petec

I could not see myself doing this because there's just too much chance of being wrong. Unless, of course, someone actually offered to sell me dollar bills for 10c. Then I'd happily put 100% in :)

Because there is no rule to leave just the €-zone, they have to exit completly and then can ask to get back into the EU. Why's that? It's clearly possible to be in the EU but not the Euro (e.g. UK) and as I understand it there are *no* provisions stating how a country would leave the Euro. I could very well be wrong but if there are no provisions then they can basically do it however they are allowed. I think it is more that the central bloc will want to punish Greece to discourage the other PIIGS. They don't want the idea to get hold that you can have the best of both worlds, EU membership without the Euro.

More sticky for some. Those who can't bear to miss out on a bull market, maybe not. (I'm not criticising them. I'm at 35% cash and 20% FFH myself!)

What I am not sure I understand well about these funds which hold lots of cash and justify their decision by saying their main objective is “to protect capital” is the following: With the exception of a new Great Depression, I am quite positive all investments of mine would grow much faster in a volatile environment than in a muddle through scenario… I actually think a 30%-40% market crash would make the companies I own stronger… not weaker! Of course, in a market crash, as the fundamentals of those business improve, their stock prices might probably go down with the overall market… and would probably go down a lot! But, if the fundamentals of those businesses improve, how can my capital not be sufficiently protected? Even if stock prices go down? Therefore, imo it could be either a) They truly fear a new Great Depression or b) Their true aim is not “to protect capital”, but “to buy assets very cheaply, when they become available”. Cheers, Gio Or, their aim is "to protect capital in the short term". But of course, they never say that.

+1

Pete, I understand… Yet, I have repeatedly witnessed that in business, if you rely on the legal method for things to work out well… well, things simply will not work out well! There is no substitute for carefully judging and knowing whom you are partnering with. And basically what you want to see is a deeply rational human being. Everything else imo follows. Gio Ha ha I can't disagree with that! But I'm happiest with rational and legal! And I won't tolerate anything where my economic rights are (legally) impaired.

Pete, As I have said in my previous post, imo that’s only theory. In practice, instead, I don’t care how they maintain control over their companies… as long as they do what’s necessary to maintain it! In practice, instead, what I would like to see is they maintain a large percentage of their wealth invested in their companies (for Watsa it is more than 85%!). In practice, instead, what I would like to see is they maintain the desire to run their companies as effectively as they have done in the past. And I am getting less and less interested in theory, while more and more interested in practice. Cheers, Gio I largely agree with this, but I have also seen some controlling shareholders shaft minorities quite deliberately. For example, how would you feel if ordinary voting shares at FFH did not have tagalong rights? That would only be dangerous *in theory*...but I wouldn't touch it with a bargepole. Ultimately I want my interests aligned. Legally, that can only be achieved by owning the same share class. Morally, it might be achieved if the controller is totally trustworthy. But you can never be sure of that, so on balance I prefer the legal method. For me the debate comes down to this: I want Prem to have control, although I also want my shares to have the same economic rights as his. That's the case, so that's OK. Then: do I want FFH's growth to be limited by internally-generated funding, or do I want it to be able to issue shares? Answer: I want FFH to be able to issue shares, so that it can sell shares at 2x BV if the market ever accords it that valuation again, or can swap its shares for shares of another company trading at a lower % of intrinsic value. If I want Prem to have control and FFH to be issued shares, I have to allow him to increase the number of votes per share. End of discussion (for me). P

Also for the record, I appreciate the contrarian view. I think where we differ is that I don't think he's protecting his interests any more than mine. I believe in the culture at FFH, I believe it is there in significant part due to Prem's control, and I want him to sustain it...for me. In other words, I believe this is in my interests. I'd be deeply sceptical about holding FFH if every deal made its management more susceptible to short term market pressure. The other option, of course, would be to never issue shares again. That way we'd never get a takeout, and we'd never get a value-enhancing for-stock deal either. Those are the only two options here which is why I describe changing the M as preserving the status quo. The takeout side of things doesn't bother me at all. Prem has consistently made it clear that he won't sell, and I don't want to sacrifice years of CAGR for a 20% premium on the day. I also think Prem could have done 50x at launch. 10x must have seemed pretty outlandish - 50x wouldn't have made much difference then! Anyway, informative discussion for me - thanks. P

What makes you say that? If assets start deflating in China, there'll be another leg, no? Even if assets deflate in China, I don't expect Chinese salaries to deflate with the assets. So, no, there won't be another leg of goods-around-the-world-deflating-because-of-cheap-Chinese-labor. Perhaps, I was too succinct when I said "China-deflation". Please substitute with "goods-around-the-world-deflating-because-of-cheap-Chinese-labor" Yes, I see the distinction. Thanks. Although I wonder; asset deflation would put lot of pressure on asset-owning, debt-owing businesses. I think real-terms wages might well fall if asset deflation set in.

What makes you say that? If assets start deflating in China, there'll be another leg, no?

Those will be *very* positively correlated!

Not if the CAGR is dependant on Watsa having control, which is essentially what he is claiming (and is what I believe). My point is that you could have made exactly the same argument last week/year/decade about the 10x voting shares. (And maybe you did, I don't know!) True! I'd argue that he has learnt from those, in which case we should perhaps be less worried now than we were before. I agree entirely - although again, this point is valid whether the shares are 10x or 50x. Wouldn't it just have been easier to start at 50x? He could have chosen whatever multiple he wanted at the start. I think he just never thought FFH would get so big as to require more than 10x. And what would he have bought the subvoting shares with? He doesn't get enough cash out of FFH, doesn't have much other wealth he can sell, and I would not want him to borrow to buy shares because that skews his incentives. I have to say well done to you for holding since 1994. I fear I'd have been shaken out. My advice, for what it is worth, is to stick with it. FFH might finally be turning into an underwriting machine, and Watsa has learnt and is buying quality businesses not junk. There's great downside protection, and the only difference vs. last week is that the MVS have a higher M. Since the M has been higher than it needed to be for all of Fairfax's life until recently, raising the M well above where it needs to be merely means maintaining the status quo. Good luck whatever you choose! P

1. If Watsa's control contributes to strong BVPS CAGR in the long term, you will be. 2. Yes, but only if he does deals. If they are bad deals, complain loudly. But if they are good ones, you'll get richer. Which is what has been happening for the last 30 years. Again, I don't think this proposal changes anything. It just allows for a continuation of what's always been happening. Re: the good performance window... I see your point as it relates to very recent share price action, although if that was the goal he might have done it after the CDS, not after 5 years of underperformance! We may have to agree to disagree on this but thanks for taking the time to explain! P

This might seem like a pedantic point, but this is not why he issued shares, even if it why he felt able to. I like the idea that he feels able to issue stock when the price is right, without losing control. I'd far rather that than have him not do good deals for fear of losing control. I'm not sure this is relevant - the CDS is part of their investing record and so are plenty of other big gains and losses. The fact is, if I was happy with multiple voting control before CDS, I still should be. To me there are two distinct questions here: 1. Do you mind having your voting power diluted? I don't, because the class of shares I own didn't have control anyway. I might, if FFH was only 5% of Watsa's net wealth, but it is 85%. That means our interests are likely aligned. 2. Do you mind having your economic stake diluted? I do, but this isn't happening. In practical terms, nothing changes: Watsa can keep running the business his way, which has historically worked out well for us, even if he finds a lot of great deals for which he needs to issue equity. Put it another way: when you first considered Fairfax, would you have been more worried by the MVS if they had had 50 votes?

My point, Gio, was that I understand those who argue that entrepreneurs should maintain control by owning >50% of the same shares that everyone else owns, like Buffet does. I *do* think that companies with multiple share classes are, broadly speaking, less attractive than those with a single share class. I prefer to own exactly the same shares as the controller. However, I am prepared to drop this requirement in exceptional circumstances - e.g. when someone's done as good a job as Watsa, and when a long study of his actions suggests I can trust him. And that decision is based on trust, not on whether the multiple is 10x or 11x or 12x or 48x or 50x. The multiple makes no difference to the fact that common shareholders do not have control. What I am trying to understand is: what has changed here, in practical terms, that would make someone who was comfortable with the corporate governance become uncomfortable?

I have a (genuine, not provocative!) question for the doubters: I totally understand why multiple voting shares attract scepticism. I had to think hard before I bought FFH about whether I could tolerate the structure. Ultimately I decided I trusted Watsa. However I don't really understand why increasing the multiple of votes on shares that are already multiple voting is a problem. If you already own shares, you've already decided you're happy with Watsa maintaining control with fewer than 50% of the economic rights. Why would this change your mind? This isn't a change, it's a maintenance of the status quo. That's my view, I think. P

I think it's extremely important that Prem retains control (e.g. I wonder what would have happened at BRK in 1999 when Buffet was under pressure to buy tech, if he hadn't had control). I'd also argue that if this is bad corporate governance, it's bad because there are super-voting shares at all, not because they want to change just how super they are. On balance, I think a guy who takes a lot less pay than many similar CEOs, and does a great job, asking to be allowed to continue to do a great job without interference from activists, isn't a bad thing. Ultimately I wouldn't invest in FFH if Prem didn't have control, so I can't really complain. But it does look odd, especially the son inheriting control. P

+1 addition of huge labour force to the world pool.

Don't forget the US (and therefore the world's reserve currency) came off the gold standard in 1971. That was always likely to cause some price instability. At the same time the US ceased to be the swing producer of oil and pricing power was handed to the Arabs who decided to use it as a political tool. Add in years of government spending on Vietnam, and very powerful unions, and you have a recipe for inflation. P

Huh? It's like I always say; you can't go wrong with free clothes. Sometimes folks overthink things in the context of the HERE and the NOW, instead of focusing on the underlying truths of the world. Ah! +1!

Huh? Huh? +1

How about human driven cars that have been hacked? Or where malicious people cut brakes? Or put mirrors across the road at night near a cliff? We should definitely ban human driven cars! Let's face it, driving is a relatively mindless activity and humans aren't good at those. They get bored, panic, rush, text people, fail to notice they're driving too fast, don't see an oncoming motorbike, misread junctions, or simply drive round a roundabout the wrong way like a friend of my mother's did a few years back. Computers with 360 degree all weather vision and nanosecond processing ability will be FAR better at it than we are.

That may be right but I suspect competition has more impact on efficiency and that has always been tough. Competition, ultimately, will cause returns on equity to revert and probably via margin compression.

Agreed. My point was more a long term one. It is stepwise and always has been. Maybe we are on the cusp of a step (I believe we are in driverless cars). Maybe we are not. I'm surprised the making of robots is not already automated. I do worry that technology may final reach the point where it is a net negative for the majority of people in terms of their quality of life (earning power vs. price of what they buy).

Totally agree about other areas in Asia. Not so sure about automation: a) it's been going on forever and b) it's presumably more expensive than the cheap labour or it would have been done before, so it still represents an increase in cost. This is notwithstanding the normal improvements in technology that drive productivity in every decade.