petec

Whether this is the exact peak who knows, but I am firmly of the opinion that margins will mean revert and the labour argument is a good one. As for the buyback express: it'll stop when share prices start falling ;)

I will take that bet. Me too. I think the adoption rate will be steep. I'll buy one asap and I'm not an early adopter. Technological breakthroughs are usually incremental; this is a big leap in productivity, like touch-screens. I wonder how much he's prepared to bet? ;) Consumer adoption wont be a problem. But I see regulation being a major roadblock. Imagine the complexity of allowing some self driving cars with other mostly regular cars... there will be all sorts of debates on safety,control and hacking etc. All it would take is one bad accident involving a self driving car (and we know initial softwares can be buggy) and it would immediately slow down everything. Agree, disasters in the making. A great parallel to this was when the wall came down in Germany. Trabants/Wartburgs and Porsche/BMW's driving alongside on the Autobahns post-reunification was disastrous. Between safety, the required near 100% reliability and infrastructural changes, this is a long tail event. I see those risks, but I don't agree. First, it's not complex to imagine driven and driverless cars sharing the roads so long as they confirm to the same crash test standards (which Porsches and Trabants manifestly do not). Second, the technology will have to be proven but existing drivers are not 100% reliable and it is quite possible that driverless cars will prove safer than driven cars quite quickly. Third, early adopters (whether it's Uber or vehicles at fairgrounds or whatever) will get people used to the idea quite fast. And finally, there are *huge* potential cost and productivity savings - imagine the work that could be done (or the sleep that could be had) during the commute! I don't see what infrastructure would need to change. I don't see a demand for 100% reliability, just a significant increase in safety over the current drivers. I don't see that one crash will hold things up any more than the Titanic stopped people using ocean liners. (In fact I don't see why "my driverless cars saved my life" stories won't be just as prominent.) Remember when people said no-one would put their credit card details online? How many people don't do that today? I think people have a good innate sense of when the reward exceeds the risk. I'm not suggesting there will be no hurdles but I come back to the fact that this is a clear leap forward that demand will be significant and I believe plenty of jurisdictions will develop regulations quite quickly. P

I think it’s much more likely that she got lucky. She can’t have been the first woman to try. He may have started to realize just at that time that he needed more help for some of these things. To be fair, consider this: she was a new MBA graduate in 2009. During the summer of 2008, she had internship with Lehman Brothers, Bank of America, and 85 Broad (85 Broad is a None-profit organization founded by Women MDs/Partners at Goldman sachs). In 2008, every banks was firing people, nobody was hired. Lehman bankrupted. Yet, she got 3 jobs. And she had no real world work experience, especially in finance(before MBA, she was an undergraduate at harvard). After graduation, she got a job with Warren Buffet when I think she could be the only person in her MBA class who got a job. Let me be clear: I have no doubt she’s good. Very good. But clearly inexperienced. What I mean by luck is that surely many many people along the years, some of whom may have been objectively better (though that’s very difficult to actually measure) would have gotten turned down. That’s life. All of us who have been successful have some measure of luck, though we may do our best to tilt the odds in our favor. Then again, 3G have made their success by putting very young people in positions of serious responsibility. If they're good enough, it works brilliantly.

I will take that bet. Me too. I think the adoption rate will be steep. I'll buy one asap and I'm not an early adopter. Technological breakthroughs are usually incremental; this is a big leap in productivity, like touch-screens. I wonder how much he's prepared to bet? ;)

Ha ha surprised to see you can post a John Hempton piece oh here without getting torn apart! But fascinating work and scary for China if true. I like the little details e.g. about the parking!

It's not really a quote, but Andrew Carnegie had it on his library wall and I love it: The gods send thread for the web begun.

Buy back some Brit from OMERS? ;) Actually given how well the company has done, I wish he had put more money into it and expanded.....we need to stop selling off all these little gems and grow them, in BRK like fashion..... my $0.02 cheers Zorro That assumes that incremental capital can be put to work in the business at good returns. That is not always the case.

--Prem Watsa at the 2015 FFH Annual Meeting Gio *cough* sales pitch *cough* It's a closed end fund and they've already sold it. And they say the same for FFH itself. So much as I appreciate the cynicism, and I do, I suspect they believe this.

Buy back some Brit from OMERS? ;)

The exposure is discussed quite well in the annual letter.

And now they're saying they are going to buy the shares back at some point...my head hurts! Presumably they have given a fuller explanation but I haven't seen it yet.

I couldn't care less about the impact on the share price (other than if it goes low enough I'll buy more). But I think it's legitimate to say, what's the point raising enough equity to buy 70% of this when you could have raised a bit more and bought 100%? I'd understand if they hadn't raised equity and were buying with cash on hand, but that's not the case. More generally, it is perfectly legitimate for shareholders to question management actions. Management are not cleverer than me just because they have more experience or power. In fact, I'd go so far as to say that a lot of corporate disasters would have been avoided if shareholders had been more critical. So I reserve the right to ask any questions of management that I like, and criticise them if I don't like the answer.

This has been my bigger concern. Oil is a single component of the index and as it drops in price, it's impact gets smaller and smaller. The dollar affects multiple items within the index and some are saying it's set for a multi-year rise. The strength of the dollar and the cost of housing are the major pieces of that index. We likely need a prolonged strengthening of the dollar or a prolonged decline in housing/rental prices for Prem to be right. How those come about is up for anyone to guess. Agreed. But if they do come about, it'll be tough to make money in much else. Treasuries maybe.

+1 However, I'm all in favour of share price falls at FFH :)

What's the point of that? I could understand if they were funding from cash and it hurt liquidity, but they raised a lot of equity and prefs?

Not me. I'm very much in the capital accumulation phase and yet I very seldom invest in things that don't pay a dividend - and I seldom invest in things that buy back stock unless management are explicit about getting value for the stock they buy. Dividends are key to long term returns, long histories of raising dividends tell you a lot about a company's quality and mindset, and buybacks are inefficient in aggregate because they are badly done and skew management incentives. But I've ranted about this elsewhere on this board ;) Edit: good article on buybacks and how accounting skews their results here https://www.fundsmith.co.uk/Libraries/Research/share_buybacks.sflb.ashx

Opportunity is missed by most people because it is dressed in overalls and looks like work. Thomas Edison.

Not at any price. It's being reduced at 1.3x current book and 12.5x 2016 eps which is cheap if it can make 15-20% roe's as the poster above implies, but not otherwise, and he's keeping a holding for that time. No-one (sensible) makes long term investments regardless of a) the size they grow to and b) valuation - least of all Prem who is very value-oriented, and especially not in highly levered businesses when your macro outlook is gloomy.

I don't disagree with that. I'm just saying the market won't may 2x for a portfolio it can replicate at 1x. Because, clearly, the expected return is higher with the latter option.

In theory... But, when they bought into Thomas Cook, I didn’t follow… When they bought into IKYA, I didn’t follow either… Who was smart enough to do so? Recognizing how mispriced their prospects for growth were? Gio If you're prepared to buy the fund at >1x NAV, then you clearly think the underlying assets are mispriced. Why would you pay more for them than you have to? To put it another way, if you are 'smart' enough to see the value in FIH at (say) 1.5x NAV, why would you not see the value in the underlying assets at 1x? Both ways round you get Prem's genius, but why would you choose the method that requires you to pay more for the same assets? Clearly this does not hold if for some reason you can't invest in the underlying. It's like looking at a company trading on 3x book. If I could buy the underlying factories at 1x book I clearly would, but since I can't I settle for buying the company. EDIT: I am talking about when the fund is invested.

Seems perfectly reasonable to me to pay a small premium to NAV on the basis, quote simply, that cash in Prem's hands is worth more than cash in mine. The premium to NAV in the future will depend entirely on whether the businesses they buy are listed or private. If they're listed, then you can replicate the portfolio at 1x NAV without paying fees, so the fund should trade at around NAV (a bit less if you focus on the fact you pay fees, a bit more if you focus on the fact that you don't know what gloriously value-added deal they will do next). But if they're private businesses then there is no more reason for the fund to trade at 1x NAV than there is for any other business to trade at 1x BV.

+1 I'd buy it just for who they are if there weren't now 3 listed entities with 3G behind them. Hard to know where the next deal gets done - I wish there was only one, and it was explicitly their acquisition vehicle!

Yes, sorry - I think I hijacked your reinvestment comment by talking about buybacks. But I think (haven't got the stats to prove it to hand) that the reduction in dividends has gone to buybacks. And you're right, the example isn't what's actually happening, but I find it a useful reminder that buybacks are not necessarily value additive and are not necessarily equivalent to a dividend.

Yes but it will be refinanced in 2016 now.

I think they are very different. Capex builds an asset that adds to earnings. Buybacks don't. They add to earnings per share, but they also reduce the share count, and the market cap (of a stock or the index) is price x the number of shares. So no, the index does not go up just because the stock price goes up. Now, the P/E may rise because the buyback alters the supply and demand for shares, but clearly that doesn't actually affect the long run value of the companies, and it certainly doesn't affect the earnings, which is what the graph is showing. Also in reply to your other post: buybacks do not 'stay in the system' because for every buyer-back, there is a seller. That money leaves the market, at least temporarily. And the value to the shareholder of a buyback vs. a dividend depends entirely on whether the buyback is done below IV or above it. Below IV, a buyback is more valuable than a dividend, and above IV it is less so. It is absolutely not the case that the value is necessarily the same. If a company with a finite lifespan (and most companies have a finite lifespan) never pays a dividend, its NPV is 0, even if it spends all its FCF buying back stock, because that stock will turn out to be worthless. I find that a sobering reminder about the value of buybacks! That said, I totally agree with you about predictions and I'm not making one. What I am saying is that when multiples are high, and margins are high, and growth expectations are high, future returns are likely to be low and risk is likely to be high! Any value investor would think the same, no?