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petec

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Everything posted by petec

  1. In that case I misunderstood you. I thought you were arguing *for* government intervention in the oil price. My personal view is that the balancing price for oil is probably around the $40 mark but that it needs to spend a while at $30 to get there. I also don't see deflation as a problem, nor do I see oil as being at the root of deflation.
  2. I'm not sure the argument is based on why so much as on past correlation.
  3. I think this is a very smart commentary and I would add that it's not just about P&L quality but balance sheet quality. I'm sure you can do very well with value investing in a depression scenario so long as you focus on companies whose assets have value even if the company goes bust. For me the crime with something like Sandridge is that the asset value can go to zero if oil prices fall far enough, so balance sheet value gets wiped out at the same time that P&L value does. If you expect a GD scenario, you simply shouldn't go there.
  4. Nutresa in Colombia is a well run food company with over 60% market share in key categories like cold cuts and biscuits. Very sound long term investment here. Embraer would fail at the quality hurdle for me - may be very well positioned right now due to currency but it's just not a great industry long term imho.
  5. I don't try to track the portfolio but I note that the Russell is now down 19% from peak. Who knows where it goes next but interesting for FFH holders.
  6. Hallelujah! I also found Murry Rothbard's history of the GD useful on this, especially since I read it after Jim Grant's history of the 1921 depression and the two kind of go together. Personally I'm in favour of free market pricing which means no inflation-targeting by central banks. I certainly don't see the lower oil price as a bad thing. And I don't see deflation as being related to low oil so much as to deleveraging.
  7. I agree with all that you say Parsad - but it is a bit odd to invest in something that needs a high oil price, when you are on public record as saying that commodities will fall.
  8. This is always going to be a matter of personal opinion but I am fully in favour of the dividend. It means owner/managers (big and small) are treated the same way as owners. It means there's no debate about how a bonus system should be structured. It means there can be no skew in the incentives. Ultimately paying a dividend means paying each owner money they already own. Paying a bonus means transferring wealth from shareholders to managers. Dividend wins every time - for me.
  9. I haven't looked at this at all but do you expect free cash flow in the next few years? As in, can they pay debt down?
  10. Could you elaborate on the SarbOx/reporting stuff? Thanks Pete From what I understood in a W.R. Berkley interview, Sarbane Oxley made the insurance companies less flexible into how they reserve. An insurance company that does not have to comply could over/uderreseve hence reducing taxes more then they should in accident years . Beerbaron I think the bigger issue is they switched to IFRS accounting. In IFRS you are allowed to put in a reserve buffer that is just asking to be used as a redundancy cookie jar. Do you view that as a good thing or a bad thing? My view is anything that encourages management to sock away some reserves in the good years is a good thing (as opposed to maximising profits in the good years and then finding it was all a mirage!).
  11. Could you elaborate on the SarbOx/reporting stuff? Thanks Pete
  12. Sculpin did you mean to spell it Dumbdee?! I like it! I did some work on this a year ago (reading the annual letter was purgatory - some serious hubris there) and am now very interested. The problem is I found it impossible to value many of the underlying assets so you're rather reliant on accounting/cost basis being accurate. Thoughts? P
  13. Yeah that's fair. I'd also add that I might find more opportunities to grow if I had more time to look for them!
  14. Agreed, these are important ingredients that might be reasons not to pay much for FFH (and partially MKL - minus point 3) in current environment. Doesn't that depend entirely on whether they'll lose money as these conditions reverse? Let's say we go back to an environment of 5% rates and these companies can get there without losing BV...well, that's going to do wonderful things for their investment income. So, one needs to look closely at their portfolios. I thought that you argued that 1 and 2 are not going to reverse anytime soon. And we can't know when (if ever) Fairfax will reverse 3. I'd not make an investment predicated on rates going back to 5%+ anytime soon. Nor would I! And I have no idea when they will. But, falling rates juiced every single asset class that I can think of, not just insurers. I don't expect FFH to compound at historical rates, but I don't expect much else to either. What I do think is that FFH is well placed to do OK whatever happens. If we get deflation, we know they benefit. If we get inflation, they get to reinvest their float in higher yielding assets as existing investments roll off. If we get a market crash, their hedges will help. The one thing they are not well positioned for is an economic acceleration that doesn't create inflation, but I have lots of other holdings that will do fine if that happens. NB my time horizon here is about 30 years and I am mainly focussed on preserving my capital because I don't see a lot of opportunities to grow it.
  15. I thought the same and have pushed Fairfax quite hard on this topic. Their research - and as you would expect they looked into this closely - is that it's not true. They say it's quite hard to unearth clean data from the GD but that from what they can tell premiums fell faster than claims and insurers really suffered.
  16. Agreed, these are important ingredients that might be reasons not to pay much for FFH (and partially MKL - minus point 3) in current environment. Doesn't that depend entirely on whether they'll lose money as these conditions reverse? Let's say we go back to an environment of 5% rates and these companies can get there without losing BV...well, that's going to do wonderful things for their investment income. So, one needs to look closely at their portfolios.
  17. So was I. But you've missed the point of the post. I didn't say that I assumed it would not happen again. I said I didn't care because I know that IV will be growing and that, in the end, will determine my investment outcome. If we get into a situation that makes us doubt everything we think we know - and I don't count 2008/9 as one of those, for me personally - I want something in my portfolio that I *don't* have to worry about selling because I *know* IV is rising. That doesn't apply to anything else I own.
  18. This is the only bit of your post that I don't agree with. They have repeatedly said that they fear a real meltdown. The 3q correction wasn't a meltdown, and most of the real selloffs were not in the kind of quality names we are discussing here because most of it was focussed on China-exposed cyclicals which, if their thesis is right, won't bounce back fast when the crash comes. Now, I'm sure everyone can name one or two stocks that they think reached real bargain levels. But no fund manager can watch every stock all the time so I don't criticise them for missing the odd individual opportunity. My point is there was not a broad based opportunity for someone with their macro view, and I think their inactivity is evidence of consistently-applied thinking. (It goes without saying on a value board that the fact that the market went back up again does not disprove the idea that there was not a broad-based opportunity for a bear looking for a margin of safety! If their view comes to pass, the market will re-assess its idea of IV for virtually every company out there by much more than 20%, and I think they have this firmly in mind when things fall 20%.) None of that has anything to do with the fact that I wish they'd build a core portfolio of great companies instead of picking up cigar butts in dying ones. P
  19. Eric, I absolutely agree with your broad point here and I do think that all multiples will compress in the next crash. I don't expect to make money in Fairfax the first 6 months of a crash. That said, I do think you're picking your dates a bit too carefully! I just (fairly randomly) chose Nov 2006-Nov 2010 to graph FFH CN, and it basically goes from bottom left to top right. The selloff starting March 08 lasted five months, took you back to where you would have been in Sept 07, and reversed rapidly. The same thing happened starting early 2009. So yes, the start of the storm felt shitty both times, and maybe that'll happen again and we'll will get a great opportunity; but all the graph really tells us is that this is a volatile stock that performed extremely well through the crisis. And we all know that what matters far more is how IV trends, and I believe FFH's IV could explode in the next crash if there is a deflationary panic. I think 2008 is not comparable to today in two ways: as soon as the next crash happens people will look to Fairfax, remembering what happened last time, which is bullish; but the starting multiple is higher, which is bearish. P
  20. Question: to those (Dazel, to some extent me) who are frustrated and wish there was a core of high quality yielding equities... ...would you want them to buy those equities right now?
  21. Totally agree. I can't understand why they don't have a core portfolio of wonderful businesses bought cheap and held forever, and then do their Graham investing with another portion of the portfolio. I do disagree with a previous poster that said you can't do Graham investing with a concentrated portfolio. Their record prior to this 5 year patch was just fine, IIRC.
  22. *listed equity and derivative! You can't fault their bond and control equity decisions ihmo.
  23. I agree with this too, broadly. What I don't understand is why this quarter prompted your comments on this issue? I would have thought this has been obvious for years. What I find particularly weird about it is that the insurance acquisitions in the same time period have been terrific - high quality assets bought fairly but not outstandingly cheaply. Yet they haven't applied the same thought process to the equity portfolio. Then again, I do like the basic idea of going where there is blood in the streets and I think the counter to your opening point is simply that when they ought Bank of Ireland and Eurobank they thought deflation was priced in there.
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