steph

They are now a decent/good insurer. With Hamblin Watsa being a fantastic bond investor (which as an insurer is the most important part) and assets of 1.300 $ working for every share, they would make a killing in the long run if they just bought some quality stocks and stopped doing all those fancy things.

Berkshire or Markel are very easy to understand. They have a clear strategy and have held on to this over different cycles. When buying these shares you know why you buy them and what you get. Fairfax is a different story. Even if the shares are cheap you don't really know what their strategy is anymore. What are they doing, where are they going? On the insurance front things are clear and going smoothly. On the fixed income side of the portfolio it is also consistent with what they have always done. Even on the equity side I see a historical pattern: very contrarian bets. But where they have confused all long term shareholders is with the huge macro bets. I am a long term shareholder and would love to buy more at these levels, but what will be their next billion $ macro bet? Even if they get it right and make a billion $ next time, I will still have many questions/doubts. Am I a shareholder of a company that has a competitive advantage or is this just one big macro hedge fund? Fairfax is a wonderful asset, but it is time they explain what they stand for, where they want to be in 10 years and how they want to get there. Just a clear and consistent story. It is only then that solid long term shareholders will return and that a higher multiple of book will become the norm again. (just as is the case with Markel)

If you buy fire insurance and then at the end of the year, it turns out that your house did not burn down, that doesn't mean it was a mistake to buy fire insurance. Strange reasoning, but anyway: the day I lose 40% or more of the value of my house on insurance in 5-6 years time, I will admit that I made a big mistake. My wife will let me know. :)

As a long term investor in FFH, I hope that they will finally just admit that those equity hedges were a bad investment decision. We all take bad decisions and that is how it should be otherwise you don't take enough risks. But it is important to admit to your shareholders that you made a mistake. FFH always put this in 'unrealised losses' even though the markets have almost doubled since they started hedging. I would be very disappointed in Prem if he doesn't admit now.

Yeah, like AAPL, for example. 8) So according to your arguments it should be trivial to outperform market cap based index. Just buy the cheap stuff and don't buy expensive stuff. Can you explain then why pretty much nobody outperforms market cap based indexes for 5-10-15-20 years? Are you going to be the one who outperforms? Well I manage a billion dollar equity fund since 2003, so almost 14 years and have outperformed by 2,5% on average annually. This is after costs and compared to an index without costs. And I can tell you that I am really not a genius, that many people on this board seem to have much more knowledge than me. I started in 1995 and though I just managed private portfolios then (so I can't proof it) my outperformance was of the same magnitude before 2003. I just do the simple things: buy good companies, keep them for the long run, always look at the downside risks and avoid the bubbles. And of course dare to be a bit contrarian and keep your costs reasonable. There are quite a few managers who have wonderful performances. I even know a 10 billion fund which has outperformed by 6% per year since 1990. My belief is that this debate about 'passive management outperforming' is just getting too popular and that everybody just accepts those statistics. I would like to see statistics of active mangers who are no 'index huggers', because of course by including all 'index huggers' with costs you automatically get underperformance. I just found this article which is quite interesting: http://www.marketwatch.com/story/index-funds-beat-active-90-of-the-time-really-2014-08-01

Oh really? Let's have an example: Company A: P/E 1, market cap 1B Company B: P/E 100, market cap 1M Market cap weighted index of A and B has "most expensive most and of the least expensive the least"? Seriously? I'm rather amazed on the number of false claims in this thread. Just not worth getting involved... In theory your argument could be true, but in practice you know as well as anybody on this thread how things work. Exactly 10 years ago in the top 10 of highest market cap companies you had 3 banks and 5 oil companies , today there are no banks left and just 1 oil company. The most popular sectors, the most favourite stocks are always well represented at the top of the index. What is less popular is less represented. And maybe, yes maybe, there is a very cheap huge company at the top of the ranking, but in general you have of the most expensive most and of the least expensive less.

I agree that for most people indexing is fine, but I would like to add some points: - Most active funds underperform because they are almost invested in exactly the same way than the index and then you have to take into account the costs. Usually these are the big institutions where having instead of 10% in oil stocks just 8% is already a big decision. - 80% of active funds underperform after 5 years are the statistics, but don't forget that 100% of passive funds underperform all the time - For me it is just impossible to invest in passive strategies that are market weighted indexes. It is just pure logic: with those strategies you have of the most expensive most and of the least expensive the least, which is contrary to all logic. - If you accept to have 50% of your assets in Japan in 1990 or 50% in Dotcom in 2000 or 35% in banks in 2007 then you should invest passively. But I can't accept this. I just believe it is stupid. - So even if you just perform in line with the index after 20 years, but have been able to avoid those big bubbles, you have done a good job...and slept much better. - Last point: the more popular the passive investing is becoming, the more worried you should be. Go elsewhere to find bargains, because all the large caps, heavy weights will become very expensive compared to the rest of the market.

This is repeated by every critique of market weighted indexes. But it is not as simple as that. It very much depends where market and economy and investment sentiment is in the cycle. The fact that company X grows revenues/earnings/FCF in excess to others in index does not automatically make it bigger part of the index compared to others. It only happens if its growth is disproportionately rewarded by investors. For contrary example, look at AAPL. Edit: hmm, I just realized that the argument is more complex than I tried to present it. I have to run now, I'll try to come back to it. This is exactly what I mean. You have more of what the market disproportionately rewards. You had a lot of energy a couple of years ago and today or when it becomes really cheap you will have none. You were 50% invested in technology & telecom in 2000. 35% in banks in 2007,..... . An index investor participates fully in all bubbles. Apart from the performance there is also the volatility of the index. By avoiding all 'popular themes' in your portfolio you can avoid a lot of the huge market swings and sleep a little bit better. OK, hold your horses. You are just pushing your opinion without really thinking. First of all, we would have to agree what metric you are using to value companies. If you use P/E, then companies without earnings should be 0% of the index to not be "disproportionately" overweighted. I don't think you mean that, so please provide the weight/valuation metric and then we can argue. Popular themes might be bad, but they also might be good. This is not an argument for or against "they are overweighted the most expensive stocks and underweighted the least expensive". This is a great example of where your argument is likely wrong - depending on the metric. Let's use PSR as metric since P/E does not work (you can propose something else). So let's say we have 2 company index A with sales 1 and market cap 1 and B with sales 1 and market cap 1. They are perfectly weighted. Now sales of company A drop to .5 (like your energy companies example). So to preserve its weighting it's market cap should also drop to 0.5. Now you probably will complain that B is overweighted, but it isn't. You give examples of bubbles, but that's again hand wavy argument. So, yes, market cap weighted index has bubbles. This does not mean that any alternative that you use won't have similar or worse performance long term. There are two issues with the alternatives: - They might have the same crashes - They might not have the same crashes, but may not perform as well during the upcycles. Hi Jurgis, Probably I am not 'really thinking', but I believe that you think too much. :) Even a baby understands that a 'market weighted' index is subject to what the market is willing to value the companies. I don't care about the metric (pe,ps,pb,...), all companies which are highly valued have a high weighting and the more expensive the heavier the weighting and vice versa. You can argue with a lot of theories but this is just a fact.

This is repeated by every critique of market weighted indexes. But it is not as simple as that. It very much depends where market and economy and investment sentiment is in the cycle. The fact that company X grows revenues/earnings/FCF in excess to others in index does not automatically make it bigger part of the index compared to others. It only happens if its growth is disproportionately rewarded by investors. For contrary example, look at AAPL. Edit: hmm, I just realized that the argument is more complex than I tried to present it. I have to run now, I'll try to come back to it. This is exactly what I mean. You have more of what the market disproportionately rewards. You had a lot of energy a couple of years ago and today or when it becomes really cheap you will have none. You were 50% invested in technology & telecom in 2000. 35% in banks in 2007,..... . An index investor participates fully in all bubbles. Apart from the performance there is also the volatility of the index. By avoiding all 'popular themes' in your portfolio you can avoid a lot of the huge market swings and sleep a little bit better.

Strange...every year there is on this board a discussion about last years' performance and every time I am ashamed about my mediocre results. I really thought almost everybody on this board was beating the index by far. :) 1. Investing in an index also has some costs : +/- 0,5% 2. Beating the index even by 2% has a huge imact in the long run 3. Market weighted indexes should be beaten since they are overweighted the most expensive stocks and underweighted the least expensive. Maybe 4% is a high hurdle in the long run for a well diversified fund manager, but I believe there are many fund managers who have beaten the indexes over longer periods.

Buffett : IBM

We knew their long equity portfolio is a disaster, but I was pleasantly surprised that they managed to break even with their hedges. So, all in all a decent quarter compared to expectations due to strong insurance activity and good hedges.

Fairfax is all about trust in the management. So it seems logical to vote 'yes'. The day you are really disappointed, the day you don't belief in this team anymore you just have to sell your shares.

FF Group . 80% is export. Fosun Group is a shareholder.

Fairfax is very attractive as an investment because they are quite different from other insurers/companies. It is a nice company to own in a portfolio because its stock price (and the intrinsic value) will behave in a very different manner than most other holdings of your portfolio. They like to make directional 'bets' and are patient investors. Sometimes it works out, sometime it doesn't. It is therefore very difficult to put a price on FFH today. This is not a Coca-Cola type of investment with steady, predictable cashflows. But they are smart people, with a growing and improving insurance business. Paying 1.25 times book is a very reasonable price for what FFH has to offer.

"It is better to ask your wife for forgiveness than for permission."

Bank of Ireland +/- 700 million USD. My best guess is that total Greek exposure at the end of the 3rd quarter was over 1 billion. Some Indian stocks??

Actually I hadnt realized FFHs investment in Eurobank was that large And of course FFHs exposure to the energy sector will weight on Q4 2014 results If they post a loss for Q4 2014, we will probably see a contraction in the multiple they are selling for today And maybe we will get another chance to buy or to increase our investment in FFH. ;) Gio Yes funny that everybody talks about Blackberry and Resolute but their largest equity position was Eurobank. Bank of Ireland is also still a very important position. I am most curious about their deflation positions. Deflation and deflation expectations have risen sharply in Europe. I really wonder what impact this had on their book.

That would be nice! Greek exposure should cost +/- 5% of book. I can`t really believe that number, what are the big greek positions that result in this? They hold 2.441.440.286 shares of Eurobank which were at 0.312 at the end of september and at 0.187 at the end of the year. So this is down +/- 360 million USD for the quarter. This is their largest position, but they have other positions too. So, maybe not 5% but certainly 4%.

That would be nice! Greek exposure should cost +/- 5% of book.

yes, I also believe book value should be slightly up since the end of 3rd quarter.

Very curious about its book value at the end of the year. Equities down essentially due to large exposure in Greece (Eurobank) and hedges costing money. Bonds should be up. And I hope the CPI hedges will give a nice surprise...

ok. Thank you!

Hi, Is there a way to know how the CPI hedges are doing?

I am long Berkshire, Markel & FFH and believe that they all deserve to be around 1.5 times book considering their business and track record. BRK and MKL are more or less at that level and I just think that FFH should also be around those levels in the long run.