicholas Taleb is a humourless git… and his publishers censor the internet. Do not buy his book… http://t.c … Nov 28, 2012
  • RT @munilass: Over 300 drone strikes and 2,500 people killed without a policy in place for when such attacks should be authorized http:/ … Nov 27, 2012
  • To the best of my knowledge, never RT @merrillmatter: do humans ever (in toto, as a society) voluntarily deleverage? Nov 27, 2012
  • Sad but true RT @AppFlyer: we never learn. Nov 27, 2012
  • That’s a big gap w/Moody’s @ Baa1 – S&P looks at balance sheet, Moody’s at Income Stmt? $$ http://t.co/C4wCNzaM RT @jonsticha: AA- @ S&P Nov 26, 2012
  • Rated Baa1 $$ RT @SimoneFoxman: RT @chrisadamsmkts: Amazon is today set to issue its first bond in more than a decade http://t.co/k03iJNi4 Nov 26, 2012
  • That’s why we homeschool RT @Nonrelatedsense: @AlephBlog pull kids from public schools if you can afford it. Nov 26, 2012
  • Bigtime $$ RT @Pawelmorski: Though anyone who thinks Canada is bubble-free might care to follow @garthturner and read his blog. Nov 26, 2012
  • Can we get the PBOC to take Yellen? $$ RT @TheStalwart: I’m definitely on board with this Central Bank poaching/global market place thing… Nov 26, 2012
  • Wow. Whoever published the original release will be an easy target $$ RT @mickwe: @AlephBlog so did all these guys http://t.co/sdUtAnlN Nov 26, 2012
  • AP goofs RT @mickwe: oh… RT @allthingsd: Google Sources: Acquisition of ICOA Wireless Are ‘Not True’ -by @ahess247 http://t.co/aGVCteBf Nov 26, 2012
  • RT @mickwe: That wifi co Google just bought for $400m? Loses $ and ‘Cash and cash equivalents were $10 at June 30, 2012’ http://t.co/PXB … Nov 26, 2012
  • Warranties r usually ripoffs RT @danielckoontz: Anybody who’s ever bot an extended warranty should read this post twice http://t.co/Ryl1AkKn Nov 25, 2012
  • A good guy; I appreciate him $$ RT @PlanMaestro: Retail Industry’s Ninja Mind Tricks http://t.co/DxJfueu4 #biases Nov 25, 2012

 

Replies

 

  • @LSilverspar as @EpicureanDeal says: “Names will be changed to protect the innocent, if we find any.” Few clean hands among banks, S&Ls, etc Nov 30, 2012
  • @Frank_McG Consider it a different way… I think it would b more likely to see a case prosecuted over insider information w/ CDS trading $$ Nov 30, 2012
  • @Frank_McG I’ve never seen a case tried for insider information on bonds, because gains r less, but technically, legally it is possible $$ Nov 30, 2012
  • Congress controls the purse strings, not the Presidency, which is too powerful as an office already. Bad… http://t.co/iGBUVgtw Nov 30, 2012
  • But when she became CEO, she could have paid the ~$100MM breakup fee. She didn’t, so she is partly to blame. http://t.co/N1xiZ0mh Nov 30, 2012
  • @ritholtz Dear Barry, is that a real plus? We have increasing delinquencies there, in the face of nondischargability in bankruptcy $$ Nov 29, 2012
  • @danielckoontz Thank you, dear friend Nov 29, 2012
  • @munilass I’m no expert, but CALPERS would have2 point @ California statutes/constitution requiring the payment http://t.co/UJpO1m3T Nov 28, 2012
  • @williamalden Not surprising. Academics & pseudo-academics r easy to co-opt. Most of the members worked in finance & r its friends $$ Nov 28, 2012
  • @Sir_Strangelove Free trade is a simple concept, & is hindered by Eurocrats. Free trade means fewer laws & regulations, not more $$ Nov 28, 2012
  • @Sir_Strangelove No. The Euro is the worst of it, but nations need to have their own unique rules to function well, not standardization $$ Nov 28, 2012
  • @EddyElfenbein Funny in a way, because at the beginning of his career, his main research tools were S&P and Moody’s stock reports $$ Nov 28, 2012
  • “You have more to say than Taleb. He has not had a useful new idea in 10 years.” ? David_Merkel http://t.co/sSh4Qetw $$ @reformedbroker Nov 28, 2012
  • @JayLeonard So, more like $2.0-2.5T per year Nov 27, 2012
  • @JayLeonard I think they are wrong. Other statistics I have seen indicate the amount is 8% of GDP, or $1.2T plus whatever the current gap is Nov 27, 2012
  • @carney My comment: If you pay $400M to get $500M over 30 years, the IRR is 1.45%. Better to buy a ladder of muni or corporate bonds. $$ Nov 27, 2012
  • @AppFlyer Care 2 clarify? Nov 27, 2012
  • @BryanMortenson Thanks, appreciated. Nov 27, 2012
  • @BryanMortenson Has the latest Financial Report of the US Government come out yet? Due soon. Thought I was on the email list… Nov 27, 2012
  • @carney Best place to look would be Canadian Mortgage bubble articles like this: http://t.co/w1Zk7Uhc Nov 27, 2012
  • @TheStalwart This is why I don’t follow any monthly numbers for my investing: noise/signal is high. Even a year of data, noise swamps signal Nov 27, 2012
  • @richtoscano I largely agree. My main disagreement is that the majority says rates must go up, and for some time, but they don’t $$ Nov 27, 2012
  • @richtoscano They R the best comparisons that we have 2 the current situation. I respect U, Rich, but wht wld B a better comparison? $$ Nov 27, 2012
  • “You may have a long wait. Great Depression & Modern Japan went on over 10 years.” ? David_Merkel http://t.co/YlMSAU9c http://t.co/XVq1wgWO Nov 26, 2012
  • @jonsticha Used 2 manage corporates for Fidelity & Guaranty Life. I only guessed, but big rating gaps mean there r two stories told $$ Nov 26, 2012
  • @japhychron I don’t know. So many things are messed up that it is impossible to say… 🙁 Nov 26, 2012
  • “But Buffett’s tax proposal barely nicks him because he makes little income. His shadow income is?” ? David_Merkel http://t.co/7zWRb4SV $$ Nov 26, 2012
  • @mickwe Basically, $GOOG bot out a penny stock, $ICOA, virtually inactive & broke. Pays a ~nickel/share for something $.0001 Friday. Huh? $$ Nov 26, 2012
  • @BarbarianCap $HOGS Tough company to analyze; doubts as to the reality of assets, financials, according to some Nov 26, 2012
  • @GaelicTorus I’ve been through the social work system five times in my life, each time to rescue a child & adopt him. I am not naive. Nov 26, 2012
  • @Nonrelatedsense I knew that, but I still think that Taleb had great insights in his first book, and has not grown from there. Nov 25, 2012
  • @volatilitysmile A good warning to all of us who put our opinions forthto the public. Nov 25, 2012
  • “Taleb has jumped the shark” ? David_Merkel http://t.co/QNdVE57V Sorry to be so blunt $$ Nov 25, 2012
  • @PlanMaestro I have friends working in South Sudan on that. Bigger problem is a lack of tending the fields; the culture is not aggressive $$ Nov 25, 2012
  • @PlanMaestro One of the most important initial things a developing nation can do is get agriculture right; other things tend to follow $$ Nov 25, 2012
  • @moorehn I liked Taleb’s first book a lot. His insights since then have not increased. I think he is on his 16th minute of Warhol’s fame. $$ Nov 24, 2012
  • @Convertbond Is there a link for that? Investment dept @ ins co in 93 was reaching for yield through duration @ wrong time 94 bad year 4 dur Nov 24, 2012
  • @JamesGRickards If you’re in Baltimore/DC and want to talk, I would be interested in what you are thinking. Let me know. Nov 24, 2012
  • @JamesGRickards Too speculative. We should be happy saying that we don’t know. The Bible does not speak to the issue, nor do the Fathers. Nov 24, 2012

For what it is worth

  • My week on twitter: 51 retweets received, 3 new listings, 48 new followers, 106 mentions. Via: http://t.co/SPrAWil0 Nov 29, 2012

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On Complexity in Financials, and Insurers Specifically

On Complexity in Financials, and Insurers Specifically

Posted on by David Merkel

I’m not a fan of complexity in financial companies.? Complexity is a sign of trying to be” too clever by half,” as the British might say.? If an economic idea is good it can be executed simply.? Complex financial business stems from a desire to do accounting, regulatory, and other arbitrage.

Like my piece on AIG in 2009, I am doing low level research on an insurer using the statutory data. ?Let me give an example of what I mean.

There is no economic reason to have internal reinsurance treaties aside from sharing losses on short duration coverages.? To have large internal reinsurance credits is a sign that you are passing your reserves to the subsidiaries in domiciles with weak rules.

Also, to have a complex organization chart means that you are taking advantage of weak reserving requirements, capital requirements, except to the extent that national requirements call for a separate subsidiary.

Things are also tough when you interlace the capital of your subsidiaries, whether through equity, preferred stock, trust preferreds, or debt.? And with insurance companies, surplus notes.

That’s one reason why investment banks trade at low valuations, and might be better to be broken up.? Complexity.? “If you are not buying a Sunkist orange, you don’t know what you are eating.”? Okay, that dates me, but if the financials of a company are not transparent, in this environment, they will trade at a discount.? That is what I have said to reporters who have called me.? Complexity deserves a discount.? Level 3 assets deserve a discount.

Also, under-reserving deserves a discount, when you see significant claims arise out of prior year business.

Good financial businesses are simple and have few complexities to make them look like they are trying to scam the accounting rules.? Please remember my folly with Scottish Re, where I was a bull, and when it? got into trouble, I did a deep analysis, and turned into a bear.? When the company announced superficial changes and the price almost doubled, we sold out, though we held ~5% of the stock in a very busy day.? Where did the stock go out at? Zero.? Do I feel bad for losing money? Yes.? Do I feel good for cutting losses? Yes, and even more so.? Risk control is important.

Scottish Re was Bermuda domiciled, and so we didn’t get as much data as with a US domiciled company, but I had enough in the SEC-required documents to see the morass that Scottish Re was in, and the lack of ability for cash to flow to the publicly-traded holding company.

Financials are tough to invest in and the simpler that they are, the better.? To the degree that you can see that margins are assured, they are safe, but that is tough to assure.

Financials require extra caution.? That is most of what I am trying to say.

Missing Earnings Estimates

Missing Earnings Estimates

Posted on by David Merkel

Missing earnings estimates hurts in the short run, but it doesn’t mean much if there is no indication that the overall earnings trend has changed.? If the overall trend in earnings has turned down watch out.? Prices can fall as for Zynga and Facebook.

Then you have something like Reinsurance Group of America [RGA].? It recently missed earnings by 12 cents. $1.77 expected, $1.65 actual.? You should want your companies to miss estimates every now and then.? It raises the probability that the accounting is honest.? With a company like RGA, earnings comes down to how many/few large value life insurance policy deaths they have in a quarter.? You are subject to the “law of small numbers” even with the second largest life reinsurance block in the world, because it is the big policies that matter.

Even this does not qualify as a bad quarter for RGA.? Can’t remember a time when they lost money, but they have missed by far more.? Often I have bought shares on such a day; I did not get any on the brief lousy open after the earnings announcement.

With RGA, I hope the price goes down.? I will buy more.? Why?

  • It rarely misses earnings.? The company is conservative with guidance, and usually beats.? Cumulatively, over 2 years it always beats.
  • Life Reinsurance is an oligopoly.? It is one of the less competitive areas of the insurance industry.
  • It is valued at less than 8x current earnings, which are expected to grow, and less than book value, and even book value less AOCI.
  • You have actuaries running the place.? Actuaries have an ethics code.? I’ve met the management; talked with them on the phone.? Occasionally been on their conference calls.? They seem honest and competent.? I have worked for dishonest and/or incompetent insurance management teams occasionally.? I know what they feel like.? One thing dishonest insurers do is always make earnings by shorting reserves, and then, when the reserving imbalance is too great, deliver a lollapalooza of a bad quarter which more than erases the seeming excess earnings.

That RGA would deliver a slight miss is encouraging to me.? The accounting is honest.? RGA is the #2 or #1 firm globally in what it does.? Unlike the deceased Scottish Re, it was conservative in M&A.? It let Scottish Re overpay for deals, while it sat back and saw an undercapitalized competitor cobble together a life reinsurance block nearly as large, but one that was unprofitable, because of the high prices paid to get it, and the opaque holding company structure (worthy of AIG in miniature).

More generally, when a company misses earnings:

  • Does it revise current guidance?? If it doesn’t it may be temporary, and a fluke of accounting rules.? Look at the accruals to give you a clue.
  • How are industry dynamics?? If everyone is missing estimates, there is a reason to mark future prospects down.
  • Analyze where companies in similar industries have been taken private.? That serves as a ground floor for where valuations could go.

And with that, I leave you with RGA.? I have argued for years that Buffett should buy it.? Excellent company, does not need guidance.? Could take over his inferior #5 position in life reinsurance which has lost money and become #1 … and then the life reinsurance industry will have no more pure plays.? Kind of sad, but logical, because larger P&C reinsurers benefit from the diversification.

So RGA missed earnings.? Who cares?? A little lower and I load the boat.

Full disclosure: long RGA

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