petec

I bet they got that cheap.

In mid December at 18k I bet a friend bitcoin would be below 12k by year end. Precisely wrong, but roughly right. I'm not so sure about the S&P - I feel we are only partway through the transition from the "climbing a wall of worry" stage to the "euphoria" stage. Everything is expensive, but maybe it takes euphoria to make a real bubble. We are still a long way from the CAPE peak of 44, which is arguably what real euphoria looks like in an easy-money world. I liked Grantham's "melt-up" piece as a framework for what euphoria might look like - specifically, well over 3000 on the S&P. Obviously all this is said with minimal confidence and I wouldn't invest a cent on the back of it.

Or a point where markets fall and people realise they were only wealthy on paper ;) Strikes me the best case outlook from here is for tight employment markets, rising wages, rising demand (because finally money goes to those with a high propensity to consume), and thus rising capital investment. That could lead to higher real GDP growth (and might or might not lead to inflation depending on credit creation). But it strikes me it could also lead to lower corporate margins. Or the whole thing could crash tomorrow ;)

The US was (largely) on the gold standard from 1971. The idea of the gold standard was that your dollar maintained its purchasing power measured in gold. In the long run, productivity growth might be expected to be equal to or even greater than gold supply growth, so in theory you could expect the purchasing power of your dollar to hold or even rise. And that's exactly what happened - inflation was negative in cumulative terms from 1870 to 1913, for example, and was almost zero in cumulative terms from 1870 to 1939 despite the devaluation of the dollar vs. gold in the 1930s. (NB I pick the starting date of 1870 because that's the first date Schiller has data for on his downloadable CAPE spreadsheet, and I pick the dates 1913 and 1939 as the last "normal" dates before major wars, which are always inflationary. I realise the deflationary decade leading up to 1939 was not normal, but nor was the inflationary decade leading up to 1929, and under the gold standard inflation and deflation had to more or less even out over time.) Inflation became a feature of life from 1939 onwards (a function of the 1930s devaluation, war, credit creation in the postwar boom, and guns 'n butter policies) putting so much pressure on the gold standard that the US finally gave up on it in 1971 (the alternative would probably have been another depression). So, since 1971 we have had purely paper money. That brings the risk of inflation - and in fact, inflation has become an explicit policy target. My point is: that change in inflationary expectations should have a significant impact on nominal rates, so you can't compare today's rates to those pre-1970 and certainly not to those pre-1940. A 3% rate under the gold standard was more or less 3% real with a very small risk of loss. 3% today is 1% real if the Fed hits its target and carries a real risk of loss if the Fed loses control for a period. P

I have no particular issue with FFH's BV multiple (and certainly not its TBV multiple) but I do think the odds of BV growth are decent. I'd rather have my return from growth than multiple expansion. I think there is a huge amount of scepticism about FFH on here. Plus, personally I think they have a better record than most fund managers, better-aligned incentives, the advantage of permanent capital, the ability to be paid to borrow (float), and the opportunity and ability to generate value in operations as well as investing. I have relatively little doubt that FFH will outperform a global index over the long run. Most funds won't, and then they deduct fees. I'd happily invest in their managers at 1x (or 2x!) bv, but not the funds. if I did invest in the funds, I'd invest in one that had a super long term record but a terrible short term one, where everyone was saying the manager had "lost it" and must have just got lucky in the past. Sound familiar? ;) Finally, I'd pay a premium to book if book is going to grow faster than the market. Book value assumes the business is worth no more than what it cost to build. In the case of recent acquisitions that may be fair, but where there are no intangibles it means ascribing no value to people, relationships, reputation etc. Given the combined ratios and the record that seems unfair to me.

That depends on the management's record of growing the account! My answer is no, but I would hold at that price (depending on other opportunities).

https://www.businesswire.com/news/home/20180130005676/en/Amazon-Berkshire-Hathaway-JPMorgan-Chase-partner-U.S. Will be interesting to see how this develops.

Agreed. It seems to me there's been a shift towards helping build companies - Cara, TCIL & subs, India/Africa & subs, maybe Grivalia - rather than just picking up cigar butts. Probably a combination of scale, and their experience in building Lombard and First.

Thanks all. BNP is dow3n by a factor of 8 from its highs. The others are down by a factor of 3. Is there an obvious reason?

Interesting, thanks. Might be a stupid question but what is the NDP? Also can you give a few names worth looking at? I used to know the space quite well but that was a lifetime ago. I have always liked Peyto but that's based largely on the tone of the CEO letters!

What's the duration on their bonds?

The casual dining restaurant business is also very profitable and cash generative! Not saying it is easy but many lasting fortunes have been built in it. Fairfax is not really reducing their exposure given they control Cara and are largely being paid in Cara shares.

$85m for 51% I believe. 2014 annual letter. I think Fairfax are getting about $105m here and presumably drew dividends from Keg - it doesn't seem to have grown its restaurant count much under their ownership so I assume it was a cash cow.

What thread is this discussion on? Thanks.

I'm not convinced either - but: 1/ If RADAR and QNX don't take off at Blackberry, in which case I would expect the shares to drop, Prem can exit just over half the position at $10 simply by letting the convert expire. 2/ If RADAR and QNX do take off the market for a block won't be thin - even if they have to do a secondary at a discount. 3/ Worst case is that RADAR and QNX grow somewhat without blowing the doors off and the shares get stuck at say $15, but you can still do a secondary at a discount. Agree with you re: better disclosure about the prodigal son.

Ritchie Brothers.

;D

A couple of thoughts on various topics that have come up: 1/ On the corporate governance thing. It reassures me that a) Ben Watsa does not work at Fairfax, which suggests Prem wants to avoid being seen as nepotistic; b) there is a known likely successor in running the business. But I would like greater clarity on what happens to Prem's shares and votes when he dies. 2/ On realising Blackberry...the most obvious option is to sell the business - even at 2x of 3x up from here it's not a big ticket in the grand scheme of things. The second option is to engineer a block sale, probably at a slight discount. Fairfax will have c.16% after conversion. They can find a home for that in endowments and pension funds if BBRY is once again seen as a success and is paying a dividend out of recurring RADAR and QNX revenues. Failing that, they can go to market with the block. Bottom line: this isn't the first time that a company has taken both a big stake and a directorship in a turnaround. It happens in PE and activist investing all the time and there are well-trodden exit pathways. 3/ The alternative capital in the industry a) goes away with higher rates as Dazel says, and b) needs underwriting which you can charge for. Lancashire have a great model for taking advantage of it. Fairfax could do the same - but to the extent that they do, they lose float. .

I think Blackberry has already joined the frenzy! I was also amazed to see that Grivalia is virtually debt free. Enormous opportunity there as the Greek banks ramp their efforts to auction mortgage NPLs to meet their 2018/9 targets. And FFH could win on both sides of that deal - Grivalia and Eurobank, which still trades at 0.33x tbv despite having been profitable since 2016 (I have not done a deep dive).

It is. They also have a joint investment with him in Davos Brands. Buffett always praised him as an exceptional executive. He made - so far as we know - one lapse of judgement. He has either learned his lesson or has not. Fairfax is investing alongside him in marketable securities. That's very different to promoting him CEO of a subsidiary or even the whole company, which people thought might happen at BRK. Am I totally comfortable? No. Do I see it as a massive risk for Fairfax? No. Buffett clearly made a mistake in his judgement of Sokol's character. What we don't know is whether he made it when he praised him or when he fired him.

Agreed Dazel - and FWIW, my reason for continuing to debate the history is because it gives an insight into the culture and decision-making/learning process, rather than because I think recent history is a guide to the near future!

I'm not sure you've read that right, Dazel. The way I read it, the minorities get a vote on whether the multiple voting shares continue to be protected from dilution by share issuances after the vote. They don't get to vote on whether the multiple voting shares should continue to have their existing number of votes. And they don't get to vote for 5 years. If my reading is correct then Prem could hand over to his son, who could issue shares at will for 5 years and then stop, and still have 41.8% of the votes forever. Which isn't to say that he would do that, but we have to have our eyes open. I think the biggest safeguard against that is Prem's knowledge that both insurance and investment are fundamentally people businesses. If you don't protect the culture the people will leave and all the value you have created will go. I doubt that's Prem's long term plan. We also have a fair idea who Prem's successor is at the top and it's not his son.

Apologies - I wasn't very clear. My comment related to the US stock market - the removal of the hedges (which were predominantly US) and the "playing offense" comments did not mean he was bullish on the US market. This was made clear. You are right about the rest although much of it happened before the hedges came off - the buildup in India, the move to short duration. The sales of Lombard and First aren't really relevant to FFWatcher's question that I was trying to answer. What is relevant, and I hadn't thought through fully, is your point that much of the cash is waiting to be reinvested in bonds not equities. That's a big part of why they have so much cash despite "playing offense".

Basically yes. Prem was actually very clear that "offense" didn't mean they were suddenly bullish on the market. It just meant they were cutting their losses on the hedges and would wait in cash for great opportunities. They have done quite a bit since, but more in the pref/warrant+convertible portfolio rather than equities.