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I haven't read the book yet, but I saw him discuss it and end of life care at the New Yorker festival a few months back. It was very good. Moving even. Doubtful a synopsis would do it justice. I took away that the book would be worth a read.

Thanks, interesting. Certainly makes small caps look good. Why not roll this through 2008 and 2009? You're only looking for when markets are rich?

Awesome, congrats!

CDS data usually leads bond I believe. But using bonds, you can derive a spread (yield to worst minus treasury of same duration), and use the shortcut formula in the link below. Should try to pick a bond maturing around the horizon you're interested in. I suppose this would work for Euro sovereigns in your example also, but maybe in that case they use German bonds as risk free proxies in the spread calculation. Paper you might find interesting: http://www-2.rotman.utoronto.ca/~hull/downloadablepublications/hpwpaperoncdsspreads.pdf Shortcut formula (in this formula, folks typically assume 35% or 40% recovery for senior unsecured obligations): http://www.kamakuraco.com/Blog/tabid/231/EntryId/217/Kamakura-Blog-The-Links-between-CDS-Spreads-and-Default-Probabilities.aspx If you have CDS data, you can use the ISDA standard model (believe this is based on the "JP Morgan" model which you can google for more info) to imply PDs also: http://www.cdsmodel.com/cdsmodel/

Can you give an example of your deposit adjustment? Conceptually, it's pretty much the same as oddballstocks described it. The idea being that everyone else has to pay for money but banks get it handed to them at low (relative to market unsecured borrowing rates) deposit or savings rates. But in addition to the interest they pay rent, teller salaries, loan underwriter salaries etc to gather them. Dividing these deposit costs (deposit interest expense and net non interest expense related to deposit gathering) by average deposits gives their cost rate. Can look at this over multiple years. Mechanically, you can then make the adjustment as a spread calculation the same as what oddball mentioned, or think of it as marking a bond to market (where the "coupon" is this all in cost). Can also consider deposit growth (I'll usually look at the rate the last 5 years and take 1/3rd). The adjustment will lower liabilities if their cost is less than market rates and raise liabilities in the other case. Oddball, what's the rationale for using FHLB rates versus say, treasuries or highly rated bond yields (assuming the deposits are sticky)? Capital raising constraints?

I usually look at book value except with deposits adjusted for their cost relative to market rates for money. Where cost is the "all in" cost reflecting operational costs. I also try to understand if liabilities are understated (reserve adequacy, pension), and guage riskiness on the asset side. Geoff Gannon did a writeup about this approach and it's also somewhat analagous to Alice Schroeder's cost of float valuation of Berkshire. It just makes a lot of sense to me and I think hits on a lot of key things (operating efficiency, potential earning power).

Call Fidelity and talk to a market maker, they'll read you the order book over the phone. Depending on the liquidity and who's offering what it might be worth paying Fidelity for an over the phone order if they can execute it correctly at once, rather than you playing hunt and peck online. I know Fidelity shows local quotes online, but they also have connections to market makers in the US who hold the stock. A few years back I purchased a Swiss stock from a US MM. You need a broker for something like that, on the phone they can help you out, this stuff isn't accessible online. Looks like it's €50 for a phone order or €19 online. If the phone rep can make it happen in a single trade whereas online it might be more than 2 trades you come out ahead. As others have said if you need a lot of small trades then IB might be the way to go. Thanks for the info. Does going the market makers route in the US change the FX fee by chance? Or an "implied" FX fee of sorts if they're quoting the price in USD?

Your all-in costs might actually be lower if you pay multiple commissions. If different from the logic you described a few pages up in this thread, I'd be curious to know why. Relatively small position sizes so it wouldn't take many fees for costs to start exceeding ~2% (after 1% FX fees also).

Yes the concern is that I could get hit with multiple commissions. Fidelity's international rates can make this quite expensive, particularly in a not so concentrated portfolio. Without AON, it seems you need to be more active and "trade" somewhat rather than the set it and forget it approach.

Does IB or other brokers allow one to trade internationally with all or none orders? Or is this a function of the exchange? Fidelity does not allow AON on international trades. If not careful, this can make things very expensive. I find the possibility of this occurring quite annoying.

I received my annual report and proxy information in the mail at the end of last week (think Thursday). I use Scottrade, and am experimenting with their option for U.S. mail delivery of proxies and shareholder information rather than electronic.

Because his widow is not able to assess Berkshire's value and Buffett believes it is foolish to own something that you don't understand. It's not that he doesn't think BRK will outperform the S&P 500, he just doesn't think his widow could really know that. Yes I feel this makes the most sense, though other things he said made me wonder. For example at the AGM he and Munger I thought both mentioned that it would be a mistake for their families to sell their shares. But I guess a mistake from Buffett and Munger's perspective doesn't mean you should not do it anyway based on the particular circumstances. His explicit answer about being self-serving to promote Berkshire didn't make sense to me because I don't see why he couldn't do that quietly instead of announcing it in his Annual Letter / CNBC.

The question about putting his widow's money in a Vanguard ETF versus BRK is one I wanted answered. He didn't really answer this question though, so I'm still wondering why he's doing this.

The BAC investment is insane. Best investment he's made in the last however-many years. What's IV on the warrants right now? If you have a strong opinion on BAC, as many on this board do, the compounding on that until expiry is gonna be awesome. For any of you that understand account way better than I do: The economic value of this BAC position today is $10.9B. What is the accounting book value of the position? The preferred stock is classified as available-for-sale, so it is carried on the books at fair value. Ok, thanks - so the Book value of the position is $10.9B - correct? And it's not understated. Previously I should have said both the preferreds and the warrants are AFS, not just the preferreds. Where do you get the $10.9B? The sentence in the letter where Buffett says "At yearend these shares were worth $10.9 billion."? I'm not sure the exact amounts are disclosed or if similar prices can easily be seen. But without being precise, the preferreds can be called by BAC at $5.25B, so they are probably worth close to this (given the directional movements of rates and credit spreads/worthiness). The warrants can be exercised into shares worth $10.9B at an additional cost of $5B, so the intrinsic value is $5.9B (at year end). These don't expire until 9/2021 so there's a lot of time value also (option value= intrinsic value + time value). Not sure how much this is valued at, but regardless we can say that the preferreds and warrants combined are on the balance sheet for at least $11.15b ($5.25B + $5.9B), probably a bit more. You are correct, they should not understated unless Berkshire intentionally marks them conservatively for some reason, which is doubtful.

The BAC investment is insane. Best investment he's made in the last however-many years. What's IV on the warrants right now? If you have a strong opinion on BAC, as many on this board do, the compounding on that until expiry is gonna be awesome. For any of you that understand account way better than I do: The economic value of this BAC position today is $10.9B. What is the accounting book value of the position? The preferred stock is classified as available-for-sale, so it is carried on the books at fair value.

Sure. For equities. However, the bond market might reverse, meaning rates might go higher as deleveraging comes to a conclusion. Then, he'll be sitting on big losses in his bond portfolio. Many people have warned about rates going higher... but they are being ignored by almost everybody. My thinking is that for a few reasons, rate movements have opposite effects on book value and economics. There are a lot of long duration insurance liabilities, so the bond portfolio is probably "overhedged". But for financial reporting, I don't think rates have any effect on the balance sheet value of the liabilities. Also, in banking terminology they seem asset sensitive, so as rates rise their reinvestment opportunities increase faster than insurance rates decrease, and relative cost of float economics improve. Not an insurance expert, so I don't know that prices respond so directly to rate movements like in banking. But in any case, I think consistent with the insurance liabilities, looking at the bonds at cost is the more appropriate way to evaluate Fairfax's book value. Particularly for changes in book value.

Bread and butter.

Somewhat disappointed with a little over 26% for the year here. FFH and cash (combined to 40% throughout) dragged.

[amazonsearch]McIlhenny's Gold: How a Louisiana Family Built the Tabasco Empire[/amazonsearch] Pretty interesting book - chronicles the history of the McIlhenny Company (makers of Tabasco). The author is not part of the family and seems to tell things as they were/are rather than only the family’s idealistic view of their past. Certainly an unsavory beginning to the business, marred in slavery and human trafficking, followed by a plantation-esque company town. Second half of the book is more interesting. It discusses their business strategy in recent times in a little more detail. The family seems like a bunch of ego maniacs. But minus the bizarre structure, it’s a pretty strong business – manages to still pull down 20% margins in a very competitive industry. They have committed many blunders and still seem to be doing just fine. I'll leave you with probably the only TV ad for Tabasco I've ever seen. It's a good one: http://youtu.be/UQ3MRkdF9Sk.

Very helpful, many thanks nwoodman Should be obvious, but I left off taxes which you will want to consider if you use this.

Very very rough, but attached is a spreadsheet I use to estimate changes in FFH's book value per share. It focuses on changes in the investment portfolio, and ignores operating results and investments in associates etc. Might be slightly helpful, at least directionally. FFH_BVPS_estimate.xlsx

All income and expenses are reported in full, with a line item for non-controlling interest to deduct the proportion not owned by Fairfax. Basically the same story with the balance sheet accounts too.

The bonds also benefit from deflation. Doesn't answer the question, but the CPI derivatives going to zero will only cost $6.50 a share, unless they keep sinking money into it. I'm more worried about the bonds, at least the long duration ones that aren't offset by insurance liabilities.

I'm a little surprised by how much money they lost in their bond portfolio. Given the maturities they're in, the rate movements there, and the fact that most positions are US treasuries and muni's (mostly insured by BRK). I don't really like the fact that they seem to be slowly, but consistently, lengthening the duration of the portfolio. I guess this is presumably part of an ALM program. Anyway, insurance results are quite encouraging. Investment results continue to be disappointing which isn't a surprise. I feel like the share price has gotten more volatile of late with the BBRY situation. The cynic in me doubts this interest is of the long term variety, so will be interesting to see the reaction.

In another thread somebody mentioned a gain of 1 billion the other day. Anybody knows the number of shares they have in BKIR? Would be curious where that number came from. I based things on the 2011 annual letter where separately Prem mentions the cost per share and aggregate cost. But I believe this is the latest 13G http://www.sec.gov/Archives/edgar/data/915191/000119312511286435/d249036dsc13g.htm.