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   Strategies & Market TrendsBuffettology


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To: Freedom Fighter who wrote (1686)7/16/1999 11:27:00 PM
From: James Clarke
   of 4656
 
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 4656
 
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 4656
 
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 4656
 
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 4656
 
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 4656
 
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 4656
 
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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To: Brendan W who wrote (1693)7/20/1999 1:06:00 AM
From: Michael Burry
   of 4656
 
If there's one thing I learned from Buffett, it's that not every investment winner is as universally loved as Coke. Kirby vacuum cleaner salesman are dirtbags. Door-to-door encyclopedia salesman are an intrusion. And a nice little monopolistic newspaper can be a hated institution.

I was turned off by the marketing strategy cuz it smelled bad. But I can't fault the financials too much. 93% of premiums are collected monthly and booked as they are collected. Meanwhile, they pay out a large percentage of any commission on the front end. So acquisition cash flow is negative, and continuing cash flow is positive. As it should be. Pyramid schemes and MMM campaigns don't have this quality. The loss ratio is just 33%. Compare that to HMOs struggling to pay the bills with 90% loss ratios.

Prepaid isn't perfect. I just saw an analogy to the jet timesharing in that it is a new industry. Earning great returns, and priced cheaply. With insiders mostly buying I took the plunge. Wish I'd bought earlier this month. Management holds big chunks, and is motivated. Yeah, there's going to be an internet angle too.

Mike

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To: Michael Burry who wrote (1694)7/20/1999 3:40:00 AM
From: James Clarke
   of 4656
 
I remember my father telling me when I was little that the only thing lawyers are good for is suing doctors and other lawyers. If you can't beat 'em, join 'em, right Mike?

I'd like to hear a little more about what you see in the valuation. I've said a number of times that in this environment I would love to own a publicly owned law firm. The best proxy I could find would be to short tobacco stocks or buy paper stocks. Do they serve individuals or corporations? And how much risk do they take that their customer's legal expenses will be higher than expected? Isn't that kind of like a capitated HMO patient in a runaway cost environment?

JJC

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To: Michael Burry who wrote (1692)7/20/1999 9:22:00 PM
From: Shane M
   of 4656
 
Michael,

PPD is one that was showing up on my watchlist too, but I hadn't looked into yet because a few others kept getting my attention. Unfortunately HMA was one of those that diverted me.

BTW, I re-evaluated HMA over the weekend and feel that the current price is a still a good buy despite the recent warning. HMA has consistently delivered in the past, and with rural hospitals they have targeted a segment that offers them the potential for market beating returns. They've also done very well purchasing distressed hospitals and profitably turning them around, recruiting staff, and enhancing services. Medicare reimbursement have made the environment more difficult, but are commited to controlling costs to provide shareholders solid returns. I'm not buying more currently because I'm saving my remaining cash for what I see as an inevitable correction, but otherwise I'd probably be averaging into HMA at this point.

Also, I tinkered around with the screening criteria at the base of my stock valuation spreadsheet, and I ended up loosening the "Buffet" criteria a little bit to see if any more companies would make the cut in valuation terms. Even though loosening the criteria allowed about 400 more companies through, only a handful were added to my watchlist. One that was particularly interesting to me is Dycom DY. It's a communications infrastructure stock. I view bandwidth as an area that has long term economics in its favor. They're in the phase for a tech company where past investment pays off, profit margins are expanding, and debt levels are coming down. I'll be reading more about them, and probably looking to accumulate should the market oblige with a scary correction.

Shane

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