bearprowler6
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Posts posted by bearprowler6
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We all need to calm down and take a deep breath.
What we are experiencing is the decline of the American empire --- the decline of its importance on the world stage. This happens to all great empires eventually. Nonetheless it is painful to watch.
In the early stages the decline proceeds somewhat slowly and therefore is largely ignored by most observers. The decline speeds up as time passes and when this happens denial is no longer an option. Many try to cling to the glory days of the past but the decline continues and cannot be stopped no matter who is in power or what policies are put into place.
In order to make this as easy as possible on my American friends I say build the southern wall with Mexico. Let’s begin construction of a northern wall with Canada as well (of course the US will pay for this one). Close other borders points---airports and ports as well.
Let the rot from within accelerate and let the implosion of a once great American society come to its final inevitable conclusion.
Sad to watch for sure but there is no way to stop it.
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First congratulations to a number of the Board members. Some absolutely stunning returns this year.
For me---a disappointing year----4.7% overall return down from 9.3% in 2015 and compounded return for last five years (including 2016) of 10.3%.
Took a large hit on cxr (the baby Valeant). Also, a basically flat FFH (which is a very large position) did not help.
35% cash heading into 2017.
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+1
I just sold 15% of my position in FFH. I am now below my core position in the company for the first time since I initiated the position in November 1999. I did this after much thought, reflection and discussions/debate with individuals I trust.
I echo the comments made by both Uccmal and Benhacker---something is not right at FFH and hasn’t been for a VERY long time. Seriously---would anyone actually hold Blackberry, Resolute Forest and Eurobank as their 3 largest equity positions? Prem owes us (the shareholders of the company) a detailed explanation for what the exit strategy is for these and other underwater equity holdings. Simply saying that over the long term everything will work out is inadequate at best. The statement is meaningless without defining what “long term” means.
As outlined by Benhacker---the deal financing strategy being deployed recently by FFH (buy first / finance second) also concerns me greatly. Bringing in outside investors to finance these deals greatly changes the metrics and not favourably from a FFH shareholder perspective.
I remain a large shareholder of FFH however it was appropriate for me to reduce my equity exposure to the company because of the real concerns I have. Prem is now on a very short leash---it will be much easier for me to sell my remaining shares should he not deliver in short order.
As for capturing the animal spirits that have supposedly been unleashed by the Trump victory (I remain a huge skeptic) ----- I would suggest that holding shares of Goldman Sachs, AIG and Cheniere Energy would give you a much better opportunity to do this than by holding shares in FFH.
BP6
Thank you BP6,
If I have understood correctly, the main risks you see are:
1) Their stock picking performance will continue to generate very poor results,
2) They are financing the acquisition of Allied in a way that won't maximize shareholders' return.
You said you have discussed a lot about FFH with people you trust and who know FFH very well. And you have come to the conclusion there is something wrong at FFH.
Do you see other risks beside 1 and 2? I am really interested to understand if people who know FFH very well see risks that I might have overlooked.
Cheers,
Gio
Gio,
Your summary of my comments are not entirely accurate however I will try my best to respond to your questions.
My conclusion to sell a portion of the shares in FFH that I have held for 16 years was made after consideration of a number of factors however bottom line my ability to simply ``trust in Prem`` is not what it once was.
I did not say that FFH`s stock picking will continue to generate very poor results. I do not know what the future holds neither does the FFH team or any poster on this board. I did say that Prem owes his shareholders a detailed explanation of his exit strategy for 3 of his largest losing equity positions (Blackberry, Eurobank, Resolute Forest). Others may disagree with this—that`s okay.
I will not reiterate the numerous concerns that have been written about by other posters however they all factored into my decision. In addition however I have become concerned with the following items:
1) FFH`s leverage was often discussed as the reason for the equity hedges. I accepted this explanation. What disturbs me is that FFH did not take advantage of a sell-off in the preferred share market to lower their leverage by buying back the preferred shares in the market at well below their issue price. The various FFH preferred share issues were done at $25 per share and yielded about 5% at issue. They all traded down substantially to levels as low as $11-12 per share earlier in the year due to the drop in bond yields. Despite having the authority to buyback these shares in the open market FFH chose not to do so. I don`t know about you but issuing shares at $25 and buying them back at $11-12 seems like a good trade to me.
2) Prem continually touts the longevity and experience of the management team as a key positive for FFH. This was great when the team was in their 40`s however they are now approaching their 70`s. It is time for Prem to also articulate the succession plan for all the key members of the management and investment team. As one individual I know says—``when Brian Bradstreet retires I will sell all of my FFH shares``. Prem has agreed to stay on until at least his 75th birthday. Great---what about the rest of them. I do not believe we can count on all of the key members to stay around as long as Buffett and Munger have done at Berkshire.
3) Board governance is also an area I have some concerns with. The lack of diversity and new blood (and in my view Ben Watsa does not count) on the board cannot be overlooked.
4) What is the Eurolife acquisition really about. As we all know—life insurance is a vastly different business than property and casualty insurance. It`s okay if FFH is now diversifying into life insurance but tell us that. I suspect that FFH`s Eurolife investment was simply another capital raising exercise for Eurobank disguised in another form.
5) The conference call to discuss the Q3 2016 results was held on November 4, 2016. At that time Prem was still extremely concerned about the US and global economies and as a resulted maintained the equity hedges and deflation protection. One week later---after the US election---FFH announces that everything is all right with the world and reduces the equity hedges by 50% because of Trump`s election win in the US. Simply put---I call bullshit on that explanation.
I could go on however I will stop here. I trust you get a sense that my decision to sell is well thought out and based on a detailed analysis of the issues as I see them. Hopefully these comments assist you in deciding what to do with your FFH shares.
As Uccmal said in an earlier post---what Prem has created at FFH is amazing. I could not have done it. He is to be applauded for what he has accomplished. Despite this I can no longer give him a pass when there are a series of issues at FFH that I have grave concern with which are not being addressed to my satisfaction.
BP6
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Well guys, have to say, kind of seems real strange to me.
Fairfax is on a rollup spree in insurance... but unlike a rollup they aren't doing anything strategic to get synergies. They are running a decentralized rollup and paying prices that don't seem great, and funding from sources where they also don't have a cost advantage (debt or equity).
I think there are few charitable explanations of their recent actions, but there are a few bad explanations.
Hate to reign on the parade, but doesn't seem right to me.
I'm out of my position here. Will revisit and decide whether to re-enter. Been an interesting >10 year hold for me... but I think the thesis has changed too much, and the negatives have accumulated too much for me to continue to hold.
Cheers,
Interesting Ben. I came to this conclusion a while ago as you know.
I dont understand why more insurance? To get more float? Why not just invest the float in really good companies, and increase it through cash flow?
Prems economic comments scare me. Is he just trying to justify selling off the hedges?
I dont believe it, for one second. US markets, and the world at large have gone this long without a bear market, precisely once, before. When Trump takes over and the markets realize he cant deliver on his promises, and that his economic advisors are incapable of operating in government this is going to get really bad.
It scares me when everyone thinks sunny days are here again.
And Prems economic comments just scare me more.
Sorry Al, I thought I responded here but I didn't.
Several things kind of led me to sell, and it's similar to your line of thinking. I may rejoin the fray again, as I do like the management team.
1) The poor logic (my opinion) by those claiming a new era has arrived. I find the logic humous because ideologically, I'm very closely aligned with the free market folks... just don't think that helps the stock market (I think it does help the economy and many issues we see... but those issues weren't holding back markets, so it's strange to think even a partial fixing would make the market even better!)
2) The complexity of Fairfax as an investment. Perhaps for some, a reasonable multiple to book and Prem's stamp is enough, but for me when they are multiplying their asset base by buying huge companies, it makes the work needed to understand the business much harder.
3) The financing of their deals doesn't make sense to me. They use *way* too much equity / JV funding (as well as debt!), and it either means something nefarious or that Prem and team are so conservative that I need to assume $2-4B in assets will just always be making $0 which changes my math on the name. Also, I would extend this to them continuing to carry large debt while simultaneously carrying multi-year huge cash balances....
4) Fairfax's explanation of many of their actions have been lacking for a long time and I lost patience.
5) At this stage, Fairfax's equity investments have been utter dogs, and if you think they haven't lost it, then it's a way better deal to buy some their holdings as if you believe they are still good, then FFH has more $$$ to chase those stocks with. You can also buy these holdings at 1x "book"
Don't mean to malign anyone who owns, just stating my logic.
When the S&P trades for 25x+ TTM GAAP EPS though, and I see some of the logic recently displayed on this and other boards, I know which way to take my chips....
+1
I just sold 15% of my position in FFH. I am now below my core position in the company for the first time since I initiated the position in November 1999. I did this after much thought, reflection and discussions/debate with individuals I trust.
I echo the comments made by both Uccmal and Benhacker---something is not right at FFH and hasn’t been for a VERY long time. Seriously---would anyone actually hold Blackberry, Resolute Forest and Eurobank as their 3 largest equity positions? Prem owes us (the shareholders of the company) a detailed explanation for what the exit strategy is for these and other underwater equity holdings. Simply saying that over the long term everything will work out is inadequate at best. The statement is meaningless without defining what “long term” means.
As outlined by Benhacker---the deal financing strategy being deployed recently by FFH (buy first / finance second) also concerns me greatly. Bringing in outside investors to finance these deals greatly changes the metrics and not favourably from a FFH shareholder perspective.
I remain a large shareholder of FFH however it was appropriate for me to reduce my equity exposure to the company because of the real concerns I have. Prem is now on a very short leash---it will be much easier for me to sell my remaining shares should he not deliver in short order.
As for capturing the animal spirits that have supposedly been unleashed by the Trump victory (I remain a huge skeptic) ----- I would suggest that holding shares of Goldman Sachs, AIG and Cheniere Energy would give you a much better opportunity to do this than by holding shares in FFH.
BP6
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Okay, I'll play along (because I too am unwisely concentrated). If a systemic event adversely affected WFC, BAC and AXP to the point that there were a meaningful permanent loss of capital, what else would likely be occurring in the broader economy and society? I fully concur that there are a number of systemic events that could take out all three companies, but I would assert that it would likely be accompanied by a debauching of the currency and general collapse of the economy, for which gold bullion, canned food and adequate ammunition supplies are the only realistic hedge.
Food for thought.
SJ
I believe the circumstances that one finds oneself in play a large role in what level of concentration is "appropriate". This is something I do not believe this board spends enough time on.
For example---someone who is in the early stages of a solid career that provides surplus cash flow (above living expenses) is likely more able to work through even an extended significant decline in their portfolio. Whereas someone that is living off what their portfolio provides perhaps cannot.
Also---the whole discussion of the risk of a permanent loss being the only potential risk of a concentrated portfolio (SJ---not implying you said this) is also overly simplistic. There are many real life examples where a large albeit temporary decline in the value of investments would cause great pain (e.g., in a divorce settlement where the higher value at separation day is used to determine payout at the divorce).
Basically the point I am trying to make is that the level of portfolio concentration that one should consider is very much dependant on their own circumstances. No one size fits all and I would caution all those who blindly believe that a concentration portfolio is the only way to go should re-examine this issue in light of their own circumstances. I suspect that in most cases a more diversified portfolio would be the result.
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Buffett strongly endorses Hillary Clinton and rips into Trump at a rally in Omaha today .....
Generally when a second level thinker such as Buffett has a strong view on a matter it is worth listening too.
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Regardless of your view of his policies (whatever they are), his "F-U" to the establishment, his tough talk on trade and immigration - this is simply not a person who should be representing America to the world.
I thought the comments on women and Mexicans were bad. Then the making fun of the disabled journalist. Then the racist comments about the judge. Then the invitation to Russia to hack his competition. But I'm sorry, the comments about the Khan family - and the refusal to apologize!?!?!?!?! I've sacrificed a lot because I've been very successful???? Shameful and embarrassing. This is not a person with the temperament and disposition to be the global and public leader of America. That's not what I want my kids growing up emulating, regardless of policy positions.
+1
This morning---11 Gold Star family members penned an open letter to Trump demanding he apologize to the Khans for his "repugnant" remarks made in response to the Khan's appearance at the DNC. Mr. and Mrs. Khan both spoke on CNN this morning about their love of the U.S. and the character of son who made the ultimate sacrifice in service of his country. I invite all of you to watch the interview and attempt to connect with their grief as well as with their love of the U.S.
How can any active military person or veteran not be disgusted by Trump's comments. Why would anyone enter any branch of military service in the U.S. if Trump became President knowing that if you die in service that Trump would respond by ridiculing your parents in the time of their ultimate grief.
Trump is not fit to be President---I am not sure how any sane person can think or believe otherwise.
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The thing that I'm wondering about this conversation is how I should allow it to affect my perspective on people's judgement. For instance, it's very clear that neither Clinton nor Obama is a narcissist--anyone who spends any time at all listening to what either one says should realize this.
So, when someone says, "Obama is a narcissist", how do you let that affect your evaluation of their judgement? Do you just say that "politics makes people think strange things", and not really judge their capacity for reasoning on it? Or do you basically say, "This person can't do even basic evaluations accurately when it comes to politics, therefore I shouldn't take much of what they say in other domains seriously either?" (And similarly, those people, if they are using the same criteria, shouldn't take anything I say seriously.)
I've been thinking about this a bunch since this campaign started, just because usually there's a wide margin of reasonable opinions. But in this case, there isn't--the two candidates aren't even on the same page when it comes to reasonableness to be president.
So I'm curious. To what extent to people think that we should discount the ability of others to reason when they clearly aren't doing so in such a major, high-profile instance?
I don't know if this helps your thinking at all but i think it's related.
Basically I have mostly given up trying to reason with people that support Trump. If they still support him after all he's done and said and promised I don't think there's anything that he can do or anything I or anyone can say that'll change their minds. Let alone facts and figures.
Sadly, Trump is right. He really can go and shoot people on 5th avenue.
+1
Like Trump himself---Trump supporters are so easy to bate into showing themselves for who they really are and what they truly stand for. But they do serve a purpose---once they explain why they are supporting Trump it becomes so very clear to the rest of us why we cannot.
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An interesting perspective on trade deals and negotiations:
This IMO is the tangible reason I support Trump despite his numerous flaws as a candidate. No one else has a reasonable strategy to deal with trade. He is using Ronald Reagan cold war strategies (walk softly but carry a big stick) in trade that others are afraid to use.
Packer
Sadly many Americans believe that Trump is the answer to their societal problems. The rest of the world does not agree---Trump's "walk softly but carry a big stick" policy will fail because the rest of the world will be too busy laughing at the US to engage in discussions of any kind never mind those related to the renegotiation of the trade deals should he get elected as the President. So sure go ahead and vote for Trump---we need a good laugh.
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In my view --- each investor needs to select a base currency and report their performance results in that base currency. This is what companies/pension plans/funds do when reporting their results and also in assessing whether to hedge or not their foreign currency exposures.
In my case -- I live in Canada and therefore use the Canadian dollar as my base currency. It would not make sense for me to report my performance in USD.
Having said that---I fully expected the USD to strengthen against the CAD during 2015 and increased my exposure to US equities in early Q1 2015 accordingly. Historically the CAD correlates to the price of oil almost 1:1. The relationship between the price of oil and CAD continued in 2015. Although I do not believe the run up in the USD versus CAD is fully over--I am looking to slightly lighten up my USD equity exposure in Q1 of 2016.
The result---in Canadian dollar terms I achieved a rate of return on my overall portfolio of 9.24% during 2015.
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Fairfax and Concordia healthcare.
+1
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For those wanting to do a deeper dive---here is a link to the NCMSL's website:
http://www.ncmsl.com/index.asp
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Another deal by the Fairfax India team:
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I just thought that since the vote is around the corner, I would help clarify a couple of points some have been debating on the various threads regarding the upcoming SGM.
Ultimately, shareholders should all decide what they are comfortable with, but long-term shareholders should realize that what Prem is doing isn't really any different than what Buffett is doing by donating significant shares to the Gates Foundation and his children's charitable trusts, as well as the intention to add Howard Buffett to the board of Berkshire.
The Watsa family's only duty as stewards of the "63 Foundation" is really to safeguard the culture of Fairfax, not unlike the Gates Foundation and Buffett's children's trusts. None of the Watsa family will ever hold managerial or officer positions. There are also measures and safeguards in place in the "63 Foundation" to ensure that Fairfax cannot become another family-run dynasty.
While Buffett is doing all of this towards the end of his tenure, Prem and Fairfax still have another 20 years to go at least. But Prem wanted to take care of these issues early before they became a problem, including the erosion of the multiple-voting shares if they continued to issue shares in acquisitions.
Another thing I would recommend that shareholders do, is to get to know the Watsa family. You have the opportunity at the AGM every year. The children are as courteous and humble as their parents...so fortunately, the apples did not fall far from the trees!
Again, please vote your shares as your conscience dictates, just be aware that the measures in place will safeguard Fairfax's culture, like Berkshire's, well after Prem and Buffett are gone. Cheers!
Sanjeev---with the utmost respect---I cannot agree with your statement. I too am a very long time shareholder of Fairfax (initial shares bought in the mid 1990's). I stayed with the company through its darkest days and added to my aggregate shareholding throughout. Yes---my patience has been greatly rewarded. All the more reason why it pains me greatly to have to vote "No" against the Proposal at hand.
My concerns with the Proposal are best described on page 20 of the Management Proxy Circular that was sent to shareholders. The two issues outlined on that page are as follows:
1) The Amendment may prolong the period of time during which Sixty Two can exercise a controlling influence on most corporate matters; and
2) The Amendment may have an anti-takeover effect.
Detailed comments are provided for each of these items in the Circular.
These items are significant enough (to me) that I believe as a shareholder of subordinated voting shares that I should be compensated for these two items which are arising only as a result of the Proposal at hand. I do not believe that Prem's commitment to remain as CEO for at least another 10 years and to fix his compensation at its current level are adequate compensation. I respect that others may disagree with my view and vote for the Proposal however I could not.
Everyone should vote as their conscience dictates, but I think you guys have missed a couple of points:
1) The Amendment may prolong the period of time during which Sixty Two can exercise a controlling influence on most corporate matters; and
Sixty-Two already controls Fairfax, and will never relinquish control of Fairfax. They'll stop acquisitions through share issuances before they ever give up control.
The reason being, Fairfax like Berkshire, has done particularly well over the years under this structure and this corporate culture. This type of control could be tyrannical as we've seen with Biglari, or it could be successful and fair to shareholders as we've seen under Prem.
2) The Amendment may have an anti-takeover effect.
Neither Prem, nor Sixty-Two which already has control, will ever sell Fairfax...so there is no anti-takeover premium or effect. Even back in the 1986 shareholder's letter, when it was still Markel, Prem stated that he would never sell:
"Why did we sell subordinate voting shares which have only one vote and retain multiple voting shares (10 votes) for ourselves? Mainly because we wanted to control Markel Financial and manage the company to provide an above average long term return to shareholders. Our multiple voting shares are not traded and can be sold in the public markets only as subordinate voting shares. Also, a takeover offer for our shares, if accepted, immediately triggers a similar offer for all the common shares outstanding. A Canadian Tire type of situation, which we find very distasteful, cannot and will not happen with Markel Financial. However, we must add that it is extremely unlikely that we would sell our multiple voting shares even if an offer came in at 100% above the current market price. Thus, our multiple voting shares prevent an investor from getting an attractive one time bonanza. Our feeling though, is that for this short term pain, there could be some excellent long term gains. Berkshire Hathaway, for example, has experienced an unbelievable increase in its share price from $20 in 1965 to $3500 currently. Any takeover offer for Berkshire Hathaway, though attractive in the short run, would be hard pressed to match the long term returns that have been achieved. For Berkshire Hathaway, this is a fact. For us, it is only a goal!"
Boy did Prem deliver! Cheers!
A few points of clarification:
Sixty Two does NOT currently control Fairfax. In Prem`s own words (please refer to his letter to the shareholders dated June 12, 2015 included in the Management Proxy Circular) he has EFFECTIVE control of Fairfax which is not control.
The excerpt from Prem`s 1986 letter---again in Prem`s own words: ``...it is extremely unlikely that we would sell our multiple voting shares...``. Extremely unlikely but not impossible.
My point---and I suspect the point of others who have voted against the Proposal (or are seriously considering voting against it) is quite simple. The shareholders of the multiple voting shares are gaining at the expense of the subordinated voting shareholders if the Proposal being considered passes and the subordinated voting shareholders are not being adequately compensated for what they are losing.
The Proposal being voted on is not a vote for or against Prem`s past performance (which has been superb) nor is it a vote for or against what we can expect from Prem in the future (which I suspect is also likely going to be stellar).
The Proposal at hand is one of valuation and compensation for lost shareholder rights or value---lost value of the existing subordinated voting shareholders. For that reason I voted NO after very careful consideration of all the information available to me.
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I just thought that since the vote is around the corner, I would help clarify a couple of points some have been debating on the various threads regarding the upcoming SGM.
Ultimately, shareholders should all decide what they are comfortable with, but long-term shareholders should realize that what Prem is doing isn't really any different than what Buffett is doing by donating significant shares to the Gates Foundation and his children's charitable trusts, as well as the intention to add Howard Buffett to the board of Berkshire.
The Watsa family's only duty as stewards of the "63 Foundation" is really to safeguard the culture of Fairfax, not unlike the Gates Foundation and Buffett's children's trusts. None of the Watsa family will ever hold managerial or officer positions. There are also measures and safeguards in place in the "63 Foundation" to ensure that Fairfax cannot become another family-run dynasty.
While Buffett is doing all of this towards the end of his tenure, Prem and Fairfax still have another 20 years to go at least. But Prem wanted to take care of these issues early before they became a problem, including the erosion of the multiple-voting shares if they continued to issue shares in acquisitions.
Another thing I would recommend that shareholders do, is to get to know the Watsa family. You have the opportunity at the AGM every year. The children are as courteous and humble as their parents...so fortunately, the apples did not fall far from the trees!
Again, please vote your shares as your conscience dictates, just be aware that the measures in place will safeguard Fairfax's culture, like Berkshire's, well after Prem and Buffett are gone. Cheers!
Sanjeev---with the utmost respect---I cannot agree with your statement. I too am a very long time shareholder of Fairfax (initial shares bought in the mid 1990's). I stayed with the company through its darkest days and added to my aggregate shareholding throughout. Yes---my patience has been greatly rewarded. All the more reason why it pains me greatly to have to vote "No" against the Proposal at hand.
My concerns with the Proposal are best described on page 20 of the Management Proxy Circular that was sent to shareholders. The two issues outlined on that page are as follows:
1) The Amendment may prolong the period of time during which Sixty Two can exercise a controlling influence on most corporate matters; and
2) The Amendment may have an anti-takeover effect.
Detailed comments are provided for each of these items in the Circular.
These items are significant enough (to me) that I believe as a shareholder of subordinated voting shares that I should be compensated for these two items which are arising only as a result of the Proposal at hand. I do not believe that Prem's commitment to remain as CEO for at least another 10 years and to fix his compensation at its current level are adequate compensation. I respect that others may disagree with my view and vote for the Proposal however I could not.
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Another problem with going from close to 100% invested to 80% cash and back to 100% invested is taxes that are incurred in the process by the investors. I would like to see the after tax returns of this fund vs. an appropriate index.
In addition to the tax implications of going from invested back to 80% cash, is that for the first 8 years they invested mostly in T-bills so most of their returns in those years would be ordinary income (based on US tax rules).
It is hard for me to understand why someone who is primarily focused on preservation of capital would choose Patient Capital over BRK. While BRK has had greater volatility, it has meaningfully outperformed PC, and after taxes would have materially outperformed. Obviously it must be the unwillingness to stomach volatility.
Some very good points---tax efficiency of any fund certainly needs to be considered however perhaps this is less of an issue if the fund is held within a tax deferred account of some sort.
As for simply going with BRK over the PC fund--- this is a possibilty however being a Canadian resident the added issue of the FX exposure (which I briefly touched upon earlier in this thread) adds a level of complexity that needs to be taken into consideration when considering BRK. Perhaps for a US based resident the "go with BRK" decision is much clearer.
As for the ability to stomach volatilty---a very valid concern---I currently self manage my family's portfolio (my wife and me) and I can safely say it is VERY concentrated in a few select names. Volatility is truly something I do not concern myself with. Nonetheless---I raised the possibilty of potentially having my wife use Patient Capital as her investment manager should something unexpected happen to me because of that firm's focus on capital preservation and the low volatlity of its results.
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Mr Maida is fanatical about protecting the capital already in place. For me personally---this is the key criteria.
What I am not sure I understand well about these funds which hold lots of cash and justify their decision by saying their main objective is “to protect capital” is the following:
With the exception of a new Great Depression, I am quite positive all investments of mine would grow much faster in a volatile environment than in a muddle through scenario… I actually think a 30%-40% market crash would make the companies I own stronger… not weaker!
Of course, in a market crash, as the fundamentals of those business improve, their stock prices might probably go down with the overall market… and would probably go down a lot!
But, if the fundamentals of those businesses improve, how can my capital not be sufficiently protected? Even if stock prices go down?
Therefore, imo it could be either
a) They truly fear a new Great Depression
or
b) Their true aim is not “to protect capital”, but “to buy assets very cheaply, when they become available”.
Cheers,
Gio
In mid 2008 I went to 80%+ cash (selling 20yr positions in Canadian banks, etc but keeping BRK) and moved some money into some cash rich companies (Appl) and companies that had a history of being opportunistic in bad markets (eg Loews). Everything dropped in the market downturn and most companies did little to be opportunistic. APPl did nothing. Loews funded CNA. I ended up having to double up on APPL at 90 to gain from it. Added to BRK a couple days before it bottomed. (My biggest single purchase ever.) So even though BRK was clearly being opportunistic, its shares still crashed as existing shareholders panicked and dumped BRK.
So the lessons are, one, you are on your own, doesn't expect your holdings to grow stronger in a recession, their mgmt may freeze due to their temperament. Two, even the best companies will drop in a recession and you'll see it in your own portfolios plummeting value, and you'll consider selling and not buying.
Well said KinAlberta!
In addition, despite what an individual investor may state now about themselves and their risk tolerance---there is no way of knowing how that individual with react during a protracted bear market. Will they be able to hold onto their existing positions that have dropped 30, 40 or even 50% or more? Will they be able to deploy additional capital at or near a market bottom? Perhaps more importantly --- will their circumstances allow them to hold on? Deploy additional capital? By circumstances I mean their employment/personal situation may change drastically from what they expected or they may need to use their liquid funds for some unforeseen expenditures rather than investing in value bargains.
There is a segment of the population that simply cannot tolerate even temporary declines in the value of their portfolios. For them---avoiding any "loss" of capital (even one temporary in nature) is a much bigger motivator than achieving outsized returns. I suspect that a manager such as Patient Capital would very much appeal to this type of investor.
One of the fears I have about the market correction in 2008-09 is that once it reached bottom it basically went straight up from that point due to central bank intervention. So even the most nervous investors made out okay provided they were able to hold on through the bottom. I am not at all certain that those same investors would be able to hold through several years of a flat lined market after a severe downturn.
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One consideration however IMO is indexing in selecting as an alternative if you are not there. Warren Buffet has chosen the index option for his loved ones who have little interest in investing and I think this is a reasonable benchmark to evaluate other options against.
Packer
A good response Packer! The question then becomes which index? I am based in Canada so using the same index selection as Buffett likely does not make sense for me without also considering the currency hedged vs non-hedged issue which greatly complicates things.
I also believe we should not take Buffett at his word---his "capital" far exceeds most humans (certainly exceeds mine) so really does it matter what he chooses to do with his money when he passes? For example-- Buffett likely has $1-2 billion in cash set aside for his wife with the rest being allocated to the index. In any case---Buffett's wife will be well cared for regardless of how his money is invested.
I think it is critical that when selecting a third party manager that one also looks at how they did in 2008/09. Many managers especially index managers or index-huggers took severe performance hits in that period. Then they hid behind---"I beat the index "when questionned on why they did so poorly. Again---perserving capital is my #1 critertia---growth of that capital at a very modest rate is a distant second.
Personally my overall "balanced" portfolio lost 4.39% in 2008 and gained 10.55% in 2009. Taking a look at Patient Capital's annual returns:
http://www.patientcapital.com/calendar-year-returns
LOL---perhaps I should be moving my money to PC now?
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I suggest that the focus on a comparison to a particular benchmark may be misplaced. In the case of Patient Capital the performance comparison to the S&P 500 is for illustrative purposes only. Is it the "right" benchmark---perhaps yes perhaps no---but in reality who really cares. Let me explain. Although I do not currently invest with Patient Capital---they are on a very short list of managers for my wife to contact should something happen to me. Why is this---because Mr Maida is fanatical about protecting the capital already in place. For me personally---this is the key criteria. Having achieved a level of capital that is sufficient for us to achieve our goals and satisfy our obligations --- protecting that capital is what it is all about. The very satisfactory return that Mr Maida produces is for me only an added bonus. In other words--I believe it is critical that each of us sets a personal return benchmark --- if that personal benchmark is achieved it really matters not how our individual performance compares to the returns on the S&P 500 or any other arbitrary index. BTW---Mr Maida's performance well exceeds my personal benchmark and has for sometime.
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Fairfax Financial chief Prem Watsa tells his 'Horatio Alger' story:
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I suspect the HWIC Asia fund performance numbers were meant to be indicative rather than an absolute reflection of Fairfax India's future performance. Accordingly, I am not sure that one needs to make the direct comparison being suggested. Furthermore, the investment mandate within Fairfax India is far broader than in the HWIC Asia fund as the latter must adhere to investment insurance regulations of the various investee companies in that fund.
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2907 days until President 46th
in General Discussion
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