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Just a little patience… is that all QBE needs?

Just a little patience… is that all QBE needs?

Turn on the TV, your computer or Mail on your iPhone and you are inevitably bombarded with news and data. And if you are following the financial markets, there is no shortage of headlines to grab your attention.

Take QBE’s recent profit downgrade and how the media bided for your attention; “QBE savaged after downgrade” and “QBE’s worst storm”. I bet amid all this news you missed IAG’s conveniently-timed announcement, the very next day; “IAG tips profit to be halved”.

There is a good reason for such bleak headlines… bad news sells.

Money is a very personal asset. We spend our lives working hard to earn it, make sacrifices to save it and when we invest it, some watch it like a hawk. These headlines rely on your strong ties to it. The by-product of course is that driven by emotions, the headlines create activity, which means transactions and remuneration, in turn funding advertising and marketing, fuelling more headlines.

Those waiting for good news from QBE might feel a little like Guns N’ Roses frontman Axl Rose when he penned the band’s 1988 hit ‘[need a little] Patience’. But it is patience that is the hallmark of the world’s best investors. So let’s focus on the long-term.

QBE’s recent profit downgrade was driven by falling investment income on its ‘float’, not a broken business model as the media headlines might suggest. Sure new equity issuance, the rising Australian dollar and sharp declines in global interest rates have conspired to depress QBE’s earnings and profitability, but the investment community’s current focus on movements in QBE’s investment income is likely to be short-term.   Invariably the incessant focus on cause and effect relationships will switch to something else. It may even turn 180 degrees.

Over 90% of QBE’s investment portfolio (US$20b) is held cash and cash-like investments (highly liquid). These are currently depressed by low interest rates and lower foreign currency gains. This will be mitigated in the future as QBE moves from $AUD to $US reporting. And keep in mind that some very successful investors believe bonds are in a bubble. If thy’re right and the bubble bursts, yields will rise. (don’t ask me what I think, I don’t forecasts markets or the economy).

The remaining 10% of the insurer’s investment portfolio is in equity markets and although the collapse in the Elders share price (in which QBE has a strategic holding) may be a more permanent situation, other holdings should recover or emerge to offset the losses in time.

Looking through the headlines, QBE’s core insurance business continues to perform well. With industry-leading Combined Ratios and Insurance Margins, QBE has cemented itself in a position that is well ahead of its Australian competitors. This is what investors should be focusing on.

The remaining issue is the intrinsic value. The current value has fallen by a couple of dollars and the lower profits means the equity in the business will now grow more slowly. This has the effect of reducing future intrinsic values as well. QBE however was only trading at a small discount previously, not the very large discounts that I seek. The current valuation declines indicate that only small discounts to intrinsic value exist now so be sure to discuss that with your advisor.

QBE’s investments will inevitably rise and fall with the markets in which it invests, but making a profit on its underwriting business means the float represents very cheap funds. Throw in industry-leading management and the long term prospects remind me of what its like to take off in a plane during a storm.. .only to discover the sky is blue above the clouds.

Posted by Roger Montgomery, 5 August 2010.


Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Revisiting QBE…

    Roger. I’d love to restart this discussion on QBE. And sorry in advance for the ramble.

    QBE is a top (still) 20 stock in the ASX. And it’s been slowly bleeding (still) since the OP now 12 months ago. In the last few weeks it’s been smashed again.

    We all know it’s been a good business, with great management. So just what is going on?

    I’ve heard the following explanations.

    USD->AUD earnings issues
    Shorting. ? Why
    Increase claims from global warming (the science of which I might add is still questionable)
    The “Float” is only in fixed interest
    Increase Institutional selling
    Falling intrinsic value
    Lack of growth “going forward”

    I mean the list of excuses goes on and on..

    Yet over 12 months on from your OP…has much changed in the business? Todays results seemed OK to me. Sure..affected the USD conversion to AUD earnings, but QBE still remains one of the most profitable insurers in the world.

    One of the things I have learnt from reading quite a few Buffetology books and now value.able is the importance of ROE. And patience. I have sat back now 5 years wanting to buy this company. My buffet calculations on 10 years of earnings valued the stock at around 17.50 way back in 2008. It finally fell 10% below my IV a few weeks ago (using calculations from your book), so I started buying. I thought I was safe..but it still gets sold down..

    The issues I want to raise on this little story are

    1/ Just how do we really apply Buffet principles (applied to US companies) to Value.able (Australian companies)?
    2/ Do these principles and calculations in fact really match each other because our Australian companies are so different (smaller cap/need to expand OS and earn foreign income/different expectations from our local impatient institutions/ higher payout ratios/etc etc

    So many of our companies just fail to expand overseas and grow into true international success stories. Fosters/Westfield/NAB/..the list goes on. All businesses with great monopolies and management…but they go astray. And this seems to happen just at the 10 year mark. The 10 years it takes to generate enough of an earnings record to apply the Buffet type valuation methodology that is so dependant on stable earnings.

    So your valuation approach, even Buffets ends up getting applied to a few truly local AND small cap A1 businesses, often with earnings records under 5 years.

    So is this a valid thing to do? And if not, then are we are left with only a couple of truly consistent companies with more than 10 years earnings (And I’d argue QBE is about the only one on the ASX other than the banks, BHP and WOW)…

    And if we are only left with a few, and this seems to fail…(eg QBE), then were does that leave us?

  2. ROGER ,
    Have followed your reporting season blocks with great interest and found them very insightful.
    I would be very interested on your view on Nick Scali Furniture.
    The company whilst only a small cap, the management are the majority shareholders and have a lot of skin in the game, and have managed the company well through the past few years.
    High return on equity 52.5%, no debit, growing same store sales,
    opening one or two stores a year funded internally.
    The company imports predominantly from China so there is some exchange rate risk, but the dollar should hold up relatively well while the china story continues and Australia has relative high interest rates.
    I have valued the share at $2.28. I have used your intrinsic valuation model and have arrived at a similar valuation.
    I have been accumulating the stock over the past six months.
    I think the major issue with the company is that the shares are very thinly traded.
    I have in the same period accumulated Oroton over the past year after hearing you mention the stock.Thank you for the direction on this one.
    Look forward to your commments

    terry herbert

    • Hi Terry,

      Selling furniture is not easy, but NCK is demonstrating very high quality numbers. Anthony Scali is an excellent retailer in this country and he has to be as the competitive landscape is changing with the likes of the Milan Directs (no stores at all!) and Matt Blatts (one big shed in Leichhardt). More importantly, you need to ask why you should buy a second best thing, if you can get more of the first best thing. Regarding ORL, I insist you seek and take personal professional advice and not rely on my comments oin the media about companies. They should be seen only as suggestions for further study. I am pleased ORL is working out but if it turns you won’t know what hit nor how to respond if you either have not done the work or have not got an adviser to lean on.

  3. Hi Roger just wanted to firstly say “Thank goodness for day traders!” and to add to what is said here about bad news sells. Yesterday (11.08.10), the herald sun business section had an article titled “Cochlear pays for guidance silence” and goes on to explain how the market “punsihed Cochlear for its refusal to issue a forecast and an image “too boring for day traders”. I have read a few books about Warren Buffett and remebered him saying that inactivity strikes him as intelligent behaviour, and seeing this makes one realise that without people like day traders and those who react to such news such as a refusal to issue a forecast, the opportunities for value investors might very small. I also have a question which is, how do stock splits affect a valuation? Does an A1 become a B4? I am only curious because Chris Roberts CEO of Cochlear was said to not have ruled out a share split in the future and admitted that while it might improve liquidity, it might not improve returns for investors.

    • Hi Ben,

      CHris Roberts knows his stuff. A split will do nothing to the value of the company. You are merely taking a sliced pizza and slicing each piece again. There is still the same amount of pizza. Regarding a splits impact on my quality scores – no change there either. Thank you for strengthening the argument that investing and speculating are vastly different things and much of what we read, hear and watch is all about activity.

  4. Roger

    I would love to hear your thoughts on Headline Group HDL a somewhat fledgling retailer who I know you were involved in a few years ago.

    I have been following them now for 6 months and really feel they are on to a winner with the licence for Mothercare in Australia and NZ. As an ex UK retailer I can only see upside for the business as they roll out stores over the next few years. Mothercare is in my humble opinion THE best babycare/maternity retailer in the World. In the Uk and all markets they have entered they are a clear Category Killer. Here in Aus the baby market is extremely fragmented and reliant mainly on independent Ma and Pop stores with limited brand credibility.

    I went to the opening last week of their first Qld store in Brisbane and was impressed with the replication of the Mothercare corporate image. Interestingly they have, in Chairman Gordon Elkingtons (who was there on Saturday) words “imported the DNA” from the UK by bringing a top store manager over to manage the store openings.The feel of the store and the quality of the staff certainly inspired confidence in the brand.

    HLD have just received a $12.2m investment from Mothercare UK for a 25% stake which eradicates debt and allows a financially comfortable roll out priogramme. The funding is also being used to aquire a WA retailer with seven stores on a nice low PE of around 5. I would be amazed if the “Mothercareization” of these stores does not provide a s0% increase in sales and a huge return on investment.

    They also operate the Early Learning chain and the infilling of these stores with Mothercare merchandise is sure to lift sales density and enhance profitibility in that business.

    My only minor concern is that by their recent announcement that they are to introduce a Mothercare toiletries range to Priceline store they do not spread themselves too thinly, In my experience trying to be a retailer and wholesaler does not always work and could provide a distraction from what is a fantastic store rollout opportunity of a World Class brand

    I spoke with Gordon who feels a 50 store target is very achievable in the medium term. Although the Brisbane store is in a large mall the emphasis going forward will be on larger stand alone stores where the full offer can be displayed,

    Interested in your views and that of your many followers It may be a couple of years before the word “intrinsic” can be applied to valuation but I for one will be following events keenly



    • Hi Julian,

      I would not bet against Brent (Dennison). He has been a good friend of mine for more than 20 years (went to Uni together, attended wedding etc etc…) and I don’t know anyone who has a stronger work ethic combined with business acumen. A lot of people will take credit for his efforts but all credit should be laid squarely upon his tireless efforts to add value. This venture will establish him on the Australian corporate landscape and, like Sally MacDonald of Oroton, he will become a CEO to follow. (There are a number from my class of ’91 to follow). With regards to HLD, if the business doesn’t double I will be very surprised (not a prediction nor a recommendation).

  5. My take on this is Berkshire Hathaway’s insurance operations raison d’etre is to generate float for Buffet to invest, albeit at a combined ratio <100 if possible.

    This is miles apart from QBE's philosophy which is to generate an underwriting profit and invest the float primarily in fixed interest (4% equities exposure?).

    The question is: Does one want to invest in a commodity business such as insurance without a "Buffett" investing the float?

  6. Hi Roger,

    It’s interesting that only a couple of months ago QBE had an estimated value of around $19 and then one announcement comes out and all of a sudden the value drops by around 20% to around $15. That is a pretty big drop! I guess this is one aspect of the wonderful value investing method that I am finding difficult to reconcile. Does the answer lie in the margin of safety?

    It seems that often by the time the company has released information which is likely to affect intrinsic value, the price has dropped significantly. In the case of QBE the price had been dropping for months seemingly with no justified reason ie. the underlying value was not changing…. until now. I always find it ‘interesting’ that the market sometimes seems to know when bad news is coming before its released. Another example was VBA where the price dropped from over 70c to around 40c with no justification – then all of a sudden a huge profit downgrade came out

    • Hi Steve,

      You say it so casually “…and then one announcement comes out and all of a sudden…” That ‘one announcement’ was a profit downgrade of 40% and it changes a lot of things! Not just the current valuation either. One of the inputs into intrinsic value is balance sheet ‘equity’. If this years profit is lower, then next year’s equity will be lower because equity is increased by the amount of retained profits. Then, if next year’s equity is lower, so will next year’s valuation. And the year after and the year after, unless there is a surprise increase in the reported profit. We may not like it but thats how to reconcile it.

      Your second point about QBE’s price dropping ahead of the information being released raises a couple of issues. The first is the possibility that other investors “know’ something. That could be true. The second is that in QBE’s case the market is well aware that its portfolio is dominated by bonds and the low rates of returns on bonds drove the performance of the portfolio down. In QBE’s case, the market has been highly critical of the slow pace of transparency given low yields on bonds have been known for a long time. Third, I have mentioned previously that QBE’s intrinsic value has been declining for some years – it is one of the reasons I haven’t purchased QBE shares. And finally, there are more than enough examples of the reverse being true – intrinsic value being way ahead of the price. Have a look at the May 4 post to the blog where I mentioned ITX being below intrinsic value. It is now in receipt of a takeover offer.

  7. Ashley Little

    Hello Roger,

    Read your book and I think it is fantastic. I love the references to Buffets letters to shareholders. I am a big enough nerd to say that I have read every one from 1977 to present and they are full of wisdom and wit. Everyone reading this blog should google them and read them.

    The only query I have with your IV calculation is that if we assume two almost identical companies with the same payout ratio, the same risk rating but one pays 100% fanked dividends and the other has the vast majority of it’s earnings overseas so has no franking. Now in this case the two businesses have the same IV for an overseas investor but to an Australian resident the one that has the franking has a higher value as it has the higher return.

    I have been thinking about this for some time now roger and have come up with a formula in an excel spreadsheet that tries to take this into account. I would have no problems emailing you this so that you can see if it is on the mark.

    Once again I loved the book. I will be ordering more copies for family members soon as they just don’t get it when I try to explain to them why WOW is a so much better Investment at current prices than WES. You explain things so much better than I can

    • Hi Ashley,

      I might also suggest you take a look at Buffett’s partnership letters, I think they are both more instructive and more useful.

      • Thanks Jake,

        Partnership letters are indeed very instructive. Just keep in mind, he was younger and had a lot less experience. In a 2005 presentation to University of Kansas student Buffett said ” I know more about business and investing today, but my returns have continued to decline since the 50’s”

  8. Hi Roger,
    I Have read many books and purchased lots of them from so called professionals- and I have been trading for the last 16 years.I must say that your book is one of the best I have read so far, it’s so explanatory and logical , that simple strategy in life are overlooked. Besides sharing your knowledge , its the honest, humble, and genuine character that you portray in your writing that made me read this book with seriousness .This book has been the best investment I made in 2010 so far , and , instead of trying to explain to my kids about the value in investing in businesses I will present them with a copy of your book.The only other investment book I presented them with was “Rich Dad Poor Dad ” People like you who share their knowledge with such pride with the aim of making people better investor , contribute to the wellbeing of the human race.Good luck with your endeavours in life and I’m sure you have a very proud family who look up to you as there mentor.

  9. HI Roger

    Being interested in entering the stock market your book is a great source of information although with holidays coming up will be great to re read with a clear head.
    With Intrinsic values as an example you mentioned that you typed in “analyst research” into google. No matter how I search google I cannot find anything that incorporates the data that you have mentioned. I am normally good at google but this has me stumped.
    Is there partucular sites that are available or is this information that is normally supplied once you open an account with a broker.
    I also presume that the IV is only as good as the future forecast which is then placing a lot of faith in the analyst.

    • Hi Calvin,

      I typed it in as suggested in the book (matching case) and its at the very top of the first page! Just did it again now and its right there. As it is not my research I cannot provide you with a link. Perhaps I could post the research note here but I will have to obtain permission first from the company.

  10. Steve Moriarty

    It is interesting to see the Directors jumping in at mid $16 to buy up shares. A good sign I would assume.

    It is still a puzzle to understand how people could read the earnings and then immediately “jump ship” without thinking about the longer term.


  11. Roger,

    Several questions:

    Firstly can you tell us the previous and current Montgomery Quality Rating for QBE?

    A significant contributor to QBE’s performance over the years has been a succession of very astutely executed, implemented and integrated acquisitions. I am very wary of the serial acquirer business model, a troubling example of which is TOL which flung the accumulated toxic waste of its decade long acquisition binge into AIO in 2007 (with great benefit for TOL management’s shares and options and to the detriment of the punters left holding the AIO toxic waste) . In the case of QBE, the serial acquisition driver of performance now appears (to me at least) to be problematic given the size of QBE and the real risk is that it blows its brains out on the next one, in effort to achieve ever greater scale. How do you see the risks in this and does it impact your required margin of safety for this business?

    QBE’s ROE in the last ten years has ranged from –1% to 23%. Dividend payout has ranged 50% to 131% in the same period. Based on current QBE guidance for 2010 the company will be lucky to make 13% ROE, and it will payout in excess of 90% of earnings as dividend. So what ROE and payout rate do you plug into your IV calculation for QBE?

    The future is indeed an uncertain place for QBE, so I look forward to your answers and insights.


    P.S. Many thanks – I received the book. It is very well written, packaged and presented. I think you may have been a tad bullish with the multipliers in Table 11.2. Based on my calculations the basis of Table 11.2 is the assumption of the maintenance of existing business performance (input ROE) for a bit more than five years. However, as you say, if you allow sufficient margin of safety such optimism is no big deal.

    • Hi Lloyd,

      QBE. Arguably the exception to the rule of not buying serial acquirers. But as I mention in an earlier comment and in another post, QBE’s intrinsic value has been declining since 2007. Generally don’t want to buy a declining intrinsic value, unless you believe the famous PHD paper Theorie De la Hockeye Styck by the scholar Alwaise Optymiste. Seriously, your concerns are reflected in this fact – intrinsic value declining for three years. BTW, Intrinsic value today now $15.49!

      As I mention in the book, entry to the corporate graveyard is hastened by binging on acquisitions so we agree there too.

      I thank you for your comments on the growth multipliers. Perhaps the next version will allow for some user-defined conservatism!

      • Roger,

        You mention that profoundly deep thinker and intellect Alwaise Optymiste. I believe his services and forecasts are subscribed to by every stockbroker and analyst in the country and underpin their recommendations to clients. Can you confirm this suspicion?


      • Roger,

        QBE $15.49 IV – seems the consensus of analysts estimates (Alwaise Optymiste) is still reading QBE;’s recent guidance a little optimistically.

        Of more concern and interest to me is the three year history of declining IV. Looking at the cause of this it appears to be twofold:
        1) the declining investment return on the float and
        2) contraction in insurance margins associated with competition.

        Both are cyclical phenomenon, essentially outside management’s control and thus unpredictable; dependent as they are on the decisions of Central Banks and competitive dynamics in the global insurance arena.

        As a result, I think the IV for QBE will bounce around wildly in coming years. This gets to the nub of the problem for me in this case; the Montgomery IV calculation is a reliable indicator of long term value for companies with a reasonably predictable performance. One prerequisite for the latter is that the dominant determinant of business performance is in the control of a capable management. Yet QBE is akin to a resource company, the primary determinant of performance is one or more factors outside management’s control. in effect they are a price and market taker, rather than a market and price maker.

        Hence my question as to to how you rate the investment quality of and long term value companies like QBE and BHP where, despite capable management, the largest determinant of business performance is outside management’s control?


      • Hi Lloyd,

        Great work as usual Lloyd and I see no limitation from what you are saying. Remember you aren’t chatting with a theorist.

        Regarding your concerns about influences outside of management control, perhaps you could list the businesses who’s performance is not influenced by any factors outside management’s control????

        Another issue with the cyclical nature of the insurance business – to which you allude – is that the length and depth of each cycle is neither predictable nor consistent.

        So the solution is: 1) Big margin of safety, 2) avoid companies with IV that jumps around and 3) as Buffett said; “you want businesses whose IV is rising at a satisfactory clip.
        (one point 2) above I have up to ten years of valuations for every single listed company, so its easy to see who’s got the track record and who hasn’t.)

        If QBE doesn’t do that for us, we move on. Keep it simple and find the one-foot hurdles to step over.
        Don’t worry about trying to understand every cause and effect and set up a thirteen foot hurdle for yourself to scale.

        For everyone else, there will be businesses with models that are just too hard to grasp. Don’t worry about these. Stick to the ones that you do understand and be patient.

        Finally, the great thing about investing is that you aren’t right or wrong because people agree with you. Every time I buy a share, the person selling has disagreed with me! That is something that as a fund manager you get very used to.

      • Thanks. From your response, I infer that QBE can be no better than a B on the MQR and for similar reasons few if any resource company would rate higher than C.

    • I agree that table 11.2 is optimistic especially for ROE less than your required return.

      You can never achieve your required return if you buy a business with a lower ROE than your required return and that business retains all its earnings.

      It is just not a question of allowing a larger margin of safety.

      You cannot buy at a low enough prices to achieve your required return unless you are counting on selling.

      This is the situation where time is not your friend. The longer you delay in selling the closer the return will mimic the ROE rather than your required return.

      Roger I wish you would put your formula for the table into the public domain – I think it needs to be discussed.

      • Hi Gavin

        I would not buy a business with an ROE that is less than my Required Return. I would buy even less if such a business retained all its earnings. Such a business perpetually destroys value and so I see why you would like to treat it harshly with the valuation formula. However I prefer to simply ignore it. The question about whether to invest or not is made in the head instantly. A calculator is not required. Take for example a company with ROE of 5% and we require a return of 14%. A business with $10 of equity per share might be worth no more than $1.57 per share. And then I say you might require a 20% discount, bringing the purchase price to $1.25. You say that is optimistic. I don’t think so. In any case I wouldn’t pay any price for it. And part of the margin of safety I look for is an ROE that far exceeds my required return and avoiding businesses whose management retain profits at unproductive rates. That I know is in the book. In the share market I do count on selling at some point because I have an expectation that the market tends to be driven to extremes at both ends. I appreciate your desire to discuss/debate my approach but it is after all only ‘my’ approach and it does not have to be yours if you don’t want to adopt it. I am happy with the valuations my approach produces and of course you are free to be interested or ignore them. They are after all the result of just one method. There are a multitude of other methods. We can agree to disagree on valuations and the wonderful thing about value investing is that we can all still do really well. Even though we may buy different stocks and pay different prices we can all beat the market that wouldn’t understand the first thing we are talking about.

  12. Hi Roger,

    Thank you for sharing your thoughts on QBEs current demise. The substantial purchase of shares by 4 directors in recent days leads me to think they are pretty confident that there is a blue sky above the current clouds.


    • Hi Paul,

      It could be a good sign but I don’t put any stock in it. I have seen plenty of examples of ‘insider’ (not in the illegal sense) buying and the share price continuing to fall. Having said that the price is closing in on the valuation.

  13. Ashley Little

    Couldn’t agree with you more.

    Qbe is a good business and would be a better one if it cut it’s dividend instead of issueing new shares to buy businesses

    My IV based on forecasts is about $17.50 so I would like to buy this for about $14.

    I m also keeping in mind that the forecasts I am using are likely to be based on fairly bearish views as the sector is a bit out of favour.

    • Hi Roger,

      Would you care to share the revised forecast data you’ve used to arrive at an IV of $15.47 for QBE. According to the data I’ve used and assuming an investor rate of return of 11%, I’ve arrived at a revised IV of $16.32.

      Given the influence which the integrity of the forecast data used to calculate IV has on the calculation outcome, it would be helpful to learn where others obtain their data for this purpose. For what it’s worth, I’ve noticed quite a discrepency in the revised forecast numbers provided by the two different research houses I’ve been using for this purpose.

  14. Hi Roger

    Great book. I have recently taken out a sub for Value Line in the US. What a great service – there has to be a market here for something like that.

    Any thoughts on Fantastic Holdings (FAN?)



  15. Hi Roger,

    Do you ever take into account history when determining investment decisions?

    What I mean by this is that having seen QBE get smashed after September 11 but then rise quickly and dramatically, would you be more inclined to invest in a situation where QBE is only slightly below intrinsic value but, from history, has a good chance of bouncing back soon?

    And just on intrinsic value; would you require a larger margin of sadety as QBE grows by acquisition (and not organically as value investore prefer)?

    Alluding to a recent comment, is there another book in the works folowing the raging success of the first?

    • Hi James,

      Yes I have something in mind for a second book. But don’t hold your breath because I am just trying to catch mine. See my comments above about QBE and the falling intrinsic value since 2007. I agree that growth that is organic is preferable. Ashley’s earlier comment that profits should be retained rather than paid as dividends only to see additional shares issued to fund acquisitions.

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