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Far Horizon

 
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  • What Is Risk For A Dividend Growth Investor? [View article]
    Valuentum,
    Your comment ; "we will likely see a fall out in dividend paying stocks once interest rates on low risk income vehicles become more attractive." seems to tie David's point together - if a DG investor has the discipline to remember the goal of his investment strategy, such a fall out will be most welcome - presenting an opportunity to buy into income streams at lower cost, which should nicely offset the impact of inflation by increasing the yield. As long as the stock is sound, and the strategy is followed, all should be roses.

    David - nicely constructed - thanks.
    Sep 20 04:14 AM | 6 Likes Like |Link to Comment
  • Big Trouble In Little Hong Kong? [View article]
    Thanks Cam. A couple of thoughts here...HK is an anachronism, it was created as an entrepĂ´t to allow the west to access a closed China. As China becomes more globally integrated, HK is just another Chinese City, with a shrinking competitive advantage in terms of knowledge and infrastructure ( financial and physical) and a huge cost disadvantage. Decline over the long term is inevitable.
    A big risk factor for China is the widening gap, between rich and poor, and the resultant social tensions. The 2 systems approach to HK creates further tensions in the southern part of China, and over time has to be unwound.
    Historical ill feeling towards Japan is a useful lever for Chinese leadership to pull to distract the Chinese from economic and social problems at home. Look at how the Nth Korean leadership uses Sth Korea as a scapegoat for domestic problems. Recent anti Japanese riots in China have a similar flavour.I think that we can anticipate further moves from China to keep pressure up on disputed areas, not just with Japan, but also Vietnam and Philippines. This adds to the list of potential geopolitical problems, which include Russia and the Middle East. Market volatility seems an inevitable outcome to plan for.
    Sep 12 07:15 PM | 6 Likes Like |Link to Comment
  • How Buffett Is Changing The Future Of Berkshire's Float - From Insurance To Uncle Sam [View article]
    Very interesting insight. Deferred tax and insurance liabilities share one common feature, they appear on the liability side of the balance sheet, because they are "other peoples money" which must be paid at a future date. To this end, what is invested in using this leverage becomes of interest.....how secure is the anticipated return on invested float?
    I assume that the BRK investment profile retains a conservative enough profile to secure the liabilities of future tax payments, and that these are carefully duration matched, but this seems a risk to watch as with any leveraged business model.
    On balance, I see advantages in deferred tax float over insurance float, as the latter carries risk in both the final amount of exposure, and the timing of the "repayment". This means that there is a need to back the insurance liabilities with a capital buffer, reducing the leverage efficiency. Thanks for the article which provides excellent food for thought!
    Aug 15 09:21 PM | 4 Likes Like |Link to Comment
  • Big Trouble In Little Hong Kong? [View article]
    Great debate here, but perhaps we stray from the key issue. China's leadership, just like POTUS, has ultimately to be pragmatic. They will act in what they see as the interests of their constituency, as the main aim of any politician is to retain power, and ultimately this can only be achieved by furthering the interests of the people that they govern.
    How they exercise that mandate will vary, but the drivers of their actions are the same.
    I like the concept that HK will ignite a wave of revolt through China, but you have to be realistic about scale here. HK is tiny in terms of population, and in China more than anywhere, it's a numbers game!
    Sep 13 09:39 PM | 3 Likes Like |Link to Comment
  • The World's Largest Chemical Company Offers A Great Yield [View article]
    Thanks Jonathan, BASF looks well worth a deeper look. In general, I strongly believe that European based global stocks offer far better value than US listings. Companies like this are accessible on several exchanges, so no problems of access directly, without the complexity of ADRs. Germany, Switzerland and UK in particular are home to many world class companies offering great value. Do you have other proposals of peers to US companies to consider for better valuations?
    Sep 6 01:55 AM | 3 Likes Like |Link to Comment
  • Is This The Best Emerging Market For 2014? [View article]
    According to OECD stats, Turkey's industrial production grew by 15% between 2010 and q3 2013.
    The growth drivers showed a shift from textiles, to electronics, automotive and other higher tech industries.
    Over the same period the G7 economies industrial growth rate was 4.5%.
    Jan 1 07:57 PM | 3 Likes Like |Link to Comment
  • Is This The Best Emerging Market For 2014? [View article]
    Thanks TAS. I agree that Erdogan is vulnerable right now. The military remains a key player in Turkey, and a coup is a possibility. This is why I am on the sidelines for now.
    However, while I am sure that a change of government would disrupt the markets, I do see the strong positive drivers in Turkey as inevitable in their outcome of economic growth. A change of government could represent a buying opportunity. The worst outcome for the market would be a fragmented coalition, and this would be a signal for me to scale down.
    Jan 1 04:10 PM | 3 Likes Like |Link to Comment
  • Is This The Best Emerging Market For 2014? [View article]
    Thanks for the comment Dodurgali.
    I do mention above the current account deficit, which leaves Turkey vulnerable to external financial influence, a key target of the World Bank programme.
    I am less sanguine about the state of modern Turkish democracy than you seem to be.
    I will have to look more into the environmental topic. Sadly however, history shows that the price for poor environmental management is deferred until years after the profits of economic growth flow through to the markets. My analysis is around the market outlook over 1, 5, and 10 years.
    Jan 1 04:05 PM | 3 Likes Like |Link to Comment
  • Long-Term Outlook - Bleak! [View article]
    Doug,
    I think we are getting to the point. The US consumer is not the market that will generate economic growth and corporate profits, it's the new consumers in emerging markets where the demographic trend is favourable. US companies that are well positioned here will clearly benefit, and EM focus should be a key part of any stocks DD. Further than that, understanding the emerging markets themselves, and investing directly in those that offer the best risk and return balance seems the most logical way forward. I have written several articles around specific EM's which I hope will help scratch the surface of these opportunities.
    Sep 21 06:21 PM | 2 Likes Like |Link to Comment
  • Blue Capital Reinsurance Holdings Considerable Capital Appreciation And Yield Opportunity In New, Underfollowed Reinsurer [View article]
    I agree that the risk profile is arguably much higher than portrayed here.
    Collateralised reinsurers are able to access business without strong financial security ratings because they have to put up cash equal to the risk that they accept. This means that they are unable to write a diversified portfolio of business. The assumed loss ratio in the low 20% range and the high rate on line are key assumptions which need careful scrutiny. 20% rate on line means that the price of protection purchased by their clients is 1/5 th of the potential reinsurance claim. A 20% loss ratio means that only 1/5th of the premiums received are paid out in claims.
    Compare that to the price of a 12 month out of the money SPY put !
    Reinsurance contracts that pay that high a price tend to be concentrated in a few key risk areas - Florida hurricane being a good example. Not only are these zones under intense price competition ( recall comments made recently by Warren Buffett that BH were moving out of this space) but losses tend to clump together due to climate issues. The most appropriate risk measure is not the mean or the median loss, it is the 'worst case' scenario, and the probability of that.
    Potential investors in BCRH would be advised to undertake careful scrutiny of their underwriting strategy, portfolio mix, and forward projections of pricing movements. The collateralised reinsurance model is a high risk investment, and the potential for full loss of capital should be one scenario investors should consider.
    Jul 6 11:53 PM | 2 Likes Like |Link to Comment
  • Tesco's Price Drop Offers Excellent Value [View article]
    Thanks for the article which opens up an interesting topic in the current UK supermarket industry -
    There seem to be a couple of investment theses here;
    1. Buy Tesco on value and dividend yield. Here I would consider Sainsbury as a better case. 5.2% yield (ex div in November whereas Tesco has just gone ex div) and a lower pe with a more upmarket brand to fend off the discounters.

    2. Buy Tesco on Overseas growth. My pick here would be Charoen Popkhand, an Asian focused group with strong political capital and good horizontal integration. Tesco is still a UK play, and troubles at home are likely to limit the focus on the overseas markets.

    3. Follow Buffet....with some debate over exactly what he is doing with. Tesco. Surely the best way to follow Buffet is to buy Berkshire Hathaway?
    May 2 10:06 PM | 2 Likes Like |Link to Comment
  • The Singapore Story: No Longer A Sure Thing For Investors? [View article]
    Not short of controversy around this article are we? I always find it interesting to consider polarised arguments, as the truth is often in between. I lived and worked in Singapore for most of the 90's have more of my friends there than anywhere else, and am a frequent visitor.
    The issue for both Singapore and Hongkong as I see it is one of competitive advantage over neighbours as an entrepot economy. As China and S East Asian countries develop more open economies, reduce protectionism, and increase the supply of educated employees - one degree better becomes increasingly hard to maintain. This leads to tougher cost benefit equations for employers, employees, residents and other 'investors'.
    Singapore specifically I see as having progressed fast up the cost curve, while managing to maintain an edge over neighbouring countries. Every time I visit KL, Bangkok, Jakarta, Manila, Ho Chi Minh, I see the edge in evidence, but also how much these places have progressed, and how tenuous is Singapore's grip on the leaderboard. I certainly don't write it off, but the city state has its work cut out to keep ahead - as an entrepot is is essentially dependent on its neighbours - IMHO I think that there will always be a role for Singapore to play, but the real upside for future growth lies elsewhere.
    LKY used to picture Singapore as the "Switzerland of Asia" maybe look to Switzerland to anticipate how things might look in Singapore in the future.
    Apr 9 10:42 PM | 2 Likes Like |Link to Comment
  • AmTrust Financial Services: A P&C Blow-Up In The Making - Part I [View article]
    I agree - reserve problems tend to be the result of poor risk selection and underwriting, or management decisions to lean towards the more aggressive end of the range when setting or releasing reserves. Actuarial quality has a certain baseline of competency, and while it is both an art and a science to develop high quality reserves, it isn't rocket science. A much bigger driver is the business strategy and governance approach of the firm both at senior management and board level. If you are worried about reserving have a look at the business profile, high market share growth in volatile segments and the quality and experience of of board directors before the actuarial team.
    Oct 29 07:58 PM | 1 Like Like |Link to Comment
  • The Unsustainable State Of The Florida Property Insurance Market, Part I [View article]
    Benny,
    IMHO, government intervention in insurance market pricing is always a bad outcome for all involved - as it distorts the insurance price signal around the level of risk you take by where you choose to live. This introduces subsidies which penalise people who live less risky lives, and promotes poor risk decisions. Insurance companies don't subsidise like this between risks, or states, they try to charge the right price for the quality of risk you represent, and then, because bad things don't happen to everyone all the time, diversify the risk from the individual in a big pool. This isn't a perfect mechanism, but I always find economics is a hell of a lot of a better tool than politics!
    Oct 28 09:28 PM | 1 Like Like |Link to Comment
  • The Unsustainable State Of The Florida Property Insurance Market, Part I [View article]
    Thanks for the start to this analysis, I find little to disagree with in the factual representation of the Florida insurance market, and distortions to market pricing that can result from government intervention in the insurance space. The biggest impact of this is often poor risk decisions being made by consumers and a progressive compounding of the problem. From an academic viewpoint, all makes sense. I am missing however, how this converts into an investment thesis. I hope this will become clearer in part 2?

    On building codes and loss estimates. The insurance industry relies on catastrophe models to try to estimate the impact of future losses. These have only really been developed since the 1990's, but they apply a mix of scientific disciplines (including engineering) to incorporate all available data into predictive models. Like any model, they are never right, but they give us a best estimate of what might happen, and form the backbone of the modern property insurance industry. Florida has had more than its share of modeling attention, so the models there are as good as any. They take account of the range of building codes applied to the various buildings insured - and these models still come out with loss estimates such as those cited by the author. So yes, lots of work by some scarily smart people indicates that Florida will see more very large storms at some time in the future.
    Oct 27 05:53 PM | 1 Like Like |Link to Comment
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