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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (2947)	12/17/2001 9:40:34 PM
From: Bob Rudd	Read Replies (2) \| Respond to of 4690

Paul: WEB bailed on FRE because he thought they had uncompensated exposure to a catastrophic disaster like Ca. earthquake, as I recall. I suspected at the time that the departure might be a ploy to get them to reinsure, but since WEB has mostly leveled, I'll take him at his word. The potential for Congressional disenfranchisement, WEB discounted, but I find concerning. I'm never on real firm ground with finance type companies due to high leverage. FRE looks like 36/1 debt equity but I suspect that's not comparable because there are mortgage assets on the onther side - unless the earthquake hits, in which case there's rubble on the other side...lots of it. I have mortgage market exposure thru CD and WM and am not looking to increase it at this point in the cycle. Here are some comments on FRE & FNM from a 12/7 Merrill report [The codes mean they're 'strong buys' short & long term: • Fannie Mae (FNM, B-1-1-7, $76.50) and Freddie Mac (FRE, B-1-1-7, $63.31) have both been weak over the last month as the stock market has been increasingly favoring an economic recovery. • It is our view that earnings for 2002 are likely to be achieved by both companies even if an economic recovery pushes interest rates higher. However, multiples could go a bit lower if signs continue to point to an economic recovery. • Peak multiples for both companies were in the 18x range in 2001, a seemingly ideal environment for both companies. Trough multiples have been in the 12x range for many years. With the stocks now at 12.8x our 2002 EPS estimate for Fannie and 13.1x our 2002 EPS estimate for Freddie, it would seem that downside risk is less than 10%.

To: Paul Senior who wrote (2947)	12/17/2001 10:06:58 PM
From: Bob Rudd	Read Replies (2) \| Respond to of 4690

Book recommendations: Value Investing: From Graham to Buffett and Beyond by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael van Biema I expected pretty much the same old, same old, but these guys surprised me with a three tier approach derived from Graham and Dodd that I had really never found elsewhere. They start with asset valuation...adjusting the balance sheet and consider this the most reliable. Then they do a current earnings valuation based on adjusting earnings to kind of an average owner earnings, but with no consideration of growth. And finally they value the growth factor...keeping it separate and more or less using it as a margin of safety factor. Chapter three thru the intel example gives you most of what's worthwhile in the book. There also are some descriptions of various investors approachs...I skipped the WEB part but the rest were interesting though not inspiring, Gabelli was the best of those with some good stuff on catalysts. I got the book at the library, but may purchase if I find it cheap. Also A.D. is about to release a 2nd edition of Investment Valuation and for the time being has the whole shebang on his website for inspection - go to Books and look around: stern.nyu.edu