UK

I agree and I took no offence after reading this:)

Thank you for the answer! I will try to read and think about this more. But a. FFH is trading more like at 5-6 PE vs M at 4-5 next year earnings and I think that visibility of normalized earnings into next 2-3 years is much better at FFH? So isn't this valuation difference much smaller? b. to what could happen, well I do not anticipate this, but if there is a big recession or spending slowdown in the next 2-3 years, retail business could suffer (at least short term and btw M has more than 2x EBITDA net debt), while insurance (at least in terms of demand etc) would still be fine? And then, if you look at these two in terms of buy and forget, it is not even close? Meaning insurance as a business will hardly face any disruptions, here it is also operated by owner etc, while M is kinda the opposite, no?

https://www.bloomberg.com/news/articles/2023-08-25/china-regulator-to-meet-global-investors-in-bid-to-halt-outflows#xj4y7vzkg A top Chinese hedge fund has blamed foreign investors for sinking the stock market. Li Bei, founder of Shanghai Banxia Investment Management Center, said in an article posted on social media platform WeChat that overseas investors have stirred up market volatility and, “taken together, they are a bunch of aimless flies.”

I agree, the thing with NATO could be really scary, especially for me:). But how it would improve relations between India and China? Really I do not have any idea how to foresee such things and more importantly how to profit from them, even if forecast is right. All I see is really attractive opportunity on a micro level with Tencent via Prosus, but just think (or am afraid) at this time it is to difficult to make such investment, especially in larger size, due too all this geopolitical/political issues, which are still not going to the right direction, to say the least. I hope this will change.

Sure, but this happened more than 200 years ago, I agree, that things could change with India and China too, but I do not have such a long horizon:).

https://www.bloomberg.com/news/articles/2023-08-24/modi-xi-speak-ask-officials-to-resolve-border-dispute-quickly India has discouraged its companies from trading with — and investing in — China, banned some mobile phone applications developed by its neighbor and cut back on the issuing of visas to Chinese nationals. The border dispute has eroded India’s trust in China and undermined public and political will to maintain relations, India’s National Security Adviser Ajit Doval told his Chinese counterpart and Foreign Minister Wang Yi on the sidelines of a BRICS meeting in July, according to a Ministry of External Affairs statement.

Not to derail the thread, but since I recently tried to look at it: does M seems somehow a lower hurdle for you vs FFH, even at current prices? I may be very wrong on M, no strong opinion on it, but especially for a big and surer bet, I actually think it is the opposite, meaning why even bother with M, if FFH is still so cheap?* *initially was questioning something similar about META vs GOOG a year ago:)

https://www.bloomberg.com/news/articles/2023-08-23/china-real-estate-market-crisis-is-another-mess-for-xi-jinping?srnd=premium-europe Three years ago, China cracked down on a booming real estate sector to reduce risk and make homes more affordable—part of President Xi Jinping’s “common prosperity” drive. Beijing may have gone too far, it now seems. Country Garden Holdings Co., a developer that was once a pillar of the industry, is on the verge of default, suggesting no company is too big to fail. There are signs the situation is spiraling, too. More developers are on the brink, home prices are collapsing in smaller cities, and fears of contagion have spread to the nation’s $60 trillion financial system. When shadow bank Zhongrong International Trust Co. missed payments on dozens of high-yield investment products this month, investors protested outside its headquarters in the Chinese capital. “Property booms and busts are typically extreme but especially in China’s case,” says George Magnus, author of Red Flags: Why Xi’s China Is in Jeopardy. “The sector is so big in relation to the economy and so significant in terms of household savings and confidence.” ... While the property woes have spread to China’s giant commercial banks—the amount of soured real estate loans at the 10 biggest lenders will likely soar to $120 billion next year assuming the rate of nonperforming loans triples from 2022, according to Bloomberg Intelligence—the bigger concern is falling home prices. Official statistics show a steady drip of monthly declines of less than 1%; reports on the ground from agents show drops of 15% or more in some areas over the last two years. Even though it helps Beijing’s affordability push, the dropping home values have shattered consumer confidence. After years of price gains, Chinese consumers had come to see real estate as a can’t-miss investment, prompting some to buy multiple apartments to profit from the rally. For those who borrowed to do so, paying their expensive mortgages will make less and less sense the lower property values go. ... “With luck, and robust policymaking, China might transition to a less real-estate-dependent economy in the coming decade,” says Red Flags author Magnus. “But it could also be a very messy process and entail financial instability and economic and social disruption.”

https://www.bloomberg.com/news/articles/2023-08-24/china-local-government-debt-has-investors-worried-about-bond-defaults?srnd=premium-europe But these fixes were not Beijing’s first choice. It set in motion a plan before the pandemic to inject state-owned assets into the companies and permit them to enter new business areas to generate enough cash to service debt on their own. This was known as the “market-oriented transformation” model. ... For example, Guizhou province is home to some of the country’s most financially strained LGFVs, yet owns the country’s second-largest company by market value: liquor producer Kweichow Moutai Co., worth about 2.23 trillion yuan. The company was pressured into buying a stake in a local road-building LGFV when it ran into financial trouble in 2020. Moutai shareholders, which include investment funds and retail investors, were not happy, and have resisted further cash injections.

https://www.wsj.com/articles/xi-jinping-putin-china-russia-relations-11671030896 “I have a similar personality to yours,” Mr. Xi told Mr. Putin during his visit to Moscow. https://www.nytimes.com/2023/08/15/opinion/china-russia-dictators-xi-putin.html Aging dictators have less time to reshape the world — and more memories of being obeyed at home and dissed abroad for their conduct. They become increasingly repressive and aggressive as power goes to their heads. Surrounded by sycophants, they make disastrous decisions again and again. They start pondering their legacies and wondering why they haven’t received the global respect they think they deserve or achieved the glory that would etch their names among history’s greats. They may decide that they don’t want to go down as a merely transitional figure. It’s a combustible combination: an autocrat who is overconfident and aggrieved and in a hurry.

This is very interesting info, thanks! As I think about all this, I am coming to maybe such conclusions: a. insurance cycle impossible to predict over longer term, but it is unlikely to remain always beneficial, however b. even with underwriting results at zero, FFH is still cheap, and c. as with other important things (investments etc), when insurance cycle turns negative, the extent of negative consequences will also depend on what decisions FFH will take and how they will execute, and I think there is some basis for optimism here, looking at how they managed everything in the last 5 years?

Viking, again, thank you very much for sharing your work and thoughts! It is really almost impossible anything to add to it, but one thing, I am not sure if really you assumptions could be called "slightly conservative". I do not think at all that you have to be conservative or that these numbers are impossible, or that there could not be further positive upsides or surprises etc, but incorporating CR of 96 or less for longer term, I think is quite optimistic (possible but not sure if probable). Regardless I agree very much with your general thinking and however you look at FFH today (or even at CR 98 or 100), either on absolute or on relative, it is still to cheap and you still do not need scales to see if patient is way too fat here:). I also like very much that FFH (as also BRK but with lesser degree) is very well positioned if rates will stay higher/normal for longer or ever. But most importantly, it finally seems that at this stage, in order for them to do really well, say to earn their 15 per cent target for longer term, all they have to do is just not to do anything really stupid, to paraphrase Munger:). And if they will do something clever, as they did many times in different areas in recent 5 years, then even better! Given that, I do not understand how it is not selling at least 1.2-1.3 BV already and would not be shocked to see them trade at some 1.5 BV in mid term and my plan is just to hold it. Unless something really stupid is done, but I do not expect this at all:)

https://www.wsj.com/finance/investing/how-to-get-rich-and-famous-from-a-stock-market-crash-6914580a

This from older generation sounds better?

I agree with you on Tencent/Prosus. But I disagree with "cut off from china like with russia is unimaginable lets be serious". Maybe it is just my imagination, but especially after this whole "unlimited friendship" situation, I can imagine even much worse things than cut off. And I am just afraid to play Russian roulette here, especially with some meaningfull alocation. I tried it in 2021, but after war in Ukraine and Xi not returning to normal, changed my mind.

I kinda agree with you on achievements of China and its companies etc. And yet with the latest policies of Xi they somehow ended up on the ‘wrong side of history’ in the eyes of US/west. The whole thing escalates almost weekly. Tariffs, more and more sanctions, aid for Taiwan etc. Or just look: https://www.theguardian.com/us-news/2023/may/09/ron-desantis-bills-ban-chinese-citizens-buying-land-florida How can you be sure this is not going to end badly? Or badly at least for western investors in China?

On January 31, 1979, Deng Xiaoping, China’s paramount leader of the post-Mao era, boarded a plane for a historic visit to the United States. Deng was in very high spirits. How could he not be in such a bright mood? A few weeks prior, the People’s Republic of China (PRC) and the United States of America established diplomatic relations. This was a gigantic achievement for Deng, as it allowed him to accomplish a critical step toward his plan to launch China’s grand “reform and opening-up” project. The United States, as Deng then perceived, should play a central role in China’s drive toward modernity and beyond. Deng was not a talkative person, especially when he was with his associates. Yet he talked a lot during the cross-Pacific flight. Reportedly, Deng said something of the following effect to his associates: As we look back, we find that all of those countries that were with the United States have been rich, whereas all of those against the United States have remained poor. We shall be with the United States. Luca, is this still the same with Xi?

https://www.bloomberg.com/news/articles/2023-08-16/china-s-housing-slump-is-much-worse-than-official-data-shows#xj4y7vzkg

https://acquirersmultiple.com/2017/10/michael-steinhardt-being-contrarian-is-not-enough-you-have-to-be-right/

Again, a lot of focus is on what China does, with a hope that, to borrow from Tencents presentation, maybe Xi/CCP will one day "complete self-inspection and corresponding rectification" (funny line from page 14, isnt it?). However, in this whole situation China is not the only actor and it seems things are going to the wrong direction, with US and Taiwan elections on the horizon. https://www.wsj.com/articles/camp-david-summit-to-unite-u-s-south-korea-japan-c9cad067?mod=hp_lead_pos10 https://www.bloomberg.com/news/newsletters/2023-08-15/meet-the-man-who-may-be-the-next-to-lead-taiwan

https://www.wsj.com/articles/wall-street-is-ready-to-scoop-up-commercial-real-estateon-the-cheap-6edac64f?mod=hp_lead_pos2 Wall Street firms are raising new funds to acquire office buildings, apartments and other troubled commercial real estate, looking to scoop up properties at a fraction of the price investors paid a few years ago. Cohen & Steers, Goldman Sachs, EQT Exeter and BGO, formerly known as BentallGreenOak, are among the prominent names raising billions of dollars for funds to target distressed assets and other real estate with slumping values, according to regulatory filings. “The last few weeks, I’ve been saying, ‘holy mackerel, they’re coming out of the woodwork,’” said Kevin Gannon, chief executive of Robert A. Stanger & Co., an investment-banking firm that tracks real-estate fundraising.

Also: https://www.bloomberg.com/news/articles/2023-08-08/xi-speak-and-closed-doors-obscure-china-s-18-trillion-economy Taking the pulse of China’s $18 trillion economy is getting tougher for foreign visitors who previously could count on holding informative meetings with key policy makers. While “old friends” such as Bill Gates and Henry Kissinger have gained access to the highest rungs of power in widely publicized visits this year, it’s been a different story for bankers, economists and businesspeople returning after three years of closed borders. Accounts from more than a dozen people, some who asked not to be identified to speak freely, describe dinner invitations that were seen as potential ethics breaches and politely declined, silence around taboo topics such as deflation and bland party speak replacing the honest exchange of ideas. Once-familiar officials, they said, are now fearful of breaching newly broadened anti-espionage laws as President Xi Jinping grows more wary of the US and its allies. Cliff Kupchan, chairman of political risk consultancy Eurasia Group, said he was still able to meet with long-time contacts on his first trip since the pandemic in over three years, but they were more reticent about expressing their views or had shifted toward the official line. “The number of Xi Jinping quotes I got was far more than any previous trip,” he said. The deepening opacity — coming as China’s economic rebound falters — threatens to further undermine the already wavering confidence of foreign businesses and investors, rattled in part by a crackdown on consulting companies earlier this year. One gauge of foreign direct investment has slumped to the lowest level in 25 years and overseas funds aren’t buying into the stock market’s recent rally.

Luca, I definitely agree with you on contrarian situation here and big excitement on a micro level/valuations, especially on Prosus/Tencent. But it seems to me that all political/geopolitical/macro situation just continues to go to the wrong direction. And in order to succeed just beeing contrarian is not enought. But I hope things still could change and you will also be right in the end.