mcliu

I think ap1234 meant that, a lot of these bonds were marked on the books at above-par since yield would likely have dropped below the coupon rates of the bonds. (I think that's the case in IFRS where you mark most securities to fair value, right?) As these bonds mature, FFH would be receiving par for the bonds and taking an accounting loss. ex. Buy bonds at $50, bonds get marked up to $120 (+$70), bonds mature at $100 (-$20).

It's probably better to look at these hedges within the context of their insurance business, rather than just as a standalone investment portfolio. Rather than just value increases, these hedges can add significant amounts of value to the insurance business should the hedged events occur.

That's not a fair comparison since the management team cannot control the price that investors pay for the business. If you bought it in 1997 at an overvalued 5x book, when you should have only paid 1.5x book, and you lost money, that would be the investor's own fault. That has nothing to do with the performance of the business. The underlying intrinsic value of the business has increased 4.3x since then.

You typically use an EV/EBITDA multiple to compare valuations across companies since it adjusts for the differences in the capital structure. That way you're comparing the valuation on an asset level instead of just on the equity.

The shareholder that sells when a company buys back shares at above intrinsic value is better off since in most jurisdictions capital gains tax is less than income/dividend tax. (Not in all cases, for example, in Canada, "eligible" dividend tax rates are lower than capital gains tax rates for certain tax brackets.) However, the value destruction applies to the shareholder's that are not selling to the company. There's a trade-off point where, at a certain amount above intrinsic value, it may be still accretive to the shareholder on an after-tax basis, but above that point, it would not be. Time value also plays a role especially if it's a long-term holding.

In my limited interaction with sell-side analysts, I'd agree with this. And kiwing100's post is excellent. I've never had a sell-side job, but his last two paragraphs are spot on. Best, Ragu Agreed. In general, sell-side analysts have a great deal of understanding of the companies, and probably have a good sense of the intrinsic value of businesses. Unfortunately, they're paid to figure out where the price of a company will trade at in 12 months.

I think a problem with university education is that many Professors, particularly the research-oriented ones, aren't there to teach but rather to research. They don't particularly like teaching and aren't very engaged, or put in a lot of effort to help the students. With those courses, you're probably better off taking an online course. On the other hand, the few Professors that enjoy teaching and make an effort to make the material interesting/understandable make a huge difference.

Is it odd that Francis is warning about inflation while Watsa is concerned about deflation? Or is this just a time-frame issue?

I've been trying to find some exceptional managers, running insurance/reinsurance or investment operations, like Buffett/Watsa, but in earlier stages of their career. Any thoughts?

Tough to find attractive longs, so I thought I would look at the other side. :) Has anyone looked at Workday as a possible short?

Does anyone have any good short ideas?

Agreed. You're basically getting compensated more for taking on greater risk.

The $1 BV of BRK has a much better collection of underlying assets than the $1 BV of FFH.

Not sure if I agree with your assessment. Investing should be prospective based on your expected returns and discount rate. Just because the price is the same as it was 10 years ago doesn't mean it's a good deal. Ex. Intel traded at $74 per share in late 2000 vs. $21 per share today, doesn't mean it's undervalued.

Buffett also knew a lot more today about investing than when he started, so if he did 30% then.. Maybe he's saying based on what he knew today, that if he only had $1 million, he could achieve those returns.

Was merely illustrative. If it's worth $40 and you sell it at $40 waiting for it to get back down to $20, that's not timing....which was my point. I think we all agree on the micro on this point; the issue is applying it to macro (at least if I understand what you are talking about well enough). From my point of view, it is hard enough to figure out IV for an individual company--attempting to know IV on a market level seems very hard, and I certainly don't think I could profit from my own market calls very well (e.g., you can be wrong for a long time before the market corrects). If your system works at a macro level, then I'm glad for you! (As a side question, haven't you been concerned at the macro level for more than a year at this point? Did this cost you gains in the short term that you are hoping to recoup if/when a market correction happens? Basically, is your system yielding you more gains than you otherwise would have?) As to calling it "timing", I think that just comes from a heavy skepticism about whether such macro calling systems are reliable and/or profitable. Micro calls are tricky enough as it is. My attraction to value investing is its simplicity in concept--making macro judgements takes me well out of the simple concept and into areas where we can be easily fooled by trends/models/etc., at least in my opinion. Awesome response, seriously. Yes I effed up early last year. Fortunately, I reversed course quite quickly and learned from it. In a nutshell, I was purely looking at the broad market valuation and concluded the risk/reward was highly unfavorable. What I did not take into account was sentiment (of various forms....). So the overall risk/reward was not in my favor - valuation was, but everyone was so negative that there were only buyers remaining in the short-run. So now I look at both.... Lesson learned - sentiment rules in the short-run.... For example, sentiment became extremely negative after the election. And even though valuations still weren't favorable, I was loading up in order to take advantage of the extreme pessimism. Right now every single aspect is lining up in favor of being defensive (extremely?)... 1. valuations suck - GMO is projecting less than 3% per annum over next seven years 2. optimism is at absurd levels 3. Citi Economic Surprise index is plummeting - i.e. the market is highly susceptible to downside surprise at the moment..... Not saying BAC and AIG are not cheap long-term....I just think things are lining up for a very ugly sell-off that will provide many more opportunities in aggregate that will supercede whatever is available right now. Don't you think there's a certain speculative component when you make the comment that things are lining up for a "sell-off" that may or may not come? I guess you really should take a probabilistic view on if/when/magnitude of a downturn, and the expected returns between now and then.

http://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem

How do you know the date?

Has anyone considered shorting bonds, particularly those with longer durations? Would love to hear your thoughts. Also, what would the best way to short bonds as a retail investor?

Good catch. :) Anyone know how recent this interview is?

Does anyone invest in emerging market securities (ex. Thailand, Philippines, Brazil, etc..) on this forum? Would love to hear your insights. Particularly on: - Value opportunities (do they exist?) / Market sophistication (more opportunities since investors are less sophisticated? - Logistics of trading (how would you buy/sell from North America?) - Obtaining company data (in English) Cheers,

+1 Just to add my two cents. I think people can recognize that the $/GB for HDDs will drop just as quickly as SSDs especially given the high fab costs/capex going forward for SSDs using under 22-nm transistors.

I'm not sure if my thinking is right, but these capital intensive businesses serve as great compliments to the insurance businesses in that, you're invested with long-term asset/liability matching with highly predictable returns. It enhances your capital intensive business' competitive advantage by providing them with the lowest cost of capital (compared to accessing debt/equity markets) in the industry and it enhances your insurance firms' competitive advantage by providing consistent returns (compared to most investment programs at insurance companies) on your float which increases your pricing abilities in underwriting..

Could you explain this point? Not saying you're wrong, but I'm not clear what you're getting at. Wouldn't a capital light business also do the same? I think the problem with a capital light business that generates significant cash flows is that you need to consistently find places to reinvest the cash. Given the amount of cash flowing into BRK, it's impractical for WEB to consistently find capital light businesses to invest in. With high capital intensity, a significant portion of the cash flow is automatically reinvested, and it's accretive to the value of the business as long as it earns more than the cost of capital.

Isn't the idea of WEB buying capital intensive businesses that they earn a return on capital on the marginal dollar of capital invested that's higher than the cost of capital. Hence, each dollar invested will be worth more in the future than it is today. That way, these businesses can absorb the billions flowing into BRK, without him needed to continuously find new investments. Also, there's probably few attractive non-capital intensive businesses at that scale for WEB to invest in.