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Strategies & Market Trends : Value Investing

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To: Madharry who wrote (10111)	3/3/2000 2:58:00 PM
From: Freedom Fighter	Read Replies (2) of 78744

Armin, I've written about my favorite sector a few times. I like property casualty. It faces no headwinds. It is in the middle of the storm. :-) I think it is a cyclical storm and we are getting closer to the light. More than a few companies are already raising prices. I like auto insurance the best because it's the easiest for me to understand. (I'm far from expert). The advantage of auto to me is that it isn't long tail insurance so I think the quality of earnings (or least their trustworthiness) is better. (I do look at reserve levels.) When I'm studying a new industry I like to look through the Value Line to see if there are any companies that I would have bought in the past that subsequently fell apart on a permanent basis. Then I try to figure out why. I saw a number of them in longer tail commercial lines that I would never have seen coming. The auto insurers seemed OK. Right now my favorite is Mercury General (MCY), but there are others that are either reasonably priced or cheap. (HMN, PGR, TW etc..). I only own MCY. I added to the position at 21+. As you probably know I'm a huge fan of BRK at this price too. I trust Warren and General Re without fully understanding that business. I think the problems are cyclical. I also broke my rule recently and took a small position in CATA. It was so cheap (10 vs book value of close to 12) and I got a very good feeling about the management from reading the annual report. It's an on the job training position for me. They are very strict underwriters and overcapitaized so I am reasonably comfortable while I learn. Combined ratio is usually in the high 80s to low 90s with occasional sour years. I like to get them when they are in the storm and not when they are just starting to discount it. In the non-insurance area I bought into Velcro Industries (VELCF) last year at about 12 1/4. I added to that position this year at 11 1/8. The busines is doing great. They have a $4+ porfolio of investments and I think cash earnings will come in at about $1.00 this year (non capital gains). Maybe it's a little vulnerable to a slowdown (headwind), but at this price.... Wayne

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