Claude Bébéar, the Risk Avoider

  |  May 31   |  No Comments

Claude Bébéar is the founder and former CEO of the insurance company AXA. I believe the AXA group is currently the third largest insurance company in the world (just behind Allianz and Generali Group). Bébéar built AXA through mergers and acquisitions, most notably the Drouot Group and the American insurer Equitable. More can be found about AXA at Wikipedia.

The following are some excerpts from a great interview of Bébéar done by Michael Villette (mentioned in Malcolm Gladwell’s essay “The Sure Thing”). In the interview, Villette’s goal was to test the common belief that Bébéar took more risks than others (both in business and insurance), was a business innovator, and took advantage of others using insider “industry” information.

MV: Explain to me how starting in 1981 you managed to carry out an uninterrupted sequence of acquisitions in France and then in other countries. I would like an explanation with no magic, with facts and figures.

CB: There’s no magic in any of it, nothing extraordinary. The first coup was Drouot, which we bought at a bargain price, because of the panic after the left won the elections.

On the Drouot acquisition:

… the result: we acquired for 250 million francs a company that was valued at 5 billion francs four years later. . . .

MV: Why was Drouot worth so little to start with and so much later?

CB: It’s just like Equitable. People study the issues very poorly. They look at things superficially. Drouot was a company with a very good business that had done some stupid things in real estate. It was taken over hastily by Bouygues. Bouygues knew nothing about the profession of insurance, so he stuck with thinking like a financial analyst, that is, in the short term. He said to himself: “Oh, there’s a hole in this business, it’s terrible!” He didn’t see the value of the underlying business. We bought at a very low price because it seemed to be a company practically on the skids, but since we were insurance professionals, we restored the business immediately, we increased premiums, and so on, and the business took off very quickly. When we bought it, it was losing 200 million. The following year, the budget was balanced, and the third year it earned 200 million.

On the Equitable acquisition:

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Baupost Fund Allocations: 1995-2001

  |  June 14   |  3 Comments

A few months ago I helped put together a PDF of Seth Klarman’s letters to investors of the Baupost Fund from 1995 to 2001. Among many other great discussions, Klarman goes over a few of his individual holdings and Baupost’s rationale for investing.

One interesting aspect of Klarman’s investing style is his allocation into many asset classes. By not limiting himself to one asset class, he is able to hugely increase his universe of investments and also mitigate the risk of a single market class collapsing. If public equities are generally overvalued, corporate bonds, treasuries, private equity or real estate may provide better returns. It is also well known that Klarman doesn’t hesitate to hold a lot of cash when he can’t find any good investments.

In this post, I’d like to examine the investment allocations of the Baupost Fund from both a numerical and qualitative perspective. (Keep in mind that the letters from above are from only one of Baupost’s smaller funds, but my guess is that the allocations are very similar to those in the main fund.)

Let’s take a look at the investment categories:

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Value Investing Word Clouds

  |  September 13   |  2 Comments

Berkshire Hathaway Letters (1983-1987)
Berkshire Letters 83-87

Berkshire Hathaway Letters (2003-2007)
Berkshire Letters 03-07

A word cloud is a visual representation of a group of words, with the size of each word weighted to how many times it appears. The above two examples use the Berkshire Hathaway shareholder letters for the 5-year periods ending in 1987 and 2007. You can see some often-used words between the 20-year period: business, earnings, value, company, insurance. Word clouds are a good representation of what subjects the author is focusing on.
Below are a few more examples: (all created at Wordle)

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The Forbes 8 Value Investor Index

  |  October 17   |  2 Comments

Warren BuffettAfter looking over the recently released Forbes 400 list (the richest 400 people in America), I noticed the list has included more and more individuals in the “Finance/Investments” category. The growth in assets managed by Hedge Funds and Private Equity companies has been a major cause of this increase. In the Forbes 400 magazine, it shows a graphic representation of each category since the first list in 1982 (25 years ago). In 2007, Finance and Investments had the largest number of members in the list. Below I list which categories have grown or shrunk over the years:

Higher: Service, Finance/Investments, Technology, Retail

Lower: Food, Oil, Media/Communications, Real Estate, Manufacturing, Other

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  • suggestion: change your UI to make it obv. a ride is requested. this is 2nd time I opened app & accidentally req. a ride w/o knowing,
  • . Another possibility is general contentment w/ status quo, i.e. why mess with something good,
  • Hmm, this is a possibility. May be why collectivist Asian cultures are more deterministic.,
  • 6/ (I see myself as slightly indeterministic on the "scale" but it completely depends on the subject. I tend to tilt windmills at times.),
  • 5/ Gov’t bureaucracy? Myopia on Wall Street? Lack of emotional drive (fear of USSR)? Any other ideas?,

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