racemize

Oh, why did the Fed make us take on too much leverage over the past decade! Who knew that leverage can be a bad thing! Let’s see who makes it out of this stronger—PE with high leverage or BRK with cash on hand... just as a data point, BX just said they took no money from the government, don't plan to, and have ample reserves to support their companies. just as a data point, the largest 19 US banks 'returned' almost $80B to shareholders between the third quarter of 2007, when some felt trouble was being contained, through the accelerating phase of 2008. Interesting to note that the $80B (and more) was 'returned' to banks as part of a plan labelled, as typically is in those cases, with capital letters. The banks are much better capitalized at this point and the present environment, by itself, has little 'predictive' power but this is only to say that it may be risky to assess risk from the point of view of actors (like private equity) who tend to act pro-cyclically and to be lagging indicators. BX has > $100 billion in available dry powder. edit: anyway, you guys have helped me decide to continue not to post here. Carry on!

Oh, why did the Fed make us take on too much leverage over the past decade! Who knew that leverage can be a bad thing! Let’s see who makes it out of this stronger—PE with high leverage or BRK with cash on hand... just as a data point, BX just said they took no money from the government, don't plan to, and have ample reserves to support their companies.

He's also hard of hearing, so he often just never heard the question right.

Some weird end-point picking in several sections. I guess the 2016 one makes sense because of hedges, but the one that stopped at 2018 instead of 2019 on underwriting reserves--really?

Thanks. The price history at close for past 5 years that you shared, suggests if one was holding since Dec 2014, annual return has been about 2%/yr (from dividends) in generally a bull market. Wow! Will take a substantial run up in price to justify for those of us who have held. Looking in the rear view mirror is important. Why has the stock price gone sideways for 5 years? 1.) what errors were made? 2.) has the company learned the lessons? The much more important number for me is $608.19 (Dec 24 stock price). 3.) What will the company do moving forward? The shares currently trade below book value (cheap compared to other insurance companies). - Their insurance businesses are performing well and look to be in a hardening market; this is a big positive. - their bond portfolio is positioned well (short end of curve) should rates continue to move higher - their equity portfolio looks well positioned as we enter 2020 should we see economic growth continue to chug along And sentiment towards the company is terrible. This is not to suggest the company is perfect; it is not. I think the company has learned some valuable lessons. However, on balance, i like the decisions the company has made the past 2 years. More importantly, the company (and its equity holdings) is doing lots of things to drive shareholder value in 2020 and beyond. Q4 results should be solid. I like the risk reward at current prices. +1 to this post. A couple of add-ons: 1) It is annoying that they have USD BVPS, but Canadian stock price, as it doesn't let you compare them that directly. Anyway, 2014 was something like $530 USD share price, on a book value of 394.83, which is a P/B of 1.35 vs $460 USD/462 BVPS (unadjusted) of basically 1. So value creation was more like 3.4%+2% div = 5.4% CAGR. Obviously still not a great result, but that tells you more about how they did as a company than the stock price does. I think Q4 will make this look a bit better too, with the recent sales, depending on cats. 2) Let's compare to Markel that has much better sentiment (although last year didn't help them much). 2014 YE bvps was 543.96, price was $687 (P/B was 1.26). Current is BVPS of $768, and price of $1,123 (P/B of 1.46). Value creation (again using BVPS) was 7.5% CAGR. So Fairfax underperformed Markel by 2.1% per annum on BVPS+div, even though the price change was quite a bit different. 3) Continuing this Markel comparison, if you go back and look at combined ratios of the two companies, FFH is pretty close to Markel. Markel Combined ratios, 2014 to current: 95%, 89%, 92%, 105%, 98%, 95%; average: 95.7% FFH Combined ratios, 2014 to current: 90.8%, 89.9%, 92.5%, 106.6%, 97.3%, 97.1%, average: 95.7% Thinking about the above, it seems quite clear to me that FFH is undervalued and/or MKL is overvalued. I tend to think the former, but a mix is possible.

Well I did while I made it. ;)

Anyone know what the 2018 net returns were? Updating some tracking information. Cheers!

I stayed 2 hours north of QC for a couple of weeks in La Malbaie--the views over the river were gorgeous, and land seemed really cheap (< $100k for amazing views), around 1 acre. Is this common in not-close-to-city Canada?

Hi Packer, the proxy for IV changes depend on the company in question. For Berkshire, I used Book value and also added 1% per year to make up for IV changing from 1->1.7 over the entire time period (per Buffett's comments this year). For KO/S&P I used earnings. For Giverny, I used his internal OE projections. (Dividends are added in all cases) Thanks. So for KO what did you use as your base value for IV? I am assuming book value would have some issues due to buybacks & earnings above the WACC. Packer Ah, I see. I didn't have any base value, so there's no explicit calculation of an "IV". There is only a proxy for the change in IV, compared to change in price, so in both cases the base price and the base IV are not considered, nor is there any consideration for the gap between price and IV. So, in the case of KO, I started with the first year's price and the first year's earnings, then compared annual growth of price+div and earnings+div from that start point.

Well, I was looking for convergence, so neither high nor low is "good" per se. That being said, the formula was price growth - IV growth, so most investors would want it to be positive (i.e., that the price went up more than value did) it would be negative in terms of the value that would be reported (price growth - IV growth). This has nothing to do with whether that is a good outcome to the investor. If the company is buying back shares or you are buying more shares, a wider discount is better for you. It's an entirely different scenario if you are retiring and want to sell though. The value would be positive because over that time period price growth was higher than IV growth. Same explanation as above as to whether it is good or bad for the investor.

Hi Packer, the proxy for IV changes depend on the company in question. For Berkshire, I used Book value and also added 1% per year to make up for IV changing from 1->1.7 over the entire time period (per Buffett's comments this year). For KO/S&P I used earnings. For Giverny, I used his internal OE projections. (Dividends are added in all cases)

New Essay: Price and Value: https://drive.google.com/open?id=1k4a41jaG3HrIfMVA79zb2xpg2HPeTWyJ This essay looks at the length of time it takes for price and value to equilibrate, using the S&P 500, Berkshire, KO, and Giverny Capital as examples.

Hi All, I'm working on an essay for calculating how it takes for price and value to converge, so far I've done it for the S&P back to 1871 and Berkshire since Buffett. I thought another good one would be Coca Cola, but I am having trouble finding the data. I need annual price, annual earnings, and annual dividends, ideally back to the early 20th century. Does anyone have it or know where to get it? Warmly, Joel

Nice, man. So what's stopping you from running your fund full time? Still doing that, right? I work a couple days a week now, and it doesn’t feel stressful anymore. I’m going to coast here for a while I think. Fund is at $7 million and needs to get to $15 before it works as a business really.

I hit that about the same time. $2 million five years later.

It's also a PFIC, which sucks for U.S. investors.

Thanks everyone, the linked compilation now has all the presentations from 2005 on.

Hi All, I've been updating a Fairfax compilation for a while now: https://drive.google.com/open?id=0BxTPR9eP5nWeaUpMaFNVUWlvWlE I'm missing some of the annual meeting presentations, does anyone have them? Specifically, 2016, 2015, and anything 2013 or before. Warmly, Joel

I have this: https://drive.google.com/open?id=0BxTPR9eP5nWeOTE1Y0ZWV2xJTVk And others: http://www.austinvaluecapital.com/resources.html If someone has actual letters, I'd love to add them to the compilation.

If you’ve read his memos, there’s not much here.

Sure. Maybe retweet the one from @austinvalue would be preferred.

Maybe I should talk to Peter about what he meant, but IMO this is quite bad way to approach relationships with people. Nobody in the world is a saint who is all the time. So if your attitude is to probe and probe and probe, you will hit a bad day or bad spot or whatever and become upset and disillusioned with the person. Instead, if you see that a person embodies a lot of qualities you are looking for, then you should accept that sometimes they won't. And ideally you'll be able to be with them at these times and perhaps help them to become a better person. And not just abandon them and go looking for some ideal that does not exist. Just be aware that (commonly?) a lot of people are already hanging onto the givers. Can you support the giver? Another note is that the taker/matcher/giver categorization is incredibly simplified. There are people who are great givers within certain area of their life but not in other(s). There are people who are givers for some people but are indiferent-sers for others. And there's the perception issue too: what someone regards as giving another person may regard as nothing (I find the whole taker/matcher/giver categorization extremely limiting 8)) Peace. I don’t think Peter is saying that is how you should act, he’s saying that is how people feel or do act most of the time. His perspective is to be that person you want, not be the wanter. On the categorization—it can be as nuanced as you want, and I’m sure everyone views things differently. So, it’s fine for that categorization to be unique for each person or relationship I’d say. I know lots of people who accidentally surround themselves with people who take all the time and don’t give back, so that’s mostly for them. For supporting the giver, if you are doing what Peter recommends, then you would also be giving back.

This is not a financial essay, but almost everything in it comes from value investors, so I thought it might of interest. Enjoy! https://drive.google.com/open?id=1EeBUXv3UnOpcmkMaHPB01k0W4zBy7hvy

I think it is this one, but those two are good too: "The difference between a good business and a bad business is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time." -Munger

I'm trying to find a quote that I think Buffett or Munger have said. It goes something like: "We have generally found that a good relationship tends to consistently surprise on the upside whereas a bad relationship consistently produces problems." Anyone know it?