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No. of Recommendations: 1
"Yes, I know, this is merely "first level thinking" so if anyone wants to break into that elusive "second level thinking" please respond."

I hear you and don't think it's irrational to put in the "too hard pile" but also don't think it's irrational to be a buyer based on known information. I don't see a night and day difference between buying DVA or buying MKL. At some point, you have to take a leap of faith and believe in management and that this time it's not different. Insurers are black boxes with unknown future underwriting and past loss reserve developments. I believe MKL is cheap based on its current P/B, management, future prospects and historical loss reserve development (likely to continue but far from certain). MKL is just an example of investing in a bit of a black box, like a bank. I regard it highly as do others here, so perhaps it is an ok albeit imperfect example.

Admittedly, and undoubtedly, DVA faces regulatory risk, but I would not bet on the next decade being completely different than the last in terms of regulation, secular growth in the industry, and attractive industry economics. DVA management disclosed 2014 guidance this morning of $1.76 BN (midpoint of range) OCF and with normalized maintenance capex of 0.25 BN, the stock is trading at a FCFY of 11.5%. In short, even given heavy regulatory pressure, I think that pressure was more than priced in to the stock. Way more than priced in. As you know, DVA serves 1/3 of patients, have a call option of a sort in the international operations, probably employ or control around 1% of doctors in the US, and have attractive roll-up platforms in both sides of their business. IMO, it's an irreplaceable, scarce asset with no substitute.

The question I always ask myself is: "When do you have enough information to make a decision?" There will never be complete information. I have just believed that while the future returns are obviously not guaranteed, the company represents a hugely asymmetric payoff, even after today's 10% increase. The risks are more than priced in.

If I were managing huge sums of capital, I would call the top lobbyists to discuss the industry in extensive detail. I have posted the name of at least one on here before, the head of a large industry trade organization. However, I believe I have enough information to make a decision and pretty much topped out what I could afford a week or two ago around $52 after the 7-8% decline the morning after the 3Q conf call.
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