Update 9/13/07 - Diageo reports continued strong growth in the year with operating profit growth of 8.7% The company is forecasting 9% organic operating profit growth for fiscal ’08. Their International Segment is growing above 15% and will be a major driver of growth going forward. CEO Paul Walsh has done an excellent job strengthening the brand portfolio and returning excess capital to shareholders while maintaining a strong balance sheet. Target Price: Hold as long as shares do not become excessively overvalued and business fundamentals remain strong. Inital Purchase Date: 4/20/2005 -------------------------- The world leader with a world class portfolio of spirit and beer brands including Smirnoff, Johnnie Walker, Guinness and Jose Cuervo (You might know this company more than you think). The premise for investing is annual total returns in excess of 10% over the long-term. This is obtained by 6.5% operating profit growth, a 3.5% dividend yield and 1-2% from share buybacks. Diageo shares characteristics with Pepsi and Procter & Gamble in terms of brand recognition, stability and global footprint. As a result, it should trade at a premium to the market. I think somewhere from 17.5 to 18 times earnings is a fair multiple where shares can be bought and achieve the annual total returns in excess of 10%. If the P/E falls below 17, then it is a great opportunity to add to the position. Target Price: Hold as long as shares do not become excessively overvalued and business fundamentals remain strong. Inital Purchase Date: 4/20/2005

No Analysis added

No Analysis added

Update 10/12/07 I calculated the average sale price of water rights for the state of Nevada from 1999-2001 (Using data of sale listings compiled by Georgia State University). This was $3320 per acre-feet. I don't want to speculate how much higher the average sale prices is now, but all of PICO's recent transactions have been above $4000. But I think the 1999-2001 numbers are a good, conservative measure because it will remove any effect the housing boom could have had on prices and any speculation in water rights pricing over the past few years. PICO has about 200,000 acre-feet (mainly in Nevada) and 19 mil shares outstanding. This would value their water rights at $34.95 per share. The tangible book value of all their other operations is $16.86 per share. You could conceivably liquidate PICO tomorrow and get $51.81 per share. Every $95 increase in the value of their water rights is equal to $1 per share. ------------------------- It's a little long but I already had this written... PICO has the Rights 8/16/07 There area two types of water rights in the US. The Riparian system is used out east. Here water is basically treated as common property and when supplies are tight, allotments are done in proportion to how much waterfront property someone has. From a moneymaking perspective, we don't care about Riparian or water rights situations east of the Mississippi. Since water is plentiful in the east, it works. The type used out west is Prior Appropriation (a.k.a. Colorado). From an investment stand point we like this because water is treated as separate from the land. Similar to how the mineral rights to a piece of property may not be tied to ownership of the land itself. Prior Appropriation gives the first user of the water source the right to continue to use that amount of water. The second user has a right to their amount only if the first user is able to withdraw his amount. I like to make the comparison to the corporate bond structure. The holder of the most senior notes is paid first and only after that will the second most senior level be paid and so on down the chain. When a water right is sold, it also retains its original appropriation date, or seniority level. Since we are dealing with land out west, often the first user of water sources was the farms back in the 1800s. In many situations, the owner of the farmland will own the most senior water rights. When, for example, PICO announces they bought water rights from a farm, there is a good chance those have first appropriation. Often times the city that has developed in the area won't have first appropriation, and if they didn't move to purchase more senior rights they can be 3rd or 4th in line. The records of appropriation are kept with the county or state in which the water source is located. Here is the opportunity. The population is expanding out west in areas that have little water to begin with, into cities and subdivision that don't have senior rights to the amount of water they need. Government involvement has so far been limited to situations where water is being diverted and people are no longer able to perform activities like boating or transportation. But consider this. If PICO owns the senior rights and their purpose is to supply the citizens under negotiated contracts the government has no reason to step in. If there is a lack of water the government taking control won't make it rain. PICO is buying to supply. PICO is a holding company and to save myself time I'm going to copy their description. PICO seeks to build and operate businesses where significant value can be created from the development of unique assets, and to acquire businesses which we identify as undervalued and where our participation can aid in the recognition of the business's fair value, as well as create additional value. Our objective is to maximize long-term shareholder value. We manage our operations to achieve a superior return on net assets over the long term, as opposed to short-term earnings. Currently our two major businesses are Vidler Water Company, a water resource development business, and Nevada Land & Resource Company, one of the largest private landowners in the state of Nevada. Vidler is a significant private sector owner of water resources and water storage operations in Nevada and Arizona. Nevada Land owns approximately 507,000 acres of land in northern Nevada, and certain water and mineral rights related to the property. The rest can be found on their website. And don't get too excited about the land in Nevada. Most of it is not even worth $100 an acre. But hey, they bought it for less than $40 an acre back in 1997 (along with the water and mineral rights), which shows that management are savvy investors. I saw, maybe in their 10-K, that they use Graham and Dodd's investment philosophy and they invest for the long term. Water rights are measured using acre-feet, which is one acre of surface area and one foot of depth. An acre-foot equals 325,581 gallons (or 65,000 toilet flushes). Back in the 1990s water rights were sometimes selling in the $1000 dollar range and that started to creep up towards $3000 by the end of the decade and into the 2000s. Even at the $3000 level, people were just then beginning to realize the potential of water as an investment. In their latest 10-Q, we see the going price for water in Lincoln county Nevada is $6,655 per acre-feet. And I almost could think the next figure is a misprint but they will sell 117.5 acre-feet for $45,000 per acre-foot. The company is still active in obtaining water rights and I think they are at about 200,000 acre-feet right now. If their water rights could be sold for a little over $4000 an acre-foot, that would equal the market value of the company. Yes, the housing market may slow the population growth out west. But, lower prices may end up allowing more people to move to the area. Most importantly, the price of water is not tied to the price of the house where the water is going. While buying and selling water rights is profitable right now, it is mainly because the market was inefficient at pricing a couple years ago. Returns on such activity will probably come down within a couple years. Anyway, just selling water rights doesn't take advantage of the fact that water is renewable. The sources recharge themselves with rainwater each year. Unlike oil, if the water source is managed properly it can continue to generate income. So instead of selling the water rights, how about leasing them? Yep, PICO figured that one out. The other way is to handle the transportation of the water itself to the municipalities. PICO is almost done building a pipeline that will transport 8,000 acre-feet of water per year. Once it gets to the city, the municipality’s water system takes over. I don't foresee PICO having the intention to get involved any further in the delivery process. In this case, PICO gets to charge for using their water and for delivering it to the city. This area has great potential for many years to come and PICO is the only way I know to play. The company is well capitalized while management has the expertise and experience to take advantage of the opportunity. I believe they already have to some extent. This just isn't an area where there is broad-based understanding. I didn't even mention their holding in a Swiss railroad & tourism company which is worth about $60 mil or their insurance operations in run-off which generate a couple million dollars of cash a year for management to invest elsewhere.

Update 9/10/07 - Philips announces they expect EBITA to more than double from 2007 levels by 2010. 2007 EBITA should be above $2 bil. Doubling this amount to $4 bil and applying an 11x EBITA multiple gives their core operations a value of $44 bil (This assumes Philips is cash neutral, down from their current cash positive position). Adding in the $11 bil of current equity investments (most of which will probably be sold by 2010, then used for share buybacks, dividends and reinvestment in their core operations) gives a market cap of $55 bil, close to 10% annual returns based on the current share price. With a dividend yield of 2%, total returns would could reach 12% annually. Given that '07 EBITA is likely to be above $2 bil and '10 EBITA even more above $4, 12% annual total returns are likely conservative if management expectations are met. Key to reaching targets will be effective deployment of current excess capital and funds generated from sales of equity investments. Target Price: $52.38 by 6/30/2010 Initial Purchase Date: 6/14/2006 Addition: 7/17/2006

No Analysis added

No Analysis added

No Analysis added