texalope

Buffett's Financial Bets

If muni bond insurance is so dangerous, why is Buffet selling it. He said 77% is in a second position and he's being careful. How can you be careful? He's humasn so maybe he's talking his book. After all, MBIA is about to start selling again.

Book Review: Warren Buffett and the Interpretation of Financial Statements, by Mary Buffett and David Clark

To explore the idea of sustainable competitive advantage you should read the works of Bruce Greenwald, professor at Columbia Business school. He has inherited the value investing mantle following Graham and Buffet.
He says there are three ways to identify competitive advantage;

Economy of Scale
Captive Customers
Proprietary Technology

His book, Value Investing in a very informative read

The Financial Crisis: Getting the Best of Warren Buffett?

By the way, Buffet has made it clear the warrants were more or less a throw in by Goldman. They were not material to making the deal. He got a 10% yield in perpetuity on his investment unless Goldman decides to pay off the debt. In that case he'll get an additional year's worth of interest= 500 million, not chump change.I call that a very good deal, especially for a company that has cautioned future returns will not equal the past because their size and amount of capital functions as an anchor. Their ability to deploy large amounts of capital for outsized returns was limited. However, the worm has turned- financial events have presented opportunity and Buffet has sprung into action by deploying large amounts of capital for expected outsize returns.

The Financial Crisis: Getting the Best of Warren Buffett?

You clearly don't understand Buffet's modus operandi. In the super cat business they make large bets against the possibility of cataclysmic events. It's hard to quantify potential exposure and the probabilities but the business has proven to be exceptionally profitable. There are few companies capable of competing and consequently premiums can be steep. His bet on the future of the S&P Index is based on over 100 years of steady climb. It's foolish to extrapolate that current events are more than a temporary turn relative to the future. In the interim he's collected 5Billion in premiums to buy cheap assets that will likely be worth considerably more in the future. I wouldn't bet against Buffet's judgement in the longer term. It can prove hazardous to your wallet.

2 Noteworthy Points From Warren Buffett's Annual Shareholder Letter

Primus is a good bet and here's my thinking.
You have to think like an owner of a privately held business with no daily quote.
They have a solid book. Spreads are going up so the income stream is rising. My company is getting paid quite well for the risk we're assuming (much like the Property and casualty business after hurricanes Katrina and Wilma).
My accountant comes in quarterly and tells me we're losing tons of money because he marks our holdings to market. My bank account is growing larger and larger and my prospects for continuation of this stream of money are very good in this cycle. I have no intention or need to sell my assets into this weak market, I'll hold them to term(about 5 years) until my insurance guarantee expires. My accountants' proclamations do not hold much value for me. My bank account does.
If a competitor came to me and offered half of book value for my good business with a growing stream of cash flows, I'd be a fool to sell it to him. Frankly, I'd buy his business under the same arrangement. So, these factors tell me Primus is a good buy here at 50% of economic book value.
The risk- a black swan event occurs with a huge bankruptcy that I couldn't predict. An outlier type event that can happen with any investment at any time.

I don't think that's enough to dissuade me from a bet that will double my money at the least($9 assigns no value to ongoing business) so this company is worth more. But,that amount is subject to debate.