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Archive for November, 2006

In this interview with Robert Miles, Al Ueltschi, an aviation pioneer and legend, talks about all aspects of his business from starting out as a Kentucky farm boy, to teaching himself to fly, buying his first plane, becoming the first corporate pilot of the founder of Pan Am, starting in the marine terminal at NYC’s LaGuardia Airport, and eventually selling to Warren Buffett.

Listen to a man who has lived the total lifespan of aviation, from man’s first flight across the Atlantic Ocean to landing on the moon. A inspiring tale of a man of vision, a pilot, an entrepreneur, and a philanthropist, who founded and built FlightSafety into the largest pilot training company in the world, and now a wholly owned subsidiary of Warren Buffett’s Berkshire Hathaway.

This video may help the viewer understand the qualitative [non measurable] aspects that Warren Buffett may consider when making an investment. Al Ueltschi’s business success may touch your mind, but what he has done with that success may touch your heart.

Hear Al Ueltschi speak at the 4th Annual Value Investor Conference in LA on 7 & 8 May 2006.

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As I read the summary of the performance of the various non-insurance operations like Borsheim, Nebraska Furniture Mart, See’s Candy, Fechheimer, Scott Fetzer and Buffalo News for the umpteen time, I was given the reason by Buffett why these companies continue to do well.

Whatever the reason for their performance, when you invest in a stock, at the end of the day you are looking at the quality of the business. If the company has a good business model and stand above your competitors, then your stock will do well.

Measuring Insurance Performance

The combined ratio represents total insurance costs (losses incurred plus expenses) compared to revenue from premiums: A ratio below 100 indicates an underwriting profit, and one above 100 indicates a loss.

Typical property-casualty insurers can have a ratio of 107-111% and still be profitable because of investment returns from the insurance funds (float).

Exceptions include insurance covering losses to crops (which produce no float at all) and malpractice insurance which has a higher tolerance due to delayed payment caused by lengthy litigation.

Most analysts and managers look to the combined ratio when measuring an insurance business; however Buffett has another method.

He looks at the underwriting loss to float developed ratio (over an extended period of time) and then treats that as the “cost of funds developed from insurance.”

If this cost (including the tax penalty) is higher than that applying to alternative sources of funds, then it’s a poor business. If the cost is lower, it is a good business – and if the cost is significantly lower, the insurance business qualifies as a very valuable asset.

To put it simply, insurance is a place where you can generate funds for investment. If the cost of these funds (after deducting all expenses) are lower than what you pay outside, then you have a good business!

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Swisscash Scam

Yesterday, I received a name card from a person (details have been removed to protect the privacy). Apparently, he is promoting some investment products from a company called swisscash.

This is a company that promises an average investment return of 20% per calender month and 300% returns in 450 days. Warren Buffett would have been put to shame.

What I cannot understand is that how come even a person who is working as a stock broker can fall for such a thing.

Would you want to invest in a company registered in the Dominica Republic with a PO Box as the company address? Other than that, anything that promises you 20% returns/month guaranteed is definitely a scam. Many of them have come and gone, with different names but similar modus operandi.

Investors beware!

Domain ID: D10113014-BIZ
Sponsoring Registrar: REGISTERFLY.COM, INC.
Sponsoring Registrar IANA ID: 821
Domain Status: ok
Registrant ID: DI_3119403
Registrant Name: Michael Mansfield
Registrant Organization: Swiss Mutual Fund 1948 Ltd
Registrant Address1: P. O. Box 2342
Registrant City: Roseau
Registrant State/Province: NA
Registrant Postal Code: 10000
Registrant Country: Dominica
Registrant Country Code: DM
Registrant Phone Number: +1.12123865570
Registrant Facsimile Number: +1.12123865573
Registrant Email: [email protected]

Last Updated by Registrar: REGISTERFLY.COM, INC.
Last Transferred Date: Tue Feb 07 16:02:18 GMT 2006
Domain Registration Date: Thu Jun 16 11:40:59 GMT 2005
Domain Expiration Date: Tue Jun 15 23:59:59 GMT 2010
Domain Last Updated Date: Mon Jul 31 02:45:37 GMT 2006

KUALA LUMPUR, Aug 30 (Bernama) — Malaysians are advised not to invest in an investment fund under the name of Swiss Cash or Swiss Mutual Fund (1948) being offered through the Internet and local agents.

The Swiss Embassy here said in a statement today that the investment fund had no relation whatsoever with the country.

“The company operates outside Switzerland and is not subject to the very stringent Swiss banking laws,” the embassy said.

“The reference to Switzerland with the attribute Swiss is solely made with the purpose to attract the unaware public to invest, thinking that they would be protected by Swiss laws,” it added.

The Swiss Embassy does not recommend the investment fund and advised the public to be very cautious before investing in the fund.

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It has been a while since my last post. The blog has shifted over to blogger beta and one cool feature that has been added is the use of labels.

By clicking on the labels at the end of each post, you will be able to see posts sorted by specific labels (categories). This is an improvement on the previous limited nagivation style of blogger.

Part 1 of Warren Buffett’s 1990 letter follows. You will notice that it is very short. This is because I have decided to move to shorter (and more frequent) postings. Figured this is what most readers want.

Look Through Earnings

Looking at the reported earnings of a company can be misleading. Accounting numbers should be used as a beginning, not an end, to calculate the true “economic earnings” of the company.

For example, Berkshire has huge investments in companies whose earnings far exceed their dividends that is reported in Berkshire’s accounts. An extreme case is Capital Cities/ABC, Inc, where Berkshire’s 17% share of the company’s earnings amounted to more than $83 million in 1989, yet only about $530,000 was counted in Berkshire’s GAAP earnings.

$82 million-plus stayed with Cap Cities as retained earnings, which will ultimately work for Berkshire’s benefits but in the meantime go unrecorded on their books.

A good way to look at the real earnings of a company is to include the share of the operating earnings retained by the company’s investees, deduct the estimated tax and then add it to the reported earnings.

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