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   Strategies & Market TrendsBuffettology


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To: Shane M who wrote (1683)7/16/1999 12:22:00 AM
From: James Clarke
   of 4657
 
I don't know Manor Care - I was only proposing it as a potential idea that some other smart value investors I know are thinking about.

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To: Shane M who wrote (1681)7/16/1999 10:22:00 PM
From: Freedom Fighter
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Shane,

Thanks for that very helpful overview of the industry.

I bought into MCY when it was selling at a discount to the prevailing industry PE ratios and at an absolute price that I was very comfortable with.

Mercury has been able to consistently produce an underwriting profit on its insurance while generating above average ROE. It has also grown premiums at a rate that is faster than average. Those are the main things I look for. Based on the comparisons I have done with other companies, I think it should sell at a premium to most auto insurers.

The California environment does appear to be hyper-competitive right now, so premium growth and earnings are depressed. However, the research I did I was quite comforting. MCY standard line auto insurance is favorably priced versus virtually everyone. They are also expanding their operations into Florida and a few other states and appear to be getting promising results. So I am hoping that despite the competition at present, they will do very well longer term.

Their size also makes them an interesting possibility as a takeover candidate for someone who wants a presence in California.

I think the investment is going to require some patience on my part but I also think it will be rewarding.

Thanks for the help,

Wayne


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To: James Clarke who wrote (1682)7/16/1999 10:28:00 PM
From: Freedom Fighter
   of 4657
 
James,

I just discovered Horace Mann a few weeks ago. It immediately went on my "Watch" list. I'm not familiar enough with it to make any comments because I haven't even read the annual report. The surface numbers are impressive though and I agree that it's worth looking at.

Did you buy RAL?

Wayne

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To: Freedom Fighter who wrote (1686)7/16/1999 11:27:00 PM
From: James Clarke
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Horace Mann I just started looking at before I posted last night, so I am actually delighted about the 8% drop today on an earnings preannouncement. But the preannouncement was signficant enough that it makes me wonder whether something is wrong with the franchise. If the franchise is still solid, the stock is a buy. It will take some work to answer that all-important question.

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To: Michael Burry who wrote (1666)7/17/1999 12:06:00 AM
From: jhg_in_kc
   of 4657
 
the deal with health care is that it is too important to be in the hands of any person who does it for profit. the ancient chinese system is best. each person pays a doctor every day until he or she becomes sick. then you stop paying until the doctor makes you well. this is a form of health insurance which eliminates predatory behavior.
i hope this cools your blood a bit. <g>

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To: James Clarke who wrote (1687)7/17/1999 12:09:00 AM
From: jhg_in_kc
   of 4657
 
fyi, rmbs up 20% in 2 days. on sept.5, its license to print money commences. this is no dunkin donuts. cheers.
jhg

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To: jhg_in_kc who wrote (1688)7/17/1999 12:32:00 AM
From: Michael Burry
   of 4657
 
Off topic

...each person pays a doctor every day until he or she becomes sick. then you stop paying until the doctor makes you well...

Isn't that what has gotten Social Security and Medicare into so much trouble? The unequal distribution of ages in the population make it unworkable.

Mike

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To: Freedom Fighter who wrote (1685)7/17/1999 12:35:00 AM
From: Shane M
   of 4657
 
Wayne,

I agree that the the numbers on MCY look very good relative to competitors. California I guess was the deal breaker. These things come and go though. Occassionally everybody wants to be in a given state for the growth prospects, and then something happens that makes everybody wish they weren't there. And then later everybody wants back in for some other reason.

At my company we were running from hurricane exposure in the years following hurricane Andrew, and still are to a degree. But the pendulum is perceptively swinging back to freeing up writing in CAT areas, despite the fact that it's actuarially still far from being profitable on a normalized basis. In some areas the normalized CAT loss _alone_ is sufficient to cause underwriting losses. i.e. Before we have the first XCAT claim we are losing money becuase the expected CAT losses are so high. When there's major pressure to grow the top line companies will do unpredictable things.

Shane

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To: Shane M who wrote (1691)7/19/1999 10:48:00 PM
From: Michael Burry
   of 4657
 
Started a position in Prepaid Legal Services today. Like Execujet, a whole new concept/industry, and they're the leader. It showed up on my "Young Buffett" screen a few weeks ago. It moved to the top of my buy soon list after finding little not to like in the biz plan or financials, and especially after noting heavy insider buying. I had been waiting for it to fall a little bit and provide a buying opportunity. They announced earnings today, and the stock moved up. Figured that I wouldn't see the 20's again, so I got in just under 30. The risk is, how good are they at pricing this stuff? I mean, the tables can't be as established as the other arms of the insurance industry. But then, being the leader, they also have flexibility because of this lack of norms. Kinda like the supercat segment.

Mike

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To: Michael Burry who wrote (1692)7/19/1999 11:48:00 PM
From: Brendan W
   of 4657
 
Mike, how did you evaluate Prepaid Legal's network marketing strategy? This is what turned me off when I looked at it a month ago.

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