Lessons from this meeting:
Pharma vs. Tech: Predictability Matters
– Pharma: Industry-wide tailwinds (aging populations, recurring R&D payoffs) made the entire sector after ’93 a reasonable “sector play.”
– Tech: Far more dispersion and permanent failures—no obvious group‐wide rebound—so you can’t just buy “tech” as a block.
Corporate Actions & Taxes
– Class-A ↔ Class-B exchanges aren’t taxable events—but selling one “identical” share to buy the other likely is, since IRS sees them as substantially identical.
Holding‐Company vs. Regulated Subsidiaries
– Insurance: State regulators generally stop at the individual carrier—so as a non-insurer parent, you can deploy capital and acquire freely.
– Utilities: Federal PUHCA rules still constrain parent-company deals—you can own only up to 5% without extra review.
“Pain Today, Gain Tomorrow” Deals
– When you underwrite a loss now for long-run cheap float, disclose it clearly (quarterly, in the annual report).
– Distinguish these one-offs from your normal underwriting loss ratio—investors need that “adjusted” cost of float.
Mistakes of Omission Hurt the Most
– Big gains aren’t just blown trades—failing to commit meaningfully to your best ideas can cost you far more than a bad trade.
Legal Environment Shapes Risk
– Product-liability risks vary by industry; tobacco-style suits are unlikely against sugar/dairy—but general trend is toward more claims and larger awards, so build in extra reserves.
Dividend Policy: Economic Logic, Not Convention
– Retain earnings only when you can deploy $1 of capital to earn more than $1 (PV). Otherwise return it via repurchases or dividends—no fixed payout ratio makes sense.
When to Sell Controlled Businesses
– Never sell control just because someone offers a big premium—only if the fundamental moat erodes or you discover you were wrong about the business.
Stock Options & Accounting Integrity
– Expensing employee stock options is economically accurate, but political & industry pressure keeps GAAP from doing so. Only investor coalition can force the change.
Pension & Liability Assumptions
– Using a 9–10% expected return to underwrite future pension claims is wishful—it far outstrips bond yields and equity markets. Sooner or later, those assumptions must reset, hitting corporate earnings hard.
Auto Claims & Underwriting Edge
– Your underwriting power comes from finding the few right risk‐factors (e.g. credit history, urban vs. rural). That data edge—not corner-cutting—drives combined ratios.
Service vs. Commodity Businesses
– In fractional jets, premium service & reliability create a non-commodity moat—no airline can easily slingshot in at the same level without dismantling its existing cost structure.
Size Brings Both Clout & Constraints
– As you get bigger, more sellers compete for your deal flow (fewer cheap acquisitions), and your own organic growth rates inevitably slow.
Beware Extrapolating Past Bull Runs
– A 15% annual gain is mathematically incompatible with large scale and reasonable valuations. If everyone expects “more of the same,” prices become Rembrandt-like speculations.
Keep Learning, Keep Focused
– Whether you’re running a $10K mini-fund or a $100B conglomerate, the core question is always the same: What am I paying today for the cash I expect tomorrow?
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