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Tom Armistead  

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  • Scrutinizing Investing In Insurance Stocks Through ACE, Chubb, AFLAC And Allied World [View article]
    Mark I hesitate to answer in the form of advice as I am a retail investor talking shop. I did an article a while ago on why P&C insurers havee outperformed which might help you do due diligence.
    Oct 5, 2015. 05:42 PM | 1 Like Like |Link to Comment
  • Intel And Cisco Head-To-Head [View article]
    I started with INTC at $24, so I got step a) right. Bought low.

    Step b), (sell high) not so good. From my point of view, Intel is worth $40, and I continue to invest on that basis.

    As a practical matter, I sold covered calls, much in demand, at $35 and $38, so I did some selling high. I have time and patience.
    Oct 4, 2015. 01:04 PM | 1 Like Like |Link to Comment
  • Scrutinizing Investing In Insurance Stocks Through ACE, Chubb, AFLAC And Allied World [View article]
    Well run insurance companies are able to hold their bonds to maturity, and they keep their maturities in line with the timing of claims payments.

    Insurance companies publish two book values - GAAP and exAOCI. Because they are able to hold to maturity, the BV exAOCI is the relevant valuation metric. This information is published in a quarterly financial supplement and is available to all investors.

    A study of insurance company earnings will reveal that for P&C Insurance companies, or for companies like Aflac that are similarly predictable in terms of paying losses, investment income makes up most of long term profits, and can be remarkably stable, depending on the degree of conservatism reflected in investment philosophy. Equity returns aren't important to P&C insurers (or to AFLAC) which invest heavily in bonds. Accurate evaluation of the risk (and required rate of return) for P&C insurance stocks needs to reflect an understanding of their bond portfolio.

    Analytics has greatly improved the accuracy of insurance company reserving and pricing. The cyclical nature of the business has been reduced by companies returning capital to shareholders if it can't be deployed profitably in underwriting increased levels of new business. They do buybacks instead of writing business at a loss.

    I'm long ACE and Aflac and expect to achieve above market returns. I was long CB before it was acquired, and got the benefit of a nice price pop at that time. My calculation of the company's intrinsic value was extremely close to the price ACE agreed to pay for it. As such I see no problem for ACE.
    Oct 4, 2015. 10:34 AM | 3 Likes Like |Link to Comment
  • Why I Don't Care About No Stinkin' Oil Rig Counts [View article]
    SA contributor Jennifer Warren did an article on realpolitik, her point was, most of the major oil producing countries have economies that subsidize everything else with oil, and they need much higher oil prices to continue the subsidies.

    These powers don't necessarily get along with each other as well as they pretend, but sooner or later they will all swallow their pride and collectively share the reductions in production that are necessary to get oil up to where the subsidies can be continued.

    Either that or the cannonballs fly.
    Oct 4, 2015. 08:55 AM | 7 Likes Like |Link to Comment
  • Why I Don't Care About No Stinkin' Oil Rig Counts [View article]
    Before getting too enthusiastic about the Shale Oil business model, I would compare it to homebuilders during the housing bubble.

    Homebuilders booked fine GAAP profits, but cash flow was diverted to buying additional land for development, with prices escalating in tandem with house prices. They never really made a cash profit and were disasters when the bubble popped. They had to write down their land inventories.

    Shale Oil producers work similarly. A lot of the profit is derived from increasing reserves by upgrading estimates of how many barrels can be produced at a profit. That's done according to SEC rules, once a year, based on the trailing twelve month average of oil prices.

    We won't know where we stand until 2015 year end reports are in. I expect a lot of these companies to make significant downward revisions, demonstrating that they never made a profit, and creating a scenario where they won't have access to credit for new drilling.

    These companies are drilling their best locations first, and the residue will not be profitable at anything like today's prices.

    As existing shale wells decline rapidly, US production will decrease to where it is no longer the swing producer. From there you get to $70 or $80 oil pretty easy.
    Oct 3, 2015. 03:32 PM | 27 Likes Like |Link to Comment
  • Intel And Cisco Head-To-Head [View article]
    Hi Ray, good comparison. I've owned Cisco in the past, as part of a value in old tech strategy, with good results. I let go of it in time to miss a nice move.

    I'm long Intel, under the theory that the massive R&D and Capex spends will result in increased earnings. Regretfully I chased it higher before it started slumping and have little to show for my efforts. I still think I see $40, although I plan to start reducing my stake if and when it goes over $35.
    Oct 3, 2015. 02:26 PM | 2 Likes Like |Link to Comment
  • They're Back: $1.26 Billion Of Credit Default Swaps Traded On Berkshire Hathaway This Week [View article]
    A word search on BRK's 10-K shows 62 occurrences of the word "derivative." While that is less than the more the 100 shown by big banks such as BAC or JPM, it is sufficient to suggest that BRK is a complex financial.

    Notional amounts and derivative gains/losses are material. As such they are disclosed on the 10-K.

    Insurance companies are permitted to "invest" in synthetic bonds, that is, to issue CDS protection. A search on "synthetic" doesn't raise up any relevant information.

    My guess: Uncle Warren is going to stub his toe on some sort of derivative mess with artful dodgers from the Street or the City.
    Sep 30, 2015. 09:06 PM | 4 Likes Like |Link to Comment
  • The View From Punch Bowl Mountain [View article]
    I closed my SPY hedge today, for a razor thin profit on a long hold.

    Briefly, I felt as if I had better uses for the money.
    Sep 29, 2015. 10:36 AM | 1 Like Like |Link to Comment
  • McDonald's: Business Model, Valuation And Minimum Wage Legislation [View article]
    I closed my MCD position on the CS upgrade.

    I was looking for Revenue and EPS to increase, but that has not happened. The share price is in the area where I started investing, and I made a small profit selling covered calls.

    Out traveling I ate in several McDonalds and ordered the same menu item each time. The quality varied from excellent to marginally palatable. Whatever is supposed to be happening isn't arriving consistently in front of the customer.
    Sep 29, 2015. 10:30 AM | Likes Like |Link to Comment
  • The View From Punch Bowl Mountain [View article]

    Good to hear from you again. I've been doing some hiking in the White Mountains and haven't spent a lot of time on investment issues. Various energy and technology investments are underperforming, so I'm waiting on developments.

    I haven't done anything with emerging markets. A lot of my investment thinking relies on the idea that the investor gets the full benefit of the earnings on the stocks he owns.

    As a generalization, I think the weakness of the rule of law and lack of regulation in emerging markets creates a situation where the investor has no assurance of receiving the full benefits of ownership.
    Sep 27, 2015. 10:08 AM | 1 Like Like |Link to Comment
  • Blame The Algos For The Sell-Off [View article]
    Somehow it seems easier to just buy good companies at a reasonable price and disregard the antics of the algos.
    Sep 10, 2015. 03:29 PM | 12 Likes Like |Link to Comment
  • What Price Should You Pay For CSX Corp.? [View article]
    I like the approach here. I owned CSX but let it go at $32.50, I felt it was fully valued at that price.

    The railroad industry is capital intensive and will turn down if and when the economy does.

    I'm always pleased when I have a reasonable expectation of 9% returns going forward, so CSX is fairly attractive from my point of view.
    Sep 9, 2015. 03:14 PM | 4 Likes Like |Link to Comment
  • Financial Stress Is Rising [View instapost]
    I was trying to work on a reply, by looking into the variables that are included in the index. However, the link to the description of the methodology no longer functions. So now the STLFSI is black box.

    My best guess is that lending into the energy industry and particularly shale oil has created considerable debt that will not be repaid at current oil prices. In all likelihood some of the paperwork underlying the loans will contain incorrect factual information, and some of the debt will have been palmed off on naïve investors.

    So spreads for anything associated directly or indirectly would start to blow out, affecting financial stress as measured by the index. As I recall, a lot of it is spread based, and relies on averaging the constituents expressed in standard deviations.

    As a general rule, financial institutions can deal with a two standard deviation change in whatever is being stressed, but after that they have no plan. So for the STLFSI to move so fast, some constituent may well have moved more than two standard deviations, and somebody somewhere is in trouble.

    I don't think there will be enough contagion to tip things over.

    Sep 7, 2015. 07:57 PM | 3 Likes Like |Link to Comment
  • Ignore Buffett: Refiners Are A Low-Quality Industry About To Plunge [View article]
    Tesoro had a serious refinery fire with loss of life, shortly after management did a conference call with a long discussion about deferring maintenance.

    I got disgusted and closed my position, just before it soared. I don't like the cyclical aspect, with management reducing financial risk by putting physical risk on workers. Commenters on my article said learn to live with it, that's how the industry works.

    I own XOM and OXY, but no pure refiners.
    Sep 6, 2015. 05:03 PM | 2 Likes Like |Link to Comment
  • What To Do With My Hedge [View instapost]
    I took a guess that time value would be $3 per option at either the 15% or 20% correction. I figured if we had that kind of action volatility would pick up and increase the time value.

    I really like options but it adds some complexity when the markets are gyrating.
    Aug 31, 2015. 05:34 PM | Likes Like |Link to Comment