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Michael Orwin  

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  • Why Markel Will Fall Short [View article]
    "1. Insurance pricing would adjust to higher interest rates. Premiums would go down, but probably not as much as the economic benefit of higher rates."

    Here's a quote about how low interest rates have been some restraint on the competition. From "Markel's (MKL) Q3 2015 Results - Earnings Call Transcript" Nov. 6, 2015 (, Mike Crowley, President and Co-Chief Operating Officer, said -

    "Obviously, the investment side was the toughest part of the house for us. But we breathe the same air as everybody else. The investment operation – environment we are operating in is the same that every insurance company is. So while everything is competitive, I don’t think anybody is under the delusion that they can operate on a sloppy fashion on the underwriting side and make it up on investments. So the nature and tone of competition and where that bar is set in terms of underwriting profitability is lower this time around than what it would have been in previous cycles, so that’s somewhat good news. It’s hard to get the volumes and we have to compete for every piece of business that we have. But I think everybody is competing in a more disciplined fashion than they were in previous cycles. And that’s a function of both lower level of investment returns and better underwriting data and technology that gives people better insights into what the costs or what they are writing are."

    The "better underwriting data and technology" are good to the extent that they stop irrational pricing, but they might also level the playing field to some extent. I realize that technology is not the same as prudence, but IMO it's easier to be imprudent when the situation is opaque. An over-optimistic insurer would not buy a security for $100 if the only benefit was $95 in five years time, even if that was a better deal than the insurance it was writing. There'll be a limit to what software can do, particularly in assessing catastrophe risk.
    Nov 27, 2015. 08:25 PM | 1 Like Like |Link to Comment
  • Why Markel Will Fall Short [View article]
    About acquisitions, from the 2014 10-K -

    "The Company does not discount reserves for losses and loss adjustment expenses to reflect estimated present value, except for reserves assumed in connection with an acquisition, which are recorded at fair value at the acquisition date."

    If acquired reserves reflect estimated present value, I don't see how you can regard them as part of the float without double-counting the benefit from the delay between acquiring the liability and having to pay out. I don't see how the statement is consistent with -

    "Our A&E reserves are not discounted to present value and are forecasted to pay out over the next 40 to 50 years."

    where there's nothing about acquisitions. On the plus side -

    "We do not purchase or sell finite reinsurance products or use other structures that would have the effect of discounting loss reserves."

    though I don't think that's as common as it used to be.

    I'm long MKL
    Nov 26, 2015. 10:58 AM | Likes Like |Link to Comment
  • Apply Kelly Formula To Investing: Is Volatility Just Risk? [View article]
    That's interesting. I came across Element Six a while ago. They make artificial diamonds, with some hi-tech applications like all diamond optics for high power lasers. Element Six are just a tiny part of the massive miner Anglo American.

    Apparently, 45% of Americans aged 18 to 35 prefer synthetic to natural diamonds, possibly for ethical reasons ("blood diamonds"/"conflict diamonds"). That's from "Want to Make a Diamond in Just 10 Weeks? Use a Microwave" . Unfortunately you can't really make diamonds in the kitchen!
    Nov 26, 2015. 12:43 AM | Likes Like |Link to Comment
  • Hercules Technology Growth Capital, Inc.: This 11% Yielder Is Still Worth Buying [View article]
    There's a piece about BDCs on, "Shadow banks push for easing of loan caps" by Ben McLannahan . There's disagreement about whether or not easing restrictions would increase the risk of failure, and I suppose most people's views depend on what they already think about deregulation. My view is that allowing more debt for the same equity would probably increase the risk, which supports investing in the more prudently run BDCs, although there are other factors.
    Nov 26, 2015. 12:17 AM | 2 Likes Like |Link to Comment
  • Apply Kelly Formula To Investing: Is Volatility Just Risk? [View article]
    About gold, and this is probably unlikely anytime soon due to practical difficulties - "Senate Votes To Legalize Space Mining" . There's gold in them thar asteroids - Wikipedia's "Asteroid mining" . This on claims there's more gold in one asteroid than ever extracted on earth, but I don't know where their fact is from, .

    If gold from space flooded the market, it would count as a "black swan" event to gold bugs who didn't know about the possibility or discounted it. I'd say "black swans" ought to be included in risk assessments and Kelly bets, although it's not easy to quantify them (and for non-survivable events there's no point anyway). That might be a point in favor of half-Kelly.
    Nov 25, 2015. 08:46 PM | Likes Like |Link to Comment
  • Apply Kelly Formula To Investing: Is Volatility Just Risk? [View article]
    I think valuation and volatility are related. If you trade on valuation, you want volatility. On Wikipedia's page about Ben Graham's description of "Mr. Market", , point 6 is "Will offer you a chance to buy low, and sell high.". High volatility can mean maybe you should wait or be underweight, but to take advantage of it you have to buy at some point.

    There are people who don't seem to pay attention to valuation. I've nothing against reinvesting dividends, but some people who do it seem determined to keep reinvesting no matter what, at least that's my impression from some comments I've read. It means the gains they make by reinvesting when their stocks are down are probably lost when the stocks are overvalued. Then there are pundits, who's jobs depend on having enough tips each week, usually buys.

    I don't mean to knock theory, but I'd guess maybe you'd write a little less of it if you were finding great bargains in the market?
    Nov 25, 2015. 01:58 AM | Likes Like |Link to Comment
  • Apply Kelly Formula To Investing: Is Volatility Just Risk? [View article]
    I've also been thinking about rebalancing between different asset types, though all I've done about it is a little selling as valuations moved higher, and a little buying when Asian stocks had a bad day.

    A while back I noticed that since inception, NASDAQ outperformed the S&P 500, but with more volatility, and I'll look into buying a NASDAQ tracker if it takes a big dive, then sell when it looks too expensive relative to the S&P 500. I've forgotten the details so I can't absolutely promise that NASDAQ had a higher return including dividends.

    I've done some research using data from . After calculating CAPE (cyclically adjusted PE) against its 60 year rolling average, and charting that against the future ten year total return, I made a "bubble avoider" spreadsheet table (with no optimization, just getting thresholds from looking at the chart). It works by selling progressively as valuations go into bubble territory, and buying on the way down. By using thresholds and trading just once a year, it made a profit instead of just reversing previous trades as the bubble collapsed. It didn't make very big profits, and didn't trade much outside of the Dotcom bubble, but it avoided the risk of a large holding of stocks in a bubble. Obviously a backtest doesn't prove a strategy will work in future, even if the data wasn't tortured. I think if a real full-blown bubble developed I could probably beat my simple automatic system, and so could most investors who didn't go crazy.

    There's also data for Treasury rates on . The link is for ten year rates but there are links on the page for other periods. I'm thinking that with the S&P 500 data that might be enough data to backtest rebalancing between equities and bonds. I'm never sure of such things unless I actually try and it works.

    One problem I have with multpl's data is they credit as sources Standard and Poor's and a book by Robert Shiller, and not being a lawyer I don't want to publish charts and have S&P, Shiller or multpl suing for breach of copyright.
    Nov 24, 2015. 10:12 PM | 1 Like Like |Link to Comment
  • No, GlaxoSmithKline Is Not Going To Cut Its Dividend [View article]
    Ben, it looks like your "Cash flow from operations less changes in working capital" is before "Taxation paid" for 2012 to 2014.
    Nov 22, 2015. 08:10 AM | Likes Like |Link to Comment
  • Is Becton, Dickinson And Company Poised To Continue Double-Digit Returns? [View article]
    I like the pharmacy automation acquired from CareFusion. See Rowa and Pyxis . Automatic storage and dispensing eliminates human error. In a manual system, drugs are filed alphabetically, and very similar names can be for very different drugs. Packaging for generics often features branding rather than the condition the medicine is for, which also makes mistakes easy for busy staff. I suppose there's some risk of competition from cheaper models, but buyers will want to be sure a system is reliable. Now there's a Californian hospital where robots are distributing drugs - (YouTube). I hope BD keep up with that because it fits with pharmacy automation.
    Nov 18, 2015. 01:33 PM | Likes Like |Link to Comment
  • Is Becton, Dickinson And Company Poised To Continue Double-Digit Returns? [View article]
    "so I would guess a lower than average increase of 6-8 percent, but I hope I'm wrong."

    I hope you're right because I'd rather see them get debt down.
    Nov 18, 2015. 01:16 PM | Likes Like |Link to Comment
  • Deutsche defends SunEdison's balance sheet after talking with management [View news story]
    Deutsche Bank have loaned money to SunEdison. Maybe in theory that shouldn't affect statements from Deutsche, but I wouldn't bank on it.
    Nov 18, 2015. 12:43 PM | 2 Likes Like |Link to Comment
  • Sell Markel, It's Too Expensive [View article]
    "I am not sure what IO means"

    Infuriatingly Obscure :)
    Nov 15, 2015. 12:51 AM | Likes Like |Link to Comment
  • Sell Markel, It's Too Expensive [View article]
    "of SHE invested in equities"

    I suppose "SHE" must be stockholders equity. It's not listed on acronymfinder . Under their "Business & Finance" tab, they only list "Super Head End" and "Shrink, Hide, Embody (design principle)". I appreciate the debate, but please don't be so IO.
    Nov 14, 2015. 10:52 PM | Likes Like |Link to Comment
  • GlaxoSmithKline Faces Pressure To Split Business Units; A Sum Of Parts Valuation [View article]
    Does anyone know how the TPP trade deal affects GSK? Will they be at a disadvantage from being domiciled in the UK, or is GSK global enough that it won't make any difference? About the relevance of TPP, Doctors Without Borders don't like it saying it will restrict access to price-lowering generic medicines. I don't mean that I want DWB/MSF to be unable to afford drugs, but I'd like to be informed and I can't find much about the effect on producers outside the TPP area.

    There's also the Transatlantic Trade and Investment Partnership (TTIP) with implications for the NHS and clinical trial data, according to The Independent, "What is TTIP? And six reasons why the answer should scare you" .
    Nov 14, 2015. 04:22 AM | 1 Like Like |Link to Comment
  • The 4 Dimensions Of Value Investing [View article]
    I'd just like to mention Philip Fisher, an investor who looked at qualitative factors. He said "The rigid company that is not constantly challenging itself will sooner or later find itself in decline.", and placed great importance on capability and integrity. According to Wikipedia he said the best time to sell a stock was "almost never", and he bought Motorola in 1955 and never sold it. He used "scuttlebut", opinions in confidence from competitors and customers, which unfortunately isn't practical for most investors. According to a page on valuewalk Warren Buffett described himself as a mixture of Graham and Fisher. Valuewalk say Fisher bought Motorola in 1977, but they also say it went up 20 fold in 20 decades (i.e. 200 years!). 1955 is in Wikipedia, and in "A Dozen Things I’ve Learned from Philip Fisher and Walter Schloss About Investing"
    Nov 13, 2015. 06:40 PM | Likes Like |Link to Comment