SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

   Strategies & Market TrendsBuffettology


Previous 10 Next 10 
To: Shane M who wrote (1696)7/21/1999 10:32:00 AM
From: Art Vandelay
   of 4656
 
Shane

Re: HMA I also bought in before the bad news. I however did average down, so I am a little over $9 a share. I like their strategy also although I agree with Mike that this is probably not a Buffett stock due to the risk and how much influence the government can have. I guess we'll have to wait and see what happens.

I'm not buying more currently because I'm saving my remaining cash for what I see as an inevitable correction,

You're not the only one waiting (hoping) for a correction! (ggg)

Share RecommendKeepReplyMark as Last ReadRead Replies (1)


To: James Clarke who wrote (1695)7/21/1999 1:59:00 PM
From: Michael Burry
   of 4656
 
PPD serves primarily individuals and small businesses. It is hard to imagine their approach having much success in big-time corporate America, but for small businesses it makes sense. They have had success marketing to certain groups as well. Targeting police officers, school teachers, etc.

They take very little risk that expenses will be higher than expected. All memberships sold since 1987 have been "closed panel." This means that the insured must access benefits through one of the "plan" lawyers. The lawyers get a capitated fee per member covered. Just like the HMOs. But there's much less hassle from the government, since no one really cares what people pay for legal advice. Least of all Congress. This is because there is no Medicare/Medicaid equivalent to make it an issue. And that won't change anytime soon. As well, the cost of providing legal services is managed by only offering certain services. You can't go to a lawyer for just anything - only for what you are covered. The ethical wars are much less than the HMOs have to fight as well. 94% of its members were closed panel as of the end of December.

From what I understand, they expect quite a bit out of their lawyers, highest ratings and all that. But evidently the legal cost ratio is so favorable that lawywers want to do it. The kicker is, PPD doesn't bear any of the liability for potential negligence or fraud claims if a provider attorney screws up. It's in the contracts.

It's not all rah-rah, though. Evidently quite a few members quit. That's part of the "smells bad." If I just ignore everything else and look at the numbers, I'm ok with investing in it. If I think about the MMM structure, then I think I'll head for the exits at the first sign of significant insider selling. To date, insiders have been big holders and buyers.

I don't think this is a Buffett investment in the manner of Coke. But maybe in the manner of Kirby or Execujet. Mike

Share RecommendKeepReplyMark as Last ReadRead Replies (1)


To: Michael Burry who wrote (1698)7/21/1999 10:46:00 PM
From: Michael Burry
   of 4656
 
I should add that a downer re: PPD is that their cooperative arrangements with Conseco and CNA have not gone well. This could mean that live, straight-faced brokers can't sell PPD's product. And if it takes an army of profit-minded members to get the product sold, one must wonder what the long-term prospects are. I would be much more comfortable if the traditional channels started working for them.

BTW, is it becoming obvious to anyone here yet why Apple has Buffett characteristics. I couldn't pound the table hard enough back at 34, and I'm about to pound the table again even up here.

Mike

Share RecommendKeepReplyMark as Last ReadRead Replies (1)


To: Michael Burry who wrote (1699)7/22/1999 1:41:00 PM
From: LauA
   of 4656
 
I still fail to see Apple as a Buffett-type stock. I remain unconvinced that it will be in business 10 years from now. My most recent piece of data comes from private conversation with an internet start-up that's getting lots of press, targeting a major sector, and is well-funded by Sand Hill VC's that is not even bothering to code a Mac version despite certain obvious attraction. Reasoning? Apple remains difficult to work with. Declining market share - If Apple wants to participate, they'll have to fund the R+D.

BTW, they are running their backbone on Linux boxes from VA Research.

Lau

Share RecommendKeepReplyMark as Last ReadRead Replies (2)


To: LauA who wrote (1700)7/22/1999 1:52:00 PM
From: Michael Burry
1 Recommendation   of 4656
 
What tells me Apple is a Buffett stock can be summed up in recent events.

Analysts expect the new iBook to retail for 1299. Apple jumps the price 30% to 1699 and gets some criticism for the price at the same time analysts are saying "they'll sell as many as they can make."
If this isn't market power, I don't know what is. To look at all box makers, lump them in one group, and say Apple has only this much percent is the wrong way to look at it (even so, the share is growing, not declining). To say that corporate IS isn't going to rally behind Apple is also missing the point. This is a consumer franchise, not a corporate one. And I think Buffett's point has always been that in the long run it is the consumer franchises that last. There is not another box-maker out there that could pull off what Apple is doing. No, not even Dell, jhg. That software makers (including Microsoft) are once again pouring resources into Apple development at breakneck pace is another clue as to the longevity here.

Plus, you have all of Wall Street trained to think that Apple is the antithesis of good business thanks to case studies from the 80s. How can you go wrong? ;)

Mike

Share RecommendKeepReplyMark as Last Read


To: LauA who wrote (1700)7/24/1999 2:15:00 AM
From: James Clarke
   of 4656
 
Disney

"Zippedey doo da, Zippeday 'ey.
For internet presence we're gonna overpay.
Plenty of losses comin' our way.
Zippedey doo da, Zippeyday 'ey"

My question is what price Disney? 25? 22? 20? This puppy is clearly a Buffett stock, and the stock price is disintigrating under current management. (Remember what Buffett says - buy a business that could be run by morons, because someday it will be - that is where Disney is today). These guys just bought out a large internet company at a premium to the market price. And then Eisner shows up on CNBC talking about what a great deal it was. You just want Bambi to grow some horns and gore him.

And if they are doing deals like that, I don't know how relevant any valuation analysis can be. I am interested below 25, but I have a lot of trouble having much conviction.


Share RecommendKeepReplyMark as Last ReadRead Replies (4)


To: James Clarke who wrote (1702)7/24/1999 1:05:00 PM
From: LauA
   of 4656
 
Mike and James, your present value thinking appears to be much more profitable than my speculations on the future. When I posed the question to the GEICO porfolio investment guys about how they determine if a company with high ROE will return value to the shareholder in the future via higher stock price, they recommended such a look to the past, and present.

In Fry's yesterday a salesman was laughing at customers who buy iMacs, but he admitted that they buy them. He told of a graphics designer who bought one recently, and then had to upgrade it so much that it cost the same as a G3. He said consumers are buying them as decorator items - what color goes with other things in the room? Blueberry, grape, and tangerine sell. Strawberry doesn't. So Mike's observations on pricing of the iBook trump my thoughts that it is an iBrick (because of weight) and that its announcement has a quality of 'vapor' because volume shipments will begin after the back to school buying has ended.

At Fry's the salesman said that customers are buying iMacs to get on the iNet - he said that's about all it does well. Meanwhile eMachines in Fry's is being given away - Free with a sign up for 3 years of ISP at $22/month. Of course next week Alta Vista will be offering a Free ISP.

Which brings up new complications in valuation of the net. AOL has bankrolled eMachines which is currently the 4th largest producer of PC's. (Is Apple in the top 10?) They bundle an eMachine with Compuserve (an AOL ISP). But with Free ISP's around, how long will the conventional AOL, Earthlink, Mindspring model survive? The Free ISP will sport targeted ads. They catalog every URL that's visited and construct a profile for each user (who's anonymously, but uniquely identified by his/her log in password. The business model will approach commercial radio and TV with the fillup of allowing impulse buying.

Hence a Disney needs to be there. Their choice is to buy or build. It's hard to know how to value a current iNet player, but you must recognize that it's not all that easy to find worker bees to build a new company. Paradigms seem to be shifting every 6 - 12 weeks, but most of the real estate has been staked out already. Passive branding may get more valuable as stores become places you shop, and the 'Net becomes the place you buy. On the other hand, if your on-ramp guides you to a certain universe of names, these 'free' ISP's may develop the merchandising power that WalMart has today.

"Hi Ho, Hi Ho, it's off to thunk, I go"

Lau

Share RecommendKeepReplyMark as Last ReadRead Replies (1)


To: James Clarke who wrote (1702)7/24/1999 1:44:00 PM
From: Mark Marcellus
   of 4656
 
Remember what Buffett says - buy a business that could be run by morons, because someday it will be - that is where Disney is today

Actually, Peter Lynch said that. Buffett stresses buying into management where you have the utmost faith in their competence and integrity. It's also important to note that he did not exactly buy into Disney, Disney bought Cap Cities. There was a lot of speculation at the time as to whether he would sell his stake. He may wish that he had, now.

The irony is that there was a time when Disney was a well managed company. In retrospect, it looks like Frank Wells might have had a lot more to do with that than he was given credit for.

Share RecommendKeepReplyMark as Last ReadRead Replies (2)


To: Mark Marcellus who wrote (1704)7/24/1999 1:54:00 PM
From: Michael Burry
   of 4656
 
I guess I would also add that the thrust behind the "run by morons concept" is that the business should still be thriving while it is being run by morons. The idea is that it will be an even greater business under geniuses. So the troughs will still be palatable and the peaks will be ecstasy. Just buying a business in trouble because it is being run by morons doesn't make sense to me. The trough then becomes unpalatable, and the peak may be just average or worse.

As well, we must always be wary of the latter situation, since it is not entirely certain that a genius will be able to turn the business around at all. The qualitative judgements become quite important.

I happen to like Disney a lot. I agree with those that say the ESPN franchise is worth the ABC price. I think that they are making the right net moves, but with poor execution and without regard to creating shareholder value through correct pricing. In the 21ish range, I'd buy some. I've already bought a tiny itty bit for a family member who thought she should own some (she also had to have GAP), but that's just in a portfolio I manage, not one of my own.

Now I've just been asked to manage a couple custodial counts for a couple just-born nieces. They'll need the money in 18 years. And you can bet Disney will be going in those too, at the right price.

Mike

Share RecommendKeepReplyMark as Last ReadRead Replies (1)


To: Mark Marcellus who wrote (1704)7/24/1999 6:26:00 PM
From: Michael Burry
   of 4656
 
Actually, Buffett did buy Disney, twice. Once, in 1966, and the other at the time of the Cap Cities transaction. Buffett had an option of cash or stock, or a combination. He chose all stock, and additionally bought shares of Disney in the market. From his 1995 letter:

We have also recently bought Disney stock in the market.

One more bit of history: I first became interested in Disney in 1966, when its market valuation was less than $90 million, even though the company had earned around $21 million pre-tax in 1965 and was
sitting with more cash than debt. At Disneyland, the $17 million Pirates of the Caribbean ride would soon open. Imagine my excitement a company selling at only five times rides!

Duly impressed, Buffett Partnership Ltd. bought a significant amount of Disney stock at a split-adjusted price of 31› per share. That decision may appear brilliant, given that the stock now sells for
$66. But your Chairman was up to the task of nullifying it: In 1967 I sold out at 48› per share.

Oh well, we're happy to be once again a large owner of a business with both unique assets and outstanding management.


Judging purely from these descriptions, I would say that Disney today is much different than at the times he bought the stock. As well, it fails the "moron" test. But I'll always be looking for the right entry.

Mike

Share RecommendKeepReplyMark as Last Read
Previous 10 Next 10